How to determine income for self employed individuals.

How to determine income for self employed individuals.

Self Employed Individuals:  How Their Income Is Evaluated

Suppose a couple with children is seeking a divorce, and one spouse is self-employed.  How does the divorce court determine how much child support is paid by the self-employed parent?  The Arizona statute 25-320.02 sets out a fairly simple and structured plan

Step One

Each parent gets to submit the names of two federally authorized tax accountants to the court, and the court will select one to evaluate the income of the self-employed parent. If the parties can’t agree on an accountant, the court will pick one for them.

Step Two

The accountant then reviews business records of the solo practitioner or freelance parent and issues a report to the court on how accurate the records are.  The court wants to determine the amount of child support, based on the parent’s gross income.

Step Three:  Gross Income Defined

Gross income is the income earned, less reasonable business expenses—the cost of doing business.  These will vary, depending on whether the party being audited is a doctor or lawyer with their own practice, as opposed to the freelance writer or artist who earns a living.  A smaller business will be far easier to evaluate than a larger one.  The requirement of a federally authorized tax accountant assures that his or her findings will be objective.

And Finally, Who Gets to Pay the Accountant?

The court will decide whether one spouse pays, or they share the cost.  It is probably at the discretion of the court.  So it would be wise if the parent who is being evaluated acts in good faith.  They should present organized business records, and be completely honest about all their assets and liabilities.  If, by chance, they had hidden assets, this would be a good time to reveal that fact, and assure the court that it will not happen again.  Lying to a court appointed accountant could create a great deal of trouble in the future.  In this case, honesty is not just the best policy, it is the only policy to follow. Be organized and accurate.

To Sum it All Up

The marriage has ended, but there are children and both parties should put their needs first.  Submitting accurate and organized business records means the court can resolve child support issues without much fuss or conflict.  It’s tempting to view the other party as a freeloader, especially when a solo practitioner worked long hours to support a family unit, only to have the unit shattered.

Work with a good divorce lawyer to obtain a fair divorce settlement.  They will have a support staff of accountants to help you present your records, and get a fair hearing from the divorce court.  It will take a great deal of stress out of the divorce process when parties consult experienced family lawyers.  They help clients settle with the past, and build a future after the divorce.  Freelancers and solo practitioners should get help to pay a fair amount of child support.