Determining Annual Income for Self-Employed Spouse or Business Owner

  • Jan 15 2019

When two people decide to divorce, regardless of how much they try, they often end up in a dispute a over money. You must disclose how many assets you have, how much debt you have, and you must disclose how much you make. While none of this may be particularly easy to do, it becomes especially difficult when you are tasked with determining the annual income of a self-employed spouse. This task can be made easier with the help of a skilled property division attorney.

The Problem of the Entrepreneurial Spouse

Determining income is pretty straight-forward for spouses who are employed in the traditional sense. They receive a paycheck on a regular basis that reflects a definitive salary. From there, simple addition can get you to an annual salary. For those entrepreneurial spouses, there will always be an argument for or against a higher annual salary, depending on what is at stake. Those spouses that may be required to pay spousal support may argue that their income is lower than it actually is, in the hopes of a lower spousal support ruling. Those spouses that may be entitled to support may argue that the entrepreneurial spouse’s income is higher. So, how do we resolve this issue?

How Do You Calculate Income of a Spouse Who Doesn’t Get a W-2?

For those spouses who are involved in a partnership, LLCs, or other small business, they will receive an annual K-1 that enumerates partnership distributions. This is a good place to start, but do not ignore the partnership or corporate return, as there may be deductions made improperly to avoid additional support obligations.

In addition to avoiding steeper child or spousal support payments, deductions may be made for things like automobile expenses, which may be improper in calculating net vs. gross income. Checking the Schedule C or corporate return can help you identify whether this type of income should be included in determining property division and support obligations.

Don’t forget to review client entertainment deductions. This is one of the most frequently abused deductions.  However, in Illinois, the Child Support Statute prohibits deductions for expenditures that are not reasonable or necessary. Those deductions, while perhaps permissible under the tax code, may not be for child support purposes.

Depreciation of capital assets is another area that should not be overlooked in determining true net income for non-W-2 spouses. Rental property depreciation, in particular, can often be misleading, as it often represents a tax incentive more than an actual loss of income.

Consider a Forensic Accountant

When clients come to us looking for assistance in determining income for self-employed spouses or other high-net worth divorces, we sometimes engage the services of experienced forensic accountants to scour all financial documents available. Our property division attorneys work closely with these forensic accounts, using our extensive knowledge of Illinois support statutes to determine exactly how much income your ex-spouse should be reporting.

If you find yourself in this situation, contact the Illinois property division attorneys at the Goodman Law Firm for professional, competent advice.

Posted in: Property Division