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What is “Imputed Income” for the purposes of Child Support?
When determining child support, pursuant to the Michigan Child Support Formula Manual (MCSF), a court may consider a party’s potential income above what they are actually earning based on that individual’s ability to earn.1 In Mork v Mork,2 an unpublished decision, the Court of Appeals explained: The imputation of income to a parent having an unexercised ability to pay must be conducted according to certain guidelines. The court must make findings with respect to various factors, including, but not limited to, the parent’s work history, health, education level, skills, capacity to work, available employment opportunities, and consistency or diligence of effort in seeking employment. The court must evaluate these criteria to ensure that any imputation of income is based on actual ability and likelihood of earning the imputed income.
The Michigan Child Support Formula (MCSF) lays out the factors the court must consider if it decides to include potential income.
2.01(G) Potential Income
When a parent is voluntarily unemployed or underemployed, or has an unexercised ability to earn, income includes the potential income that parent could earn, subject to that parent’s actual ability.
- The amount of potential income imputed should be sufficient to bring that parent’s income up to the level it would have been if the parent had not voluntarily reduced or waived income.
- Use relevant factors both to determine whether the parent in question has an actual ability to earn and a reasonable likelihood of earning the potential income. To figure the amount of potential income that parent could earn, consider the following:
- Prior employment experience and history, including reasons for any termination or changes in employment.
- Educational level and any special skills or training.
- Physical and mental disabilities that may affect a parent’s ability to obtain or maintain gainful employment.
- Availability for work (exclude periods when a parent could not work or seek work, e.g., hospitalization, incarceration, debilitating illness, etc.).
- Availability of opportunities to work in the local geographical area.
- The prevailing wage rates in the local geographical area.
- Diligence exercised in seeking appropriate employment.
- Evidence that the parent in question is able to earn the imputed income.
- Personal history, including present marital status and present means of support.
- The presence of the parties’ children in the parent’s home and its impact on that parent’s earnings.
- Whether there has been a significant reduction in income compared to the period that preceded the filing of the initial complaint or the motion for modification.
- Imputation of potential income should account for the additional costs associated with earning the potential income such as childcare and taxes that a parent would pay on the imputed income.
- The court makes the final determination whether imputing a potential income is appropriate in a particular case.3
Notably, the Court will weigh heavily an individual’s employment history, along with the reason behind a reduction of pay or unemployment. It is well settled that “when a party voluntarily reduces or eliminates income, and the . . . court concludes that the party has the ability to earn an income and pay child support, the court does not err in entering a support order based upon the unexercised ability to earn.”4
What are some examples of “Imputed Income”?
In Chipps v Chipps,5 defendant father was a computer software developer and consultant earning approximately $113,000.00 a year. He voluntarily left his prior employment and chose to begin working at his church where he earned approximately $36,000 a year. In upholding the imputation of income in the amount of $113,000.00, the court found it significant that the defendant voluntarily changed his employment and admitted to being able to earn additional income.
However, the court went on to provide that if the defendant finds that, due to the economy or some other factor, he is unable to find employment at the level imputed by the trial court, he is of course free to petition for a modification in the support orders. See MCL 552.17 and MCL 552.28.6
Likewise, in Toal v Toal,7 the court upheld imputed income to the plaintiff father because it found that he had “voluntarily reduced his income.”8 The plaintiff father was an investment banker in Chicago earned almost $700,000.00 the previous year. After apparently losing his job, he moved to Michigan with the defendant mother and took a job as teacher earning approximately $40,000.00. In calculating support, the referee imputed income of $350,000.00 to the plaintiff father. At the hearing on the issue, the defendant mother introduced testimony of a vocational expert that plaintiff father had the potential to earn at least $350,000 per year. The defendant mother also offered evidence of other investments, which the plaintiff father benefitted from. Ultimately, the court upheld the imputation of income finding that plaintiff father voluntarily reduced his income when he relocated to Michigan and left the investment-banking industry. Moreover, credible testimony showed that he had an unexercised ability to earn far more than he was presently earning as a teacher and coach.9
The determination of whether to impute income is fact specific. The Court will review all of the above factors in its determination. Regardless of what side of the inquiry an individual is on, it is important to hire an attorney with knowledge and experience in this area to protect your rights.
How does the Judge determine who gets custody of the minor child(ren)?
The Child Custody Act of 1970 is the first point of reference and its best interests of the child standard is the overriding consideration in child custody disputes. As far as custody is concerned, the Court analyzes a number of different factors to determine what is in the “best interests” of the child. MCL 722.23 provides as follows:
As used in this act, “best interests of the child” means the sum total of the following factors to be considered, evaluated, and determined by the court:
- The love, affection, and other emotional ties existing between the parties involved and the child.
- The capacity and disposition of the parties involved to give the child love, affection, and guidance and to continue the education and raising of the child in his or her religion or creed, if any.
- The capacity and disposition of the parties involved to provide the child with food, clothing, medical care or other remedial care recognized and permitted under the laws of this state in place of medical care, and other material needs.
- The length of time the child has lived in a stable, satisfactory environment, and the desirability of maintaining continuity.
- The permanence, as a family unit, of the existing or proposed custodial home or homes.
- The moral fitness of the parties involved.
- The mental and physical health of the parties involved.
