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High Court Defines Allowable Business Expenses for Self-Employed in Determining Child Support Income

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By Stephen A. Duggan – New Hampshire Family Law Attorney

The issue of a person’s income is important in determining someone’s child support obligation. This can be challenging when the person paying child support is self-employed. In a recent case, the New Hampshire Supreme Court defined what business expenses a self-employed person can claim in determining income for the purposes of child support calculation. The ruling is significant for anyone who either is self-employed and pays child support or receives child support from a self-employed ex-spouse. The case is In the Matter of Nancy E. Woolsey and Grant E. Woolsey:

According to the opinion, the father was self-employed, hauling construction materials from April to December and plowing in the winter. In 2010, the father moved to modify his child support downward claiming a legitimate change of circumstances, that is lack of hauling work due to the economy and increased fuel costs. His business had gross income on profit and loss statements from 2008-2010 of 70k/50k/50k. Each year he took a business deduction of about $25,000 reducing claiming her personal income was about $25,000 for each of those years, for purposes of calculating child support or otherwise. The mother challenged his business expenses, arguing that he was underemployed and had other income he was not reporting to the IRS. She asked the Court to find the father could pay his original child support obligation.

The trial judge found that the father had not shown a financial hardship or a substantial change in circumstances and that his gross income was the same as his business income. The Supreme Court reversed the lower court judge and found that “self-employment income” is gross receipts when a portion of that money is payable to others as a legitimate business expense and not available for child support. Simply, the trial court must use legitimate gross business receipts as the self-employment income used to calculate child support. And, that “legitimate business expenses” if they are “reasonable and necessary for the production of income” and “actually paid and incurred.” A trial judge needs to determine whether the claimed expenses meet the above test.

Thus, if you are receiving child support and believe your ex-spouse is diverting money away from personal income by way of fraudulent business expenses, this decision may help get the information necessary to investigate and discover whether those expenses were “actually paid and incurred” and enforce your right to fair child support.

If you are on the other side of the equation, the Woolseycase mandates that you carefully keep track of and document your business expenses and make sure that you document that they are actually paid incurred and paid. Failure to do so may open the door for opposing counsel to argue, and for the trial court to find, that your personal income is higher than your business expenses reflect. Obviously, such a finding will impact your child support obligation.

Carolyn Garvey of Douglas, Leonard & Garvey, P.A., are experienced in handling these complex divorces and those involving self-employed individual. They are ready to assist you with any domestic matter.

If you are going through a divorce, you should consult an experienced family law attorney such as one of the lawyers at Douglas, Leonard & Garvey, P.C. Call us at (603) 288-1403 or fill out our online contact form