Business Owners Have Special Considerations in Illinois’ Child Support Law

It’s no surprise that business owners feel a special unease when it comes to getting a divorce.  Will you be able to keep your company? Will your divorce negatively impact your ability to sustain and grow your business?  How will your business and your lifestyle be affected by the divorce? How will it affect your kids? These are all legitimate concerns.  Illinois’s child support law directly affect the answers to many of these questions.

In many ways, the Illinois Marriage and Dissolution of Marriage Act (IMDMA for short, located at 750 ILCS 5/505) rightfully reflects what modern parenting looks like.  What both parents earn will be considered in determining child support.  In addition, how many nights each parent has the children will also be a factor.  

Pay Attention

Business owners in Illinois will want to pay particular attention to many facets of this child support law when it comes to how business income is now calculated.  The more business income you are deemed to have by the court, the more child support you will presumably and potentially be required to pay. The child support statute looks at how business income is calculated in a different way from tax and accounting rules.  Below are some important changes that will impact how your income through your business will be evaluated in determining your potential child support payments:

• Business income includes “gross receipts minus ordinary and necessary business expenses required to carry on a trade or business.” This clears up cloudy rules that included reference to “debts incurred” to produce income, meaning an expense is allowed whether or not it is paid with debt. However, only “necessary” expenses are allowed, giving business owners less room to hide income. This could be business owner favorable or unfavorable, depending on the facts surrounding business expenses.

• Accelerated depreciation on capital assets is disallowed in the determination of business income.  This could have a significant negative impact on how business income is calculated for purposes of child support and other divisions of marital assets (if you are the business owner).  Also, any expenses determined by the court to be “inappropriate or excessive” could be disregarded in the court’s determination of business income. 

• If reimbursed expenses inside the business are considered significant and reduce the business owner’s personal expenses, they may be added to business income for purposes of determining child support.  For example, if the business owner has use of a company car, and associated expenses are covered by the business, these costs could be added to the determination of business income. This part of the new statute applies to non-business owners too.  These changes could prove unfavorable to business owners and others who receive significant perks from their business or employer. 

What’s Most Important

It is important for business owners and executives in businesses to understand the risks that come from how the courts will view the income that is made and recognized by this statute.  These are significant sweeping changes that will impact every business owner who is currently going through a divorce or is contemplating one in the future. Make sure that you consult with an attorney who knows how to analyze and model YOUR particular circumstances as a business owner or the spouse of a business owner.  For a consultation with Mark Schondorf, please call (312) 878-1202.