Unique Child Support Provisions: Dealing with Deemed Income, Underemployment, and Self-Employed Parents

Child support is ordered in almost every case involving the establishment of conservatorship rights and delineation of possession schedules between two parents. Under the Texas Family Code, the obligor (the individual responsible for paying child support) is required to pay a percentage of his or her net monthly resources based upon guideline standards adopted by the legislature.  

Those guidelines provide that the following percentages of an obligor’s net monthly resources shall be paid as child support based on the number of kids the individual is responsible for:

  • 1 Child = 20%
  • 2 Children = 25%
  • 3 Children = 30%
  • 4 Children = 35%
  • 5 Children = 40%
  • 6+ Children = Not less than 40%

These guideline percentages cover most situations that will arise when dealing with a child support obligation in a standard family law case.

But there are countless variables that could potentially come into play that would seemingly have an impact on either the amount of child support that should be paid, or the obligor’s ability to pay that amount.  While it is impossible to write a statute that would cover every potential variable, the legislature has crafted a number of ancillary statutes that address certain categories of these variables and are used to support the main framework and application of our guideline standards.

Here are a few of those supporting provisions that may find their way into your next child support situation:

  • Net Resources of Spouse – When your ex-husband marries the CEO of a large pharmaceutical company and their combined annual salary is twenty times what he previously reported for purposes of calculating his child support, the legislature decided that none of a new spouse’s income can be considered when calculating his child support obligation.  So despite the fact that he will now be living in 5,000+ square feet, his child support will still be at the 1,700 square foot level.
  • Wage and Salary Presumption – It is not all that uncommon, especially in situations of economic decline, for a person who is required to pay child support to argue to the Court that they are unemployed and not able to pay anything.  Additionally, there may also be situations where the obligor simply does not show up to a hearing and refuses to participate in the legal process.  Either way, the legislature has decided that even if an obligor is unemployed or fails to show up and present evidence on his income, the Court shall presume that the individual has income equal to the federal minimum wage for a 40-hour week, and it will apply the guidelines to that imputed amount.
  • Self-Employment Income – When the obligor is self-employed and is running their own business, it can often be difficult to surmise their net monthly resources.  In order to adjust for the way in which individuals might use their business to provide themselves with benefits that would not otherwise be strictly defined as income (e.g., a company car; meals; payment of rent; cell phone; insurance coverage; etc.), the legislature has given authority to the Court to deem such benefits as income for purpose of applying support guidelines.
  • Intentional Underemployment – It is well-documented that human beings will go to great lengths to save a buck, whether it be spending $10 to save $2, or buying twelve bottles of shampoo to get a 5% discount on the purchase.  This fact of human nature has a knack for working its way into the child support equation, and potential obligors were going to great lengths to avoid or reduce the amount of their child support obligations.  An example of a particularly great length would be the obligor who was making $200,000 annually who decides to take a different position paying $50,000 to artificially lower their child support obligation.

    The legislature gives the Court authority to apply support guidelines to the earning potential of the obligor rather than the actual earnings when the obligor is intentionally underemployed. There are exceptions to this, however, and application of this rule will typically involve a close look into the intent of the obligor.

  • Deemed Income – For the obligor that happens to own significant non-liquid, non-income-producing assets, the legislature has authorized the Court to assign a reasonable amount of deemed income that is attributable to such fixed assets.  In doing so, the Court is required to consider whether the certain property that is not producing income can be liquidated without an unreasonable financial sacrifice because of cyclical or other market conditions.  Additionally, in situations where there might not be an effective market for the property held by the obligor, the Court must also take into account the carrying costs of such investments, including property taxes and note payments, which should be offset against any income that is to be attributed to the property.

Ultimately, the child support guidelines adopted by our legislature and applied by our Courts are meant to provide a ready-made framework that can be efficiently and equally applied to most cases.  For those cases involving unique variables that make the standard application difficult, the ancillary provisions mentioned above provide additional guidance and flexibility.  These provisions typically require fact-intensive analysis and can be extremely nuanced in their application, so if you are facing a child support issue, it is important to ensure that you have an experienced and knowledgeable attorney on your side to help guide you through the process.