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Mary and Joe had a child. Mary owns a fast food franchise. Joe works as a service manager. Mary has residential custody of the child (New York). Joe sought to have child support reduced, arguing that Mary should have made more from the fast food franchise. Figures shown in court were that a typical franchise made $600,000/yr, and Mary's made $40,000. Joe sought to have Mary's contribution upped to $600K/yr.

Note that Mary had the franchise prior to their having a child, and during the 7 year history, the franchise never exceeded $60,000 in net proceeds to Mary.

The court has temporarily granted Joe's request, and the net effect is that Mary now receives about $300/yr in child support. She cannot support her child on her existing income and the reduced child support.

What is the practical application of imputed income in New York? Is it appropriately applied when there is no earning history to back it up?

What options in support court, should Mary be considering?

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Imputed income is a legitimate concept, but it is hard to prove, particularly when there is an earning history to back up the claim that there is no malingering.

Ultimately, the question is what that particular individual could earn and whether that particular individual was intentionally being lazy in order to influence child support.

At a minimum an earnings history and testimony from Mary would be strong evidence disproving the claim, and it would probably take expert testimony to make any kind of credible claim that more income should be imputed that would still be unlikely to succeed.

If more money were at stake, a battle of the experts with experts on each side with one testifying that Mary could earn more and the other debunking that expert's testimony, would be appropriate. But, for $300 a month at issue, it probably doesn't make economic sense for either party to hire any kind of expert. And, a judge is usually going to take some random statistical study much less seriously than a history of earnings and testimony from the franchise owner about why it earned more or less than average.

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While nothing is ever this simple, it would seem that either Mary is underperfoming in her franchise or the "typical franchise" data cited is not properly applicable to Mary's business. In most states now, it is not necessary to prove any bad faith or intent to manipulate a child support calculation on the part of Mary for her ex to succeed in having her actual earnings adjusted to what her reasonable earnings capacity is deemed to be (by the court). If Mary is earning less than 10% of what a similarly situated franchisee is earning then this would be a strong case for her ex (under the above stated standard) unless Mary can show that the hypothetical "typical" franchisee is not so similarly situated and in fact there are good and obvious reasons for her franchise to be less profitable. Maybe Mary's cheeseburger joint is in a kosher community and she has a long term lease that would prevent her from moving. It is unlikely that Mary would labor for so many years in an underperforming franchise without a reason - human nature would dictate that if she could earn 10x as much with the same effort then she would. Her earnings history predates the birth of the child in question and there was no drop off at the time of birth that could raise the suspicion of malingering. Unfortunately for Mary, though, the law provides the support magistrate with the power to impute her earnings to be much higher than her actual earnings on the basis of almost any evidence of underperformance, so she is very much at risk on the facts presented. It then becomes her job to convince the court that she is not malingering or underperforming, which comes with all the inherent difficulties of proving a negative. Successfully attacking the "typical franchise" data as not applicable to her franchise could work, or showing that she had a personal disability or impairment that required the shop to be closed much more than a "typical franchise" might work (though it would have to justify a 90% drop in net income).

All is not lost for Mary though. If Mary is imputed income, that is not the end of the matter. How much income should be imputed to her? It should be the case that her ex would have to show more than just what a franchise brochure claims to be the "typical" earnings. Among other things, that brochure would be inadmissible hearsay to prove the truth of the earnings he wishes to establish unless an exception is available to allow it to be admitted as evidence. The ex should have to show that Mary had the ability and the opportunity to earn more (and quantify for the court what amount more should have been earned), but she through her own actions or inactions did not. Some appeals courts have sent cases back where the trial court did not conduct a detailed analysis of what the shortfall in earnings is which is to be imputed based on the above test of what Mary had the ability and opportunity to earn but chose not to. If prosecuted correctly, her ex should be able to avoid the trap of a claim with no admissible evidence upon which to derive a detailed calculation of shortfall, but it should require more on his part than just the "typical franchise" data referenced above. Mary's best defense, if it is possible to show this, would be to show her operations are entirely reasonable and consistent with past practice, and although she would certainly like to make more from her franchise she cannot reasonably do that. Part of that defense would be distinguishing the "typical franchise" data to show that it is incorrect, inapplicable and/or her franchise is much different than the hypothetical typical franchise generating that data. Even if income is imputed, it may only be a fraction of what the ex is seeking from his "typical franchise" data.

As an aside, this fact pattern sidesteps the more difficult question of what would happen if the ex had the children and Mary owed alimony and child support instead of being the custodial parent with a threatened reduction in the money she needs to support her children. If $600k per year were imputed to Mary in income when the income she was actually earning was only $40k, she would quickly find herself without a drivers license and passport and she could expect to spend the rest of her life in debt and in prison. Depending on the state, her child support and alimony payments on that level of imputed income would be 5 to 6 times her total actual earnings. When her business shut down because Mary did not have a drivers license to get to work or because she was in jail because she could not pay, she would still have to pay the full amount because now it was her own fault the business shut down. The debts building up at a quarter million a year are not dischargeable in bankruptcy, so after all her assets are seized the debts just accumulate - with interest at 9% or so depending on the state. At that point, she will commit suicide or try to adopt another identity in another state. There really are not any other options. A quite famous New York Times article some years ago reported on a hapless soul who owed child support he could never pay based on imputed income that he never earned. When he was stopped in a routine traffic stop, he ran because he did not want to go back to jail AGAIN with no means of ever being permanently released, and he was shot dead in the back because he ran from the police. Fortunately, Mary's situation is not as bleak, but imputing income in an unfair manner that hurts her and her child is certainly a basis for complaining about laws that can and often are applied in unfair and sometimes even malicious ways.

  • The first part is good, but the last part (while I certainly feel with you) reads like a rant, and is not really off-topic. I don't think you must remove it, but consider editing it down to something like "Incidentally, if Mary were the non-custodial parent and owed alimony, the imputed income would have even worse consequences." – sleske Oct 11 '17 at 6:59

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