I recently heard a person say that their spouse believed his alimony and child support would be based solely on his salary.  I am sure he would like that but that statement is wishful thinking at best.  If he was correct, several hundred thousand dollars each year would be his alone and not considered for support.  Aside from potentially being unfair, it is not the law.

In fact, in New Jersey, the definition of income from support purposes includes all sources of income.  In fact, the Child Support Guidelines includes, but is not limited to 23 possibilities for income, as follows:

a. compensation for services, including wages, fees, tips, and commissions;
b. the operation of a business minus ordinary and necessary operating expenses (see IRS Schedule C);
c. gains derived from dealings in property;
d. interest and dividends (see IRS Schedule B);
e. rents (minus ordinary and necessary expenses – see IRS Schedule E);
f. bonuses and royalties;
g. alimony and separate maintenance payments received from the current or past  relationships;
h. annuities or an interest in a trust;
i. life insurance and endowment contracts;
j. distributions from government and private retirement plans including Social Security, Veteran’s Administration, Railroad Retirement Board, deferred compensation, Keoughs and IRA’s;
k. personal injury awards or other civil lawsuits;
l. interest in a decedent’s estate or a trust;
m. disability grants or payments (including Social Security disability);
n. profit sharing plans;
o. worker’s compensation;
p. unemployment compensation benefits;
q. overtime, part-time and severance pay;
r. net gambling winnings;
s. the sale of investments (net capital gain) or earnings from investments;
t. income tax credits or rebates (excluding the federal and state Earned Income Credit and the N.J. homestead rebate);
u. unreported cash payments (if identifiable);
v. the value of in-kind benefits; and
w. imputed income

Case law has expanded the definition of income to include the exercise of stock options.  No doubt, restricted stock, warrants, and other deferred compensation, when realized, is income for alimony and child support purposes too. 

While the case law, referring to the IRS definitions, treats stock options as income when exercised, a questioned unanswered by NJ law is whether a party can interminably hold options, and not cash them in, if the result would be to deprive their children of support.  Put another way, if someone chooses not to exercise options, but could, can income be imputed?  That is an interesting issue that will probably be litigated one day.

Until then, it is clear that if something looks like income, it probably will be included for calculation of alimony and child support.

One Response to If You Think Your Alimony or Child Support Will Be Based Solely on Your Salary, Think Again

stock options are usually exercised when the strike [exercise] price is less than the market price of the underlying stock. if the strike price is greater, it is cost effective to buy the stock in the public market and not exercise the option. given the current situation where many existing options were granted pre-2008 when the market was significantly higher, many options are underwater [of no current value to the holder] because strike price exceeds market price. since option grants usually take several years to vest, the active decision not to exercise an option that is in the money probably will start to come up as a litigation issue around 2016 or later.

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