What Defines Income Under F.S. Ch. 61: From a Business Perspective
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.
Ch. 61 contains two statutory definitions of income. F.S. §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.
F.S. §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:
a. 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 §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, 61.082g, 61.302a; Sohacki v. Sohacki, 657 So. 2d 41 (Fla. 1st DCA 1995); and Zipperer v. Zipperer, 567 So. 2d 916 (Fla. 1st DCA 1990). In Zipperer, the First District Court of Appeal rejected the husband’s argument that interest, dividend, and business income should not be attributed to him because he only reported it for tax purposes and, were he to receive it, he would actually suffer a loss. See also McDaniel v. McDaniel, 653 So. 2d 1076 (Fla. 5th DCA 1995) ($400 a month imputed as a result of income distributions controlled by family business).
In Oxley v. Oxley, 695 So. 2d 364 (Fla. 4th DCA 1997), the husband had established a revocable trust. The husband received only approximately $15,000 per month from the trust, when he had a right to receive three times that amount. The trust terms required distribution of all income. The court held that “husband’s election not to accept all of the income he was entitled to receive from the trust is effectively a decision to put aside a portion of his income for savings and investments” and that husband’s “income” for the purposes of determining child support included trust income, pursuant to F.S. §61.302a12. The court determined that all of the trust income was “income” for husband whether he decided to use the income or not. Similarly, passive income from the prudent or actual investment of either nonmarital assets or assets acquired in the equitable distribution of marriage assets are included as income. See Brock v. Brock, 690 So. 2d 737 (Fla. 5th DCA 1997); and Lochridge v. Lochridge, 526 So. 2d 1010 (Fla. 2d DCA 1988). Also, gifts by family, friends, or others can be considered income when “continuous and ongoing.” See Meighen v. Meighen, 2002 WL 429065 (Fla. 2d DCA March 20, 2002); Ordini v. Ordini, 701 So. 2d 663 (Fla. 4th DCA 1997); and Cooper v. Kahn, 696 So. 2d 1186 (Fla. 3d DCA 1997); compare Vorcheimer v. Vorcheimer, 780 So. 2d 1018 (Fla. 4th DCA 2001), and Sol v. Sol, 656 So. 2d 206 (Fla. 3d DCA 1995). But see Rogers v. Rogers, 824 So. 2d 902 (Fla. 3d DCA 2002), which clarified the standard for determining whether gifts from family can be included in income for support purposes. Rogers indicated that in order to be considered income, the gifts must be continuing and ongoing, not sporadic.
The rule set forth in McHugh, Martinez, Zipperer, Oxley, and related cases is not simply to look at whether the income is claimed on income taxes, but also to determine what control the party has to actually obtain or control the income. If the party is the sole or majority owner of a business and can control the business income distribution then the income should be attributed to them; however, if the party is a minority owner and cannot control the distribution of the income, then the income should not be income for family law proceedings. An analysis must be made as to whether the income is actually being received by the party. As in McHugh, when the parties do not actually receive the income or benefits from that income, it should not be attributed to them as “income.” However, when the income is attainable or reachable by the party, but they choose not to use that income, that income may be deemed “income” for that party. See, e.g., Martinez, Zipperer, McDaniel, and Oxley.
Employers often pay living expenses, especially in family-owned businesses or professional associations. F.S. §61.302a.13 provides that “reimbursed expenses or in kind payments to the extent that they reduce living expenses” shall be included in determining income in awarding child support. Income for child support usually dictates a similar application in alimony and attorney fees determinations; however, in both cases the dollar value of the benefit must be assigned and the benefit must not be “de minimus.” Jones v. Jones, 679 So. 2d 1270 (Fla. 1996); and Sierra v. Ellison, 677 So. 2d 406 (Fla. 3d DCA 1996).
In Jones v. Jones, 679 So. 2d 1270 (Fla. 2d DCA 1996), the court held that food that the family-owned restaurant provided to the family and the payment of household supplies by the business could be included as income. Automobiles and gasoline provided by an employer have also been considered income. Pedroza v. Pedroza, 779 So. 2d 616 (Fla. 5th DCA 2001). See also Jarrett v. Jarrett, 746 So. 2d 586 (Fla. 1st DCA 1999) (leased vehicle and associated expenses); and McDaniel v. McDaniel, 653 So. 2d 1076 (Fla. 5th DCA 1995) (company car); and Sierra, 677 So. 2d 406 (take-home vehicle). In Jarrett, clothing allowances provided by an employer were deemed income. Even housing and company paid credit cards by a family business have been held to be income to an employee. Garcia v. Garcia, 560 So. 2d 403 (Fla. 3d DCA 1990). See also Chapoteau v. Chapoteau, 659 So. 2d 1381 (Fla. 3d DCA 1995) (employer-paid housing constitutes an in-kind benefit).
