Layoffs, Firings and Income Imputation In Today’s Economy
Let’s say you’ve just lost your job.
This is not a far-fetched idea for most people. In the past four years, the United States has gone through the longest period with so many unemployed for so long since the Great Depression.
Let’s say you were earning $140,000 a year as a consultant before being let go. You lived comfortably with your family in an affluent neighborhood in an excellent school district.
Let’s also say that now you’re in the process of a divorce from your wife of 15 years. You have two young children and she’s always been their primary caretaker. She has two years of post-high school education, and worked as a salesperson at the local mall until you had kids together. Then she became a stay-at-home mother, and it was agreed that you would be the sole breadwinner until the children were much older.
Unfortunately, the marriage has broken down. Your wife still lives in the marital home, but upon her request, you’ve recently moved out. You’re leasing a two-bedroom apartment nearby, but you’re still paying the $3,500 mortgage, plus utilities, car payments, food, gas, etc.
Finances were already tight before your boss broke the news that you could finish out the month but no more.
To make matters worse, as trial approaches, your wife’s attorney has made clear that she intends to “impute income” to you because you are “voluntarily underemployed.” What does that mean, in today’s economy?
Income imputation is the process by which one side of a divorce or custody matter attempts to demonstrate that the other side is capable of earning more money, and thus should be considered as earning that higher amount for the purpose of calculating child support and/or spousal support. If the court determines that a party is voluntarily underemployed, it will impute income to make up the gap between what someone is earning and what they “should be” earning, in the eyes of the judge alone.
The Antonelli case, 242 Va. 152 (1991), provides guidance in this area. In that case, a noncustodial stockbroker father working for a large corporation decided to take a calculated risk by opening his own business (working on commission instead of a salary), which ultimately resulted in a loss of income when the stock market crashed. The Virginia Supreme Court essentially punished his entrepreneurial spirit, ruling that he alone was responsible for his “risk,” and that an imputation to his previous level of income was appropriate to shield his family.
The court also ruled that if his income had increased as a result of the employment change, instead of decreasing, then his wife could have sought a support increase based upon the success of his venture. As a noncustodial parent, the father was not permitted to gamble with his income and allow his family to suffer the consequences, but they could derive any benefit from his success.
It is worth noting that if the father had been the primary caretaker for the children, instead of the noncustodial parent, then the kids would have shared the upward or downward risk with him. Under the Antonelli case, only the noncustodial parent is obligated to stay on a steady upward income trajectory.
Thus, the voluntary nature of the employment change is paramount. But you didn’t ask to leave your job, you were shown the door. The Antonelli case signals that a layoff due to reasons beyond your control will not be held against you. And in today’s economy, the court will certainly be receptive to arguments about downsizing layoffs that are beyond an employee’s control. Of course, you had better show a good faith effort to find new employment as quickly as possible, as you have a continuing obligation to better your circumstances for the benefit of the children. And, you certainly would not want the house to end up in foreclosure proceedings.
Still, as you network and check the wanted ads, you remain nervous about income imputation. Your wife’s attorney had thought about hiring a “vocational rehabilitation expert” to demonstrate the kinds of jobs that would be available to you and the amount of income that you could obtain in this job market. But after receiving a treasure trove of documents in response to a subpoena issued to your former employer, she decided on a new, more cost-effective strategy.
Your employment records indicated that you were fired for good cause shown, which runs afoul of Antonelli’s protections. You were routinely late to work. Even worse, the records display a written statement from a receptionist who claims that you made suggestive and inappropriate comments to her on more than one occasion. There is another witness to that behavior. They are both willing to testify, as is your former boss, who has years of stories to share about your incompetence.
When you receive a letter revealing this information, your attorney advises that you should settle and allow for the imputation at your previous level of income. How can you afford it? Luckily, you left with your stock options and you’ve saved for retirement fairly well (though you will be sharing these accounts with your wife). And you’ve learned more than you ever wanted to know about how income imputation works in Virginia.