Tuesday, October 26, 2010

New Jersey - calculating self-employment income for purposes of support

Litigants who are self-employed and control their own income present special challenges in support litigation.  

If someone’s business takes in $150,000 in a year yet spends $125,000 on expenses, does that mean that the person only earned $25,000?  Not necessarily.  In New Jersey, for example, the court rules are very clear as to how a court will calculate income available for support.  

The text of the relevant rule reads as follows:

a. For income from self-employment, rent, royalties, proprietorship of a business, or joint ownership of a partnership or closely held corporation, gross income is gross receipts minus ordinary and necessary expenses required for self-employment or business operation. Personal income from the operation of a business includes all income sources listed above and potential cash flow resulting from loans taken from the business.

b. In general, income and expenses from self-employment or the operation of a business should be carefully reviewed to determine an appropriate level of gross income that is available to the parent to pay a child support obligation. In most cases, this amount will differ from the determination of business income for tax purposes.

c. Specifically excluded from ordinary and necessary expenses, for the purposes of these guidelines, are expenses allowed by the IRS for:

1. The accelerated component of depreciation expenses;

2. first-year bonus depreciation;

3. depreciation on appreciating real estate;

4. investment tax credits;

5. home offices;

6. entertainment;

7. travel in excess of the government rate;

8. non-automobile travel that exceeds standard rates;

9. automobile expenses;

10. voluntary contributions to pension plans in excess of 7% of gross income; and

11. any other business expenses that the court finds to be inappropriate for determining gross income for child support purposes.

So, if you are self-employed, or the other party is self-employed, gather as much information as you can so that you can present the relevant facts regarding income to the court.


Joe Kvarta said...

this is great...someone should show this to Judge Marino in Somerset County...she just ignores it....with her "if you make a Million and spend a million you make nothing"...that is a quote from a hearing....she is corrupt as Judge Baucksbaum...who takes statements from another trial and doesn't allow a cross exam...and a list of other reversible errors and he is actually teaching Judgeship at a law school????

Elizabeth J. Neal said...

In New Jersey, for example, the court rules are very clear as to how a court will calculate income available for support. employment solicitor