However, a court is unlikely to consider general per diem pay to be income when the per diem is a flat rate that does not necessarily cover the actual expenses incurred by the party or when the per diem is de minimus in nature. Lauro v. Lauro, 757 So. 2d 523 (Fla. 4th DCA 2000) (“trial judges should not be reduced to having to decide how much a spouse, who was reimbursed for a meal while traveling, would have spent on a can of soup or a frozen dinner eaten at home”).
In Ghen v. Ghen, 575 So. 2d 1342 (Fla. 4th DCA 1991), the Fourth District Court of Appeal cited Diffenderfer v. Diffenderfer, 491 So. 2d 265 (Fla. 1986), when it held that a substantial liability an obligation to repay Medicare for overpayments could not be divided between the parties as a marital liability and again subtracted from husband’s income for purposes of support the liability was not considered in valuing the husband’s business. The wife’s share of the assets was reduced by the liability and husband’s income also was reduced by the same liability. The Fourth District Court of Appeal considered this procedure double-dipping. Several courts also have cited Diffenderfer for the premise that a pension may not be considered an asset for equitable distribution as well as income for support. See, e.g., Schlafke v. Schlafke, 755 So. 2d 706 (Fla. 4th DCA 1999); and Goodman v. Goodman, 666 So. 2d 262 (Fla. 4th DCA 1996).
In Lasala v. Lasala, 806 So. 2d 602 (Fla. 4th DCA 2001), the Fourth District Court of Appeal held that the income stream attributable to renewal commissions in an insurance business could not be considered as an asset for purposes of equitable distribution and as a source of income for purposes of determining support. Similarly, in Seither v. Seither, 779 So. 2d 331 (Fla. 2d DCA 1999), the Second District Court of Appeal held that stock options obtained in lieu of salary could be considered income for support purposes, but that if a trial court decided to treat certain stock options as an asset, it could not then treat the same stock options as income for the purposes of calculating alimony. See also McHugh.
In Harper v. Harper, 546 So. 2d 438 (Fla. 2d DCA 1989), disapproved on other grounds in, Thompson v. Thompson, 576 So. 2d 267 (Fla. 1991), the Second District Court of Appeal held that the husband’s interest in an accounting partnership provided an income stream to husband. The interest consisted of a 23 percent share of the capital account of the partnership and a 35 percent interest in the building rented by the partnership. Both of these interests were above and beyond the husband’s salary as partner. The court found that the capital account was arguably a source of income for alimony payments in the future when the husband begins to receive benefits due to death, disability, or retirement, but that the same was not true regarding husband’s interest in the land and building. The articles of partnership did not include this value in determining the net assets of the firm for purposes of paying out to retiring partners; therefore, it was not part of a future “income stream.” Although the interest in the land and building constituted a marital asset for purposes of equitable distribution, the capital account appeared to be considered income only and was not an asset for distribution.
In a complicated financial scenario, in Stock v. Stock, 693 So. 2d 1080 (Fla. 2d DCA 1997), the parties owned a portion of Davilla property and Naples Riding Academy, Inc. The wife earned her income from the lease payments made from the riding stable. The husband was awarded an undivided fractional interest in the Davilla property, along with a commensurate interest in the rents paid by the riding academy to be applied as a setoff against his share of the Davilla property expenses. Because the wife received most of her income from the leases of the riding academy, the court held that a portion of the income that was charged to the wife for child support purposes was actually awarded to the husband in the equitable distribution scheme. Therefore, the court’s calculations were erroneous. On remand, the trial court was instructed to recalculate the husband’s child support obligation after adjusting the parties’ respective incomes accordingly.
Stock options are also capable of being viewed as either income or an asset for equitable distribution. Seither v. Seither, 779 So. 2d 331 (Fla. 2d DCA 1999). However, if stock options are divided in equitable distribution the options cannot then be considered in the determination of a party’s income. Id. Seealso Milo v. Milo, 718 So. 2d 343 (Fla. 2d DCA 1998).
Therefore, in determining income, a family law practitioner must look at the source of that income to determine whether it has already been distributed through equitable distribution. If that asset had been distributed through equitable distribution, it should not be looked at again for income to be attributed to that party.
