How Will Bonus Income Affect Child or Spousal Support in California?
Many employers give an annual or quarterly bonus to employees when a company or individual goals are met. In a child support situation, this may give rise to confusion.
Common client questions about annual and quarterly bonuses
- Will I have to pay support based on my gross income, or will bonus income be treated differently?
- How can I pay support based on my income when I don't know if I'll receive bonus income?
- Is my bonus considered community property, or is it used to calculate support? I don't want it double-counted.
- If I am ordered to pay support based on my gross income (including bonuses), I won't have enough net income each month to pay a large amount of support ordered.
- Does bonus income have to be part of a temporary support calculation?
- How does the Department of Child Support Services track employment bonuses?
- If a bonus is received in January, is that added to January income to calculate support? Is it annualized?
Bonus income is usually factored into calculations for child support, and it's often taken into consideration for temporary or permanent (post-judgment) support. Whether you are the payor or payee, it is important to understand how bonus income may affect your order and negotiations.
The issue of child support
When it comes to calculating child support, the court may consider "income" from whatever source derived. Income sources include the following: salary, commissions, royalties, wages, bonuses, rents, dividends, pensions, interest, trust income, annuities, workers' compensation benefits, unemployment insurance benefits, disability benefits, Social Security benefits, and spousal support paid by someone other than the other parent.
Determining whether the bonus is community property
When we learn that one party has received a bonus shortly after separation, our first task is to find out whether any aspect of it is community property. If a bonus is community property, the ex-spouse will likely receive a much higher portion of it than if it is simply treated as income for purposes of support.
A bonus earned during a marriage may be paid after separation but would likely be considered community property and subject to division. Notably, we first need to determine if the bonus is an earned bonus or an incentive bonus for future effort (post-divorce). In addition, we must make sure the community bonus (marital asset) is not also considered income for purposes of support. Otherwise, that would be considered double-dipping.
Dealing with the uncertainty of bonus income
In California, when the Department of Child Support Services (DCSS) is involved in a case, they usually argue that bonus and overtime income should be factored into the monthly calculation of support. Wage assignment (garnishment) makes it much easier for them to enforce support obligations. And, unless the parties stipulate otherwise, they often argue that any other approach would violate the support guideline.
The problem many people have with this approach is that bonus income is often uncertain. Further, it is difficult to pay a hefty monthly obligation that may often exceed the payor's monthly net income. Additionally, payor parents do not want to be on the hook for paying a monthly support amount based on receipt of a large bonus that may never materialize.
A more certain approach
While the law generally requires bonus, dividend, and interest income to be considered when calculating support, a preferred approach is often to order it when received. Payor spouses prefer the certainty of knowing they will only have to pay a percentage of the amount they receive, and payee parents receive an order that reflects the amount they are entitled to under the law.
California's child support calculator (DissoMaster) allows counsel to prepare bonus tables (or schedules) specifying that a certain percentage of a bonus will be remitted to the payee. The actual percentage varies depending on the amount of the bonus and, in some cases, overtime. The table can account for the uncertainty of not knowing how much the bonus will be.
When extra income is regular and predictable, the Family Code requires it to be included in gross annual income for purposes of calculating monthly child support. Notably, failure to request a court order for bonus income as child support would likely result in forfeiture of that money.
Bonus tables are also frequently used to determine spousal support.
Potential issues that may arise
Several issues may arise when bonuses impact the amount of support provided. For example, an ex-spouse paying support may argue that support based on post-separation bonus income would result in a windfall to the payee. They may argue that the standard of living during the marriage was based on far less. They may also argue that a percentage of the bonus income exceeds the supported spouse's needs. In cases like these, an annual cap may be appropriate.
Another potential issue: Percentage-based support may lead to trouble with calculation or difficulty with enforcement. Given the uncertainties, we often encourage a settlement to reduce legal fees and provide finality.