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The Law Offices of Paul H. Nathan

Q:
What kinds of income will be considered when calculating spousal support, alimony and child support in a high-net-value divorce?

A:

When you or your husband—or both of you—earn beaucoup bucks, then you can anticipate the court will look closely at your finances when calculating spousal support, especially if either of you is self-employed or if your income is from several sources.

If divorce is on the horizon, any high-net-value individual’s income could fall into a combination of the four following categories:

“Base Income” for the Majority of High-Net-Worth Individuals

Most high-net-worth individuals have a base income that comes from either periodic draws or an annual salary, or a combination of the two. Base income is typically the most predictable part of the person’s income, regardless of any fluctuations in profits, and is paid monthly or bi-monthly, just like a paycheck.

Profit Distributions Versus Bonus Time

If a high-net-worth individual is self-employed, additional income is usually paid out through profit distribution. This can be throughout the year or at specific, scheduled intervals, such as  monthly or quarterly.

If a high-net-worth individual is not self-employed, but rather a CEO, CFO, or another top executive position, additional income is typically paid out in the form of a bonus. Such a bonus is usually dependant on individual and/or company performance.

What about getting paid on commission? Most commissions are treated like bonus income, as they too, are not always predictable, and they too, can be tied to individual or company performance.

Company Perquisites and Their Role in a High-Net-Worth Divorce

An expense account, a car allowance, and other forms of perquisites—commonly called “perks”—may also be part of a high-net-worth individual’s income. The term income here is tricky. These job-related amenities can sometimes be untaxed income (which fall into a different group for support purposes), taxed income, or a combination of the two. One of the challenges a divorce causes is that what was normal and accepted during the marriage becomes challenged when a husband and wife find themselves at odds in divorce litigation. The issue of perquisites and their status as untaxed or taxed income becomes an issue in most support cases.

Passive Income: The Glory of Interest Payments and Royalties

Interest from your investment portfolio (such as stocks and bonds), and a number of other sources, including rental income and royalties, is considered passive income. Their taxability and consideration for support calculations can get pretty complicated, though, and the income isn’t always as accessible as it may seem. For example, consider income of $8,000 per month from a rental property near Hyde Street and Market Street in San Francisco. But the high-net-worth individual may have a mortgage for that rental property, and will also be responsible for property taxes, insurance, and other maintenance on the property. The owner pockets far less than the nominal $8,000.

No California Computer Calculator Program Can Add It Up Right for You

If you’re in a high-net-worth divorce, don’t assume California’s computer program lawyers and family court judges can calculate child support or temporary spousal support in a way that can adequately apply to you and your situation. Contact the Law Offices of Paul H. Nathan and we’ll explain how such complicated situations are to be handled.