Commissions and Bonuses as Income in Tennessee Child Support Law
Prior bonuses and commissions received (often by sales professionals) can be included as income for future Tennessee child support determination even if the bonuses and commissions are not guaranteed.
How to calculate income for parents with commissions and bonuses in Tennessee child support laws
Tennessee law requires that child support calculations be based on the gross income of both parents. The Tennessee Child Support Guidelines, a set of administrative rules on child support, work on the “Income Shares” model, that is, that both parents contribute to the support of the children in proportion to each of their incomes. The guidelines further explain that:
The Income Shares model for determining the amount of child support is predicated on the concept that the child should receive support at the same level that the child would receive if the parents were living together.
When considering the actual income of a parent, Tennessee, like most states, includes commissions and bonuses as part of the gross income of the parents. The Guidelines define gross income to include “all income from any source … whether earned or unearned, and includes but is not limited to, the following: wages, salaries, commissions, bonuses, overtime payments…” The courts will consider past commissions and bonuses when determining how much child support a parent must pay, based on the assumption that the best predictor of future income is past income.
On the flip side, sales commissions and bonuses, judges are frequently told, are never guaranteed. There are many factors which determine whether there will be a bonus or how big a commission will be paid out to an individual. In some work places, bonuses and commissions may be based on the work ethic of the employee, in others on the actual work completed and in still others payment is based purely on the business’ profit. This means that there are many external influences that will have an impact on how big (or small) a bonus the employee receives. Was there a recession in the state (or in the world) that slowed business down? Did something change in the actual market that increased sales? If indeed so many factors, unrelated to the individual, actually play into the payment of bonuses and commissions, is it fair to base child support on a parent’s past gross income without considering future changes?
In Stacey v. Stacey, 1999 WL 1097975 (Tenn. Ct. App. Oct. 6, 1999), the court ruled that a fixed amount of child support must be determined, including bonuses and commissions, for several reasons:
- A fixed payment, based on previously earned income – including bonuses and commissions – allows both the non-custodial and custodial parent – to plan accordingly for the households finances.
- If the non-custodial parent is permitted to determine how much of his or her bonuses and commissions are included, needless time and energy are wasted and tensions between parents increases.
- Setting a definite amount allows the court to determine if the obliged parent is complying with court orders.
But this still doesn’t solve the problem for the obliged parent who finds him or herself without the expected bonus, and thus unable to pay the court-determined child support. In order to prevent this situation, both the courts and the parents need to take an active and creative role in the determination of child support and look beyond the pure mathematical calculation created by the Guidelines.
How to Calculate Bonuses and Sales Commissions to be Fair to Both Parents?
Courts may sometimes allow income averaging over a two-year period or longer. Rather than calculating income based only on the last year (in which a large bonus was earned), the courts should review gross income over a two or three-year period in order to best determine what the parent can really expect to receive in wages over the coming years.
Courts can consider whether a bonus is speculative or predictable. When a parent receives a routine bonus of a certain percentage of his or her salary or has a predictable pattern of commissions, it is appropriate for the court to average the bonus or commissions over 12 months and include it in the parent’s annual gross income.
If, however, the bonus or commission is not predictable, the court might consider excluding it from gross income. In Velez v. Velez, No. M2011-0949-COA-R3-CV (Tenn. Ct. App. July 31, 2012), for example, the Court of Appeals of Tennessee at Nashville did not include the father’s bonus in the child support calculation because “the evidence in the record only indicated that Father had received a few bonuses and that these bonuses were not guaranteed in the future.”
Tennessee parenting plans require parents to exchange income information annually. Tennessee law expects parents to seek to modify the child support on a regular basis. Unfortunately, the modification process can be more expensive than it should otherwise be. But by requiring the exchange of information, it is more likely that the money will be distributed fairly between the parties. One parent does not arbitrarily determine how much s/he will pay when there is a change in income (for the non-custodial parent) and, alternatively, the receiving parent cannot make unfair demands.
As the appellate court held in Velez, “Broad discretion is afforded the trial court in its child support determinations, and that discretion is bounded on all sides by the child support guidelines.” In other words, bonuses and commissions must be included when calculating gross income for purposes of determining child support, but they must be considered in a way that insures fairness to both parents while guaranteeing that every child’s needs are met.
For more information about income averaging, see Averaging Income in Tennessee Child Support Law.
References, Resources and More:
- Tennessee Child Support Laws
- Tennessee Child Support Law Answers to FAQs
- Tennessee Child Support Calculator & Links to App
- Tennessee Parenting Plans and Child Support Worksheets: Building a Constructive Future for Your Family
- For analysis, updates, commentary and case law summaries, view the Tennessee Child Support category of our MemphisDivorce.com Tennessee Family Law Blog.