Calculating Child Support: How Parents’ Income Is Evaluated

Children can get expensive quickly, and costs can be particularly tricky to predict if you are going through a significant change as a family. When parents divorce, it is important for them both to put their child’s needs first. They must consider what a divorce will mean for the custody of your child.

Child support payments depend on the case itself and state guidelines, but the payer’s income is the primary determinant. But what funds are taken into the equation?

Definition of Child Support

First, child support often shows up in court cases where a non-custodial parent exists. The judge usually orders the parent who doesn’t live with the child to pay a part of their income to cover their basic needs. These basic needs include food, housing, clothing, medical care, education, etc.

While that isn’t the only case in which child support is brought up, it’s necessary to note that the child is the only person with a legal right to support in all cases. 

Sometimes, the court will issue a withholding order, so the support amount comes right out of your paycheck. 

State child support enforcement agencies and family courts collaborate to ensure the child is adequately cared for. Both work together to ensure that payments are processed correctly and on time.

Every state has its formula for figuring out how much a parent will pay for child support. Determining how much is based on the acquired property and income of the parents. 

But what does the formula look like? For the state of California, child support is calculated by:

CS = K (HN-H%)(TN)

K = the total allocation from the income of both parents 

HN = the net of monthly disposable income of the higher-earning parent

H% = the percentage of time higher earning parent is physically responsible for child

TN = the combined monthly disposable income of both parents

Till now, you know how to calculate child support. Find out below how to determine the income?

What Counts as Income?

The court is going to look at multiple factors before determining your payment amount:

• Ability to pay
• Child’s financial needs
• The amount required to sustain a child’s existing basic necessities

Before the court determines how much you can pay, you must submit specific documentation. Some examples are your W-2 forms, pay stubs, and proof of income.

Moreover, your proof of income contains the following: 

• Wages
• Overtime pay
• Tips
• Commissions
• Bonuses
• Annuities 
• Alimony
• Lottery winnings
• Education grants
• Money made from side jobs
• Government benefits
• Income from self-employment
• Money from retirement or pension plans
• Investment revenue 
• Income of a new spouse

While more items can count as your income, it’s essential to know what to NOT leave out of a conversation with the court. 

In addition, any company benefits you receive, such as a company car or free housing, is taken into consideration if it reduces your living expenses. 

Unrealized income, or profits that exist on paper and whose transactions may not have been completed yet, can also be considered in the child support equation even if you cannot access it.

For example, if your unexercised stock options have the potential for a profit, the court may include that as another form of income even before it’s made. Other forms of unrealized income are IRAs, earnings of a corporation or proprietorship, trust income, and capital gains from stock bonds.

While your child needs to be taken care of, no one wants to be stiffed for money that doesn’t exist yet and may not ever. 

Though it depends on the state whether or not to include unrealized income in a case, your spouse may have a source or two of income about which you don’t know. To save you any trouble from the court, be sure to find out what they will consider when calculating child support.

What Else Should You Know?

While the family court tries to be fair in calculating how much is the right amount for your child, specific circumstances allow for some deviance from the guidelines.

An increase in child support can happen if your income increases if the child’s needs increase, the custodial parent’s income decreases, and so forth. 

Likewise, a reduction is justifiable if the parent’s conditions allow it. Just remember to be ready to show any documentation or evidence of your situational changes to the court when need be.

However, if the judge finds out that you purposely make less money or are unemployed by choice, the court will take action. Honesty is the best policy, especially in court.

Where to Start

If you are going through a divorce or a breakup, it’s wise to ask for help in determining how much of your paycheck will go to child support. 

Through the counsel of an accountant or advisor, we can ensure the fair application of your income without stress. Contact us today to begin the process, we are happy to help!