Note: The DearEsq free 'ask a lawyer' site is offered as a free informational service to the public and is not intended as legal advice. Laws vary from state-to-state, and in addition every situation is unique, and relevant facts may not be known. The answer to the question posed below may not apply to in your state or to your situation. For legal advice in your state and your situation you should consult with an attorney in your state who is familiar with the rules and laws in your state.
“How is income calculated for a 1099 wage earner for the basis of child support? My understanding is that income is calculated based on yearly gross earnings but my ex is a Real Estate Agent who receives a 1099 and has business expenses. Do they use the total on the yearly 1099 or the adjusted income after deducting business expenses?”Generally, wage earners’ child support is calculated on gross income but self-employed and 1099 income is treated differently. There may be differences from state to state but generally the court reviews the Schedule C and adjusts the gross income to reflect “reasonable and customary” business expenses. Besides varying by state, what is reasonable may vary by type of business. For example, if the business were a catering business, the cost of foods used in preparation and the wages for the cooks and wait staff would be reasonable and customary. It wouldn’t make sense to say that the caterer earned $10,000 for a party when expenses totaled $8000. Based on the Schedule C and what is deemed to be reasonable and customary, the court adjusts the income.
Question: The logic is that some tax deductible expenses are really benefits disguised as expenses. So, the caterer may find a way to deduct her company car as a business expense but a judge might look unfavorably upon a caterer deducting a top of the line Mercedes when her children aren’t being properly supported.Just off the top of my head, I would imagine that reasonable and customary expenses for a realtor would almost certainly include office rental, professional licensing and dues, advertising, office telephone (maybe a cell), and perhaps “reasonable” car expenses. The car expenses might be partial depending on the circumstances. Realtors need cars to transport their clients. If the top of the line Mercedes is being leased as a business expense, proving that it is reasonable and customary could be a bigger challenge than a more modest sedan. If your ex deals only in high end real estate they’d have a stronger argument for the Mercedes than if they deal in lower end real estate.
Obviously, the judge has a lot of discretion in the situation where there isn’t a set wage and predictable income. You and your ex can argue about every line item on the Schedule C and produce reams of papers justifying your positions. They’ll fight to keep it low. You’ll fight to keep it high.With so much discretion in the court’s power, you probably have a pretty broad range of what is possible. It might make some sense to save yourself the animosity and expense of protracted litigation. You could use the help of a mediator or collaborative lawyers to look at what the children need and to come to an agreement that is somewhere within the range but which reflects your needs, your ex’s, and the children’s. If your ex is like most realtors, they have feast or famine and it is fairly predictable that certain times of year will be more lucrative for them than others. One possibility is that you could work with them on a minimum monthly amount with bonuses during times of feast, perhaps to cover annual expenses like tuition, summer camps or holiday gifts. Or perhaps they could put extra funds into a college fund when they get a big commission. (Didn’t you do this while you were married? Well, now you’re co-parenting from two households instead of one but you’re both still supporting the children on your own pay schedules.) Most states will allow you to come to your own workable agreements outside of court if you haven’t been on public assistance.
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