Imputation of Income in Divorce, Part 1
Part 1 of 2
Spousal maintenance and child support calculations are often a source of conflict and tension in divorce proceedings, but they don’t have to cause such complications. There are many instances where both spouses understand the need for maintenance or child support and will work together to reach a fair and mutually agreeable solution. Unfortunately, there are other cases where one party attempts to evade their support obligation by hiding their income or earning potential. When traditional discovery tools fail to prove the individual’s true income, an argument may be made for the imputation of income.
What is Imputation of Income?
Imputation of income is when a Court attributes a calculated amount of income to a parent, even if the parent does not actually earn that amount. The Court determines the amount of income the parent could make based on their background, education, and specialized competencies. Even if the parent is earning less than the amount determined by the imputation of income, the Court can still use the imputed income as the basis for calculating the amount of maintenance or child support to be paid.
This is the first of two articles discussing the imputation of income. In this article, we will discuss the preliminary discovery steps that must be taken prior to imputing income, as well as the three scenarios whereby a Court will impute income on a child support or maintenance obligor.
When May Income Be Imputed?
Under Illinois law, income may be imputed when there is doubt that the obligor’s reported income is accurate and there is evidence to suggest that the obligor is or can be earning more than they claim. Every court in Illinois has upheld a court’s power to impute income.
For example, in [citation], the Appellate Court summarized the three instances when income may be imputed:
- “It is well established in Illinois, ‘[i]n order to impute income, a Court must find that one of the following factors applies: (1) the payor is voluntarily unemployed * * *; (2) the payor is attempting to evade a support obligation * * *; or (3) the payor has unreasonably failed to take advantage of an employment opportunity.’”
To Impute, We Must Infer
It sounds simple enough: an imputation of income is based on an inference of earnings or would-be earnings. A Court will not impute income if it does not believe a party is earning or could be earning, more money than they claim. Producing evidence to support such an inference is the first, and perhaps most important, step in successfully arguing for the imputation of income.
There are several methods through which a child support or maintenance obligor may seek to decrease their obligation, but the two most common practices are:
- Hiding income
- Failing to seek full employment
Both scenarios are unique and require differing discovery methods. We’ll take a closer look at discovery methods in the next section.
Income Discovery Methods: Hiding Income
There are several ways an individual could attempt to conceal their income, with the two most common methods being money laundering and failure to report cash earnings.
What is Laundering?
- Laundering is the transfer of illegally obtained money or investments through an outside party to conceal the true source. Often, the outside party will be a friend or family member. The obligor may request that their earnings be directed through the third party source, who in turn will either “loan” money to the obligor or pay for the obligor’s expenses as a “favor.” Either way, the obligor is spending their own money under false pretenses. Typically, money laundering is accomplished when the obligor is a small business owner or works for a family member or friend.
How is Laundered Income Uncovered?
- Notices to produce and subpoenaed documents will fail to uncover income hidden through laundering; the obligor’s bank records will show very little earned income, and deposits of personal checks can easily be dismissed as a “loan” from a friend or relative. The key is that an obligor’s laundering can only be as effective as their coconspirators are dedicated. The obligee’s attorney should pursue aggressive discovery on all parties who are supposedly “lending” the obligor money, as well as on the obligor themself. All parties involved should be deposed and, to the extent possible, their earnings from employment should be verified. The money should be traced as far back as possible to determine its origins and all alibis should be thoroughly investigated.
What is Failure to Report Cash Earnings?
- The failure to report cash earnings is less dependent on the cooperation of coconspirators. Many contractors and service employees receive substantial cash income, which they may fail to report.
How are Unreported Cash Earnings Uncovered?
- The discovery of unreported cash earnings should be focused on the bank records and paystubs of the obligor. They may deposit some of their cash earnings, and their employer may keep records of cash payments made to them. Even if the obligor’s bank records are consistent with their reported earnings and their employer has no records of cash payments, the obligor still must demonstrate a standard of living consistent with their reported earnings. Unlike the money launderer, the cash-hider has no alibi for large monthly expenses or lavish expenditures. Proof of a lifestyle inconsistent with the obligor’s reported earnings will likely cast doubt on their reported income.
Income Discovery Methods: Failure to Seek Full Employment
Unemployment and underemployment are unfortunate and occasionally traumatic parts of life. However, there are many instances in which an obligor may fail to take a higher-paying job or seek employment in an attempt to avoid a support obligation.
Child support is based on the net income of the obligor and maintenance is based on a list of factors, including the present and future earnings of both parties. An obligor may seek to reduce or avoid their support obligation by taking a lower-paying job or failing to seek full-time employment during the pendency of their case.
How is the Failure to Seek Full Employment Uncovered?
- Unlike hiding income, this tactic is much easier to address. The obligee should first request that the obligor maintain a job diary to document their job search. Job diaries are typically accompanied by a requirement that the job seeker applies to a predetermined number of jobs each week and provides detailed information on each application. Where an obligor is underemployed, the obligee should request that the court takes into consideration the obligor’s prior earnings in determining any support obligation.
Seek the Representation of a Divorce Attorney
Arguing for the imputation of income is best accomplished with the representation of an experienced divorce attorney. If you are an obligee who suspects the obligor in your case is not being forthcoming with their income, contact Conniff & Keleher, LLC of Chicago and Oak Park to schedule a consultation without delay. Our team will work tirelessly on your behalf to secure the maintenance or child support to which you may be entitled.
Learn More in Part Two
We’ve covered the basic answer to “what is imputation of income?” and discussed the common methods taken by obligors to hide their income or cash earnings. In part two of this series, we will look at some real-life examples of these scenarios and explain how the discovery methods we discussed in part one were vital to successfully arguing for the imputation of income.