What defines income under F.S. Ch. 61: from a business perspective.

• Author: Caballero, Alexander
• Position: Florida Statutes ch. 61

The importance of the precise calculation of income during the course of family law proceedings cannot be overstated. As the Fifth District Court held in Brock v. Brock, 690 So. 2d 737 (Fla. 5th DCA 1997), "the extent of the parties' income from all sources and the reasonable income-earning abilities of the parties are essential parts of the equation in determining whether permanent alimony is appropriate, and if so, the proper amount, and in determining the parties' comparable financial circumstances, to justify or deny an attorney's fee and costs to the spouse with less resources."

Income drives child support obligations under the statutory guidelines. For purposes of F.S. Ch. 61, however, income may differ from income for federal tax purposes. Moreover, what constitutes income has changed as employers begin to offer a multitude of perks that go beyond simple salary or wages. A person also may be the benefactor of a trust, partnership, or other vehicle which provides income, while reducing tax liabilities. Stock options, loan forgiveness, trust disbursements, and signing bonuses are just a few of the examples of what a court may or may not consider income. This article will outline the basis of establishing what may constitute income under certain circumstances.

Definitions

Ch. 61 contains two statutory definitions of income. F.S. [section] 61.0467 provides the following definition: "Income" means any form of payment to an individual, regardless of source, including, but not limited to: wages, salary, commissions, and bonuses, compensation as an independent contractor, worker's compensation, disability benefits, annuity and retirement benefits, pensions, dividends, interest, royalties, trusts and any other payments made by any person, private entity, federal or state government, or any unit of local government. The United States Department of Veteran's Affairs, disability benefits and unemployment compensation, as defined in Chapter 443, are excluded from this definition of income, except for purposes of establishing an amount of support.

(Emphasis added.)

F.S. [section] 61.302 includes the following definition for purposes of child support:

Income shall be determined on a monthly basis for the obligor and for the obligee as follows:

1. Gross income shall include, but is not limited to, the following items:

1. Salary or wages.

2. Bonuses, commissions, allowances, overtime, tips, and other similar payments.

3. Business income from sources such as self-employment, partnership, close corporations, and independent contracts. "Business income" means gross receipts minus ordinary and necessary expenses required to produce income.

4. Disability benefits.

5. All workers' compensation benefits and settlements.

6. Unemployment compensation.

7. Pension, retirement, or annuity payments.

8. Social security benefits.

9. Spousal support received from a previous marriage or court ordered in the marriage before the court.

10. Interest and dividends.

11. Rental income, which is gross receipts minus ordinary and necessary expenses required to produce the income.

12. Income from royalties, trusts or estates.

13. Reimbursed expenses or in kind payments to the extent that they reduce living expenses.

14. Gains derived from dealings in property, unless the gain is nonrecurring.

The [section] 61.302a listing is not exclusive, but merely itemizes examples of what must be included as income.

Business Compensation and Investment Income

Some sources of income may at first glance appear to be attributable to a party as income for alimony and child support purposes; however, upon closer examination, these sources of income may not be determined to be "income" for alimony and child support calculations. For example, in McHugh v. McHugh, 702 So. 2d 639 (Fla. 4th DCA 1997), the court did not include Schedule K-1 income for purposes of the child support because the K-1 income was not available to the husband. The trial court properly excluded the $240,000 in schedule K-1 income attributed to husband's stock ownership because the corporation actually retained the income, even though the income was taxable to shareholders. The husband, being only a 10 percent shareholder to the company, did not have access to or control over the funds. The trial court also properly excluded as income $124,000 which the corporation paid to the IRS for the tax liability on the schedule K-1 income, as well as $150,000 in loan forgiveness on a stock purchase agreement for the corporation stock because it was not recurring even though loans were forgiven over a number of years and because it was included as a marital asset. See also Catalfumo v. Catalfumo, 704 So. 2d 1095 (Fla. 4th DCA 1997) (the trial court did not abuse its discretion when it did not include husband's capital gain because the record did not establish whether the gains were recurring).

However, in Martinez v. Martinez, 761 So. 2d 433 (Fla. 3d DCA 2000), the Third District Court of Appeal held that the trial court correctly imputed to husband the retained income of his construction company, an S corporation, for alimony and child support purposes. Husband was the sole owner of the construction company which he started and developed during the marriage. The court cited F.S. 61.0464 [subsection]...