Welcome to FreeDivorce.com.
Christina: This is Christina.
Ed: This is Ed. Today, we are going to talk about how to deal with a spouse’s overtime pay and bonus income when you are trying to create a fair spousal support order. We will also talk about how to deal with a spouse’s undisclosed income.
Christina: Ed, before we get to overtime pay or bonus pay, would you first talk about how to determine a party’s base salary or income?
Ed: The first thing you need to know is that the salary/wages number you enter into the DissoMaster spousal support calculation program is always the gross amount of a party’s salary, meaning the amount before taxes are taken out. Never use the net paycheck amount. If you and your spouse get paid a base monthly salary, say $4,000 per month, figuring out each party’s gross income for the support calculation is simple. You just enter $4,000 on the “Wages and Salary” data entry line. If your spouse gets paid an hourly wage and works full time, there is also no real mystery as to the amount of their base salary or wages. Just take their hourly wage and multiply it by 40 hours per week, then multiply by 52 weeks in a year, and then divide by 12 months.
Christina: What if you or your spouse earns overtime pay or commission income, what do you do?
Ed: If one party earns overtime pay or commission income, you can use charts that the DissoMaster program provides to figure out how much additional spousal support should be paid based on that income. We are now looking at the second page of our sample support calculation. This second page is called “Father Monthly Overtime Wages Report”. This can be used to calculate how much extra spousal support should be paid when the husband (father) receives additional overtime income or commission income. For example, if father/husband earns $500 of overtime income in a particular month, the chart indicates he should pay the wife (mother) 19.42% of the gross amount of that income or $97 as additional spousal support. To get these numbers, you should be looking down the column entitled, “Father’s Gross Overtime” until you get to the $500 figure, then go across to the column entitled, “Alameda SS%” to where it says 19.42%. We have highlighted these numbers.
As previously explained, the sample support calculation printout says, “Alameda” because this particular case was run for an Alameda County case. On the Overtime Wages Report, the “SS%” stands for “spousal support percentage”, meaning the percentage of the gross amount of Father’s overtime income that should be paid as additional spousal support.
Christina: The sample monthly overtime wages report only goes up to $2,000. What if I earn more than $2,000 of overtime or commissions in a month?
Ed: The DissoMaster “Father Monthly Overtime Wages Report” can be expanded to go up to any amount of overtime income you want. Instead of the overtime amounts increasing by $100, so the range is between $100 and $2,000, you can adjust the settings of the program so they increase by $500 increments or $1,000 increments, so that the range for overtime or commission income goes from zero to $1,000,000 or whatever range you want it to be.
Christina: What if the father is not the party earning the overtime, but it’s the mother that is earning the overtime, or perhaps both parents earn overtime income, then what?
Ed: The DissoMaster program also includes a “Mother Monthly Overtime Wages Report” for cases in which the mother/wife earns overtime pay. There is even a two-way report that can be used when both parties earn overtime pay.
Christina: How do I access these overtime wages report on the DissoMaster program?
Ed: You can access these charts when you are in the DissoMaster program by doing the following: Go to the top of the page and you will see the words, “File” “Edit” “Report” and “Help”. Click on the word, “Report”. A drop-down menu will appear. Go to the bottom of the menu, where it says, “Monthly Overtime”. If you hover over “Monthly Overtime”, a side menu will appear and from that menu, you can print a “Monthly Overtime Wages Report” for Father, Mother, or a two-way report.
Christina: What if I don’t earn overtime or commissions, but instead receive an annual bonus, do I use the same chart?
Ed: No. There is a different chart for annual bonuses. Instead of monthly overtime, some people tend to get one or more large bonus payments per year. For these situations, the DissoMaster program also has a “Father Annual Bonus Wages Report”, and a “Mother Annual Bonus Wages Report”. The concept is the same as the Overtime chart. You have a base spousal support number calculated by using both parties’ base monthly income numbers. If they receive bonus income, then you can look up the percentage of additional spousal support they should pay or should refund, based on that extra income. So, no matter how much someone earns, they pay a fair amount of spousal support. You can access the Annual Bonus Wages Report in the DissoMaster program in the same way you access the Overtime Wages Report. Click the word, “Report” at the top of the page and then see the drop-down menu.
