The Changing Economic Outlook of America’s Parents

Many people believe child support payments rely on a basic formula. In reality, this financial obligation is more complex than one might expect – particularly for self-employed individuals. Government data shows that more citizens are working for themselves than ever before, so understanding how child support is calculated for self-employed parents is critical.

Unlike parents with traditional jobs, the income of individual entrepreneurs can fluctuate significantly. This creates a situation where child support orders issued during one year may be outdated by the next — particularly when traditional calculations are utilized. When you know how self-employment affects these issues, it becomes easier to get a grasp on your situation.

Calculating Net Resources

In many states, child support obligations are calculated based on the net resources of the paying parent. Since laws can vary by jurisdiction, we’ll use Texas as an example of how support payments are calculated. Net resources are determined by subtracting deductible expenses from the paying parent’s gross income.

  • Gross income: Income from all sources, including self-employment, dividends, rental income, interest, freelance income, and more
  • Deductible expenses: Reasonable and ordinary business expenses that directly relate to the cost of doing business and earning income

Due to the non-traditional situations examined when calculating child support payments for self-employed parents, bad-faith actions are possible. For instance, a parent may try to inflate their expenses to reduce their financial obligations. This is an unwise decision, as the courts can review tax returns and financial statements to identify potential abuse.

Once a specific amount is determined for net resources, the traditional child support calculations can be utilized to determine the paying parent’s obligation.

Applying the Percentage Guidelines

In Texas, calculating child support seems fairly straightforward — even for self-employed parents after determining their net resources. That’s because a specific percentage is utilized. For instance, a parent who has to pay child support for one child is expected to contribute 20% of their net resources to this obligation.

These obligations go up for every additional child an individual has. For two children, the obligation increases to 25%, and it increases five percentage points for every other child. For five or more children, a parent is expected to pay 40% of their net resources in child support. Clearly, these obligations are substantial — and that’s why accurate income calculation is critical.

When calculating child support payments for self-employed parents, these percentages can change if they have existing obligations. For instance, a paying parent who has children with two different partners will have the percentage owed per order reduced. However, these obligations are added together, thus increasing overall payments.

Can Child Support Differ From Established Calculations?

For most family law issues involving children, there are established guidelines in place. However, these guidelines are typically flexible. That’s because the chief consideration will always be the best interests of the children involved. For instance, the parent of a child who has special needs may see their financial obligations increased beyond what the traditional formula calculates.

It’s also worth noting that some states set a cap on net resources used to calculate child support. For instance, Texas has a cap of $9,200 used for calculations. Any income beyond this is usually not considered. However, this rule is also flexible. If there’s a significant income disparity or a child has special needs, a judge could deviate from this child support rule as well.

In some instances, a paying parent may even get a break on their financial obligations based on parenting time or visitation. For instance, a judge may reduce child support if the paying parent has to expend substantial resources when traveling to visit their child. Clearly, these issues can be pretty complex — and that’s why many people choose to work with family law attorneys.

Unique Child Support Considerations for Self-Employed Parents

The method for determining net resources for self-employed parents obviously differs from traditional child support calculations. However, this isn’t where the differences end. The reality is that the income of independent entrepreneurs can fluctuate significantly, and the opportunity exists to conceal income. That’s why courts may also take the following actions:

  • Request additional financial disclosures
  • Estimate income via lifestyle evidence (e.g., assets, spending patterns)
  • Order income paid directly to the receiving parent from business accounts

Unfortunately, knowing how to calculate child support for self-employed parents is not a skill that someone can learn overnight. Freelancers and independent contractors have unique financial situations, and issues that may affect some will not always affect others. This is why it’s so important for courts to review every case with a fresh set of eyes.

Of course, this means the burden of establishing a fair support order rests with the involved parties and their ability to build a strong case.

Do You Need Legal Assistance?

When parents review child support formulas, they often assume that this family law issue is simple. After all, exact percentages are applied, so how difficult can basic math be? This assumption leads many folks in these situations to believe they can calculate their obligations on their own. At times, they may even make payments without an established court order.

Unfortunately, this can lead to a variety of issues. The most important thing to remember is that inaccurate calculations can result in unfair support orders. This can happen due to hidden assets, improperly calculated income, and a variety of other issues. If this happens, you may face the hassle of seeking an order modification before the court corrects the issue.

Parents should also never forget that situational variance can cause deviations from the formula. Also, payments made without a court order may not be credited if a problem arises later. At Cutrer Law Group, we understand the many problems that arise when calculating child support for self-employed parents. Contact us at 817-854-1651. We’ll help you navigate these issues.