By: Stephen J. Plog
In Part 1 of this article, I analyzed the generalities of how bonus and commission income are treated in Colorado child support cases. To recap, bonus and commission income are specifically enumerated in Colorado Revised Statutes 14-10-115 as income which can be included in a child support calculation. I also discussed various issues tied into what courts might do when including a person’s bonus or commission income to derive their overall income, which included discussions regarding averaging bonuses and commissions over a sensible term of years to come up with an average. In this Part 2, I will focus on bonus and commission (hereinafter referred to as “B & C”) income, including potential strategies for negotiating or litigating spousal support cases when these types of incomes apply.
The legal analysis for what would be included as income in a Colorado alimony case, pursuant to C.R.S.14-10-114, is essentially identical to the analysis applied in a child support case. However, as a Denver alimony attorney for almost two decades, it is my opinion that both parties and courts can be much more creative with alimony (maintenance) orders tied into bonuses and commissions. Thus, there is more potential for sensible and fluid arrangements regarding spousal support, as opposed to child support orders, which are almost always going to be reflective of strict adherence to the C.R.S. 14-10-115 child support guidelines.
As discussed in Part 1, B & C income generally fluctuates. These fluctuations can be month to month or year to year. As also discussed, many employees earning B & C income generally have a base salary. As with child support, there may be a gravitational pull towards averaging the payor’s income to get to a static, recurring monthly alimony figure. Unfortunately this can become highly problematic for the payor when fluctuations are such that in many months the only income that payor has is his or her base salary. Though it may be quite easy (and fair) to run the statutory maintenance formula using the payor’s base salary, basing the recurring monthly maintenance payment on salary plus B & C can leave the payor cash poor in many months, and scrambling make monthly payments and meet his or her own needs.
One way to alleviate cash flow issues for the payor whose income is significantly rooted in B & C is to establish a base monthly alimony amount, based on the statutory formula and tied solely into salary. This would be a monthly recurring figure both parties can rely on or live with, month in and month out. The parties could then come up with a plan for dealing with the B & C income, with payment going to the payee when B & C income is received. For example, the parties might agree that payor will pay $2000 per month in base alimony tied into his or her salary of $120,000 per year. Let’s presume the payor also makes roughly $150,000 per year in additional B & C income, based on various checks received in any given year, which come with no regularity. To deal with the uncertainty and fluctuations, the parties might agree to a scenario in which the payee receives 30% of the net B & C proceed within 7 days of the payor receiving a check from his or her work. Regardless of what percentage is used, the payor pays when paid B & C income and the payee is paid then as well.
Though the fluid plan set forth above to deal with B & C income seems simple, there are certainly details which need to be considered. For the payor, there must be specific orders regarding timing of payment, which allow easy calculation of the amount, and which also reiterate tax consequences for both parties. For the payee, it will be necessary to have detailed orders requiring the payor to pay within in a certain time and to provide a copy of any B & C paycheck, also within a certain time frame. Payee can then easily verify what the payor received and what he or she is entitled to. Detail in any agreement matters and can alleviate the need for litigation down the road. Though this type of an arrangement is generally going to be arrived at via settlement agreement, the overall rationale is something that might be argued to the court by the payor as being practical, reasonable, and fair for both parties tied into cash flow.
Without a specific plan in place authorizing separate alimony transactions for B & C income, the payor can find himself or herself in a situation in which they are paying an extraordinarily high monthly alimony figure, which factors in yearly gross income, when in reality the payor may be living on their lesser, base salary for many months at a time. In these situations the payor will certainly need to budget and would be wise to sock away large portions of any bonus or commission check to account for the leaner months. The fortunate part of this overall analysis is that when people are willing to agree and compromise, it’s much more likely that they will arrive at workable solutions regarding spousal support, whether on their own or with the help of a Denver divorce and alimony attorney.