From time to time, I re-publish great Do’s and Don’ts lists in the field of family law. Here is one regarding income from a self-employed individual.
Child support is calculated based upon income. When someone is self-employed, the calculation becomes a great deal more complex, as illustrated below.
There is never a substitute for meeting with a highly experienced family law attorney to get a great education and learn your rights. Harry Siegel and the attorneys at SIEGELAW are happy to sit down and provide you with a consultation at no charge regarding you family law case.
1. At the initial client interview/consultation, DO have your client describe the type and nature of the business and determine the manner in which they keep business records. DO make sure your client understands that unless they are willing to concede that the business produces sufficient income to pay whatever the Court may order for alimony, child support and/or counsel fees and suit money, ALL of their business records are not only subject to discovery but are an integral part of defending against the opposing party’s claim(s). DO instruct your client to immediately begin organizing and gathering their business records.
2. If your client works with an accountant, DO meet with the accountant as soon as possible. You will need to educate yourself on the financial details of the business. DO NOT rely on your client to educate you. More often than not the client does not know or understand the financial details themselves. Review at least 5 years of tax returns (personal and business) with the accountant. DO make sure you understand what is on each return, how the numbers were calculated and what each entry actually means. If you do not know how to read a tax return, this is the time to learn rather than waiting to be “schooled” by opposing counsel (or the Court) in the middle of a hearing. The ABA has two excellent publications which I highly recommend: “The 1040 Handbook,” and “The Business Tax Return Handbook.”
If your client has prepared their own tax returns, DO have your client explain to you how they prepared the return and DO insist on seeing all documents used and relied upon in preparing the return.
3. DO review all of the actual business records yourself. This can/should include Profit and Loss Statements for the current year to date, the general ledger, invoices for accounts payable and accounts receivable, bank account statements for all accounts, credit card statements for all accounts etc.
4. DO be wary if your client tells you that personal expenses are paid from the business account(s). Make sure your client can provide you with documentation as to all personal versus business expenses. If your client cannot substantiate the type of expense paid from the business, the Court will more likely than not include that expense in calculating the client’s income for support purposes.
5. DO NOT allow your client to play “hide and seek” with you regarding their business records. Make sure they understand that doing so can and often will jeopardize their own case. If your client is not forthcoming with you, rest assured they will not be forthcoming during discovery or in Court. DO send your five day letter right away and file your motion to withdraw from the case immediately after the expiration of the five days. This kind of client is not worth jeopardizing your credibility with the Court or the Bar and they often end up creating ethical problems for you down the line. Get out while the going is good.
6. DO make sure you know what documents are being provided to the opposing side in discovery and what information is included on those documents. Bate stamp each and every page before serving your document production and keep an organized catalogue of the documents as well. You may need to refer to the catalogue during the hearing and you do not want to waste time asking for the Court’s “indulgence” while you search through documents on counsel table or in the boxes you brought to the hearing.
7. DO carefully review your client’s financial statement and cross-reference the information with the business records and tax returns to insure that the numbers are consistent.
8. DO spend as much time as is necessary to prepare your client to testify. If you are going to offer any business records/documents through your client, DO make sure your client knows what those documents are and understands the information on the documents. It is not helpful to your client’s case if she gets on the stand and can only say, “I do not know what that is, I just give the information to my accountant [or office manager].” If your client is not going to be able explain the financial records to the Court, DO put the accountant on the stand instead.
9. DO NOT assume that the Court will do the analysis of the documents, tax returns or the math for you. It is your job to present all of the relevant facts to the Court to support your client’s position on the disputed issues. The Court will NOT do your work for you. To quote Judge Ann Sundt (ret.), “give the Court what the Court needs to decide the case,” otherwise, a successful result for your client is very unlikely.
10. DO review Maryland Rules 16-1002 (c); 16-1006 (i), (j) and (l); and 16-1007 (c) to ensure that you have REDACTED the protected information before responding to discovery requests and before offering any document into evidence.