How to Count Bonus/Overtime Income in Child Support
“How do we make ends meet?”
Most people moving through divorce ask this question–repeatedly.
As parents set up solo houses, they wonder, “How will I still pay the mortgage? Buy groceries? Pay for school?” They fear the challenge of trying to meet all their expenses on half the income. And, often, not even half.
For the parent receiving payments, child support helps. For the parent paying, child support often represents yet another challenge to making ends meet.
So, they consider working more or a taking second job. But, it is worth it?
Even financially stable parents debate how to consider extra income. One parent may routinely earn bonuses–but consider those private money. They think of the money as earned for performance–so theirs. Not part of the ordinary consideration of finances. Certainly not money available to their former spouse.
Bonus and overtime payments present sticky issues. How should the extra income be considered? What is fair to both parents?
Though the answers vary with different family situations, a few principles help parents use extra income to serve the financial needs of both homes.
First–should bonus or overtime income be counted toward child support?
Higher income parents–When bonus/overtime payments are routinely earned by one parent, they are generally counted in income. Especially, with higher wage earners. Why?
The goal of child support is to give children the standard of living they would have enjoyed had the parents remained married. When married–if one parent earned extra income, the children generally benefited. The extra money provided a vacation, Christmas gifts, or purchased higher end school supplies.
The same principle dictates that some of the extra income earned by either parent after a divorce should likewise benefit the children.
Lower income parents–For lower income parents the picture changes.
Courts–and parents themselves–understand that the parent paying child support often needs extra income just to make their monthly budget. If any extra money simply flows to the other home, the parent feels overwhelmed and angry. The incentive to work extra disappears.
The goals for both types of household–
- to ensure both parents are financially viable,
- to ensure each parents benefits from the work they do, and
- to ensure children retain a similar standard of living after divorce.
Second–how can parents balance meeting monthly budgets and providing for children?
The key–as parents move through the divorce process, each should create a detailed budget. Concrete numbers clarify budget necessities–and areas of flexibility.
This budget then guides how parents make decisions. The goal is to use their assets to assure both parents will make it financially.
When each person can see the challenges the other faces, they generally join forces to make sure both houses will work. They look at how they can use the assets they created together to fund the separate homes. And, to ensure that the children’s standard of living doesn’t change dramatically in going from one home to the other.
Third–what are the options?
Higher income parents–If each home can be funded with that parent’s salary, then child support serves its purest purpose. To ensure that both parents contribute to the children’s care.
If overtime/bonus income is relatively predictable, the amount is simply included in the income for determining child support.
If the income varies, parents often agree to divide the base child support amount by the parent’s income. Then, they apply that percentage to any overtime or bonus income. They pay the amount as additional child support when the bonus/overtime is earned.
Lower income parents–If the parent paying child support struggles to make basic living expenses and needs extra income to meet their budget, parents can choose to protect a set amount of overtime or bonus. They would then apply the child support percentage to the remainder of bonus/overtime income. This option benefits the parent working the overtime with the extra income they need while offering some benefit to children.
This article is not intended as legal advice, but simply to educate on the factors concerning extra income. If you are working through a divorce and need help, The Resolution Center offers couples a way to resolve issues, protect finances, and care for children. Call 317-344-9740 or email email@example.com for a free consultation regarding your situation. We look forward to serving you.