When Should a Court Impute Income to a Party?

On behalf of The Marks Law Firm, L.L.C. posted in Child Support and Motion to Modify on Tuesday, May 27, 2014

In cases where spousal or child support is at issue, courts must have an accurate accounting of each party’s income in order to determine relative ability to pay or financial need and, in the case of child support, to complete a Form 14, the Supreme Court-mandated form used to calculate presumptive child support amounts.

How does a court arrive at a monthly income?  The court must base its determination on the evidence presented by both parties.  The court will first consider W-2 statements for the current and previous year, as well as federal tax returns for the same period.  Often, the court will look to the past three or four years to calculate an average or to see if income is stable, increasing or decreasing.  Next, the court will look at other sources of income, such as income from trusts or stock accounts.  If the other party questions the validity of these federally reported sums, that party may submit his or her own evidence.

Sometimes a party during litigation may be unemployed, transitioning between jobs, working at a lower wage in a different industry or suffering from an illness or disability that limits earning capacity.  In these situations, each party will have different accountings of present and future income, and one party may claim the other party is “underemployed” or otherwise not making a sincere effort to work and earn but instead positioning for a lower support obligation.  In these situations, the court hears evidence about any limitations or intentional underemployment and may decide to impute income to a party higher than that party currently earns.

Imputing income can create serious problems, as recognized this week by the Eastern District of the Missouri Court of Appeals.  In Elnicki v. Carraci, the parties had a contentious divorce and multiple motions to modify.  In the most recent motion to modify, mother sought to impose upon father a higher child support amount and all of the outstate tuition for the parties’ college-attending daughter.  The key issue in the case turned on the income of father, a tax attorney.  Mother argued to the trial court that father intentionally pursued lower salaried positions to frustrate her ability to receive appropriate support.  Father countered he had been gainfully employed as an attorney from 1992 to the present, and he never earned more than $85,000 annually, and had not earned more than $40,000 per year since becoming a solo practitioner in 2009.  The trial court found father was “underemployed in that his income is not commensurate with that of other [tax] attorneys in the St. Louis metropolitan area with his same skills, education, experience, and work history.”  Based on that finding, the trial court imputed to father income of $115,000 per year, ordered a child support amount of $1,905.00 and to pay all of the daughter’s tuition and college expenses (an amount in excess of $100,000), as well as the legal fees for mother, which exceeded $165,000.  In all, the court found father owed mother past and present sums in excess of $365,000.

The Eastern District reversed the decision of the trial court.  First, the appellate court noted that the case law does not compel a party paying child support to take employment that “optimizes” or “maximizes” that party’s income potential.  “While we recognize that the income level of other individuals with similar skills, education, experience, and work history may provide a court with some guidance in determining a parent’s hypothetical earning potential once the court has determined that imputing income is appropriate, courts do not make the initial decision to impute income based on a parent’s failure to keep up with someone else’s level of earnings, nor mandate that a parent work a certain type of job to attain it.”  Before even considering imputing income, the court must have before it evidence that the party is deliberately reducing earned income for the purpose of evading a support obligation.  In this case, mother offered no such evidence.  “In sum, while the trial court may have found evidence to support the conclusion that Father’s career has not been as profitable as that of some attorneys in Missouri, it did not find any substantive evidence of a deliberate attempt by Father to escape his responsibility to Child.”  The Eastern District reversed the imputation of income, ordering the trial court to base income on father’s actual earnings.  Further, the appellate court found requiring father to pay for all of college for the daughter and the attorney fees of mother were excessive and beyond the ability of husband to pay.

As this case illustrates, a court should impute income only after a party has introduced evidence of intentional underemployment for the purpose of avoiding child support.  The reasons should be clear enough from the facts of the case – holding someone to a higher hypothetical earning standard could easily leave that party with obligations he or she could not possibly meet, leading to contempt and even criminal proceedings.  Imputing income is the exception and not the rule.

When could a party reasonably challenge earned income?  As we noted above, the need to impute arises from some change – either a loss of a job or some new health-related disability – that leads to employment at a much lower level than during most of the marriage, or, from one party simply walking away from a very high paying position to a very low paying position in a different industry, giving rise to the presumption that the party did so to avoid a higher child support obligation.  If you believe the parent of your child is underemployed, you would need to produce the necessary evidence that the lower income was to avoid support and not for some other good reason.  You might also need a vocational expert to testify to the actual income capacity of the obligated parent.

If you have questions about imputing income for spousal or child support, contact our St. Louis family law attorneys –- we can help.