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(1) Determine each parent's gross income.Review each parent's Income and Expense Declaration (JC form FL-150) or Fiancial Statement (Simplified) (JC Form FL-155). Verify the income with pay stubs and federal tax returns. (See Fam. Code §3552(a) (parent must submit copies of his or her state and federal income tax returns on request of the court).)

Parties should exchange copies of tax returns, redacting or using only the last four digits of their social security numbers, submitted with their Income and Expense Declaration forms. (See Fam. Code §3552(b) (returns may be examined and are discoverable by other party).) The returns, however, should not be retained and filed with the court unless the court determines that the returns are relevant to the disposition of the case. (Fam. Code §3552(c).)
 

(2) Exclude income of either parent's new spouse or nonmarital partner, unless this is an "extraordinary case" in which excluding this income would lead to extreme and severe hardship to the children. The court may consider this income, however, when determining a parent's actual tax liability under Fam. Code §4059(a) for purposes of computing the parent's net disposable income.
 

(3) Determine whether either parent's earning capacity should be considered instead of parent's actual income. By statute, the court has discretion to consider earning capacity instead of actual income consistent with the children's best interests. Fam. Code §4058(b); e.g., court may consider the earning capacity of a parent who is unemployed or allegedly underemployed if it is shown that this parent has both the ability and an opportunity to work. (Marriage of Regnery(1989) 214 CA3d 1367, 1372–1373, 263 CR 243.)
 

(4) Determine whether to impute income to parent from his or her assets.

(5) Determine each parent's net disposable income available for child support by deducting amounts listed in Fam. Code §4059 from parent's gross income.

(6) Rule on parent's request for hardship deduction from his or her net disposable income for health expenses or uninsured losses, or for support of other children residing with parent. If a deduction is allowed, state the reasons supporting the deduction in writing or on the record.
 

(7) After computing each parent's net disposable income, divide this income by 12 to arrive at each parent's net monthly disposable income. Use these income amounts in computing amount of child support using the State Uniform Guideline formula, taking into consideration the percentage of time children will be living with each parent. On computing amount of child support when one parent defaults or fails to appear. On using computer software to calculate amount of support.

Given the complexity of the State Uniform Guideline formula, almost all family law judges, attorneys, and parties rely on computer software programs to calculate the guideline. Rather than manually calculate the guideline, judges should use the software program employed by their court.

(8) If there is more than one child, multiply child support amount by appropriate figure specified in Fam. Code §4055(b)(4). Typically, the computer software program performs this multiplication and allocation between the children. In your order, state the amount of support per child.
 

(9) If child support amount is a positive number, order the higher earner to pay this amount to the lower earner; if child support amount is a negative number, order the lower earner to pay the absolute value of this amount to the higher earner. (Fam. Code §4055(b)(5).)

(10) Determine whether parent ordered to pay support is entitled to a low-income adjustment reducing the child support amount.

(11) On party's request, state in writing or on record the information specified in Fam. Code §4056(b) used to determine guideline amount of child support.
 

(12) Determine whether to depart from guideline formula amount of support based on one or more factors set forth in Fam. Code §4057(b). The guideline formula amount, computed under Fam. Code §4055, is presumed to be the correct amount of support in all cases. This presumption may be rebutted only by admissible evidence showing that the application of the formula would be unjust or inappropriate. (See Fam. Code §4057(b).)

(13) If the amount of child support ordered differs from the guideline formula amount, make the mandatory findings specified in Fam. Code §4056(a).
 

(14) Order one or both parents to maintain health insurance coverage for the supported child.

(15) Order as additional child support childcare, costs related to employment or education, and children's reasonable uninsured health care costs. (Fam. Code §4062(a).)

(16) Determine whether to order as additional child support, costs related to the children's educational or other special needs, or travel expenses for visitation. (Fam. Code §4062(b).)

(17) If parties have stipulated to child support amount, confirm that they have made the declarations required by Fam. Code §4065(a).

(18) Determine any request for the support of an adult child who is incapacitated and without sufficient means.

