Child support calculations use multiple factors to determine an appropriate amount of support. Perhaps the most significant of these factors is the income of both parents. When parents have salaried jobs or work for an hourly wage, these calculations are fairly straightforward. But for parents who own businesses or have self-employment income, determining child support can become complicated.
North Carolina Child Support Guidelines
The Child Support Guidelines use net income converted to gross annual income to calculate support amounts. For the purposes of determining child support in North Carolina, gross income includes self-employment income, ownership of a business, and rental property.
When courts use self-employment business income, the formula for these calculations is gross receipts minus ordinary and necessary expenses required for business operation. The total computed based on the Guidelines will often differ from the parent’s income tax documentation, so careful review is always necessary.
What are Ordinary and Necessary Expenses?
The Guidelines don’t provide extensive details on which expenses a parent is allowed to claim as a business expense, but it is made clear that any business expense determined by the court to be inappropriate for the purpose of calculating child support obligations is not allowed.
In Britt v. Britt, the Court of Appeals heard argument that Father should be able to claim his mortgage principal payments as an ordinary and necessary business expense to be deducted from his self-employment income.
The parties separated in 2014, and the court issued a temporary child support order in 2017. This temporary order required Father to pay $375 per month in child support plus $25 per month toward arrears. A final hearing was held in 2021, and a permanent child support order was entered, awarding monthly child support of $2,040.23 to be paid to Mother.
Father appealed the trial court’s decision on the basis that the court did not deduct his ordinary and necessary expenses from his self-employment income. He also argued that the trial court failed to provide a reason why they did not deduct his claimed expenses and that the court did not deduct his temporary child support and equitable distribution payments from his gross monthly income.
The appellate court ruled that the lower court did not fail to deduct Father’s ordinary and necessary business expenses because mortgage principal payments do not qualify for this designation under the Child Support Guidelines. It was also determined that, according to the Guidelines, Father’s temporary child support payments and equitable distribution payments should not be deducted from his monthly gross income. The Court of Appeals affirmed the lower court’s ruling.
A parent can only deduct expenses from their self-employment income if those expenses are ordinary and necessary business expenses. Mortgage principal payments do not qualify, as shown in the Britt case, but there are numerous other expenses that would fall into this category. The nuance of child support calculations for self-employed parents means careful attention is required when following the Guidelines. Consult a Greensboro family law attorney experienced in financial matters if you have a complicated child support case.