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 of 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, childcare, 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 rates of growth (or decline) will be the starting point for negotiations.
Otherwise, the court may have to 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.
How to Protect Your Business From Child Support
Business owners are not typical W2 employees with consistent salaries that reflect their true earnings; it may be challenging to agree on an income to incorporate on a child support worksheet. Balancing the guidelines for owners with non-verifiable income can create stress on how to protect the business from being impacted by child support payments.
The following are ways to aid in the protection of your business finances from child support:
1. Calculate Income Accurately
It may be tempting to hide income as a business owner. When divorce proceedings begin, owners may think that the less their business is worth, the less the business owner will have to pay their spouse in property division and child support.
Common ways to hide income include:
- Devaluation for tax purposes
- Fraudulent lease of office space or rental equipment
- Loans between close friends and family members
Family law attorneys, or other retained professionals, such as forensic accountants, can easily find inconsistencies and discrepancies during the discovery phase of your divorce proceedings. Not only does that put your business at risk, but it also is a criminal offense. Therefore, while it may seem tempting to underreport earnings made by your business to minimize your child support payments, it is likely not worth the criminal penalties if you are charged with tax fraud.
Calculate income accurately; income is more than a salary and may include commissions, bonuses, tips, royalties, and others. The way your business is organized may be unique and the accounting methods used will also be different when determining income. This is essential to consider because tax forms are the first place to look when deciphering a business owner’s income. A sole proprietorship, partnership, corporation, and LLC each have certain tax forms that will report earnings in different ways.
2. Maintain Proper Upkeep of Your Business
Typically, a business separates personal earnings and business earnings. If this is the case, typically, wage garnishment from a business bank account may be avoided. However, there are various circumstances that may void the businesses protections and put funds at risk, including:
- Neglect to operate under the correct EIN
- Neglect to operate within proper business guidelines
- Combining business accounts with personal assets
- Neglect to correctly sign documentation
- Neglect to hold valid insurance and licensure
It may seem that if you properly maintain your business, you are fully protected from child support garnishment in relation to your business bank accounts. However, this is not the case due to the fact that the money you pay yourself and your employees counts as a salary, bonus, commission, or others. Gross income may be garnished, including:
- Capital gains
- Unemployment insurance
To protect your business from child support garnishment, it is essential that you keep detailed records of all of your spouse’s contributions and pay yourself a salaried income. If possible, set up a written agreement, such as a postnuptial agreement, to have contractual protection of your business.
3. Consider Your Custody Agreement
Sharing equal custody of your child may result in lower child support orders for you and your business. If your spouse has sole custody of your child, your child support obligation is likely to be higher.
4. Speak With an Experienced Divorce Lawyer
The most effective way to protect your business from child support is to contact an experienced divorce lawyer. The business owner divorce attorneys at King Law are well-versed in cases involving business ownership and child support. We can provide skilled legal guidance through each step, retaining experts and specialists to ensure your best interests and business are protected.
Speak With a Child Support Lawyer at King Law
If you are going through a divorce involving children, 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 1-888-748-5464 (KING) today to schedule a consultation and let our experience get to work for you.