Part 1 of 2
Maintenance and child support calculations do not have to produce conflict and tension in a case. In many instances, the parties understand the need for maintenance or child support and work together to reach a fair and mutually-agreed upon result. Unfortunately, there are times when one party attempts to evade his or her support obligation by hiding income or his or her earning potential. When traditional discovery tools fail to prove that party’s true income, a party may argue for the imputation of income.
This is the first of two articles discussing the imputation of income. In this article I 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.
To Impute, We Must Infer
It sounds easy 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 he or she claims. However, producing evidence to support such an inference is the first, and perhaps most important, step in successfully arguing for an imputation of income.
There are a variety of ways in which a child support or maintenance obligor may seek to decrease his or her support obligation, but the two most common practices are: (1) hiding income and (2) failing to seek full employment. Both scenarios are unique and require differing discovery methods. I will discuss each one in turn.
Income may be hidden in a number of ways, but the two most common forms are money laundering and the failure to report cash earnings.
Laundering is the transfer ( such as illegally obtained money or investments) through an outside party in order to conceal the true source. In many cases, income may be laundered through friends and family. An obligor may request that earnings from a business be directed through a third party, who in turn will either “loan” money to the obligor or pay for the obligor’s expenses as a “favor.” In both instances, the obligor will be spending his or her own money under false pretenses. Money laundering is most often accomplished when the obligor is a small business owner or works for a family member or friend.
Notices to produce and subpoenaed documents will fail to uncover the laundering. The obligor’s bank records will show very little earned income and deposits of personal checks will be easily dismissed as a “loan” from a friend or relative. However, an obligor’s laundering is only as effective as the coconspirators are dedicated. The obligee’s attorney should pursue aggressive discovery on all parties who are supposedly lending the obligor money, as well as the obligor himself. All involved parties 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 thorough investigated.
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. In these instances, discovery should be focused on the bank records and paystubs of the obligor. The obligor may deposit some of his or her cash earnings. Further, the obligor’s employer may keep records of cash payments made to the obligor. Even if the obligor’s bank records are consistent with his or her reported earnings, and his or her employer does not have any records of cash payments, the obligor still must demonstrate a standard of living consistent with his or her reported earnings. Unlike the money launderer, the cash-hider does not have an alibi for large monthly expenses or lavish expenditures. Proof of a lifestyle inconsistent with the obligor’s reported earnings will likely cast doubt on his or her reported income.
Failure To Seek Full Employment
Unemployment and underemployment are an unfortunate, and occasionally traumatic, part of life. This has never been truer than during the Great Recession. However, there are many instances in which a party 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 his or her support obligation by taking a lower paying job or failing to seek full time employment during the pendency of his or her case. Unlike hiding income, this tactic is much easier to address. The obligee should first request that the obligor maintain a job diary to document his or her job search. Job diaries are typically accompanied by a requirement that the job seeker apply to a predetermined number of jobs each week and provide detailed information on each application. Where an obligor is underemployed, the obligee should request that the court take into consideration the obligor’s prior earnings in determining any support obligation.
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 he or she claims. 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.’”
In part two of this series, I will provide examples for each aforementioned scenario and explain how the discovery methods we discussed were important to successfully arguing for the imputation of income.