There are many issues in a typical divorce that are hotly disputed but child support and spousal support (aka alimony) invariably top that list. This is, in part, because even though most people would not begrudge their own child anything he/she needs to be healthy and happy, few people enjoy parting with their money to an ex-spouse for that purpose on a monthly basis. Even less enjoy parting with their money for the purpose of supporting the ex-spouse on a monthly basis. So, it is not unusual for people to engage in tactics to avoid paying child and/or spousal support to any extent possible.
Income Reduction Tactic
One tactic is to purposely reduce income by becoming unemployed or underemployed. (“Underemployed” in this context refers to when a person purposely takes a lower paying job.) Since child and spousal support obligations are based (in part) on a person’s ability to pay, eliminating or reducing monthly income may directly eliminate or reduce a person’s support obligation. However, most states recognize this tactic asunacceptable and have passed laws to prevent people from reducing their support obligations in this way.
Under these laws, courts may impute income to a party who purposely becomes unemployed or underemployed to avoid paying (or to reduce the amount of) child or spousal support. IMPUTED INCOME DOES NOT REPRESENT ACTUAL INCOME. Imputed income represents an amount of income a party should or could be making based on the facts presented.
So, for example, let’s say Bob made $5,000 a month for the last 5 years as a full-time sales rep for a computer company. But when Bob filed for divorce, he quit that job and started working part time as a cashier at a pizza place where he only makes $1,500 a month. Bob’s wife may ask the court to use $5,000 (instead of $1,500) as Bob’s monthly income to compute how much child and/or spousal support he owes. If the court finds that Bob purposely became underemployed to avoid paying the support obligations he would have owed based on his $5,000 monthly income, the court may impute that $5,000 income to him. NOTE: Bob will in real and actual fact only be making $1,500 a month at the pizza place, but his support obligations will be based on the $5,000 he could be making as a computer sales rep not the $1,500 he is making as a cashier. That $5,000 is imputed income.
Utah Law on Imputed Income
Utah’s imputed income statute is provided under Utah Code § 78B-12-203(6-7). In a nutshell, the code provides that the court may impute income if: 1) the party stipulates to the amount imputed, 2) the party defaults, or 3) a hearing is held and the judge enters findings of fact as to the evidentiary basis for the imputation.
As you can see, then, income may be imputed in situations other than when a party is purposely trying to reduce income to minimize or eliminate a support obligation. The first situation referenced above (where a party stipulates to the imputed income) may occur when a party’s income is difficult to verify through regular methods (e.g. the party doesn’t receive regular paychecks, etc.) rather than when a party is purposely unemployed or underemployed. Or it could occur where a party is capable of making income but isn’t for some reason (e.g. he/she chooses to be a stay-at- home parent, etc.) “Stipulates” in this context means that the party agrees to an amount of income being imputed to him or her.
When Can The Court Do It?
So, other than when a part stipulates to income for some reason, when may a court impute income to a party for support obligation purposes?
A court must first determine whether a party is voluntarily unemployed or underemployed. See Rayner v. Rayner, 2013 UT App 269, ¶ 7 (Utah Ct. App. 2013). This is not as simple as it sounds. Courts struggled with what it means to be voluntarily unemployed/underemployed. So, Utah courts have held a party is “`voluntarily unemployed or underemployed’ when [he or she] intentionally chooses of his or her own free will to become unemployed or underemployed.” Busche at ¶ 16 (citation omitted). In other words “deliberate job loss.” Id. at ¶ 17.
BUT courts have held that choosing to engage in a behavior that leads to becoming unemployed is not the same as intentionally becoming unemployed. And, courts have also held that choosing a lower paid positionfor a plausible reason is not the same as intentionally becoming underemployed. So, the following are NOT examples of becoming voluntarily unemployed/underemployed (i.e. these do not constitute “deliberate job loss”):
Engaging in prohibited workplace behavior (e.g. sexual harassment, abusing drugs, or other misconduct) that leads to being fired. See Busche v. Busche, 2012 UT App 16, 272 P.3d 748 (Utah Ct.App. 2012).
