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  1. #1
    Join Date
    Feb 2014
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    7

    Default Self Employment and Modification of Support

    My question involves child support in the State of: Michigan

    My daughter's father has been paying $435/month in child support forever and I finally filed for a review. He reported his personal income as $31K and the child support recommendation was a reduction to $377/mo. He's a business owner, so needless to say, I objected. Last week we went to a hearing in front of the referee and it was revealed that his business has retained earnings of over 700K with net income of over 100K. So, the support ended up being based off of $131K and the outcome was a $900/mo increase . However, his attorney objected stating the referee didn't take into account that in order for the 100K to be used for child support it would have to be taken in the form of dividends and therefore taxed again on his personal income tax. The referee was a bit reluctant to do so but he did run the numbers again and apply taxes to the $100K. The bottom line of that calculation was an increase of $700 a month, so $200 less than the first amount. At the time, I went ahead and agreed with that amount but now after thinking about it I plan to object again. He has been cheating my daughter for many years and now as it's approaching time for her to go to college she needs to get everything that she's due.

    Before I go back to court and fight for the additional $200/mo for her, I just need to be sure that there's no risk of the judge reducing the amount of the order if her father already agreed to the $700 a month increase at the referee hearing. The referee seemed really appalled that he's been retaining such a large amount yet only paying a measly $435 to take care of his daughter. His house and vehicle are paid for, so I'm sure he's got a substantial bank account. He has NEVER done anything extra for my daughter and has only given her birthday or Christmas presents about 5 times in her life.

    She really wants me to pursue the additional money because it will help for college. Let me add that he lives 20 minutes away from his daughter and hasn't seen her in almost 2 years. He and his wife have a son that's two years younger than my daughter. He gives him the WORLD and treats my daughter like she doesn't exist. It is so shameful!

    Ok, now to my questions. Should the calculation take taxes into account even if he's not taking the net income as dividends and he has retained earnings of over 700k. Basically, he's just keeping all of his money in his business and that makes most of it untouchable for child support purposes. Can the court request copies of his bank statements to prove that he can afford the additional child support even if he doesn't take the net earnings from his business?

  2. #2
    Join Date
    Apr 2009
    Location
    Somewhere near Canada
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    35,894

    Default Re: Self Employed

    You agreed to the amount. It is incredibly difficult to successfully appeal an agreement based upon a change of mind.

  3. #3
    Join Date
    Feb 2014
    Posts
    7

    Default Re: Self Employed

    Actually, the referee said we both have 21 days to object.

  4. #4
    Join Date
    Sep 2011
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    OH10
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    17,019

    Default Re: Self Employed

    Your honor, I object on the grounds I let this go for so many years as status quo and now I want him to fund her future also is not a compelling argument.

  5. #5
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    Apr 2009
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    Somewhere near Canada
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    35,894

    Default Re: Self Employed

    Quote Quoting Disagreeable
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    Your honor, I object on the grounds I let this go for so many years as status quo and now I want him to fund her future also is not a compelling argument.

    You said it so succinctly.

    Oh - Mom? filing an appeal is one thing. Actually getting the result you want? Different animal.

  6. #6
    Join Date
    Sep 2005
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    Behind a Desk
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    98,846

    Default Re: Self Employmemt and Modification of Support

    Support is based upon a formula - punch in numbers, get a figure. If you and your lawyer believe a case can be made for a higher income based upon the dividends, you can attempt that with the court. I suspect that we're talking about a C Corporation and the discussion was of taxes the corporation would pay that would decrease the amount of a dividend, but we're not going to be able to analyze the situation without the facts, and it's something best discussed with your lawyer.

  7. #7
    Join Date
    Oct 2006
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    16,474

    Default Re: Self Employmemt and Modification of Support

    Quote Quoting Mr. Knowitall
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    Support is based upon a formula - punch in numbers, get a figure. If you and your lawyer believe a case can be made for a higher income based upon the dividends, you can attempt that with the court. I suspect that we're talking about a C Corporation and the discussion was of taxes the corporation would pay that would decrease the amount of a dividend, but we're not going to be able to analyze the situation without the facts, and it's something best discussed with your lawyer.
    I agree that we are talking about a C Corp, but I think that the story is a little different.