- The home, school, and community record of the child.
- The reasonable preference of the child, if the court considers the child to be of sufficient age to express preference.
- The willingness and ability of each of the parties to facilitate and encourage a close and continuing parent-child relationship between the child and the other parent or the child and the parents.
- Domestic violence, regardless of whether the violence was directed against or witnessed by the child.
- Any other factor considered by the court to be relevant to a particular child custody dispute.
After the court considers these factors, the court will construct a custody and parenting time arrangement that it feels is in the best interests of the child.
Can the Court modify a previous custody Order?
The Child Custody Act authorizes a trial court to modify its previous judgment or orders upon a showing of proper cause or a change of circumstances, if such a modification is in the child’s best interests.10 Michigan courts are precluded from holding a child custody hearing, or otherwise revisiting a valid prior custody decision, if the movant has not established proper cause or a change in circumstances.11
What is Proper Cause?
The Court in Vodvarka v Grasmeyer12 established that, “proper cause means one or more appropriate grounds that have or could have a significant effect on the child’s life to the extent that a reevaluation of the child’s custodial situation should be undertaken.”13 The court should refer to the best interest factors provided in MCL722.23 (a)-(l), in deciding if a particular fact raised by a party is “proper.”14 The Court in Vodvarka also held that the movant must show that a “significant effect on the child’s well-being” exists in order to establish a “change of circumstances.”15
As to what constitutes proper cause, the Vodvarka Court summarized as follows:
In summary, to establish “proper cause” necessary to revisit a custody order, a movant must prove by a preponderance of the evidence the existence of an appropriate ground for legal action to be taken by the trial court. The appropriate ground(s) should be relevant to at least one of the twelve statutory best interest factors, and must be of such magnitude to have a significant effect on the child’s well-being. When a movant has demonstrated such proper cause, the trial court can then engage in a reevaluation of the statutory best interest factors.16
What Constitutes a Change in Circumstances?
In order to establish a “change in circumstances” to modify a custody order, the Vodvarka Court articulated as follows:
a movant must prove that, since the entry of the last custody order, the conditions surrounding custody of the child, which have or could have a significant effect on the child’s well-being, have materially changed. Again, not just any change will suffice, for over time there will always be some changes in a child’s environment, behavior, and well-being. Instead, the evidence must demonstrate something more than the normal life changes (both good and bad) that occur during the life of a child, and there must be at least some evidence that the material changes have had or will almost certainly have an effect on the child. This too will be a determination made on the basis of the facts of each case, with the relevance of the facts presented being gauged by the statutory best interest factors.17
What is a Custodial Environment and How Does it Affect Custody?
Once the existence of proper cause or a change of circumstance is shown, the trial court must determine whether an established custodial environment exists.18 A custodial environment, as expressly stated in the statute, “is established if over an appreciable time the child naturally looks to the custodian in that environment for guidance, discipline, the necessities of life, and parental comfort.”19 With respect to modification when a custodial environment has been established, MCL 722.27(1)(c) states as follows:
The court shall not modify or amend its previous judgments or orders or issue a new order so as to change the established custodial environment of a child unless there is presented clear and convincing evidence that it is in the best interest of the child. The custodial environment of a child is established if over an appreciable time the child naturally looks to the custodian in that environment for guidance, discipline, the necessities of life, and parental comfort. The age of the child, the physical environment, and the inclination of the custodian and the child as to permanency of the relationship shall also be considered.
“On the contrary, if the court finds that no established custodial environment exists, then the court may change custody if the party bearing the burden proves by [the lesser standard of] a preponderance of the evidence that the change serves the child’s best interests.”20
What Does Equitable Distribution of Marital Property Mean?
Michigan follows the rule of equitable distribution for the division of marital property. Under this rule, there is no requirement that the division be equal, but there is a presumption of congruence.
A trial court must first determine whether the property is separate or marital. Separate property is property that a party owned prior to the marriage (premarital), gifts or inheritances, assets obtained after separation or filing, or property or its appreciation that can be traced to such items. Separate property may become marital property if it was intentionally committed to the marital estate by commingling, transferring title, and through active appreciation.
Generally, a court will award separate property to its owner unless the claimant meets one of two statutory tests:
- Contribution Test. The claimant contributed to the “acquisition, improvement, or accumulation of the property,” MCL 552.401; or,
- Sufficiency/Need Test. The award to the claimant out of the marital assets is “insufficient for the suitable support and maintenance” of the claimant and any children in his or her care, MCL 522.23.
The marital estate may include real property, personal property, earnings, worker’s compensation awards, Social Security awards, stock options, retirement benefits, pension benefits, and deferred compensation that was acquired during the marriage. During the marriage refers to the period from the date of marriage to the date of entry of Judgment. However, courts are given the discretion to value property at the time of separation, filing, trial, judgment or any other appropriate date.
When dividing marital property, a court may consider each of the following factors:
1) The length of the marriage;
2) The needs of the parties;
3) The needs of the children;
4) The earning power of the parties;
5) The source of the property;
6) Where the contributions toward property acquisitions came from;
7) The cause of the divorce, including fault in the breakdown of the marriage; and
8) Any other relevant factors the court deems necessary.
Not all factors are relevant to every case nor is the court required to give equal weight to each factor.
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