Determining how much someone owes in child support is relatively simple when their primary or only source of income is through their job. Their annual, monthly, and weekly income can be calculated by looking at their pay stubs and Form W-2s, and in turn, the amount of money they’re required to pay the custodial parents of their children can also be easily calculated.

But what happens if the person who owes child support doesn’t receive a Form W-2 at the end of the year and isn’t an employee at all, but instead, they pay themselves through profits from their own business?

Small business ownership increased 89% in 2020 compared to 2019, and the number of people who are going into business for themselves is increasing. Here’s how this growing trend affects child support payments.

It’s More Difficult to Prove Actual Income

Proving income is easy when someone has a full-time job. But it’s more difficult to prove when they run a business, whether it’s a “side hustle” or their primary/sole source of income.

That’s because not all of the money they make in a given year may be considered income—even if it ends up in the owner’s pocket. For example, they may pay themselves a small salary and withdraw additional money every month for personal use. The money they pay themselves as a salary is easily tracked and calculated, but the money they withdraw for personal use isn’t.

They also may use business profits to pay for vehicles, home renovations, dinners, and more while categorizing those as business expenses. This is a common tactic business owners use to obscure their total income to avoid tax liabilities and child support payments.

Earnings Can Be Hidden Depending on the Business Structure

In addition to categorizing many major purchases and expenditures as business expenses, business owners also may structure their companies in a way that makes them appear to be barely profitable or even losing money. But despite showing annual losses, the owners may be supporting themselves just fine.

In cases like these, business owners may claim to be operating at a loss and thus have no income available to pay child support. At first glance, their tax records may appear to support this, but there’s often plenty of money available to pay the non-custodial parent upon further investigation.

Wages Can’t Be Garnished

When non-custodial parents refuse or stop paying child support payments, a family law court can order their wages to be garnished via a judgment creditor and for that money to be given to the custodial parents of their children.

However, this usually isn’t an option when the non-custodial parent is self-employed or owns their own business—especially if they don’t pay themselves a salary. That’s because technically, there are no set wages to be garnished.

It’s possible to garnish money through a non-wage garnishment order, which allows a judgment creditor to obtain money through a bank account and personal property.

We Can Help You Get the Child Support Payments You and Your Kids Are Owed

Many people go to great lengths to avoid paying the child support payments their children need to survive and thrive. Unfortunately, small business owners have plenty of opportunities to hide, obscure, and misrepresent their income in an attempt to reduce or even eliminate their child support payments.

At Ralls & Wooten, our Tennessee family law attorneys know all the tricks that people use to get out of their financial obligations—including tax loopholes, write-offs, and more.

We know how to review profit and loss statements, business records, tax returns, and more with a fine-toothed comb to discover profits and income that can and should go to their children. We also utilize our connections in the industry with forensic accountants who can perform deep dives into personal and business finances to ensure that our clients get the money they’re entitled to receive.

Contact us today for a free consultation.