Leaving a higher paid position at one workplace for a lower paid position at another when there was a real possibility of being laid off from the higher paying position. See Connell v. Connell, 2010 UT App 139, 233 P.3d 836 (Utah Ct.App. 2010).
When confronted with an allegation or suspicion that a party is voluntarily unemployed/underemployed, a court must first examine the party’s “historical and current earnings.” Connell at ¶ 17 (citing Hall v. Hall, 858 P.2d 1018, 1024 (Utah Ct. App.1993)). If the court finds that the party involuntarily lost his/her employment that does not end the inquiry. The court “must then consider what the [party] has done” since the involuntary job loss “to determine whether he or she has become voluntarily underemployed by virtue of his or her failure to then make reasonable efforts to obtain employment at a pay rate comparable to that of the lost employment.” Rayner at ¶ 8 (quoting Busche. ¶ 21).
The court must also consider the party’s “employment capacity and earnings potential.” Id. (quoting Hall at 1026). These are described as follows:
Earning Potential and Employment Ability
Employment capacity: “consideration of the [party’s] abilities and limitations, qualifications, experience, and skills.” Busche at ¶¶ 21-22.
Earning potential: “comparison of …current earnings with…historical income, ‘the prevailing wages for a person with [comparable] qualifications’ and consideration of whether there are jobs reasonably available “in the relevant market for a person with the party’s qualifications and experience.” Rayner at ¶ 8 (quoting Busche at ¶¶ 21-23).
Basically, “a finding of voluntary underemployment must be based on evidence that the party could be earning more with reasonable effort.” Busche at, ¶ 22. If the court finds that the party is voluntarily unemployed/underemployed, the court may then impute a higher income. But, the court is not required to do so. See Id. (citing Hill v. Hill, 869 P.2d 963, 964-65 (Utah Ct.App.1994)). The court maintains “broad discretion” in this regard. Id. (quoting Griffith v. Griffith, 959 P.2d 1015, 1019 (Utah Ct.App.1998)). In other words, the court can decide if imputing income is appropriate (e.g. “fair” or equitable) given all the factors in the case.
If the court determines that the party is voluntarily unemployed/underemployed and that imputing income is appropriate under the circumstances, it may then proceed to the second step which is to determine the specific amount of income to impute. Busche ¶ 23. Under this second step, the trial court must consider the following statutory factors provided in Utah Code § 78B-12-203(7)(b) (See Rayner at ¶ 9):
If income is imputed to a [spouse], the income shall be based upon employment potential and probable earnings as derived from employment opportunities, work history, occupation qualifications, and prevailing earnings for persons of similar backgrounds in the community, or the median earning for persons in the same occupation in the same geographical area as found in the statistics maintained by the Bureau of Labor Statistics.
Further, the statute requires the court to enter detailed findings of fact as to both the basis for finding imputation is appropriate and the basis for the specific amount imputed. Rayner at ¶ 10. (Specifically the findings must indicate whether the court’s finding that a “party is voluntarily underemployed or unemployed is really an ultimate fact or a legal conclusion which turns on the subsidiary facts found by the trial court.” Id.) This is to prevent courts from imputing income based on “conjecture.” Id. (quoting Willey v. Willey, 866 P.2d 547, 554 (Utah Ct. App. 1993)). Courts have found that, “(i)mputation is troubling when the obligor is charged with obligations that he may not be able to pay, even with the best of efforts.” Id. (quoting Busche at ¶ 17). So, the trial court must enter not just a “finding of voluntary unemployment or underemployment butspecific, detailed findings ‘as to the evidentiary basis for the imputation.’” Id. (citing Utah Code Ann. § 78B-12-203(7)(a)) (emphasis added).
In sum, while there may be acceptable tactics to minimize child or spousal support obligations, purposely becoming unemployed or underemployed is not one of them. A party who attempts to do so may have income imputed to him/her for support calculation purposes based on his/her historical earnings and other relevant factors. This may be done even though that party is no longer earning that higher income.
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