Texas believes both parents should contribute financially to their children’s well-being, so child support is based on the income of both parents. It’s easy when one or both parents have a “regular job” and steady employment. But when one or both parents own a business and is a self-employed entrepreneur, child support becomes complex.
The number of children a couple has and any custody arrangements are included in the determining factors, and the court will expect to set a specific amount payable every month to the primary conservator, or custodial parent. A W-2 employee generally knows their regular monthly income. If your business—especially a small business—has a variable income, calculating child support may be difficult.
How Much Do You Make?
This question must be answered truthfully. Many business owners’ take-home pay varies from week to week or month to month, especially if they invest most of the profits into growing the business. They may have a small amount of cash on hand for themselves while most of their money is tied up in the business.
As a business owner, you’ll need to examine your cash flow to determine how much you’re paying yourself as well as how much the business is worth. Your income and financial stability can also impact custody decisions, and whether you are able to adequately support your own children on your own.
Businesses can experience a downturn prior to divorce, whether due to market conditions the breakdown of a marriage, or both. Taking time away from running your business for divorce-related matters can further impact the business’s income, especially for the sole entrepreneur.
Falling behind on child support can also negatively impact the business later. Left unchecked, the State of Texas could issue sanctions to force payment. A significant change in income may warrant a temporary modification, requiring another court hearing.
Business Valuation
The business’ worth will also be up for scrutiny to determine how much you are worth and how much you can contribute to your children’s care. For this, you’ll need the help of forensic accountants, business appraisers, and other legal experts to determine the true net worth of the business or businesses for both community property division and child support calculation.
The type of business can also be a factor in determining income. A business with a sole entrepreneur is different from an LLC, partnership, or corporation. This is another reason why business and personal assets should be kept apart.
Tax and financial statements for the last few years are a place to start and give the courts a good idea of what the entrepreneur can earn and pay. The courts will examine the rate of growth and/or decline as a baseline, even with a higher level of uncertainty.
Undervaluing and under-reporting income can have other negative effects and lead to increases in both child support and other payments to the ex-spouse. That’s why it’s important to keep good records, keep personal and business assets separate, including bank accounts, and pay yourself your own salary.
Other Forms of Income
For child support calculations, your total income may include:
- Royalties
- Rental income
- Commissions and bonuses
- Stock options
- Fringe and in-kind benefits
- Lottery winnings
- Capital gains
- Pensions
- Dividends and annuities
- Unemployment payments
- Any “side businesses” separate from the primary business
Business owners should work with a divorce attorney and other professionals to create an accurate picture of their true income picture for child support obligations.
Get Help With Divorce, Child Support, And Other Family Law Matters
Wendy L. Hart is an experienced family law attorney serving families throughout Tarrant County and the Fort Worth area. We represent both men and women in family law matters. Use our online contact form, or call us at (817) 842-2336 for an appointment.
