What Counts as Income for Alimony

Colorado courts consider a number of factors when awarding alimony including how much each spouse makes. Determining your income can be quite complex since courts take into account income from most sources, not just your paycheck. In this article, we explore what counts as income to determine alimony, called spousal maintenance in Colorado.

What Counts as Income for Alimony?

Gross Income

Colorado courts use gross income to calculate spousal maintenance. Gross income is the money you make before taxes, deductions, and other expenses; so we’re not talking about your take-home pay.

Types of Gross Income Included for Alimony

When a spouse requests alimony, the court will want to know practically every source of income for each spouse. Income includes salaries, wages, and tips, but also:

• commissions
• bonuses
• dividends
• capital gains
• retirement benefits actually received
• rent income
• trust income and distributions
• self-employment income
• social security benefits actually received
• unemployment insurance benefits
• disability insurance benefits
• monetary gifts
• prize money
• preexisting alimony awards
  *this is not an exhaustive list

Definitions of Common Income 

Colorado law does not provide a definition for salary. But the common meaning of a salary is a fixed, regular payment that is typically paid on a monthly or bi-monthly basis.

You earn a wage if you are paid by the hour. Tips are also considered wages, and they must be reported as income for the purposes of calculating alimony.

Commissions, in many cases, are extra income given to an employee for reaching a particular goal. Some people receive a commission in addition to their base pay, while others can hold a commission-only job. Either way, commissions are often hotly disputed during a divorce because of their fluctuation.

Another fiercely contested income during a dissolution of marriage is the bonus. Bonuses are generally discretionary in nature and given in addition to a salary. Performance bonuses are a common type of bonus that is often paid in cash. Dividend bonuses are another kind of bonus a company’s stockholders can receive during a lucrative year. Dividend bonuses are paid from the company’s profits.

Capital gains are profits from selling an asset, and they count as income. Assets are not limited to just stocks and bonds. They can include investment properties, artwork, and even jewelry.

Is Overtime Pay Included as Income?

Generally, the answer is: no. The statute governing Colorado alimony states that overtime pay should only be included if your employer requires it of you as a condition of your employment.

What if there is a History of Overtime Pay?

If you or your spouse consistently earns overtime pay, it is likely this money will be factored in as income.

If a spouse has “historically earned higher or lower income than the income reflected at the time of permanent orders and the duration and consistency of income from overtime or secondary employment,” then the additional income may be included. C.R.S. § 14-10-114 (3)(c)(VI)

How Unemployment Affects Alimony

Voluntarily Underemployed or Unemployed

If a spouse does not work full-time or at all, he or she can still receive alimony. In these instances, the court can impute income. That means a judge can assign income according to the spouse’s work experience and education. At the least, a court can assign minimum wage because most everyone can earn it.

Now, there are instances when the court cannot deem someone to be underemployed:

• If the underemployment is temporary and intended to result in higher income in the foreseeable future.
• The job is a good faith career choice.
• The spouse is enrolled in a good faith career choice educational program that is reasonably intended to result in a degree or certification within a reasonable time and that will lead to higher income.

Also, the court cannot impute income for a spouse who is physically or mentally incapacitated, incarcerated, or taking care of a child younger than 30 months for whom the parties are both responsible.  CRS 14-10-114(8)

How Inconsistent Pay is Calculated

If your or your spouse’s work hours are variable, resulting in a fluctuating paycheck, the court generally uses an average of that spouse’s past earnings to determine future earning potential.

In 1999, the Colorado Court of Appeals held that “in cases where there is a substantial fluctuation in a spouse’s income or some component thereof, the trial court has the discretion to consider, or use an average of, past earnings.” In re Marriage of Rice and Foutch, 987 P.2d 947

In its ruling, the Colorado court referenced an Illinois appeals court that ruled a trial court was within its discretion to take an average of a father’s income over three years to determine a child support figure.

“It is clear that [father’s] income fluctuated from year to year depending on the profitability of the farming industry. Under these circumstances the method of income averaging employed by the court was a reasonable means of determining Greg’s net income for purposes of child support.” In re Marriage of Nelson, Appellate Court of Illinois, Third District, 1998

Future Earning Capacity and Alimony

In addition to what you actually make right now, the court can consider your future earning capacity. So, what is that exactly? It’s how much money you have the potential to earn down the road.

