Massachusetts Lawyer Blog

Modification of a MA child support order was recently discussed in the Massachusetts Appeals Court case, Kenneth R. Whelan vs. Kathleen A. Whelan. One of the issues discussed in this case involved self-employment income as it relates to MA child support obligations. In a footnote, Note (17), the court writes:

(17) New Child Support Guidelines became effective in Massachusetts on January 1, 2009. The new Guidelines define income as "gross income from whatever source regardless of whether that income is recognized by the Internal Revenue Code or reported to the Internal Revenue Service or State Department of Revenue or other taxing authority." Guidelines I-A (2009). With respect to income from self-employment, the new Guidelines provide that "[i]n general, income and expenses from self- employment or operation of a business should be carefully reviewed to determine the appropriate level of gross income available to the parent to satisfy a child support obligation. In many cases this amount will differ from a determination of business income for tax purposes." Guidelines I-C (2009).

While the prior Child Support Guidelines, "do not specifically provide for deduction of business-related expenses from self-employment income[,]" the court indicated the new MA Child Support Guidelines "clarify" the approach MA courts have taken.

The 2006 Guidelines, in effect at the time of trial, do not specifically provide for deduction of business-related expenses from self-employment income. Indeed, these guidelines list in the definition of income from whatever source both "income from self-employment" as well as, by way of comparison, "net rental income." Guidelines I-A(1), (25) (2006). Nevertheless, we think it is implicit that such expenses may be deducted where they are reasonable and necessary for the production of income, and our decisional law supports this conclusion. See, e.g., Smith-Clarke v. Clarke, 44 Mass. App. Ct. 404, 406 (1998) (due to lack of substantiation and commingling of personal and business expenditures, judge properly could disregard certain claimed business deductions from husband's gross income or substitute a reasonable figure for others); Maillet v. Maillet, 64 Mass. App. Ct. 683, 689-690 (2005) (remand ordered where financial statement of husband, sole owner of business, set forth income of $800 per week, and "his corporation in 2002 had income of $227,744 exclusive of suspended losses and depreciation").

The court reasoned the test to be applied by a judge in determining income from self-employment is,

...whether claimed business deductions are reasonable and necessary to the production of income, without regard to whether those deductions may be claimed for Federal or State income tax purposes.

While the MA Child Support Guidelines help bring a degree of certainty to Massachusetts child support orders, this case shows the numbers one uses in the child support formula may not necessarily be the same as income reported on tax forms or found in business reports. In self-employment and investment income cases, it's important to be able to articulate what income and expenses should be taken into consideration in determining the income which should be entered into the child support worksheet.

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