A spouse going through a divorce in California must consider the two types of spousal support. First, the spouse must decide whether he or she is likely to pay or receive temporary spousal support while the case is pending. Second, the spouse must evaluate the potential for paying or receiving spousal support after the judgment is entered, which is known as permanent spousal support (even though the duration may be limited). In determining and negotiating temporary spousal support issues, the issues will be decided at least in part by the statutory “guideline” formula, which compares income and other factors. The determination of permanent spousal support is more complex and requires consideration of more than a dozen statutory factors.
Deciding or negotiating the amounts of both temporary and permanent spousal support can be especially complicated when one or both spouses owns a pass-through entity, such as a Subchapter S corporation. Often, the spouse-owner will receive pass-through income that is less than the amount of taxable income. The difference between taxable and paid income is known as “phantom income” and requires extensive knowledge of the spousal support and tax laws, as well as business and financial issues. If the spouse-owner’s attorney is not sufficiently knowledgeable concerning the “phantom income” issue, then the spouse-owner may end up paying far more spousal support (both temporary and permanent) than the law otherwise provides.
“Phantom income” is only one of many complex issues that arises in high-earner support cases. Determining the correct amount of income available for support requires a thorough review and understanding of the spouse-owner’s business interest and financial and tax issues, in addition to specialized expertise in California divorce law. At Next Legal, our attorneys have extensive experience in handling high-earner divorce cases and in the complicated issues relating to income and earning capacity (including imputation of earning capacity by a spouse who is unemployed or under-employed).
Schedule your FREE 30 Minute Virtual Consultation