For most Michigan families, calculating child support is one of the most straightforward parts of a custody case. Using W-2s or tax returns, you can clearly tell how much each parent makes and apply those incomes to the Michigan Child Support Formula to set each person's contribution to the child's needs. But when one or both parents is self-employed, the calculation can get much more complicated. Proving self-employed income for child support can require a deeper dive, and sometimes expert testimony to set the final figure.
How Does Michigan Law Use Income to Calculate Child Support?
In every case involving child custody – divorce, custody, paternity, even guardianships – Michigan judges are required to use the Michigan Child Support Formula (MCSF) to determine the amount of money each parent should pay toward their child's support. This formula is very complicated, but at its simplest, it focuses on two things: the parties' income, and the number of overnights the child spends with each parent.
The assumption is that parents should be contributing to their children's expenses in proportion to their income. The formula also assumes that each parent will pay the regular expenses, like food, shelter, band-aids, entertainment, etc., that occur while the child is staying in his or her home. This is called the overnight offset. By combining the parents' income and applying the overnight offset, the MCSF calculates the funds one parent should pay the other to make sure the child is supported in both homes.
What Counts as Income for Self-Employed Parents and Business Owners?
The MCSF uses a broad definition of income when calculating child support. While it includes wages or salary income, it goes much further to capture funds received by a parent from almost any source which can be used to support his or her children. This is especially important when one or both parents are self-employed. Business owners, gig workers, and other non-traditional employees receive income in many ways, including:
- 1099 Independent Contractor payments
- Cash tips
- “Under the counter” work
- Gig work (like Uber or Lyft)
- App payments like Venmo or Square
All of these can count toward the self-employed parent's income for calculating child support, assuming they can be located and documented for the court. That is what makes proving self-employment income so much more difficult than wage or salary employees.
Strategies for Proving Self-Employed Income for Child Support
If you or your co-parent are self-employed, you should be having detailed conversations with your Michigan family lawyer into where the money comes from, and how you can prove it exists. Lawyers have a variety of strategies for proving self-employment income when calculating child support. But many take time and effort to put together.
Disclosure of Income Sources and Assets
When one person files a domestic complaint in Michigan (whether for divorce, custody, support, or paternity), it triggers a requirement that both parties provide certain “disclosures” to the other by completing a Domestic Relations Verified Financial Information Form. This first round of automatic discovery includes each party's employment information including occupation, gross income, hourly wages and hours worked, and employment benefits. It also requires self-employed parties to disclose the “Total amount of owner's draws during the past twelve months.” In addition, it requires the disclosure of all other sources of income including several common to business owners and self-employed individuals:
- Commissions
- Bonuses
- Profit-sharing
- Dividends
- Rental income
In addition to income information, the form requires the parties to disclose any financial accounts in which they have an interest. This can be used to identify business accounts which may hold deferred income or other assets available for child support, even if they have not been paid out to the parent.
Diving Deeper Using Subpoenas and Discovery Tools
If your co-parent is self-employed or owns a business and their initial disclosures are incomplete or do not account for their total income, your lawyer can issue subpoenas, interrogatories, requests for production of documents, and other discovery requests to get more information about where their money is coming from and where it is going. While many forms of discovery are sent directly to the other party, subpoenas can be sent to third parties like:
- Banks or credit unions
- Bookkeepers or accountants
- Payment apps like Venmo, PayPal, or Square
- Gig employment companies like Uber, Lyft, or Fiverr
- Commercial or resale apps like Etsy or eBay
- Vendors or contractors for whom a self-employed person works
Subpoenas provide an important tool to prove self-employment income that cannot be skewed by a parent's desire to conceal income or pay less support. They give you and your attorney the raw data you need to demonstrate that a parent is receiving more income than they have reported to the Court.
Using an Expert to Prove Self-Employed Income
In some cases, especially cases involving successful small business owners, the raw data is not enough. Business savvy people often work with accountants to structure their income in ways that reduce their tax burdens by keeping assets in the business that would otherwise be paid for using the parent's income. For example, the business may pay for:
- Insurance expenses
- Company car the owner drives for personal use
- Mileage and vehicle maintenance reimbursements
- Housing, including when traveling for work
- Rent for use of the home office (usually claimed on a tax return)
- Voluntary contributions to retirement plans like IRAs and 401ks
- Phone or internet at a home office
- Gifts
- Entertainment
- Travel reimbursements
- Depreciation of home office equipment and furniture (usually claimed on a tax return)
The company may also withhold wages and disbursements during litigation or redirect income to third parties to make it seem like a parent is earning less money. In these cases, you can hire a forensic accountant to review the business's tax returns, balance sheets, accounting, and bank records to identify funds that should be counted as income in determining the self-employed parent's child support amount.
Demonstrating Lifestyle to Infer Income Beyond What's on the Books
If you cannot afford an expert, or if the company's records make it hard to tell what the self-employed parent is actually receiving, your attorney can also take another approach: examining lifestyle expenses. For example, if a parent reports an annual income of $60,000 a year, but then takes three international vacations per year, this is evidence that he or she has more income than she claims. Through a strategic use of bank records and testimony, your attorney can demonstrate that your co-parent is living a lifestyle beyond their reported means. Unless there are credit card debts piling up, this can infer additional income available for support.
Get Help with Child Support from a Michigan Family Lawyer
At Bebout, Potere, Cox & Bennion, P.C., we care about you and your family. We help individuals and families in Rochester Hills, Rochester, Troy, Lake Orion, Oxford, Oakland County, Macomb County and throughout Southeast Michigan. We can help you prove self-employment income for child support calculations and ensure that your children have the financial support they need. Call us at 248-651-4114 or contact us here to speak to an attorney.
