Page 55 - Family Law Services

Imputation of Income

If one or both parents are not employed at their market-based earning capacity, courts may impute in-
come to the underemployed person for purposes of determining the level of support to be paid. A num-
ber of states waive the imputation if the underemployed spouse must care for small children or is physi-
cally incapable of earning an income.

Deviation From Guidelines

It is not unusual for high-income parents to argue that the child support guidelines are not appropriate
because the level of support determined from the guidelines so greatly exceeds the needs of the children
that it amounts to a form of support for the ex-spouse. This can occur even if the ex-spouse would not
otherwise be entitled to spousal support. To remedy this problem, a number of states institute caps on
the amount of child support to be paid. Some states impose a "needs" analysis for child support above a
certain income level. This requires determining the actual needs of the children and sets the level of sup-
port based on that amount.

Although the child support guidelines are commonly based on the respective incomes of the parents, the
amount of time the children spend with each parent can affect the level of support. The reimbursement
of any extra or extraordinary expenses that are incurred by each parent on behalf of the children can also
affect the level of support.

Understanding that all matters are different and individual circumstances can be quite unique, some ex-
traordinary expenses that may be considered are child care, medical expenses, private school tuition, life
insurance, travel expenses, automobile expenses, prepaid college plans, extracurricular activities, and
special needs of the children.

Once support payments have been determined, they can be modified if there are changes in circumstanc-
es. These can include changes in income, residency, the special needs of the children, or other unusual
circumstances.

Spousal Support Recharacterized as Child Support

Prior to the changes being enacted in the IRC, periodic payments between former spouses that were not
specifically designated as child support could be treated by the payor as tax-deductible spousal support,
according to the decision reached by the U.S. Supreme Court in Commissioner v. Lester, 366 U.S. 299
(1961). This outcome can be desirable because it potentially allows the transfer of taxable income from
a high-rate individual to a lower-rate individual, which can result in substantial income tax savings to
the payor and a reduced tax cost to the recipient.

The current version of the IRC contains provisions designed to make these savings more difficult to
achieve if individuals attempt to disguise child support as deductible spousal support. The law is stated
in IRC Section 71(c)(2) and in Temporary Treasury Regulation 1.71-1T. IRC Section 71(c) states that in
order for support payments to be deductible, there can be no change-based events related to minor chil-
dren. Amounts are considered child support instead of deductible spousal support if they are to be re-
duced on the occurrence of an event or contingency related to a child. Examples of factors that cause a
reduction include landmark events, such as the child attaining a specified age, marrying, dying, leaving
school, or a time that can clearly be associated with a contingency related to a child.

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