If you are getting divorced, you and your spouse will have to share information about your respective incomes for purposes of determining child support and spousal support if applicable to your situation. Both types of support are calculated as a percentage of income using a specific formula contained in New York statutes. Child support can be recalculated every three years if there is a 15% increase or decrease in income or a substantial change in circumstances. As a result, it is important to make sure you have accurate information even after the divorce is finalized. However, once a divorce settlement agreement is reached, the language of the agreement becomes critical.
What Documents Do You Need to Verify Your Spouse’s Income?
A well-drafted settlement agreement should state that the parties are required to produce a full 1040-series tax return every year to verify income. It is essential to obtain the full return. Some parties may try to get around this by providing only the first two pages of the return that contains a party’s total adjusted gross income for tax purposes. However, this may leave out income that should be included in determining support.
For example, only the complete tax return will include Schedule C, Profit or Loss from Business. Schedule C is a tax form filed with the taxpayer’s Form 1040 that indicates income or loss from a business the taxpayer operated or a profession he or she practiced as a sole proprietor. On the Schedule C form, the taxpayer must report business expenses, including rent, insurance, advertising, insurance, legal and professional services, maintenance expenses, utilities, wages, travel, meals and entertainment and other expenses.
Schedule C shows both the gross revenue of the business and deductions, while the first 2 pages of the tax return only indicate revenue after deductions. This is a crucial distinction because some Schedule C expenses, such as travel, meals and entertainment are not allowed to be deducted from revenue for purposes of calculating spousal support and child support.
In addition, the whole tax return will show income earned even if no taxes were paid. This may be an issue if the spouse earned income from an executive compensation plan that should be included in the income calculation for support.
What Should You Do If Your Spouse Refuses to Verify His or Her Income as Required?
If the settlement agreement states that a full tax return must be provided, then you can go to court and get an order to compel your spouse to produce the tax return. However, that could be time-consuming and costly. It may be more efficient to serve a subpoena on your spouse’s accountant to produce the tax return. You can also subpoena the IRS, but that may be even more time-consuming and typically, you receive a transcript of the tax return, not a copy of the full return, so it may not contain all of the details you need.
It is frustrating dealing with a spouse who withholds information. If you are considering a divorce, you should retain experienced legal and financial advisors to help ensure you obtain all necessary information to negotiate or litigate a fair result in your case. Contact us for assistance in your matter.