In a Florida divorce, child support and alimony depend heavily on the parties’ incomes. Income is often relatively easy to identify for a W-2 employee. The employee receives paychecks and typically a predictable salary or hourly wage.
However, a business owner’s income is often more complex. A business owner can receive a salary, K-1 income, distributions, reimbursed expenses, owner draws, or personal benefits paid through the business. Simultaneously, the business might have legitimate expenses that must be deducted before income can be calculated fairly.
Florida law recognizes the difference between a W-2 employee and a business owner. For child support, gross income includes “[b]usiness income from sources such as self-employment, partnership, close corporations, and independent contracts.” Fla. Stat. § 61.30(2)(a)3. “Business income” refers to gross receipts minus ordinary and necessary expenses required to produce income. Fla. Stat. § 61.30(2)(a)3.
In my experience, this is where many Florida divorce cases involving business owners become more complicated. One spouse may argue that the business makes a lot of money, whereas the business owner may argue that the business has expenses, taxes, debt, payroll, and slow months. In reality, both things can be true.
The question in a Florida divorce is not just how much money went into the business. The actual question is how much income is truly available to the business owner for purposes of child support, alimony, equitable distribution, and attorney’s fees.
A Florida court looks beyond labels. Tax returns, bank statements, or profit-and-loss statements may be important, yet none of those documents automatically answers the full question. Support should be based on real income, so business income must be evaluated carefully to avoid manipulated income, exaggerated losses, or misunderstood business expenses.
WHY BUSINESS OWNER INCOME MATTERS IN A FLORIDA DIVORCE
Determining a business owner’s income matters because income impacts multiple aspects of a Florida divorce. First, child support is based on the parties’ incomes. Second, alimony depends on one party’s need and the other party’s ability to pay. Third, attorney’s fees can turn on the parties’ relative financial positions.
Additionally, the business itself may be a marital asset. However, that is a different question than income. A spouse can own a business that has value as an asset, while also receiving income from that very business. Those two issues should not be confused. For instance, Husband may own a construction company that has equipment, accounts receivable, goodwill, and value as a business. At the same time, Husband may receive income from that company.
Florida courts must determine income carefully, as the result often affects support. Florida law includes many kinds of gross income, such as salary, wages, “[b]onuses, commissions, allowances, overtime, tips, and other similar payments.” Fla. Stat. § 61.30(2)(a)1.-3.
Further, alimony requires a careful income analysis. Under Florida law, the court must consider need and ability to pay, and durational alimony is limited to the lesser of the recipient’s reasonable need or an amount not exceeding 35 percent of the difference between the parties’ net incomes. Net income is calculated under Fla. Stat. § 61.30(2) and (3).
In my experience, this is why business-owner divorce cases usually need more than just a simple look at a tax return. The court must know key information including what the business earns, what the business truly spends, and what the owner actually receives.
BUSINESS INCOME AND FLORIDA CHILD SUPPORT LAW
Florida’s child support statute addresses income from business ownership. For child support purposes, gross income includes “[b]usiness income from sources such as self-employment, partnership, close corporations, and independent contracts.” Fla. Stat. § 61.30(2)(a)3. Business income means “gross receipts minus ordinary and necessary expenses required to produce income.” Fla. Stat. § 61.30(2)(a)3.
In simple terms, the money coming into a business is not automatically the same thing as the business owner’s income. A Florida court looks at the business’s gross receipts; however, it also accounts for the ordinary and necessary expenses required to produce that income.
For example, in Segnini v. Segnini, the father worked as an independent contractor transporting customers to and from the airport. The Fourth District held that the trial court “misapplied the statute by failing to deduct father’s monthly lease payments and other ordinary and necessary business expenses such as insurance and fuel from his gross business receipts in calculating father’s gross monthly income.” 10 So. 3d 188, 190 (Fla. 4th DCA 2009).
In Mattison v. Mattison, the Fifth District reversed where the trial court calculated the former husband’s self-employment income by extrapolating from anticipated gross receipts without factoring in the ordinary and necessary expenses required to produce that income. 266 So. 3d 258, 260 (Fla. 5th DCA 2019).
Another example: a self-employed contractor has gross receipts of $300,000 in one year, but that does not necessarily mean the contractor earned $300,000 personally. The business likely paid for equipment, fuel, materials, insurance, payroll, and other expenses necessary to produce that income.
Not every claimed business expense should instantly reduce income for support, though. A business owner may run personal expenses through the business, overstate expenses, or delay income. In many cases, I see that this is where the dispute begins.
The business owner may argue that certain expenses are ordinary and necessary. However, the other spouse may argue that those expenses are personal or excessive; that spouse may even claim that they are designed to reduce support. The Florida court then has to determine what income is truly available to the business owner.
This is why tax returns are important but not always final. A business expense may make sense for tax purposes yet still need closer review in a Florida divorce. The purpose of the analysis is not merely to copy the tax return but to determine the business owner’s actual income for support.
