When meeting with your divorce attorney it is important for you to understand what is considered income or an asset. Income is to be included in calculations for child support and maintenance, and assets are subject to equitable distributions.
Under the Child Support Standards Act, income consists of inter alia: “gross (total) income as should have been or should be reported in the most recent federal income tax return” (Domestic Relations Law 240 [1-b]). In most instances, this is simply what appears on one’s W-2, 1099, or K-1 making the calculations of support fairly straight forward.
Domestic Relations Law 236(B) provides that equitable distribution of marital property shall be made “in an action wherein all or part of the relief granted is divorce.” Marital assets subject to equitable distribution include real property, retirement accounts, and the balance of various bank accounts. The proceeds received from the division of these assets are not considered income.
Regarding real property, the equitable distribution could mean that when the marital residence is sold, the equity is then divided between the parties. With retirement accounts, each spouse receives half of the value contributed—gains or losses—during the marriage.
Normally it is easy to recognize whether something is considered income or an asset, but sometimes there is a gray area. What happens then?
Let’s take a bonus for example. Many companies or firms, especially those on the larger size, give employees yearly bonuses in March or April for work performed in the previous year. So, a bonus for the year of 2018 is actually paid out in 2019.
One would think: “Well this appeared on my W-2 each year, and my spouse and I use it to pay our bills. It’s part of my paycheck, albeit one much larger than any other received in a given year.”
However, this is not always the case.
Under Hartog v. Hartog 647 N.E. 2d 749 (1995) a spouse’s bonus earned during the course of the marriage but paid after the commencement of a divorce proceeding is marital property subject to equitable distribution.
What does this mean? Let’s say you filed for divorce in June 2018 but do not receive your bonus—which is calculated based on your and/or the company’s performance—until 2019. Then, your spouse may be entitled to half of the value (marital asset divided 50% to each spouse) of half of the bonus received since the action was filed in the middle of the year.
However, in Ropiecki v. Ropiecki, 94 A.D.3d 734 (2nd Dep’t 2012), the Second Department found that because the spouse’s bonus award in 2006 (after the commencement of the action) was provided as an incentive for future services not performed prior to the commencement of the action, it was considered property and not subject to equitable distribution.
What consequences do these two different situations hold for you? If you are the individual in Hartog and your spouse receives a portion of your bonus, is that before or after taxes? Is the entire amount of the bonus received not considered when calculating child support and maintenance, or just the portion that is paid out to your spouse?
In the Ropiecki scenario, if your bonus is considered separate property and not subject to distribution, how—if at all—is it factored into support calculations?
At Rieger, LLP, we strive to help each and every one of our clients navigate the legal process during divorce. If you need help with cases regarding divorce, dividing assets, or any other legal family matters, call us today to schedule a consultation.