The end of the year is approaching, and, with that, hopefully many of you will be earning annual bonuses from your employers. Around this time of year (or in the Spring, when they are often paid out), we get questions from our clients going through divorces as to how their bonuses will be handled in conjunction with the spousal or child support they pay. The purpose of this blog article is to explore that.
The general rule when it comes to determining support is that we should take into account all income in determining how much money a person has available to pay support. We determine the income, plug it into a formula, and out comes a recommended support amount. An inherent problem with this, though, is that, in determining support, we are trying to determine how much it is appropriate for the payer to pay going forward. However, we only know for sure how much someone earns after the fact. How do we deal with this issue?
When it comes to base salary or hourly wage, we generally know how much a person is going to make that year at the beginning of the year. Thus, we can calculate support going forward based on what a person is set to make from those sources that coming year. Bonuses, however, are speculative: we often don’t know whether we will be getting a bonus that year, let alone how much it will be. How can we add the bonus income into the calculation if we don’t know what it is going to be?
The answer: we don’t. Instead, parties generally agree that, when the bonus is received, the support recipient will get a certain percentage of that bonus as additional spousal and/or child support. Usually, that percentage is set by determining what percentage of the payer’s gross income (not including the bonus) he or she is paying in support. Whatever percentage that comes out to, that is what percentage of the bonus the payer must pay the recipient. In this way, we are able to make sure the recipient receives the same proportion of the bonus as he or she would have if the bonus had been included in the support calculation.
This is an example of a creative solution to the kind of tricky problem that can come up in family law cases. Our Michigan family law attorneys have years of experience handling these kind of tricky problems and would be happy to talk to you. Give us a call at (734) 254-1140 to schedule an initial consultation.