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What do you earn? Self-employment and divorce

When a couple divorces or separates, the court looks at their respective incomes to decide how much child support to award or whether spousal support is called for. When both spouses are employees, calculating income is a relatively simple matter of checking W-2s. When one or both parties are self-employed, things get complicated.

Statistics show that in 2012, New York City boasted nearly a quarter million self-employed individuals. Of this number, which represented a 31% increase between 2000 and 2012, over 31,000 resided in the Bronx. Coincidentally, the Bronx also experienced a higher rate of self-employment than any other borough during this time, with an 87.3% increase. Many of these New Yorkers enjoyed greater earning capacity than ever before and even accumulated a substantial number of assets.

Self-employment income is difficult to account for in divorce proceeding because everything they earn is not necessarily take-home pay. These people usually have significant business expenses that they write off to minimize their recorded profits and, subsequently, their tax liability. Expenses may include:

  • Home office costs
  • Office space rental
  • Advertising
  • Cell phones
  • Motor vehicle
  • Restaurant meals

Accurately summarizing all self-employment income on a schedule of assets and debts is harder, but a combination of tax returns and a complete account of their business expenses is a reliable way of helping a person determine their income. If they keep thorough records, calculating net income for the purposes of determining child support or spousal support is much easier.

One common risk in a divorce involving self-employed spouses is that a New York court may find some expenses questionable and factor them in as income instead. For example, a spouse seeking support may want to have certain expenses disallowed, insisting that they are really personal benefits for the self-employed individual.  The onus is then on the self-employed spouse to prove that the expense is solely related to business operation and required to generate income. After an examination of the business financial accounts, the court will render a decision.

Once income for the purposes of support has been calculated with reasonable accuracy, the amount payable can be decided. The court will also use this figure if the spouses share childcare expenses in proportion to income.

If you are self-employed and concerned about how to accurately present your eligible income to the court, a New York family law attorney can recommend the right supports, such as an accountant or financial analyst. You have the right to leave the marriage with enough financial resources to start over, and your attorney can assist you in giving the court a clear picture of what you have now and what you will need. Jayson Lutzky has helped many highly-satisfied clients file for both contested and uncontested divorces over the past 35+ years. His office is located in the Bronx, NY and he offers free in-office initial consultations. Call 718-329-9500 to set up an appointment. Saturday appointments are available. Learn more about Mr. Lutzky at www.MyNewYorkCityLawyer.com.

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