Taking Care of Business: Child Support When a Parent is Self-Employed or Owns a Business

Our state’s child support guidelines calculate child support obligations based on gross incomes of parents, any work-related childcare, health insurance and several other factors. When a parent has a salary and W-2 statement, it is usually easier to determine that parent’s gross income. A parent who is self-employed and/or owns a business has at least some control over his or her gross income. For this article, assume a self-employed person is the same as a business owner with 100% ownership.

NC guidelines define gross income for a self-employed parent as “gross receipts [of the business] minus ordinary and necessary expenses required for self-employment or business operation.” That means the court would calculate a disputed income by first looking at the total income generated by the business, then subtracting the business expenses. Business expenses claimed on tax returns may be perfectly acceptable to the IRS, but the court may or may not deduct them when determining income for child support. That is the tricky part.

But there are a few things that are clearly not subtracted from gross receipts, such as the accelerated component of depreciation expenses. The court considers each of the claimed business expenses and decides which will or will not be subtracted from the gross receipts generated by the business. Fringe benefits paid for by the business “are counted as income if they are significant and reduce personal living expenses.” Examples of these types of expenses that are considered income to the parent who is self-employed include use of a company car or free housing.

Are Bad Parents Rewarded in Custody Cases?

In the real world, people’s morals form the foundation of their beliefs, of right and wrong. If someone does something wrong, there is an expectation of consequence or penalty. A parent punishes a child for bad behavior. Or, relatives might disown each other and spend decades estranged from one another because one of them wronged the other. Paying someone back, or washing your hands of him or her for “bad” behavior may be totally justified in the real world. In fact, that is usually the reason a couple separates.

Judges in custody cases look at things differently. It helps to think of court as its own little eco-system. Courts are based on the law, plodding through a checklist of legal considerations that must be made. These considerations are not necessarily based on right and wrong. Judges start from the premise of no-fault, similar to no-fault divorces. Why you separated is irrelevant to the judge if you obtain a divorce in North Carolina. Bad behavior of one parent matters little unless it relates to the safety and well-being of the child.

How Bad is Bad?

As with most of the matters in family cases, it is a matter of degree. Clients sometimes ask if the court will deny visitation or terminate the other parent’s rights. The answer is no, in the vast majority of cases. The degree of bad behavior that is required to do so is extreme. The courts will not deny visitation because the parent is mediocre, or because he or she is a poor parent. It is likely he or she will have visitation and the question becomes a matter of how frequently and for how long. If the other parent behaves poorly, the judge may try to fix it. For example, a judge can order a parent not to smoke in the home or car when the child is there. A judge might also require the parent to have no alcohol in the home, or go to counseling to address anger issues, depression, or other mental health concerns. A judge can require supervised visitation, depending on the family circumstances.

Do Judges Reward “Bad” Parents?

Bad behavior will not help the other parent’s case, but don’t expect the judge to say he or she blew it, and therefore, visitation is denied. Judges want children to have both parents if at all possible. For example, a parent who has not played an active role in a child’s life may return a few years later and persuade a judge to give him or her a second chance to gradually create some sort of relationship. This doesn’t mean a judge will give that parent custody, just the opportunity to see if a bond can be created or renewed. To the judge, the estranged parent isn’t being rewarded even though it feels like it. You will always be a parent and you will also be loved. But the judge’s goal is to see if the other parent can successfully play some role and give the child two parents.