Many employers give an annual or quarterly bonus to their employees when a certain company or individual goals are met.
Payers and payees of support want certainty but sometimes it isn’t that easy.
A common theme throughout our practice are questions like these:
- Will I have to pay support based on my gross income or will bonus income be treated differently?
- How can I pay support based on my income when I don’t know what (or if) I’ll receive as bonus income?
- Is my bonus community property or used to calculate support? I don’t want it double-counted.
- If I am ordered to pay support based on my gross income (including bonuses), I won’t have enough net income each month to pay a large amount of support ordered.
- Does bonus income have to be input in the calculation for temporary support?
- How does the Department of Child Support Services track employment bonuses?
- If a bonus is received in January, is that added to January income to calculate support? Is it annualized?
Bonus income is usually factored into calculations for child support and often taken into consideration for temporary or permanent (post-judgment) support. Whether you are the payor or payee, it is important to understand how bonus income may or may not affect your order and/or negotiations.
When it comes to calculating child support, the court may consider “income” from whatever source derived. Income includes salary, commissions, royalties, wages, bonuses, rents, dividends, pensions, interest, trust income, annuities, workers’ compensation benefits, unemployment insurance benefits, disability benefits, social security benefits, and spousal support paid by someone other than the other parent.
When we learn that one party has received a bonus shortly after separation, our first task is to determine whether any aspect of it is community property. If a bonus is community property, the ex-spouse will likely receive a much higher portion of it than if it is simply treated as income for purposes of support. A bonus earned during marriage (resulted from hard work during the marriage) may be paid out after separation but would likely be considered community property and subject to division. We first need to determine if the bonus is an earned bonus or an incentive bonus for future effort as opposed to employment efforts during the marriage. The most important component is to ensure that the community bonus (marital asset) is not also considered income for purposes of support — otherwise, it’s double-dipping!
Bonus income: Child Support & Spousal Support
When the Department of Child Support Services (DCSS) is involved in a case, they will usually argue that bonus and overtime income should be factored into the monthly calculation of support. It makes it much easier for them to enforce support obligations via wage assignment (garnishment). Unless the parties stipulate otherwise, they often argue that any other approach would violate the support guideline. The problem that many have with this approach is that this type of income can be uncertain and it is difficult to pay a hefty monthly obligation that can often times exceed the payor’s monthly net income! Additionally, payor parents do not want to be on the hook for paying a monthly support amount based on receipt of a large bonus that may never materialize.
While the law generally requires that bonus, dividend, and interest income be considered when calculating support, a preferred approach for my clients is often to order it when received. Payor spouses prefer the certainty of knowing they will only have to pay a percentage of the amount they actually receive and payee parents are will receive an order that reflects the amount they are entitled under the law. The child support calculator (DissoMaster), allows counsel to prepare ‘bonus tables’ (or schedules) that specify a certain percentage of the amount received will be paid to the payee. The actual percentage will vary depending on the amount of bonus and in some cases, overtime. The table can account for the uncertainty of not knowing how much the bonus will be. A failure to request a court order for bonus income as child support may likely result in a forfeiture of that money! If the extra income is regular and predictable, the Family Code requires that it be included in gross annual income for purposes of calculating monthly child support.
When it comes to bonuses and spousal support, it is often factored into temporary support using a bonus schedule (see above). When it comes to more permanent (post-judgment) support, a good advocate is essential. The ex-spouse paying support may want to argue that support based on post-separation bonus income would result in a windfall to the payee spouse since the standard of living during the marriage was based on far less income and/or a percentage of bonus income may exceed the supported spouse’s needs. In cases like this, an annual ‘cap’ may be appropriate. There are other issues with bonus income that often come up — percentage-based support oftentimes leads to trouble with calculation or difficulties with enforcement. Given the uncertainties, we often encourage a settlement to reduce legal fees and provide the party’s finality.
If you have questions regarding child support and/or spousal support, our team is ready to assist. Schedule a consultation with us today. What works for one person, maybe problematic for another. It’s a good idea to know your rights and responsibilities associated with support.