You may wonder what that has to do with your current divorce. Well, it’s twofold. First, the court can give future earning capacity serious weight if you’re asking for your ex to pay you spousal maintenance. Second, if you’re the prospective alimony payor, the court wants to find out your ability to make the payments and take care of your own needs at the same time.

If You’re the Alimony Seeker 

If you’re the spouse who’s requesting alimony, the court will want to know what your income is now and what it could be in the future.

For current income, the judge will look to see what kind of financial resources you have that would allow you to be self-sufficient without alimony. For instance, what marital property will you receive in the divorce? Is there separate property that you own? And, of course, what do you currently make from your job.

Regarding future earning capacity, the court will review your level of education and job experience. If you have been out of the workforce for some time, the court may want to know if taking a few courses could enable you to obtain employment. If so, what might you be able to earn in the future with additional job training?

If You’re the Prospective Alimony Payor

If it is appropriate, the court can consider the alimony payor’s future earning capacity. This can come into play if the alimony payor is nearing retirement age. Retirement, though, does not exempt a spouse from being ordered to pay alimony. Retirement income and money earned from other assets can be used to make payments.

Business Owners and Spousal Maintenance

It goes without saying that income from a business is considered for spousal maintenance. Business income can from:

• self-employment
• a closely-held corporation
• a business owned or jointly owned
• rent
• royalties

Ordinary and necessary expenses are deducted. What cannot be included as expenses: amounts the IRS allows for the accelerated component of depreciation expenses or investment tax credits. It’s also at the court’s discretion to exclude expenses it determines to be inappropriate to determine gross income for calculating alimony.

Valuing a Professional Practice

If a spouse owns a professional practice — physician’s office, law firm, accouting office —  the court will look to its future earning potential to help determine a spouse’s ability to pay spousal maintenance or be financially independent without it.

The court factors in, for instance, the “length of time the business has been in existence; the nature and character of the business; its success or lack thereof; its average profits; and the probability of its continuance under the same name.”
Levene v. Salem, 191 Ore. 182, Supreme Court. March 21, 1951

Gifts Can be Considered Income

Monetary Gifts

Colorado’s alimony advisory guidelines list monetary gifts under sources of income. The statute, though, is broad and offers no additional explanation for what constitutes a monetary gift. In this instance, we must look to the courts for direction.

The Colorado Supreme Court has held that it is not appropriate for courts to consider third-party voluntary financial contributions made to the payee spouse when determining an initial alimony award. In re Marriage of Serdinsky, 740 P.2d 521 (Colo. 1987)

Citing Serdinsky, the Colorado Court of Appeals concluded that “conversely, if a third party is legally required to make monetary payments, it may be appropriate to consider them in setting the amount of maintenance a payee spouse is to receive.” In re Marriage of Bowles, 916 P.2d 615 (Colo. App. 1995)

However, if we look to a child support case heard by the Colorado Supreme Court for direction, we find that gifts regularly received from a dependable source are included in gross income to determine child support payments. In re Marriage of Nimmo, 1995, 891 P.2d 1002

If you receive monetary gifts on a regular basis, you may have to count them as income. Be sure to discuss this with your lawyer who can provide insight into including the financial gifts you receive.

Inheritances

The Colorado Supreme Court held in 2003 that “a monetary inheritance is a particular form of a monetary gift … Thus, the plain meaning of monetary gifts and gross income, properly includes monetary inheritances.” Casteel V. Davidson (In re A.M.D.) 78, P.3d 741

Now, how income from the inheritance is calculated depends on how the inheritance is used.

Two-Part Inheritance Income Test

Courts use a two-part test to determine whether inheritance should be included as income.

If the inheritance is monetary, then some or all of it could be included as gross income. Monetary means cash or assets that are easily converted to cash, like stocks and bonds.

If the court finds that the inheritance is monetary, the next step is to determine how the recipient has used or will use the inheritance.

If the inheritance is used to increase the recipient’s standard of living or pay for existing living expenses, then the inheritance should be included as income.

On the other hand, if the inheritance recipient holds on to the money and puts it in a savings account or invests it, then it would not be included as gross income. Any interest earned from the savings account or investment would count as income.

Talk to a Divorce Attorney About Income for Alimony 

What counts as income for alimony is not straightforward, especially if there are various types of income earned in the marriage. While this article covers some of the basics of what counts as income for alimony, it’s really the tip of the iceberg. Our Family Law Team is well-versed in the state’s spousal maintenance laws and can help you make sense of them. Call 303-688-0944 to begin your case assessment.