On October 28, 2010, the Appellate Division issued a very interesting opinion in the case of Holden v. Holden. While I will be doing another blog on the aspect of the case dealing with child support when the parties’ incomes exceed the Child Support Guidelines, this blog deals with an interesting decision regarding determination of income – particularly net income – for child support purposes.
In this case, the father’s salary was $240,000, In his submission to the court, her argued that his budget included a tax reserve for anticipated taxes and an amount for debt service for past due taxes. The mother argued in response that the husband’s gross income should be treated as net income (child support is calculated after determining net income under the Child Support Guidelines) since the husband had not paid federal taxes since 1997, and in fact, the father sought employment outside of the country to evade his taxes.
The trial court agreed with the mother finding that the father failed to present credible evidence of withholding taxes and based upon his past practice of ignoring his tax obligations, based his support obligation on $240,000. The Appellate Division affirmed.
This is a refreshing application of economic reality to get to a fair result. Though not precedential, I think the arguments can be possibly extended. In your average case, the Child Support Guidelines calculate taxes based upon published tax schedules, as opposed to actual taxes paid. If someones actual tax obligation is far less, because they have additional deductions or for any other reason, they actually have more net income than the Guidelines calculations might reflect. This case certainly gives rise to an argument that actual taxes paid should be used.
Moreover, sometimes we add back perquisites to income and, in fact, the Guidelines say that "in-kind" benefits are income. However, if they in-kind benefits are not taxes, why should they be added to income and tax effected for support purposes? Similarly, when someone is self employed and the business pays personal expenses (legitimate or not) that get added back to income, why should they be tax affected if tax is not actually paid?
If the goal is fairness based upon economic reality, this case actually provides an arrow in an party’s quiver to make the argument that reality should be considered.