One common trend in a marriage where one party has a successful business, particularly when the couple has children, is for the other partner to forego certain income opportunities to help support the house. They may work for the business, or part-time, or perhaps not work outside the home at all. This all may be working out great, until the marriage sours. Then, there becomes the elephant in the room of what exactly should the other party be imputed for income?
Underemployment and Alimony
In this scenario, and for purposes of calculating alimony, the Court is likely to impute a specific income rather than to utilize the current or recent income of the underemployed party. Some of the factors the court will look to include the education, current income/job title, prior income job/title, macroeconomics, the age of the spouse and the children, and the prior intention of the parties. Prenuptial agreements may also apply here.
For example, if “Susan” and “Greg” have been married for twenty-years, and Susan is a successful architect with her own business earning approximately $450,000.00 per year, and Greg works part-time making craft beer for sale earning approximately $35,000.00 per year while also doing the lion’s share of the parenting, then the Court may not simply award alimony based upon those incomes. They may look to Greg’s chemical engineering degree, and the fact that he used to earn low six figures before the parties’ children were born.
With testimony from employability experts, and the Court’s own review of labor and employment statistics, the Court may impute $100,000.00 to Greg and award alimony based upon that differential rather than the actual income differential at the time of separation or divorce. This is called income imputation. It would then be up to Greg whether or not he wishes to continue with his current lifestyle, which will now be deflated, or to attempt to expand his own business or re-enter the workforce as a chemical engineer. The income imputed would likely be reduced, such as here it is $100,000.00 rather than the $145,000.00 Greg used to earn, to account for the difficulty in reentering the workforce after a certain period of time.
Likewise, given that it is difficult to ascertain the actual income of a business, particularly in a divorce, the amount of income for Susan will likely also be imputed to some extent. The Judge may take the average of the last five years’ business income, and there may be extensive testimony on whether certain expenses were appropriate business expenses or inappropriate attempts to reduce income.
There is great complexity in imputing income and determining alimony, particularly when one or both parties is a business owner. By utilizing a divorce lawyer familiar with income imputation for business owners, you will be in a good position for a positive outcome.
Partner with Carl Taylor, Esq.
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