(19) Provide the parties with a document describing the procedures for modifying a child support order. (Fam. Code §4010; see JC form FL-192.)

(20) In proceeding for modification of support, determine whether there are changed circumstances warranting a different support order. A modified child support order must be calculated under the guideline formula.

Credits: California Judicial Benchguide

Net Disposable Income

Annual net disposable income is annual gross income minus allowable deductions. (Fam. Code § 4059.) Net disposable income is the key financial factor in calculating child support. (Marriage of Destein (2001) 91 Cal.4th 1385, 1391, 111 Cal.Rptr.2d 487.) The Statewide Uniform Guideline for determining child support is based on an algebraic formula, see Fam. Code §4055(a), the central element of which is each parent's net monthly disposable income. (Johnson v Superior Court(1998) 66 Cal.4th 68, 75, 77 Cal.Rptr.3d 624. see Fam. Code §§ 4058-4060.)
 

Gross Income
 

Family Code § 4058(a) broadly defines "gross income" as "income from whatever source derived, except for income that is legally exempt from the child support calculation." Annual gross income includes both mandatory items and discretionary items.

The parties should submit Income and Expense Declarations (I&Es) (form FL-150) or, if eligible, Financial Statement (Simplified) (form FL-155) that document each parent's income and provide the information you need to determine gross income. The court should demand these forms if not submitted. (The court may have to rely on oral statements in default situations when no information has been submitted by the absent party). Once submitted, the court should verify income with independent records, such as a pay stub.

Mandatory Income
 

Per Fam. Code § 4058(a)(1),(2), income that the court must consider includes, but is not limited to, the following:

• Salaries and wages. 
• Bonuses and commissions.
• Business and Self Employment income.
• Royalties.
• Rents. (See County of Orange v Smith (2005) 132 Cal.4th 1434, 1446–1448, 34 Cal.Rptr.3d 383 (sublease rental payments constitute income to sublessor).)
• Dividends and interest.
• Pensions and annuities.
• Workers' compensation benefits.
• Unemployment insurance benefits.
• Disability insurance benefits. (See Stewart v Gomez (1996) 47 Cal.4th 1748, 1752–1754, 55 Cal.Rptr.2d 531 (parent's earning capacity may be added to his or her disability benefits in computing parent's gross income).
• Military allowances, including housing and food allowances. (See Marriage of Stanton (2011) 190 Cal.4th 547, 551, 118 Cal.Rptr.3d 249 (the federal preemption doctrine does not prohibit the inclusion of military allowances for housing and food in a party's gross income for purposes of support). 
• Spousal support received from a person who is not a party to the child support proceeding. (See Marriage of Corman ( 1997) 59 Cal.4th 1492, 1499–1500, 69 Cal.Rptr.2d 880 (spousal support received from party to child support proceeding is not gross income for purposes of determining child support).)
   

Trust income
 

Federal statutes and federal and state case law place significant restrictions on the state court's jurisdiction when dealing with Indian parties or Indian property located in Indian country in California.

For example, 28 USC § 1360(b) prohibits the alienation, encumbrance, or taxation of any real or personal property belonging to any Indian or any Indian tribe, band, or community that is held in trust by the United States. In the context of support, difficult situations arise regarding whether a state court may order a support obligation if the spouse's sole income is from a trust asset. (See Marriage of Purnel (1997) 52 Cal.4th 527, 60 Cal.Rptr.2d 667.)
 

The best practice concerning support orders in this situation is for any order of support or maintenance, or similar order, to avoid requiring that the financial obligation imposed be specifically paid out of, or derived from, Indian trust assets. 

Although the state court may impose a support obligation, it may lack jurisdiction to order use of trust assets to satisfy the obligation. Such an order would effectually impose a lien on trust property in violation of 28 USC § 1360(b). But the Bureau of Indian Affairs may encumber an Individual Indian Money (IIM) account if it receives an order from a court of competent jurisdiction awarding child support from an IIM account. (25 CFR § 115.601(b)(1).) In this situation, a California court may be a court of competent jurisdiction if no other federal or tribal court has jurisdiction. (25 CFR § 115.002.)

