Calculating 'Income' for Domestic Support Obligations in the Wake of the COVID-19 Pandemic

Abstract

Co-authored with equal contribution with Kimberly Krieg, PhD. The COVID-19 pandemic ushered in widespread economic turmoil across the United States. In response, individuals turned to previously seldom-tapped sources of economic relief, including unemployment benefits, one-time withdrawals from retirement accounts, and retained earnings. Additionally, the U.S. government provided unprecedented economic relief, including government stimulus checks, advance child tax credits, and Paycheck Protection Program loans. The introduction of these short-term economic gains creates uncertainty for family courts when calculating a party’s “income” for domestic support obligations. Obligors are increasingly attempting to take advantage of reduced income, hardship withdrawals, or corporate distributions. Conversely, recipient spouses are appearing before the court seeking to include stimulus, tax credit, and loan payments in their spouses’ incomes.

Meanwhile, Congress has promulgated unique tax rules necessitating Internal Revenue Service (“IRS”) guidance to address several of these new sources of economic relief. In particular, the government’s approach to the taxation of unemployment compensation and relief of debt during the pandemic has altered the traditional calculation of taxable income. This has further contributed to the disconnect between “income” for tax purposes and “income” for purposes of determining the availability of cash for domestic support obligations.

This Article encourages courts to take an interdisciplinary approach when confronting cases seeking to set domestic support obligations based on artificially inflated or deflated incomes due to various forms of pandemic relief. Specifically, this Article advances a judicial approach to calculate support after considering (1) actual monies received by each parent, (2) whether imputing income is appropriate, (3) any unique tax consequences surrounding the relief, and (4) the addition of explicit language of any contemplated circumstances when entering the support order.

Keywords: tax, family, support, law, COVID-19, pandemic