MICHIGAN CHILD SUPPORT FAQ #2: How Is Self-Employment Income Handled Under the Guidelines?

MICHIGAN CHILD SUPPORT FAQ #2: How is a Self-Employed Person’s Income Determined for the Purpose of Calculating Support?

Unlike the typical “W-2” wage earner, analysis of a self-employed person’s income requires a more comprehensive approach and may require an analysis of business and tax records. For the self-employed person, their taxable income does not necessarily reflect the income used by the Michigan Child Support formula to calculate child support. 

The Michigan Child Support Formula defines income for both the employed and self-employed. Clearly, it may be more difficult to determine a self-employed person’s income for several reasons and the Michigan Child Support Guidelines address this (MCSF 2.01 (E) (1):

A) a self-employed person often has several types of income and allowable expenses that are not frequently granted to those who are not self-employed;

B) a self-employed person tax records differ from those employed; and

C) a self-employed person may be able to arrange compensation in a way to make it not visible if you just look at a party's gross wages or receipts.

Due to the above factors, the Michigan Child Support Formula has opined that it may be necessary to review business tax returns, balance sheets for the business, accounting or banking records, and other pertinent records for the self-employed person.  (MCSF 2.01 (E)(2). To obtain these records, a person seeking child support from a self-employed person will likely have to conduct discovery. Discovery is a process set up by the Michigan Court Rules to allow parties to discover and verify facts relevant to their support case. Discovery is important for many reasons. The top two reasons to conduct discovery is if you do not believe in the credibility of the financial records voluntarily provided by the other parent and/or you want to investigate past financial records to show a pattern of income that is variable on a year-to-year basis. 

The Michigan Child Support Formula at MCSF 2.01 (E)(4) goes on to state that special attention should be focused on different forms of compensation for the self-employed or business owner, which include: distributed profits, profit sharing, officers’ fees, commissions, bonuses, in-kind income, redirected income such as personal loans, payments made to third parties, reduced or deferred income, and lastly certain deductions that the IRS allows for a business-related expenses may be counted as income for calculating support obligations under the Guidelines.  

If you hire the right legal counsel, they will be able to help maximize a self-employed person’s income for purposes of helping the non-parent business owner or if you’re the business owner help carefully analyze your income, so it is not overly inflated by the Court. Calculating income for the self-employed person is fact intensive, and the attorneys at Banfield Couling Law and Mediation are here to help you navigate the Michigan Child Support Formula.

PLEASE NOTE: This blog is not intended to constitute legal or tax advice. We do not recommend making important decisions of the type addressed in this article without specific legal or tax advice in advance. We at Banfield Couling Law and Mediation are here to help navigate your legal matter at any stage of your divorce. For any tax issues you face, we recommend consulting a licensed accountant. If you are seeking legal advice, the attorneys at Banfield Couling Law and Mediation are here to assist you