It is important to be aware that tribal courts may also exercise jurisdiction over child and spousal support issues. Tribal courts have very broad authority to hear civil disputes, which arise in Indian country, involve tribal members, or otherwise fall within the jurisdiction of the court, particularly when the dispute involves some area of domestic relations matter such as marriage, adoption, or child custody (See Canby, William C. Jr., American Indian Law in a Nutshell 5th ed. (West; St. Paul Minnesota, 2009). The federal Full Faith and Credit for Child Support Act, 28 USC § 1738B, requires state courts to respect child support orders issued by tribal courts. Similarly, the Uniform Interstate Family Support Act, Fam. Code §§ 4900 et seq., mandates full faith and credit for tribal court spousal support orders by defining "state", Fam. Code § 4901(s)(1), to include "an Indian tribe."

Business and Self-Employment Income

The court must consider a parent's business income, which is gross receipts from the business reduced by expenditures required for the operation of the business. (Fam. Code § 4058(a)(2).) If the business is a sole proprietorship, the parent's form 1040, Schedule C, shows the business income. However, the court is not bound to accept all of the entries on a Schedule C as appropriate deductions from income available for support. For example, depreciation may be an appropriate deduction for tax purposes, but the court might not deduct it to reduce the amount of income available for support.
 

In a sole proprietorship, there exists the possibility of deducting personal expenses to reduce net income. If the parent has applied for a loan, many judges review that application, in which income is typically maximized, together with the Schedule C, and question any disparity between the incomes claimed in the two documents.

In a case with a wealthy support obligor who voluntarily deferred most of his salary from his employer, the court should have considered the deferred salary as actual earnings. (Marriage of Berger (2009) 170 Cal.4th 1070, 88 Cal.Rptr.3d 766.)
 

Bonuses and Commissions

Bonuses and sales commissions ordinarily must be included in the calculation of a party's gross income. However, the court must determine whether the bonus or commission income is predictable or speculative (County of Placer v Andrade (1997) 55 Cal.4th 1393, 1396–1397, 64 Cal.Rptr.2d 739; M.S. v O.S. (2009) 176 Cal.4th 548, 554, 97 Cal.Rptr.3d 812):

Predictable. When a parent receives a routine bonus of a certain percentage of salary or has a predictable pattern of commissions; it is appropriate for the court to average the bonus or commissions income over 12 months and include it in the parent's annual gross income.

Speculative. If the bonus or commission income is not predictable, the court may consider (a) excluding it from the calculation of gross income but ordering the parent who may receive the income to notify the other parent on receipt so the other parent may attempt to modify the support payments, or (b) ordering that when bonus or commission income is received, a certain percentage must be paid as additional support. The latter is the better practice. (See Marriage of Ostler & Smith (1990) 223 Cal.3d 33, 272 Cal.Rptr. 560.)
 

The court may properly include regular twice-yearly bonuses that a parent receives from his Indian tribe in income unless it determines that the parent is unlikely to receive similar bonuses in the future. (M.S. v O.S., supra, 548, 97) When the parent's income includes a regular salary and may include a discretionary end-of-year bonus, the court should make the support award calculated on the basis of the regular salary alone, with a percentage allocation applied to the bonus, if and when actually paid. (Marriage of Mosley (2008) 165 Cal.4th 1375, 82 Cal.Rptr.3d 497.)
 

Bonus schedules can be very useful for judges by eliminating the need of the court to "guess" the probability and amount of a bonus. Each of the child support programs are equipped to produce a printout that can accurately calculate the amount of child support or spousal support that should be applicable to any given bonus.
 

Overtime

Overtime earnings must ordinarily be included in the calculation of a parent's gross income. (County of Placer v Andrade (1997) 55 Cal.4th 1393, 1396–1397, 64 Cal.Rptr.2d 739.) But these earnings may be excluded if:

• There is admissible evidence that it is unlikely that the overtime income will continue, for example, when there has been a change in employment conditions, or the parent is no longer willing to accept voluntary overtime, County of Placer v Andrade, supra, 1397; or
• Imputing overtime in the calculation would lock a parent into an "excessively onerous work schedule" (Marriage of Simpson(1992) 4 C4th 225, 228, 234–235, 14 Cal.Rptr.2d 411.)

