How the Courts Determine an Entrepreneur’s Child Support Payments

Every entrepreneur understands risk.

There’s no guarantee that people are going to like the product as much as a startup owner thinks (and hopes) they will. And it’s possible that the market isn’t as large as originally predicted.

But business owners have made their piece with unpredictability. The unknown that comes with risk is just another cost for success. But what’s good for the goose isn’t always good for the gander (or the goslings?) as the courts can have a difficult time nailing down an entrepreneur’s income when calculating child support payments.

Normally, the courts drop a bunch of numbers—income and fixed expenses for the child like health insurance, child care, and school tuition, among others—into a worksheet that returns what the child support payment will be. Unfortunately, business owners rarely have a set income, making this practice a little more complicated.

A common business tactic is for the owner to pay him or herself a small salary, generally enough to meet basic needs and service debts.  Then, after reviewing the numbers for the previous month, determine how big of a disbursement to withdraw from the business as supplemental income. That variance makes it less of a static number and more of an arguable conjecture.

The parties’ attorneys will negotiate and put together arguments for the court to determine the entrepreneur’s income. The first place that everyone will look to is the owner’s tax documents. If there have been any consistent patterns over the past two or three years, those numbers and rate of growth (or decline) will be the starting point for negotiations.

Otherwise, the court may have try to predict the company’s future, especially if the company is younger and doesn’t have much of a track record. Experts will get paid to look at the past performance of the company and measure that against the strength of the market and the potential for growth. No matter how good (or well-paid) these experts are, there will still be a high level of uncertainty moving forward.

Regardless of what side of the battle you are on, there are tactics and strategies that can’t be overlooked. Business entities like LLCs, partnerships, and corporations use different tax systems. And it’s not uncommon for small business owners to use company assets for personal matters, creating another possible bone of contention.

If you are going through a divorce or have a child support question, an attorney can help you avoid emotional and technical mistakes. The lawyers at King Law can answer those questions as well as other business-related inquiries. Call us at 1-888-748-KING today to schedule a consultation and let our experience get to work for you.