The Numbers Don’t Lie: Determining Income of the Self-Employed Party

A self-employed party to a family law matter can present a unique set of challenges for a family law attorney when it comes to determining income available for support, as well as other financial issues. Regardless of the particular profession that the self-employed individual may have — gardener, mechanic, lawyer or movie producer — if that person is not keeping accurate records of their income and cash flow, seemingly simple family law issues may become increasingly more complex and expensive, too.

Making the Calculation

A family law attorney must be able to present a specific dollar amount to the court as income to make support calculations. A lawyer cannot simply tell the court that the opposing party “must earn at least $10,000 per month.” There must be solid evidence, backed by supporting documentation, for the court to calculate and render a specific support order regarding the gross monthly income of the self-employed party.

Uncovering the self-employed party’s method of tracking their income and expenses is the first step in determining their gross monthly income. Are they using a check register? Monthly profit and loss statement? How are they paid, by cash or by check? Is the income always deposited? What expenses are they running through their business? Full and accurate answers are necessary for making the calculation.

Reviewing the Records

A simple bank deposit analysis can often yield results which may lead to another level of inquiry. For example, an analysis of the last 12 months of bank statements, covering the same 12-month period of a financial statement or tax return, may show that the self-employed party’s gross income is different from the deposits into their bank statements. If the tax return reflects gross income of $200,000 but the bank statements for the same time period reflect deposits of $320,000, the self-employed party must be able to account for this discrepancy.

Such inquiries may not only open new doors of analysis for the attorney, they can also weigh on the credibility of the self-employed party. This can be crucial, for example, in opposing a self-employed party’s’ request for a downward modification of child support based on that party’s claim of a decrease in income.

Embracing the Numbers

Many attorneys suffer from Arithmophobia, defined as the exaggerated, constant and often irrational fear of numbers. A family law attorney who is fearful of or intimidated by numbers is only doing an injustice to their client. A family law attorney, in addition to being a zealous, strong and compassionate advocate, must also be skilled at reading and interpreting tax returns, understanding profit and loss statements, and having a familiarity with various financial terms and theories. Numbers don’t lie; in fact, the numbers can often reveal an interesting story, which, when presented by a skilled family law attorney to the court, can yield great results for the client.