 
When a parent ceases to work overtime, Simpson requires the parent's income to be tied to an "objectively reasonable work regimen," defined by "established employment norms." Depending on the parent's occupation, that norm may include more than 40 hours per week. A reasonable work regimen is dependent on all relevant circumstances, including the choice of jobs available within a particular occupation, working hours, and working conditions. (Marriage of Simpson, supra, 235-236.)

When a parent takes a second job to make up for the impact of support payments on his or her lifestyle, that income is subject to child support liability. Under the Andrade Court, if the parent earns it, the court must include it. If a parent voluntarily stops working overtime, the court may consider imputing overtime under earning capacity. If the court does so, it must follow the Simpson limitation on an excessive work regimen. A bonus schedule can also be used for irregular overtime.
 

Employee Stock Options

Employee stock options are part of a parent's employee compensation package and must be included in income for determining child support when the option is exercised, i.e., the stock is acquired and then sold. (Marriage of Cheriton (2001) 92 Cal.4th 269, 286, 111 Cal.Rptr.2d 755.) Under both the California child support statutes and federal tax law, the employee-parent may recognize income when stock options are exercised. At the very least, however, income is recognized when the underlying stock is sold at a gain. (Marriage of Cheriton, supra, 288.)

Given the sporadic nature of stock options, the court may adjust the child support order under Fam. Code § 4060 (adjustment when monthly net disposable income figure inaccurately reflects actual or prospective earnings) or Fam. Code § 4064 (order adjusted to accommodate seasonal or fluctuating income). (Marriage of Cheriton, supra, 289 (may be appropriate to allocate some of the proceeds to periods other than the year of receipt).)

There are apparently no reported California cases on whether unexercised stock options, at least if vested, can be considered income for determining support. But an Ohio case has held that vested options that have not been exercised may be considered income on the theory that it would be income if the parent simply exercised the option. (Murray v Murray (Oh App 1999) 716 NE2d 288, 293–295.)
 

Income from Gifts or Inheritances

Although proceeds from inheritances and gifts are generally not considered income for child support purposes, interest, rents, dividends, or other forms of income actually earned from gifts and inheritances are considered income in calculating child support. (County of Kern v Castle (1999) 75 Cal.4th 1442, 1453–1454, 89 Cal.Rptr.2d 874.)

However, gifts may be considered income for child support purposes if the gifts bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit. (Marriage of Alter (2009) 171 Cal.4th 718, 737, 89 Cal.Rptr.3d 849 (trial court may treat recurring gifts of cash to child support obligor as income to be used in calculating obligor's child support obligation).)
 

In addition, the court has discretion to impute income based on an inheritance corpus or gift corpus or on interest that could have been earned if the sum was invested and include that income in calculating child support. (County of Kern v Castle, supra.)

Lottery Winnings

Lottery winnings may be considered as income in determining child support. (County of Contra Costa v Lemon (1988) 205 Cal.3d 683, 689, 252 Cal.Rptr. 455.) In County of Contra Costa v Lemon, the child was receiving public assistance, and the parent's income would have yielded a support order below the public assistance minimum had the winnings been excluded from income. Dicta in two subsequent cases have indicated that lottery winnings in determining support should be limited to public assistance cases. (See County of Kern V Castle, supra, 1442, 1450–1451, 89 (Lemon distinguished; public assistance circumstances "played a major role, perhaps the pivotal role in the court's decision"); Marriage of Scheppers (2001) 86 Cal.4th 646, 651, 103 Cal.Rptr.2d 529.)

Discretionary Income
 

The court may, in its discretion, include employee benefits or self-employment benefits in a party's gross income, after considering the benefit to the employee, any corresponding reduction in living expenses, and other relevant facts. (Fam. Code § 4058(a)(3).)

