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A Bonus You Haven’t Received Could Be Considered Income

As we begin to head into the last quarter of 2016, many people will be hoping and planning for an annual bonus. While not yet received, that future bonus money may already be earmarked for various household expenses, vacations and even taxes. If you are involved in a child support matter, don’t make plans for the entire amount, as that bonus may be counted as income even if not yet received.  Here’s why.

Bonus Received = Gross Income

When child support is calculated, the amount of support is based on the combined “gross income” of the father and mother. Each individual’s share of support is based on their proportionate share of the total.

Bonuses are considered “gross income” under Virginia law. (Virginia Code § 20-108.2(C)) Specifically, “gross income” is defined as:

Income from all sources, and shall include, but not be limited to, income from salaries wages, commissions, royalties, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, social security benefits…, worker’s compensation benefits, unemployment insurance benefits, disability insurance benefits, veterans’ benefits, spousal support, rental income, gifts, prizes or awards.

For bonuses that have been received, the answer is fairly straightforward – received bonuses are income and used in calculating child support. But, what about bonuses you expect or hope to receive, but have not received? Is that included in income as well?  Maybe….

When Conditional Bonuses Are Included in Gross Income

The Court has some discretion to determine whether an unreceived bonus aka the “conditional bonus” should be included in gross income. The conditional bonus should only be included in gross income if the conditions were reasonably likely to be met for the bonus to vest. The period to evaluate the “reasonably likely” standard is the immediately or reasonably foreseeable future. Whether it is reasonably foreseeable is based on an evaluation of the specific facts of the case.

Broadhead v. Broadhead

To better illustrate the standard in operation, the 2010 Virginia Court of Appeals Case, Broadhead v. Broadhead found that a guaranteed bonus that had not been received did not meet the reasonably likely standard.

In Broadhead, Father, who had previously been unemployed and who had worked in several different jobs in the six years preceding the case, worked in Oregon. His children were in Virginia. Father wanted to move back to Virginia to be close to the kids, but had to take the Oregon job because it was the best offer at the time of his job search.

Father did well during the year and expected to receive a $40,000 bonus from his employer in seven months. The bonus was “guaranteed” so long as he remained employed with the company through the month prior to the bonus.  In other words, if he stayed employed for six more months, on the seventh month, he gets the bonus.

Even though the bonus was guaranteed and Father had no present intention of quitting, he was looking for a job closer to his children and stated that if he were offered a suitable position closer to the children’s home in Virginia, he would quit his Oregon job.

Mother argued that because the bonus was “guaranteed” and Father had expressed that he did not intend to leave his job, the bonus should be included in his gross income.

The Court disagreed with Mother and found that the bonus should not be included in gross income because it was not reasonably likely that the bonus would vest.

The Court reasoned that Father had worked for four different employers in the six years prior to obtaining this job. This employment record, combined with his expressed desire to leave if able to find a suitable replacement job closer to Virginia put enough doubt in the Court’s mind for it to decline to take the bonus into account.

The Takeaway

As a general rule, received bonuses are included in gross income for child support purposes. A bonus that is conditional will also be included in income if the conditions that need to be met in order for the bonus to vest are reasonably likely to be met.

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