Christina: Is there much difference between the Overtime Wages Report and the Annual Bonus Report?
Ed: No. The reports look nearly identical. Also, for the vast majority of cases, the overtime percentages and bonus percentages on the two charts will be almost the same. It is usually not a problem to use either chart for both overtime pay and bonus pay.
Christina: What if I earn extra income from stock options or the award of Restricted Stock Units?
Ed: You can use the Annual Bonus Wages Report to figure out what percentage of any future stock option income or RSU income should be paid as additional spousal support.
Christina: Why do we have all of these charts?
Ed: For some people, overtime, commissions, or bonus income will be the biggest part of their earnings. If you ignored that income, a fair amount of support would not be paid. Sometimes, you just don’t know how much someone is going to earn. This is particularly true when people are self-employed. Self-employed people may have high earnings one year and earn very little the next year. The overtime and bonus charts make it possible to have a fair spousal support order even when one or both parties have a job where it is difficult or impossible to predict how much they will actually earn in the future. So long as you can start with a base salary or income number, an amount that both parties feel comfortable they will earn at least that much, then you can use the overtime charts and bonus charts to capture a fair amount of spousal support on any extra income.
Christina: Do all support calculation software programs have overtime charts and bonus charts like the DissoMaster program?
Ed: No. The spousal support software calculator you use may not include overtime charts or bonus charts. If this is the case, you can still come up with a formula that takes into account overtime pay and bonus pay. This is how you do it. Run your support calculation using each party’s base monthly salary. Then, run the support calculation again, but add an extra $1,000 to the husband’s income. Look at how much the spousal support increased. Then, calculate the “overtime” percentage. For example, assume husband’s base pay is $5,000 per month and Wife’s base pay is $1,500 per month. You ran the support calculation and the spousal support number is $924 per month. Now, run the same calculation, but with father’s income at $6,000 per month. The new spousal support number is $1,184 or an increase of $260. If you divide $260 by $1,000, you get .26, which is the same as 26%. You can make an agreement that the father will pay the mother $924 per month in base spousal support, and if he gets overtime income, commission income, or bonus income, he will pay the mother additional spousal support equal to 26% of the gross amount of that extra income.
Christina: Is this approach of determining the bonus support percentage by running the support calculation twice, once with a party’s base salary, and then again after adding $1,000 to the base income, a good approach?
Ed: This approach essentially accomplishes the same goal as complicated overtime and bonus charts, but it is much simpler to use and many people prefer this approach, even when they have access to support calculation programs that have overtime and bonus charts. Overtime and bonus charts are oftentimes confusing and cumbersome to use particularly two-way bonus charts. It can be much easier if you use a flat percentage that will apply to all income a party earns over their base salary.
Christina: Do I have to include overtime charts and bonus charts as part of my spousal support agreement?
Ed: No. You do not have to include any overtime or bonus chart as part of your support agreement. If both parties are comfortable with just a base spousal support number, you can skip the overtime and bonus charts. Of course, if neither party earns overtime, commissions, or bonus income, you can also skip these charts.
Christina: One final question. What do you do when there is no clear record about how much your spouse earns?
Ed: This can be a real problem. Perhaps your spouse works “under the table” or is self-employed and is not reporting all of their income or is writing off all kinds of personal expenses as business expenses. In your settlement negotiations, you and your spouse have to be honest about the true amount of each party’s income. If one person is not going, to be honest, then you are probably not going to have an uncontested divorce and will be looking at a contested divorce, at least with respect to support issues. If you end up in litigation, with testimony in front of a judge, where one spouse is testifying that the other spouse has not been reporting all of their income on the joint income tax returns, the judge may contact the IRS and you may be looking at a future audit. That could be a problem for both of you.
Christina: In the next video, we will talk about how to determine the spousal support number without buying the DissoMaster program and without running any support calculation program yourself.