In cases involving support and alimony, one of the primary issues for the court to decide is how much income each parent or spouse is earning. What sounds like a simple matter is actually quite sophisticated. Accountants or tax preparers can determine how much income will be taxed by the taxing authorities, but “net disposable income” for support and alimony cases can be very different. I have built my reputation on assisting clients to determine their net disposable income for support purposes. These determinations begin with a definition of “net income” that is provided by Pennsylvania law (see 23 Pa.C.S. 4302, as follows):

“Income.” Includes compensation for services, including, but not limited to, wages, salaries, bonuses, fees, compensation in kind, commissions and similar items; income derived from business; gains derived from dealings in property; interest; rents; royalties; dividends; annuities; income from life insurance and endowment contracts; all forms of retirement; pensions; income from discharge of indebtedness; distributive share of partnership gross income; income in respect of a decedent; income from an interest in an estate or trust; military retirement benefits; railroad employment retirement benefits; social security benefits; temporary and permanent disability benefits; workers’ compensation; unemployment compensation; other entitlements to money or lump sum awards, without regard to source, including lottery winnings; income tax refunds; insurance compensation or settlements; awards or verdicts; and any form of payment due to and collectible by an individual regardless of source.

This statute has been interpreted by the trial and appellate courts many times over the past three decades. Since the mid-1980’s, the Pennsylvania courts have held that net disposable income for support purposes is not the same as taxable income.  In most cases, the definition of net disposable income is more expansive than taxable income. It may include bonuses, voluntary retirement contributions, tax-exempt interest income, depreciation, business profits and distributions (sometimes even retained earnings), capital gains, perquisites, rental income, trust income, and many other types of cash flow, whether or not reported on a tax return.

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