It’s very common in a divorce for alimony or child support payments to be based on a spouse’s income. But while “income” seems simple to understand, that’s not always the case. Here are three examples of how it’s not always clear whether money someone receives is income:
Stock options. A Massachusetts couple divorced and the husband agreed to pay his wife one-third of his gross annual employment income. He then took a new job where his compensation package included a base salary, annual bonus, stock options and other benefits. When he exercised his options, he claimed this wasn’t “income” because it was something other than his regular salary and bonus. But a court sided with the wife. It said the option exercise resulted in income because it was part of the husband’s compensation package, was listed on his W-2 forms, and was subject to income tax. The court also said that its decision would prevent spouses from trying to shirk their obligations by asking to be paid in options rather than salary.
Second wife’s income. In a California case, a mother asked a court to increase her ex-husband’s child support payments based on the fact that he was now receiving income from a brokerage account and a real estate development that he shared with his second wife. The court agreed – but it said that only half the income from the assets could be considered in determining how much the ex-husband had to pay. The reason is that only the ex-husband had an obligation to pay child support – his second wife didn’t have any such obligation, and therefore her half of the income couldn’t be considered.
Income from a business. In another California case, a husband was a partner in a brokerage firm. His interest in the business was valued at $5.6 million. His wife was awarded a share of his interest in the firm, plus $20,000 per month in spousal support. The husband argued that the spousal support amounted to “double dipping,” because the wife was getting a share of his income from the business, plus a share of the value of the business which was calculated based on its ability to provide him with income. But a court said the divorce award was proper, and that looking at how the judge drew it up, the wife wasn’t collecting for the same asset twice.
The bottom line is that it’s not always clear what qualifies as “income.” If you have any questions about whether money that you or an ex-spouse has received is income, and whether it counts for alimony or child support purposes, the Roanoke and Salem VA divorce law firm, Eric Roland Spencer will be happy to help you.