Ask Me Help Desk - Alimony Calculation

In 2008, I got paid salary of "X" + sales commission of 30% of "X", each month. In 2009, I changed jobs and now get paid "X" as salary each month. Sales commission is paid as bonus once a year which is 30% of "x". Instead of monthly, they have changed commission payment to once a year of lump sum. When Alimony or Spousal Support is calculated by court through DissoMaster for a filing in late 2008 with hearing in 2009, would they use 2008 monthly income (that includes base pay + sales commission) or 2009 base pay of just "X". This is because sales commission is now paid once a year and not monthly.

It is easier if calculated based on just "X". In addition make you pay 50% of sales commission when paid from the lump sum. This is key as sales commission will vary year by year and is not a monthly amount.

Thanks

Oh great disso what will you do??

More then likely they will calculate it on your taxable income for the year and divide by 12 to obtain your monthly income. The fact that its paid in lump sum or monthly doesn't change the fact that it exists.

Your taxible income will remain the same regardless of when you get it so really other then when it occurs there is no real change.

I am assuming you are talking about a temporary spousal support order, not a long-term one (we only use the DissoMaster for temporary orders--keep that in mind).

Fluctating income is a problem in family law but here is how we approach it (and you should too so DO NOT let anyone tell you to add your once-per-year bonus/commission income into your total income for the year and then divide by 12 to render a monthly average to plug into the DissoMaster! NO!).

If you now are paid your commissions once per year, use your BASE monthly salary ("x") and enter it as monthly income on the DissoMaster along with all the other info and see what you get. Then go to the "bonus income calculator" function of DissoMaster (the program is set up for this so be sure you know how to use it) and look at what percentage of bonus income should go for additional spousal support. When and if you get your once-per-year bonus, apply that percentage to the bonus and that's the amount you will pay in additional spousal support when and if you are paid a bonus. The judge will usually make an order that says you are to report to the other side your receipt of a bonus within 10 days.

Annualizing a once-per-year bonus (figuring out what the monthly average is) and adding it to the base and using that as total monthly income on the DissoMaster is unfair for two obvious reasons: 1) Bonuses are speculative-- you often can never be sure you are going to get one and typically have no idea exactly how much they will be (i.e. they're fluctuating); 2) Making you pay support on income you have not yet received (because the bonus is only paid once a year) places a hardship on you because you are paying support on income you don't even have (and may never have) and there is a risk, even after you receive your bonus, that you will have paid either an above- or below-guideline amount (due to the usual uncertainties of what the bonus will actually be), which at least as far as child support is concerned, will likely violate the child support guideline.

Doing what I recommend, is what we call applying an Ostler-Smith order (from an appellate court case of that name from about 19 years ago), or a "percentage order". We do these all the time in family law and any experienced judge or family law attorney should be familiar with this.

Overtime income or a monthly bonus might be treated differently and annualizing these might be appropriate but not in the case of a once-per-year bonus--we use Ostler-Smith orders for these.

So what then is the formula for the percentage on a bonus plan ?

Im asking because it sounds like it could take unfair advantage because the side receiving the bonus has to pay taxes on that bonus when it is received.

Quote:

Originally Posted by califdadof3

So what then is the formula for the percentage on a bonus plan ?

Im asking because it sounds like it could take unfair advantage because the side recieving the bonus has to pay taxes on that bonus when it is recieved.

The percentage varies depending upon all the other info that is plugged into the DissoMaster and the program figures it out for you. You manually print out an actual table (that looks like a tax table) that tells you if the bonus is $500-1000 the percentage is x that is applied to child support, x1 applied to spousal support, if $1001-2000 it is y for child support, y1 for spousal support and so on.

Recall that we have an after-tax guideline in California for child support so once the program takes the taxes off and adjusts for allowable deductions it applies a formula-based percentage to what is left and the result is the child support amount (it operates in a similar fashion with regard to temporary spousal support but the percentage is different).

So the percentage is applied to the net (after-tax) bonus received; hence, no unfair advantage to the side receiving the bonus.

If you are interested, download DissoMaster for free for 30 days from their website (Welcome to CFLR) and open up the program. Plug in some hypothetical numbers for husband's and wife's incomes, number of kids; then go to "Reports" at the top and click on the tab to open the drop-down box; then click on "Bonus Income" and the table will pop up that gives you all the percentages based on the numbers you plugged in for your case. You can print this out for use later. It's also handy because you can plug in bonus income for both sides (in case husband and wife each get bonuses) and the program gives you a sort of offset percentage.

It's a pretty sophisticated progam and most people only kind of half know how to use it.

Quote:

Originally Posted by cadillac59

If you are interested, download DissoMaster for free for 30 days from their website (Welcome to CFLR) and open up the program. Plug in some hypothetical numbers for husband's and wife's incomes, number of kids; then go to "Reports" at the top and click on the tab to open the drop-down box; then click on "Bonus Income" and the table will pop up that gives you all the percentages based on the numbers you plugged in for your case. You can print this out for use later. It's also handy because you can plug in bonus income for both sides (in case husband and wife each get bonuses) and the program gives you a sort of offset percentage.

It's a pretty sophisticated progam and most people only kind of half know how to use it.

I had seen the formula for the child support side of a dissomaster that's why I was wondering. It just sounds odd when the person getting the bonus could be bumped into a new bracket and then somehow receive credit for it in the same sentence. Thanks for the info.

Quote:

Originally Posted by califdadof3

I had seen the formula for the child support side of a dissomaster thats why I was wondering. It just sounds odd when the person getting the bonus could be bumped into a new bracket and then somehow recieve credit for it in the same sentence. Thanks for the info.

DissoMaster's bonus calculator will give you the percentages for both child and spousal support (they are different). As you know, child support is non-tax-deductible but spousal support is. So when the bonus is received you just apply the percentages to the net bonus and pay it over and at the end of the year when the taxes are done the spousal will be deducted from gross income and the payor will either get a refund or owe a little. It all works out in the end.

I have this very issue coming up tomorrow for a client with a big 6 figure income and a big $36,000 yearly bonus. So it is critical that an Ostler-Smith order be used--otherwise the guy is going to get hosed (excuse the expression) on support. Of course, I'm not about to let that happen and I'm going to get an order that the wife seek work as well.

You have to be careful because some of the newer judges out there aren't aware of how this works and you have to politely educate them on it (I've had to do this on at least one occasion).

Can I ask a follow-up question? I just posted it separately as well, but I would love your input on it.

I'm in pro per and received a bonus that I need to pay part of to my ex (who's not working, who I was not married to, but have a child with etc), and his lawyer, i.e. opposing council is telling me that I have to pay the % of the bonus listed in the first column PLUS the amount in the "basic cs" column.

Is that correct?

Everybody I've talked to in the self-help center and at cflr tell me I just have to pay the "basic cs" and nothing else. Need some form of proof that that's correct though, that I can forward to opposing counsel.

Also does the Ostler-Smith apply to my case as well? Anything I need to consider here?

Thanks so much!!

D