In determining a payor spouse’s gross income in analyzing an appropriate level of alimony or child support, one question that arises on occasion is whether to include so-called “mandatory” contributions to the total number.  For instance, if the payor spouse is required by his employer to contribute $30,000 per year towards his 401(k), should such money be included in that spouse’s income in determining support?  As to child support, the answer is a definitive “no.”

As to alimony, since such contributions are excluded from the child support equation and child support carries great weight as a matter of public policy – the New Jersey Child Support Guidelines posit that children should not be forced to live in poverty due to family disruption – it is only sensible and reasonable for such contributions to be similarly be excluded from the alimony calculation.  Simply put, since the Guidelines consider any and all sources of income to aid children, the fact that mandatory contributions are excluded demonstrates that it would be even more unfair and unreasonable to include such contributions in calculating alimony.

The Guidelines provide a definition for “gross income” and, in so doing, expressly exclude mandatory contributions.  Gross income is defined as “all earned and unearned income that is recurring or will increase the income available to the recipient over an extended period of time.  When determining whether an income source should be included in the child support guidelines calculation, the court should consider if it would have been available to pay expenses related to the child if the family would have remained intact or would have formed and how long that source would have been available to pay those expenses.”

As a general matter, the Guidelines specify sources of 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 (see Appendix IX-A, paragraph 12

Later in the guidelines, under the section, “Mandatory Retirement Contributions,” the guidelines state, “Contributions to retirement or pensions plans that are mandatory (i.e., required as a condition of employment) are not considered income for determining child support obligations . . .” By contrast, if the contribution is voluntary, it is not to be excluded from gross income. The same deduction is also subsequently provided for as to mandatory union dues.

Several cases in New Jersey affirm the principles and definitions espoused by these portions of the Child Support Guidelines. The rationale for excluding mandatory contributions detailed above – essentially, the money is not available to the payor spouse to pay support and, thus, cannot be considered for payment – is only fair and equitable to all parties involved in determining an appropriate level of alimony or child support.

On the other hand, from the perspective of alimony, where there are no guidelines, and in theory, the parties budgets as set forth on their Case Information Statements are relevant, is it fair that one spouse has savings which reduces their income available for support, while on the other hand, the supported spouse does not have an ability to save?  As a court of equity, this may be a factor that a court could consider.