Self Employed Business and Divorce Child Support: In Ohio, when the court calculates child support, the court is able to look at income of the parties that may not be taxable…and is able to ignore certain deductions. This means, that relying on what is deductible or includable under IRS rules and regulation, alone, will cause confusion, since the court is able to go beyond the IRS guidelines.
The individual most at risk to have a court look beyond the adjusted gross income on a tax return, is the individual who is self employed!
R.C. 3119.01(C)(7) defines “gross income” as, with certain statutory exceptions, “ *** the total of all earned and unearned income from all sources during a calendar year, whether or not the income is taxable, and includes income from salaries, wages, overtime pay, and bonuses to the extent described in division (D) of section 3119.05 of the Revised Code; commissions; royalties; tips; rents; dividends; severance pay; pensions; interest; trust income; annuities; social security benefits, including retirement, disability, and survivor benefits that are not means-tested; workers’ compensation benefits; unemployment insurance benefits; disability insurance benefits; benefits that are not means-tested and that are received by and in the possession of the veteran who is the beneficiary for any service-connected disability under a program or law administered by the United States department of veterans’ affairs or veterans’ administration; spousal support actually received; and all other sources of income.” R.C.
3119.01(C)(7) also states in pertinent part that gross income “includes *** self-generated income; and potential cash flow from any source.”
R.C. 3119.01(C)(13) defines “self-generated income” as “gross receipts received by a parent from self-employment, proprietorship of a business, joint ownership of a partnership or closely held corporation, and rents minus ordinary and necessary expenses incurred by the parent in generating the gross receipts. ***.”
R.C. 3119.01(C)(9)(a) in turn defines “ordinary and necessary expenses incurred in generating gross receipts” as “actual cash items expended by the parent or the parent’s business and includes depreciation expenses of business equipment as shown on the books of a business entity.
Therefore, shareholder loans by the business to the owner can be considered income to the owner, and have been recently found as such when a court sees a pattern of repeated annual shareholder loans by a business to the owner.
R.C. 3119.01(C)(7)(e) excludes “nonrecurring or unsustainable income or cash flow items” from the categorization of gross income. This is clarified in R.C.
3119.01(C)(8), which reads as follows:
‘Nonrecurring or unsustainable income or cash flow item’ means an income or cash flow item the parent receives in any year or for any number of years not to exceed three years that the parent does not expect to continue to receive on a regular basis. ***.”
The definitions of income under R.C. 3119.01 are obviously broad and expansive to protect the child’s best interests. Self Employed individuals heading into domestic court, should have two professionals with them: (1) an attorney and (2) a good accountant.