While the Child Support Guidelines are intended to make the calculation of child support simple and easy, this calculation is often difficult when one or both parties are shareholders of a Subchapter S Corporation. To the casual and uninformed observer, one may surmise incorrectly that the parties’ taxable income from the S Corporation is income to be used in calculating child support. On the contrary, merely because an item is considered taxable income by the Internal Revenue Service does not mean that that item qualifies as gross income for child support purposes. The New Hampshire Supreme Court has explained that how the federal income tax statutes define income, it is of little relevance to New Hampshire’s interpretation of gross income under the Child Support Guidelines. In fact, the New Hampshire Supreme Court has found that income tax returns are an unreliable guide to the income available for child support purposes. Taxable income of a Subchapter S Corporation which is attributable to a shareholder does not reflect the actual income received as a cash distribution. The mere fact that a business expense is not deductible for tax purposes does not make that money that was used for the business expense available to the obligor for child support purposes.
Accordingly, in order to decide what income is available for the child support calculation, a careful examination must be made of all the income and expenses of the Subchapter S Corporation and explained to the Court to derive at a fair and just child support order.
If you have any questions regarding the calculation of child support, please contact an attorney at Hamblett & Kerrigan, P.A. for a consultation.
Kevin P. Rauseo is a former director at Hamblett & Kerrigan P.A. and has since been appointed as a Justice for the New Hampshire Circuit Court. Please feel free to contact another attorney at Hamblett & Kerrigan to discuss your legal issues.