The Sworn Financial Statement is one of the most important documents you will need to complete if going through a divorce or custody case. Also called a “financial affidavit”, it requires each person in the case to use the form approved by the Court and list all income, assets and debts. The Court will use the Sworn Financial Statement to determine how to divide assets and, most importantly, to determine a Party’s need for spousal maintenance or a Party’s ability to pay spousal maintenance.
The first page of the Sworn Financial Statement requires a listing of “gross income”—meaning all the money received each month before any taxes or other deductions are taken out. Gross income includes regular wages from employment but also includes most other funds received, whether from disability, a rental unit for which a Party receives rent each month, social security, bonuses and even regularly paid “gifts” of money from parents helping out their son or daughter. The Colorado child support statute lists the many ways money received is considered “gross income”:
(I) "Gross income" includes income from any source, except as otherwise provided in subsection (5)(a)(II) of this section, and includes, but is not limited to:
(A) Income from salaries;
(B) Wages, including tips declared by the individual for purposes of reporting to the federal internal revenue service or tips imputed to bring the employee's gross earnings to the minimum wage for the number of hours worked, whichever is greater;
(D) Payments received as an independent contractor for labor or services, which payments must be considered income from self-employment;
(G) Severance pay;
(H) Pensions and retirement benefits, including but not limited to those paid pursuant to articles 51, 54, 54.5, and 54.6 of title 24, C.R.S., and article 30 of title 31, C.R.S.;
(L) Trust income;
(N) Capital gains;
(O) Any moneys drawn by a self-employed individual for personal use that are deducted as a business expense, which moneys must be considered income from self-employment;
(P) Social security benefits, including social security benefits actually received by a parent as a result of the disability of that parent or as the result of the death of the minor child's stepparent but not including social security benefits received by a minor child or on behalf of a minor child as a result of the death or disability of a stepparent of the child;
(Q) Workers' compensation benefits;
(R) Unemployment insurance benefits;
(S) Disability insurance benefits;
(T) Funds held in or payable from any health, accident, disability, or casualty insurance to the extent that such insurance replaces wages or provides income in lieu of wages;
(U) Monetary gifts;
(V) Monetary prizes, excluding lottery winnings not required by the rules of the Colorado lottery commission to be paid only at the lottery office;
(W) Income from general partnerships, limited partnerships, closely held corporations, or limited liability companies. However, if a parent is a passive investor, has a minority interest in the company, and does not have any managerial duties or input, then the income to be recognized may be limited to actual cash distributions received.
(X) Expense reimbursements or in-kind payments received by a parent in the course of employment, self-employment, or operation of a business if they are significant and reduce personal living expenses;
(Y) Alimony or maintenance received, as adjusted, if applicable, pursuant to subsection (5)(a)(I.5) of this section; and
(Z) Overtime pay, only if the overtime is required by the employer as a condition of employment.
Calculating “income from salaries” or “wages” from an hourly wage is not difficult. Salaries are a fixed amount per year, so divide it by 12 for the monthly amount. “Wages” can be determined by taking the pay per hour multiplied by 40 (hours), multiplied by 52(weeks per year), then divided by 12 (months) gives a monthly gross income. It is the rest of the list that can seem overwhelming and it is easy to feel a sense of doom as you list the many ways you receive money each month. In your mind is the thought that the more you list, the more will be taken away from you to pay spousal maintenance or used against you to deny an award of spousal maintenance. However, there are some breaks, here. Not all funds received are necessarily part of “gross income”. The statute also lists what is not “gross income”.
(A) Child support payments received;
(B) Benefits received from means-tested public assistance programs, including but not limited to assistance provided under the Colorado works program, as described in part 7 of article 2 of title 26, C.R.S., supplemental security income, food stamps, and general assistance;
(C) Income from additional jobs that result in the employment of the obligor more than forty hours per week or more than what would otherwise be considered to be full-time employment;
(D) Social security benefits received by the minor children, or on behalf of the minor children, as a result of the death or disability of a stepparent are not to be included as income for the minor children for the determination of child support; and
(E) Earnings or gains on a retirement account, including an IRA, which earnings or gains must not be included as income unless or until a parent takes a distribution from the account. If a distribution from a retirement account may be taken without being subject to an IRS penalty for early distribution and the parent decides not to take the distribution, the court may consider the distribution that could have been taken in determining the parent's gross income if the parent is not otherwise employed full-time and the retirement account was not received pursuant to the division of marital property.
The language used in this part of the statutes is difficult to interpret—being so much legalese. Clearly, though, the list of funds that are “gross income” is far greater than the list of exempt funds.
The most important exemption from “gross income” for many people is that a second job (or third, or fourth…)—in addition to your 40 hour a week (“full-time”) job--is exempt. So, working a second job to make ends meet or to afford nicer things, will not work against someone by having it considered income when looking at child support or spousal maintenance. Also, overtime work which is often paid at time and a half or more, is only “gross income” if it is mandatory overtime. If the overtime is optional—meaning you may choose to work it or not—does not get included. This can make calculating your full-time job income difficult as you subtract out the optional overtime pay from each paycheck, but the effort is worthwhile.
Accuracy of your gross income is important to maintain credibility with the Court. If you appear to be hiding income or “low-balling” your income, the Court may substitute an income it believes you could or should or have been making. If the Court questions credibility on the Sworn Financial Statement, those questions usually carry over into any other representations a Party may make during their case.
Calculating your “gross income” from self-employment is even trickier. The law allows a self-employed individual to deduct business expenses and costs (but not taxes) to arrive at a “gross income”. The problem is many self-employed people don’t really have the ability to know month to month what they will receive or are receiving as income. One solution to a varied monthly income is to look at the last 3 years of tax returns (and a K-1, if applicable) to get an average yearly income. Divide the yearly average by 12 months and this produces an average/estimated monthly gross income from self-employment.
When working with an attorney it is vitally important that full disclosure is made of all means of fund received every month and year. The attorney can help determine what is and is not income and what must be included in the Sworn Financial Statement. Your credibility is at stake and this will set the course for your entire case as the Court begins to determine your financial future. At the Law Office of Jeanne M. Wilson & Associates, PC, we understand the impact of the Sworn Financial Statement on a divorce or custody case. We take the time to work with our Clients so they not only know their “gross income”, they also understand the implications and consequences of their gross income and how it affects their case.