Such benefits may include, but are not limited to, the following:

• Car allowance or company car. (See Marriage of Schulze (1997) 60 Cal.4th      519, 528–530, 70 Cal.Rptr.2d 488.)
• Expense accounts, such as for meals and entertainment. (See Stewart v      Gomez, supra, 1748, 1756, 55 (reimbursed meal expenses).)
• Employee rent-free housing. (See Marriage of Schulze, supra (rent subsidy received from parents who were also husband's employers).)
• Uniform allowance.
• Company credit cards.
• Unused vacation.
• Unused sick leave.
• Health and fitness or country club memberships.
• Education.
• Medical reimbursement plan.
• Personal expenses paid.
• Stock options or ESOPs.
• Day care.
   

Some California cases have held that trial courts have discretion under Fam. Code § 4058(a)(3) to treat any benefits as income to the extent they reduce the recipient party's living expenses. (See County of Kern v Castle, supra, 1442, 1445, 1451, 89 (proceeds from an inheritance used to pay off mortgage); Stewart v Gomez, supra, 1748, 1754–1755, 55 (free housing that party received on Indian reservation).) But this expansive reading of Fam. Code § 4058(a)(3) was sharply criticized in Marriage of Loh (2001) 93 Cal.4th 325, 334–336, 112 Cal.Rptr.2d 893. Apart from the fact that Fam. Code § 4058(a)(3) clearly confines itself to employment benefits, a blanket "anything that reduces living expenses" approach to Fam. Code § 4058(a)(3) would encompass new mate income, which the Legislature has specifically forbidden in determining child support, and would generally "bog down" the computerized process of child support in problems of where to draw the line between things that "reduce living expenses and things that merely make life better." (Marriage of Loh, supra, 334–336.)

Following the Loh approach, the court in Marriage of Schlafly (2007) 149 Cal.4th 747, 759–760, 57 Cal.Rptr.3d 274, held that mortgage-free housing unrelated to employment is not includable as income. Rather, it is a special circumstance that may justify an upward deviation from the guideline amount.
 

Most judges avoid taking a blanket approach that includes anything that reduce living expenses as income. First compute net disposable income; then, if there are circumstances making application of the statewide uniform guideline formula unjust or inappropriate, the "special circumstance." The rebuttal revision of Fam. Code § 4057(b)(5) provides an escape valve. (Marriage of Loh, supra, 335.)
 

C. Fluctuating Income

To determine a parent's monthly net disposable income, the annual net disposable income figure is normally divided by 12. (Fam. Code § 4060.) If that calculation inaccurately reflects the actual or prospective earnings at the time of the support determination, the court may make appropriate adjustments to the disposable income figure. (Fam. Code § 4060.)

An adjustment may be necessary when a parent has seasonal or fluctuating income, and the parent's most immediate past monthly earnings do not reflect the inherent "ups and downs" in the earnings cycle. (See Fam. Code § 4064 (court may adjust child support order to accommodate parents' seasonal or fluctuating income).) In such cases, the court must determine a representative time sample from which to calculate an average monthly income that is a reasonable predictor of the parents likely income for the immediate future. (Marriage of Riddle (2005) 125 Cal.4th 1075, 1081–1084, 23 Cal.Rptr.3d 273 (court erred in calculating support based on only latest 2 months of commissioned investment salesperson's earnings).)
 

The court may allow for a time sample longer than the 12-month benchmark period of Fam. Code § 4060 if it is more representative of a party's income. For instance, a 2- or 3-year average might be necessary to obtain a representative picture of an author's royalty income; royalties are likely to be highest with a book's initial release. (Marriage of Riddle, supra, 1084.) A longer period, however, may be unrealistic for a commissioned salesperson because the resulting income figure may only reflect the past overall economy and may not be an indicator of the salesperson's immediate future income. (Ibid.) On the other hand, consideration of too short a period may distort the income calculation, as when a large one-time commission was paid, or sales were unusually slow during the period. (Ibid.)

The use of year-to-date numbers from a litigant's paycheck can be tricky. If the paycheck is from early in the year and, if the first paycheck in January includes any part of December, the year-to-date amount could be grossly misleading.

Credits: California Judicial Benchguide