Challenges with Independent Contractors and Self Employed Parents

Income is important when determining the amount a parent must pay in child support. The Child Support Standards Act begins by looking at a parent’s tax return and pay stub to see how much money they earn each year. Challenges often arise when one parent is self-employed or an independent contractor.

Self employed and independent contractors are able to reduce their taxable income by paying person expenses out of their business. Common personal expenses that are paid include:

• cell phone bills;

• car payments;

• meals;

• mortgage payments; and

• vacations.

The court will look at these personal payments and add their value to a parent’s income.

Self Employed for Child Support Purposes

Self employed can mean many things. In its simplest form, a self employed parent can make their living by selling items on the internet or running their own business. A self employed parent traditionally does not receive a W-2 form at the end of the year or bi-weekly paycheck. There are some exceptions.

The Child Support Standards Act considers a sole shareholder of a subchapter S corporation, LLC, or Corporation to be self employed.

If income from a business is the shareholder’s income, then they are self employed.

What is Self Employed Income

A parent’s take home pay is considered income. Capital gains from a corporation are also income. Income also includes self-employment deductions. A parent can reduce their income by removing their unreimbursed employee business expenses unless those expenses were used for personal gain. The court can include entertainment and travel allowances into a parent’s income.

Parents who are Paid in Cash

Independent contractors can be paid in cash to avoid paying taxes. The judge has the ability to impute income on an independent contractor or self employed parent who receives cash payments. This is done when the evidence shows that the party's income tax return does not reflect the party's actual income or demonstrated earning potential. The judge will look at the standard of living, the expenses of the parents and any other exhibits that show money being spent. The judge will also hear testimony from the parties. Based on all of the evidence, the judge can increase one parent’s income to include any payments received in cash.

Using Technology to Determine an Independent Contractor or Self Employed Parent’s Income

Self employed parents and independent contractors can hide funds online. We use subpoenas to obtain banking information, internet payments and contracts. Daniel Szalkiewicz and Cali Madia have also investigated parents who receive cash payments and subpoenaed their Venmo accounts and Chase bank accounts to determine the source of income.

Forensic Evaluation of a Parent’s Income

In divorces, a judge has the power to appoint a forensic accountant to review a parent’s business income. The accountant performs essentially an audit, looking at the business’s profits and expenses, to determine how much the parent makes. The forensic accountant will review contracts, bank statements, deposits, and tax returns.