Take-home Pay Is Not the Measure of Child Support

June 08, 2009 | Divorce, Income Calculations, Legal Perspective

Icon for author Brian Vertz Brian Vertz

In Pennsylvania, child support is based on the net incomes of the parents, so it shouldn’t be difficult to figure, right? Um, wrong.  It might seem as simple as looking at a W-2 or pay stub, or perhaps a tax return, to figure each parent’s net income, but child support is not based on take-home pay. The definition of income under the child support law includes more and less than taxable income. Here are some (but not all) of the differences between take-home pay and net income:

1. 401(k) contributions – On a pay stub, 401(k) contributions are deductions that reduce an employee’s net income. In divorce court, however, 401(k) contributions are added back to a parent’s income in most instances. In fact, if an employer makes unmatched contributions to the parent’s 401(k) plan, those contributions might be added to the parent’s income even though it is not take-home pay.

2. Disability insurance, life insurance, savings bonds – Some employees elect to pay for group disability or life insurance policies through pretax deductions, or defer part of their income into savings bonds and credit unions. These elections reduce their take-home pay, but the divorce court generally adds it back to net income.

3. Restricted stock – When restricted stock vests, it is generally reported as income on a pay stub or W-2. If the restricted stock was issued prior to separation, however, it might be marital property. The restricted stock can be considered as income for support purposes, or property for equitable distribution purposes, but not both. Therefore, restricted stock is excluded from net income in some cases.

4. Pass-through income – An owner of a business organized as a partnership or  Subchapter “S” corporation receives an annual K-1 form which reports his or her share of the business income. In reality, the business might not distribute the partner’s entire share of profits. Some businesses distribute just enough to enable the partner to pay his or her taxes. In divorce court, the retained earnings of a business may be excluded from the owner’s income if they were not actually distributed and the owner does not own a controlling interest.

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