The amount of income used in the child support calculation is the issue that predominantly impacts cases when or both parents have income from pass-through entities. Businesses with pass-through income are entities which are not taxed itself. Instead, the entity’s income is “passed-through” to the shareholders or members of the entity. Subchapter S-Corporations, limited liability companies, partnerships, limited partnerships, etc. are examples of “pass-through entities”.
As outlined in a prior article, federal income tax returns may not be appropriate in determining the income to be used for child support purposes. Instead, the New Hampshire Supreme Court has determined that the proper measure of gross income for child support purposes is deducting legitimate business expenses from the total revenue received. The New Hampshire Supreme Court states that business expenses must be actually incurred and paid, and must also be reasonable and necessary for producing income in order to be deductible from business income. The Supreme Court states further that the trial court must scrutinize the parents’ financial situation closely and exclude as a business expense any expenditure which the court, in its discretion, finds will personally benefit the parent. When the person who is obligated to pay support is able to control the retention or disbursement of funds from a business, the decisions mandates that such parent has the burden of proving his/her actions were necessary to maintain or preserve the business.
Accordingly, great care is needed when handling cases of self-employment income or income from pass-through business entities. Please consult with an attorney at Hamblett & Kerrigan if you have any questions in this regard.
If you have any questions regarding the calculation of child support, whether in Massachusetts or New Hampshire, please contact an attorney at Hamblett & Kerrigan to discuss. Let Hamblett & Kerrigan use their experience to your advantage.
Kevin P. Rauseo is a director at Hamblett & Kerrigan P.A. He concentrates his practice in the areas of family and divorce law, Collaborative law, child custody and visitation, child support and alimony, personal injury, insurance defense, slip and fall accidents, automobile and truck accidents, motorcycle accidents, premises liability, dog bites and civil litigation. He is a member of the International Academy of Collaborative Professional and has previously served on the Public Education Advisory Panel of the Academy and Professional Development Committee. He is also a founding member of the American Academy for Certified Financial Litigators and a member of the Collaborative Law Alliance of New Hampshire. AV Preeminent Rated by Martindale-Hubbell. Recipient of the 2014 Nationally Ranked Top 10 Attorney Award from the National Academy of Family Law Attorneys (NAFLA). You can reach Attorney Rauseo at email@example.com.