    Dad has 700k in retained earnings in the Corp that he was leaving there in order to avoid higher income for child support, and perhaps other purposes. Dad cannot make use of that money personally unless he takes it into income as dividends (or additional wages). That means he would have to pay tax on the money. Apparently taxes are part of the MI child support calculations so the judge did the calculations accordingly. I personally think that the judge acted appropriately and that mom would be taking a big risk in trying to take it back to court again.

  8. #8
    Join Date
    Feb 2014
    Posts
    7

    Default Re: Self Employmemt and Modification of Support

    Thank you llworking and Mr. Knowitall for providing non-sarcastic responses. The first responses seemed to imply that **I** was the deadbeat who had been neglecting my child for 16 years.

    At any rate, you are very close to the issue. However, it's the 100K of Net income that is in question. The first time the referee ran the numbers, that amount was considered the 'after tax' amount since the corporate taxes had already been paid on it. The attorney objected and after a semi-heated debate between the referee and the attorney, the referee agreed to run the number again (to see if I agreed) and applied PERSONAL tax to that amount as well. That resulting in about $200/month less than the first figure. So, even though he is NOT taking the net income as dividends, it was still used to calculate the support. Over the course of the next two years, we're only talking about $4800 which will in no way 'fund her future' as the previous poster suggested. I didn't have an attorney, and I think the fact that he did was a bit intimidating (his attorney actually tried to 'make a deal' with me in the lobby before the hearing). Perhaps, I'll leave it alone, but it's a shame my daughter has to be penalized because her dad is a snake and her mom made a mistake. On the other had, perhaps he'll not want to incur any additional attorney fees and will just write her a check for the $4800 (yea, I know, I'm dreaming)

  9. #9
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    Default Re: Self Employmemt and Modification of Support

    It is appropriate to treat a self-employed payor who is withholding cash in his company in order to avoid paying child support as if he is in fact receiving dividends in the amount he is holding back. (See the discussion in the Michigan support formula manual at pages 6 - 8). The imputed dividend should be reduced by any taxes that would be paid by the corporation if the money were distributed, as that money would not in fact be received by the individual, but the same would not hold true for the self-employed individual's personal tax obligations. If in fact it's as simple as the referee thinking that a payor should only pay child support based on the dividend after paying taxes on the dividend, the judge should have little difficulty correcting the error.

    Quote Quoting Michigan child Support Formula - Income
    2.01(A): The term "net income" means all income minus the deductions and adjustments permitted by this manual. A parent’s "net income" used to calculate support will not be the same as that person’s take home pay, net taxable income, or similar terms t hat describe income for other purposes....

    2.01(C): Income includes, but is not limited to, the following: ...

    (5) Tips, gratuities, royalties, interest, dividends, fees, or gambling or lottery winnings to the extent that they represent regular income or may be used to generate regular income....

  10. #10
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: Self Employmemt and Modification of Support

    Quote Quoting Mr. Knowitall
    View Post
    It is appropriate to treat a self-employed payor who is withholding cash in his company in order to avoid paying child support as if he is in fact receiving dividends in the amount he is holding back. (See the discussion in the Michigan support formula manual at pages 6 - 8). The imputed dividend should be reduced by any taxes that would be paid by the corporation if the money were distributed, as that money would not in fact be received by the individual, but the same would not hold true for the self-employed individual's personal tax obligations. If in fact it's as simple as the referee thinking that a payor should only pay child support based on the dividend after paying taxes on the dividend, the judge should have little difficulty correcting the error.
    Later in the same publication:

    2.07 Allowable Deductions from Income

    2.07(A) Alimony/Spousal Support

    (1) Deduct alimony/spousal support paid to someone other than the other parent in the case under consideration from its payer’s gross income before calculating and deducting its payer’s federal, state, and local income taxes, and after deducting other mandatory federal taxes (e.g., FICA).

    (2) Alimony/spousal support paid between the parents in the case under consideration is not included as its recipient’s income, but remains its payer’s income.

    2.07(B) Income and FICA/Medicare Taxes

    (1) Deduct a parent’s actual income taxes from income.

    (2) If tax returns are not made available, taxes should be estimated based on the best available information and the estimation procedures described below.

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