Overtime and Bonus Income
The plain, unambiguous language of F.S. §61.302a2 does not limit overtime to mandatory overtime. Regular overtime earnings should be included in the determination of gross income unless the trial court specifically finds that such earnings will not be available as a source of income in the future. Skipper v. Skipper, 654 So. 2d 1181 (Fla. 3d DCA 1995). In Skipper, the Third District Court of Appeal addressed the meaning of “overtime” in §61.302a2. It approved the trial court’s failure to include “mandatory overtime” due to Hurricane Andrew because the overtime was temporary and short-lived occurrence. However, the court held that other regular, voluntary overtime should be included “in the absence of a finding that such income would not continue to be available to the former husband by his employer in the future.”See also Butler v. Brewer, 629 So. 2d 1092 (Fla. 4th DCA 1994); and Burton v. Burton, 697 So. 2d 1295 (Fla. 1st DCA 1997) (husband averaged 30-35 hours a month in off-duty work, but the sheriff’s department recommended that employee’s limit of off-duty work to 24 hours per month and husband felt that he would be limited to that amount in the future, the appellate court held that at least 24 hours a month should be included in husband’s income for child support purposes).
In Shrove v. Shrove, 724 So. 2d 679 (Fla. 4th DCA 1999), the Fourth District Court of Appeal held that regular overtime should be included as income unless the court specifically finds that the opportunity to earn overtime will not be available as an income source in the future, analogizing overtime to bonuses. The general rule is that regular and continuous bonuses will be properly included in a party’s gross income pursuant to F.S. §61.302a2. See Shrove. However, not all bonuses are included as income by Florida courts. An examination needs to be made of the circumstances surrounding the bonus when determining whether it comprises income.
In Crowley v. Crowley, 672 So. 2d 597 (Fla. 1st DCA 1996), the husband earned what the trial court called “speculative and uncertain bonuses,” in addition to his base salary. Bonuses were not guaranteed, but were based in part on husband’s own production of revenues. The First District Court of Appeal held that the smallest bonus paid over the last four years was to be included in gross income, even though his average bonus during that time exceeded the amount by $60,000 per year. The court felt that it was taking the uncertainty out of the bonus by utilizing the smallest figure. In Crowley, husband strongly argued that, due to business considerations, he would not receive a substantial bonus, but the evidence indicated otherwise. Nevertheless, the appellate court utilized the smallest bonus, rather than averaging the bonuses. In Lauro v. Lauro, 757 So. 2d 523 (Fla. 4th DCA 2000), the court looked at the husband’s income which, including bonuses, was $60,000 in 1996, $66,000 in 1995, and $52,000 in 1994. The court held that husband’s income in 1997, which was substantially greater than his average income for the preceding three years may not continue. Therefore, the court remanded the case to consider husband’s income for 1998 and 1999 which figures should have been available.
Conversely, in Colston v. Green, 742 So. 2d 280 (Fla. 1st DCA 1999), the First District Court of Appeal held that a one-time signing bonus received by a professional football player in order to avoid the NFL’s “salary cap,” constituted income. The Colston case, however, may be limited to cases involving professional athletes when teams attempt to circumvent restrictions on salaries that they pay athletes by paying them signing bonuses which will not count against or limit salary caps.
When determining whether bonus and overtime income constitute income to be considered for alimony and child support, the first issue to be considered is whether they are regular and continuous. If regular and continuous and available, the overtime and bonus income should be considered. The amount of a bonus should be reflective of past bonus income, but not be merely an average of past bonus amounts. Lastly, the pay structure of the parties should be considered to determine the purpose of a bonus and how that party’s total income is derived.
The premise that anything of value received or capable of being received constitutes income underlies the courts’ decisions. From those items, the courts generally carve out the following exceptions: 1) that which is not recurring or is sporadic; 2) that which is not available; 3) that which does not reduce the actual living expenses of the party; 4) that which has not already been distributed as a marital asset; and 5) that which does not reduce the value of existing assets or cannot be valued. What remains appears to be income under Ch. 61. The failure to include or exclude income is often overlooked in dissolution proceedings and can unfairly skew long-term support awards and the apportionment of attorneys’ fees and costs.
Alexander Caballero is board certified in marital and family law and has been practicing exclusively in family law with the firm Sessums, Mason & Black, P.A., since 1999. Prior to that he was a lead trial attorney with the Hillsborough County State Attorney’s Office. He graduated cum laude from the University of South Florida in 1990 with a double major in criminology and psychology and received his J.D. with high honors from Florida State University College of Law in 1993.
Ingrid Anderson graduated as a four-year senior scholar from the University of Florida, was awarded a graduate fellowship from the University of South Florida, and earned her J.D. from the University of Kentucky. She is currently an associate with the firm of Sessums, Mason & Black, P.A., Tampa.
This column is submitted on behalf of the Family Law Section, Evan R. Marks, chair, and Kristen Adamson-Landau, editor.