TAX RETURNS MAY NOT TELL THE WHOLE STORY IN A FLORIDA BUSINESS OWNER DIVORCE
Tax returns are usually one of the first documents examined when a business owner is getting divorced, as they show business expenses, reported income, depreciation, and other essential information. In my experience, tax returns are usually important evidence. A tax return does not always answer the entire question.
While a business owner is permitted to deduct expenses for tax purposes, those deductions warrant closer scrutiny in a Florida divorce. Certain expenses truly qualify as ordinary and necessary costs of doing business. On the other hand, others may turn out to be personal expenses run through the business, inflated write-offs, or discretionary deductions that lower taxable income without showing an accurate idea of what the owner can actually afford to pay in support.
A Florida court will often scrutinize a business owner’s tax returns instead of simply accepting or rejecting them in full. In Brown v. Norwood, the former husband was a self-employed commercial truck driver whose tax returns included “deductions for business expenses and cost of goods sold.” 291 So. 3d 1005, 1006 (Fla. 5th DCA 2020). The trial court found the cost-of-goods-sold deduction “not credible” because the husband admitted he did not actually sell goods. Id. However, the Fifth District reversed the alimony and child support awards because section 61.30 requires courts to consider ordinary and necessary business expenses when determining income. Id. at 1007.
For example, businesses often pay for vehicles, cell phones, meals, travel, and insurance. Some of those expenses are legitimate business expenses, but some may also provide a personal benefit to the business owner. In those circumstances, the Florida court may need to decide whether the expense should reduce income for support purposes. In my experience, the court often needs to look at bank statements, credit card records, profit-and-loss statements, general ledgers, invoices, payroll records, and business account activity to understand the full picture.
Business owners should not be punished for having expenses. Businesses cost money to operate. The point is to separate legitimate business expenses from personal choices that make income look lower than it is.
RETAINED EARNINGS AND PASS-THROUGH INCOME IN A FLORIDA DIVORCE
Not all business income is directly paid to the business owner. Some businesses retain earnings inside the company for equipment, inventory, taxes, payroll, future operating expenses, or other business needs. In a Florida divorce, the question turns to whether those retained earnings should count as income for child support or alimony. The answer depends on the facts.
In Zold v. Zold, the Florida Supreme Court addressed whether undistributed “pass-through” income from an S corporation should be counted as income to a shareholder-spouse for purposes of alimony, child support, and attorney’s fees. 911 So. 2d 1222, 1231-32 (Fla. 2005). It held that undistributed pass-through income retained by a corporation for corporate purposes does not constitute income, as it is not available to the shareholder-spouse. Id. On the other hand, if the income is retained for noncorporate purposes, it may be treated as available income. Id. Additionally, the Court stated that, when this is a contested issue, the shareholder-spouse bears the burden of proving that the undistributed pass-through income was retained properly for corporate purposes. Id. at 1233.
In my experience, this is often a prominent issue in business-owner divorce cases. A business-owning spouse may claim that retained earnings are necessary for the company to function. However, the other spouse may believe that the business owner is keeping money inside the company to make personal income appear lower.
Often, both arguments can be legitimate. A business may need to retain cash for payroll, taxes, debt service, or slow seasons. Conversely, a business owner who controls distributions can manipulate when income is paid out.
That is why Florida courts consider many factors, such as whether the money is available to the business owner, whether it was retained for an actual business reason, and whether the business owner has control over money distribution.
The main point is retained earnings are not automatically excluded from income, nor are they automatically included either. A Florida divorce court evaluates the business’s financial reality.
DISCOVERY AND EXPERTS IN A FLORIDA BUSINESS OWNER DIVORCE
Determining a business owner’s income typically requires many documents. A Florida court cannot determine income accurately from guesses or unsupported claims.
In a Florida divorce, both parties are usually required to exchange financial information through mandatory disclosure. Florida Family Law Rule of Procedure 12.285 requires parties to exchange financial documents in cases that involve requests for child support, alimony, equitable distribution, attorney’s fees, suit money, or costs. Generally, the financial affidavit requirement cannot be waived.
For a business owner, the relevant documents often include tax returns, business bank statements, payroll records, balance sheets, profit-and-loss statements, general ledgers, credit card statements, loan applications, and similar documents.
I often see that the most helpful documents are not simply the tax returns. A tax return can show the final number reported to the IRS. However, the underlying records can demonstrate how the business got to that point. Bank statements often show deposits. Credit card statements reveal whether claimed business expenses were personal. The list goes on.
In my experience, a forensic accountant or business valuation expert is sometimes necessary. An expert helps separate legitimate business expenses from personal expenses, examine retained earnings and cash flow, and determine whether the business owner’s reported income is realistic.
