When determining an alimony award, New Jersey courts look at a variety of factors that are listed under N.J.S.A. 2A:34-23(b).  At the very top of that list is "The actual need and ability of the parties to pay."  Similarly, when determining child support, one factor that courts in this State consider is "All sources of income and assets of each parent."  When determining a payor spouse’s income, courts will consider both the supporting spouse’s present earnings and potential earning capacity.

The question becomes more complicated when the payor spouse owns his or her own business.  Oftentimes tax returns do not tell the whole story and cannot be relied upon as the sole source for rendering an income determination.  For instance, that spouse may have a bank account under the business name, but uses it nevertheless for personal expenses.  Oftentimes such personal expenses are not accounted for on a tax return as income and it then becomes a matter of determining what the actual income level is.  Another example may involve the spouse being reimbursed through the business for personal travel expenses. 

As the question becomes more complicated, it also can become more costly, as forensic accounting experts may be required to review make a, cash flow and/or "standard of living" determination upon which a court can rely.  The experts (each side may retain their own) will typically issue separate reports, they may be deposed, and ultimately they may be called to testify at trial as to the methodolgy employed, what they relied upon in creating the report and whether the report’s conclusions are actually credible. 

Courts will also look at the parties’ respective Case Information Statements, a comprehensive document detailing income, assets, liabilities and monthly expenses.  These documents are signed by each party under penalty of perjury prior to filing and not only provide a key glimpse into the overall picture of a matter, but also provide insight as to whether the filing spouse is withholding information, misrepresenting expenses, or exaggerating liabilities in an effort to increase or decrease a support award depending on whether the payor or payee spouse’s "CIS" is being analyzed.

The payor spouse’s income was merely one of the many issues at hand in the Appellate Division’s recent unreported (not precedential) decision in Romania v. Mattera, a protracted matrimonial litigation between two lawyers with a complaint for divorce dating back to 1999.  As part of the matter, the Wife even went so far as to make a claim for damages against the Husband based on an allegation of malicious prosecution, which was dismissed by the trial court and affirmed on appeal.

At the heart of the matter as to support was the income level of the Husband, who owned his own law firm.  In determining that the Husband’s net income was approximately $778,000 annually, the trial court relied upon the Husband’s accounting expert’s testimony that the law firm’s receipts and expenses would remain constant throughout the year despite historical earnings showing that fees collected actually varied widely on an annual basis.  The Appellate Division found this to be an unreasonable assumption upon which to rely as a result. The Appellate Division also found evidence in the record regarding the Husband’s reported ratio of revenue to expenses that would allow a finding of net business revenue higher than that of which he actually reported on his taxes.  As a result, the Appellate Division concluded that the net business revenue could not be equated to net income actually available to the Husband. 

Turning its attention to the Wife’s accounting expert, the Appellate Division concluded that the expert properly demonstrated that the actual income available to the Husband was net business income minus personal income tax on that business income.  However, because the foundation upon which the trial court determined alimony and child support was incorrect – $65,000 in net income per month for the Husband – it remanded to the trial court for a proper determination.  In so doing, the Appellate Division also found problematic the trial court’s imputation of income to the Wife.

As the Appellate Division’s decision demonstrates, determining a payor spouse’s ability to pay can involve a complex analysis of income, especially when that spouse owns their own business and may have unreported income that, for support purposes, must be considered as income.  Utilizing the right experts when necessary and retaining knowledgeable counsel are simply the first step in what can be a long and costly process.