Mathematics for Imputing Income

Determining alimony in a divorce case is based on factors like how long the marriage was, the ages and health of both people, their education, and their financial resources. Once someone is entitled to alimony, the amount is figured out based on their needs and the other person’s ability to pay. This can get complicated when one or both people try to manipulate their income to pay less alimony. Trial courts usually handle this well, but it can be a problem when people try to cheat the system. When determining alimony or support payments, courts will sometimes estimate a party’s income if they are unemployed or not earning as much as they could. This is called imputed income. However, it’s important that there is evidence to show that the unemployment or underemployment is intentional. The amount of income that is estimated must be based on what the person could realistically earn in the long-term. If there is no evidence that a job with a certain income is available, then only extra income can be estimated. Sometimes, a party may try to manipulate their income to avoid paying alimony or support. In these cases, the court can estimate an income for them based on their potential earnings. However, there can be mistakes in how the court calculates this imputed income, which can have a big impact on the outcome of the case. It’s important for the court to use the right definitions and understand the difference between income and income streams to make sure everyone is treated fairly. The amount of alimony someone receives should be based on their actual needs, not on saving money or building wealth. The value of the marital home on the date of separation is determined by the market value of the house minus the outstanding mortgage. If alimony is being used to pay the full mortgage, it creates extra property that was not available on the date of separation. This is not fair because it creates more assets using alimony. Additionally, a person’s need for alimony should be based on their actual expenses, not on saving money or building wealth. The court needs to consider all of these factors when deciding on alimony payments. When a couple gets divorced, the 401(k) contributions made during the marriage are often considered as surplus income when determining alimony. This means that the spouse paying alimony may have to lower their lifestyle even more to support their ex-spouse at a higher standard of living than they had during the marriage. This becomes especially unfair when the same income from the 401(k) is used to pay alimony again during retirement. It’s like the ex-spouse is getting a double benefit from the 401(k) while the person paying alimony gets very little. This doesn’t make sense, especially when the person paying alimony made sacrifices during the marriage to secure their future retirement. It’s hard to measure the return on stocks accurately. Many people don’t understand how to do it right, including the courts and the experts who testify in court. One big issue is that the measurement process doesn’t take into account the risk of the investments. When you measure the return on a fund that keeps the earnings, it will be much higher than if you take the earnings out every year. This is because the stock market goes up and down a lot. If you take out more money than the fund earns in a year, you’ll lose some of your original investment. After the market dropped in 2000, you would have lost a lot if you were taking out money every year. But if you didn’t take the money out, you could expect to get back to where you started when the market went back up. Some people suggest using long-term bonds to measure the rate of return, but this is not a good idea because it doesn’t take into account the current value of the bond. The market value of a bond is based on short-term interest rates, not long-term predictions. The coupon rate is the rate of return paid on the face amount of the bond, but it doesn’t take into account the actual amount paid for the bond. This can lead to errors in measuring the rate of return. It’s important to understand these factors when investing in bonds. The theory of the rate of return says that any income earned above 3% is actually just keeping up with inflation, so it’s not really adding to your wealth. This means that using risky investments to show how much money someone can pay in alimony might not be fair, because those risky investments could also result in big losses. In Florida, it seems like only the people receiving alimony get to keep and grow their assets, while the people paying alimony have to take big risks with their money. Income for alimony should not include an inflation component because it causes problems and makes it harder to figure out how much to pay. It’s better to use a standardized rate for all assets, like a three percent pure rate of return. Including inflation in the payout protects the person getting alimony, but it hurts the person paying. It can also lead to the payer running out of money. So, it’s better to leave out inflation when calculating alimony to prevent assets from being used up too quickly. When it comes to figuring out how much money someone has for child support or alimony, the courts look at all the different sources of income that person has. But when it comes to retirement contributions, things get a little tricky. Some people might say that if you choose to put money into a retirement plan, that money should count as income. But is it really a choice if your employer matches your contributions? And what if you had a traditional retirement plan before, and now you have a 401(k) instead? It’s not really fair to count that as extra income. Plus, the person receiving alimony benefits from the retirement contributions too. So, it’s not as simple as just counting it all as income. The courts have to look at the whole situation and decide if the person was intentionally trying to lower their income to avoid paying support. If it’s not intentional, then the contributions shouldn’t count as income. When someone intentionally wastes money or assets before a divorce, the court can assume they still have that money and include it when deciding how much alimony they have to pay or receive. This can lead to unfair outcomes and create a lot of problems in the divorce process. These are references to court cases in Florida. They show how the courts have decided on issues related to divorce and alimony. They explain how the amount of alimony is determined and how retirement benefits can be considered. The cases provide guidelines for determining alimony based on the standard of living during the marriage and not on speculation about future income or needs. This column is written by two experts in family law. Jerry Reiss is an experienced actuary and Michael R. Walsh is a certified marital and family lawyer. They provide support and testimony on employment, distribution, and alimony cases. They have offices in Ft. Lauderdale, Clearwater, and Orlando.

Source: https://www.floridabar.org/the-florida-bar-journal/mathematics-for-imputing-income/