The more complicated the business, the more vital the records become. A sole proprietor with simple books is usually easier to evaluate, but a closely held corporation with many accounts, retained earnings, loans, and owner perks usually requires a deeper look.
IMPUTING INCOME TO A BUSINESS OWNER IN A FLORIDA DIVORCE
In some cases, a business owner’s income cannot be determined clearly from the records provided. However, sometimes the evidence may show that a business owner is voluntarily earning less than they could earn.
In Florida child support cases, income may be imputed when a parent is voluntarily unemployed or underemployed. Fla. Stat. § 61.30(2)(b). Under Florida law, the court considers the parent’s employment potential and probable earnings level based on recent work history, occupational qualifications, and prevailing earnings in the community. Fla. Stat. § 61.30(2)(b).
This issue can arise when a business owner suddenly reports a dramatic decrease in income during the divorce, increases expenses, claims the business is failing without sufficient documentation, stops taking distributions, or delays billing.
In Gerville-Reache v. Gerville-Reache, the former husband was involuntarily terminated from his logistics job, but even after the involuntary job loss, a parent may become voluntarily underemployed based on the parent’s next move. 307 So. 3d 962, 964-65 (Fla. 1st DCA 2020). In that case, the former husband abandoned his logistics job search and pursued a lower-earning real estate career; the court affirmed the finding of voluntary underemployment but reversed the specific $120,000 imputed-income amount because it was not supported by competent, substantial evidence. Id. at 965.
In my experience, Florida courts are usually cautious regarding this issue. Business can genuinely have slow months or rocky years. Additionally, a divorce can distract a business owner. Regardless, a court does not have to accept an unexplained income drop without further inquiry.
THE BOTTOM LINE FOR BUSINESS OWNER INCOME IN A FLORIDA DIVORCE
Determining a business owner’s income in a Florida divorce is usually not as simple as reading a tax return. The court’s job is to decide what income is truly attainable for child support, alimony, attorney’s fees, and other financial issues in the divorce. That often means reviewing business receipts, expenses, bank records, retained earnings, and the owner’s actual access to money.
In my experience, the biggest mistake either party can make is assuming the tax return is the full picture. It is not. A tax return can start the analysis, yet business records, expert testimony, and the owner’s control over the business can all matter, too.
If you own a business, or if your spouse owns a business, do not assume reported taxable income alone will determine support in a Florida divorce. Contact my Naples, Florida family law office to speak with an experienced Florida divorce attorney.
Russell Knight has practiced family law for 19 years and has handled thousands of divorce cases involving income, support, equitable distribution, and business-owner financial issues.
CASES AND STATUTES REFERENCED IN THE DETERMINING A BUSINESS OWNER’S INCOME IN A FLORIDA DIVORCE ARTICLE
Florida Statute § 61.08 — Alimony
Florida Family Law Rule of Procedure 12.285 — Mandatory Disclosure
Segnini v. Segnini, 10 So. 3d 188 (Fla. 4th DCA 2009)
Mattison v. Mattison, 266 So. 3d 258 (Fla. 5th DCA 2019)
Brown v. Norwood, 291 So. 3d 1005 (Fla. 5th DCA 2020)
Zold v. Zold, 911 So. 2d 1222 (Fla. 2005)
Gerville-Reache v. Gerville-Reache, 307 So. 3d 962 (Fla. 1st DCA 2020)
FREQUENTLY ASKED QUESTIONS ABOUT BUSINESS OWNER INCOME IN A FLORIDA DIVORCE
How is business income calculated in a Florida divorce?
Generally, a Florida court will start with the business’s gross receipts. Then, it will subtract ordinary and necessary business expenses and add back personal expenses or perks paid through the business to determine the owner’s true income available for support.
Does a Florida court just use the business owner’s tax return?
No. Though tax returns are important, the court often looks at bank statements, business records, and other related evidence.
Can a business owner deduct business expenses from income?
For ordinary and necessary expenses, yes. However, Florida courts may add back deductions that reduce taxable income on paper while providing personal benefit to the owner.
Can personal expenses paid by the business count as income?
Yes, they can potentially. When determining income, personal benefits paid through the business may be considered.
What is pass-through income?
Pass-through income refers to business profit reported on an owner’s personal tax return, even if not actually distributed. In a divorce context, courts evaluate whether the owner has access to that money or whether it’s simply a tax-reporting figure.
Can a spouse hide income inside a business?
A spouse can try to, but Florida courts are able to fully examine business records, retained earnings, expenses, and cash flow.
Can income be imputed to a business owner?
Yes, income may be imputed in cases where the evidence demonstrates the business owner is either voluntarily unemployed or underemployed.
Do business valuation and business income mean the same thing?
No, they don’t. A business can be valued as a marital asset while also creating income for support.
Do I need an expert if my spouse owns a business?
Sometimes you do. A forensic accountant or business valuation expert can be helpful when the records are complex and/or disputed.
