Imputing Income Based Upon Prior Employment And Earning Capacity
Under New York law, when determining child support a court is not bound by a party’s representation of their earnings and their income. Although the best indicator of a party's earnings usually is their latest paystubs and their previous year's income tax returns, sometimes these do not accurately reflect what a party is capable of earning. Because of this, a court may attribute or impute income based upon prior employment experience and earning capacity.
A long line of cases have developed in New York State that make it clear that a parent’s child support obligation will be determined by his or her ability to provide support, rather than the parent’s present financial situation. So a court may impute income to a party based upon their actual earning capacity where the Court finds that they have voluntarily decreased their earnings. This includes quitting a job or getting fired based upon their own misconduct. This also includes being unable to work because they are incarcerated.
How to determine a party's earning capacity is not always a simple question. This is especially true with self-employed individuals. That is a subject for another article on another day. But with W-2 wage earners, there are some of the simple and effective ways to determine their earning capacity. The most effective of these is looking at older income tax returns from when they were working full time.
When you have a party with less than a full year of earnings on which to work, you can then figure out their monthly earnings for a portion of a year and then multiply that figure to reflect a full year.
One of my favorite support cases that I litigated was one in which the father had worked only five months as an asbestos removal technician; six weeks in one year and fourteen in the next. He quit when he was asked to take a drug test. He then let his asbestos removal license expire. He never showed more than $15,000 of income on any one income tax return.
His earning as an asbestos removal technician varied from $200 to $1400 per week. In New York asbestos removal technicians are paid at various rates depending on the nature of the job and whether or not it is for a private or public client. Public entities pay more because of New York's absurd prevailing wage laws. He also only worked some four day weeks when in between projects.
To address these variations and to get an accurate picture of what this father could have earned if he had stuck with the job, we subpoenaed from his former employer the W-2 statements for the father, the man he replaced and that man who replaced the father. These W-2 forms covered two complete years. From these we determined that the position paid an average of around $42,000 per year. I argued that this was the father's earning capacity. The Support Magistrate agreed. Seven years later, this father has never earned more than $15,000 per year and has been in and out of jail. Nevertheless, he still is required to pay child support based upon this earning capacity of $42,000 per year.