Variable Income and Spousal Maintenance: Crafting Fairness in Flux | Episode 200

Variable Income and Spousal Support in a Colorado Divorce

In this how-to episode of Divorce at Altitude, Ryan Kalamaya explains how Colorado courts and divorce lawyers approach variable income when determining spousal support, also called maintenance or alimony. This issue often comes up when one spouse does not earn a predictable salary each month or each year.

Ryan uses the podcast’s hypothetical divorce clients, Eric and Melanie Wolfe, to walk through the problem. Imagine Eric owns a real estate business or works in a commission-based industry. Some months he may earn nothing, while in another month he could earn a very large commission. On top of that, his yearly income may swing dramatically as well—earning $250,000 one year and $1 million the next. When maintenance depends in part on income, that kind of inconsistency creates real challenges.

Key Takeaways

What is variable income?
Income that changes significantly month to month or year to year, such as commissions, business profits, or real estate earnings.

Why does it matter?
Because spousal support is based in part on income, and unstable earnings make support harder to calculate fairly.

Common solution: averaging income
Lawyers and courts may use a three-year or five-year average to smooth out irregular earnings.

Weighted averages may apply
If income has been rising or falling, a weighted average may place more value on recent years.

Another option: percentage of future bonuses or commissions
Parties can agree to a base level of support plus a share of future variable income.

Taxes still matter
If a spouse receives a large commission, not all of it is truly available cash because tax obligations must be considered.

No universal formula fits every case
Colorado courts look at the facts, the type of income, and the overall fairness of the result.

What is Divorce at Altitude? 

Ryan Kalamaya and Amy Goscha provide tips and recommendations on issues related to divorce, separation, and co-parenting in Colorado. Ryan and Amy are the founding partners of an innovative and ambitious law firm, Kalamaya | Goscha, that pushes the boundaries to discover new frontiers in family law, personal injuries, and criminal defense in Colorado. 

To subscribe to Divorce at Altitude, click here and select your favorite podcast player. To subscribe to Kalamaya | Goscha's YouTube channel where many of the episodes will be posted as videos, click here.  If you have additional questions or would like to speak to one of our attorneys, give us a call at 970-429-5784 or email us at info@kalamaya.law.

************************************************************************

DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.

Transcript

Copy Transcript Copied

Ryan Kalamaya 0:01

Welcome to Divorce At Altittude, a podcast on Colorado family law. I'm Ryan Kalamaya. Each week, along with my business partner and co-host, Amy Goscha, or an expert, we discuss a particular topic related to Divorce or co-parenting in Colorado. In addition, we have created a short series of lessons that will take you through the legal process of Divorce and answer your questions from simple to complex. Divorce isn't easy. The end of a marriage, especially when children are involved, brings a great deal of loss and change. We hope these practical tips and insights will help you on your journey to a new. And better life.

0:42

How to episode on variable income and spousal support in a Colorado divorce. Now, the first thing we need to understand or define is what is variable income? What am I talking about? Let's use our hypothetical divorce clients, Eric and Melanie Wolfe. And let's suppose that Eric. Owns his own business and it is in some sort of real estate company and his income can vary from month to month. So one month he might not make any money and in another month he might have a significant commission and, earn a couple hundred thousand dollars in one particular month. So how do you deal with that? And then when we take a step back and look at from year to year What happens if Eric makes let's say 250, 000 one year and then a million dollars the next year, what are we supposed to do in that circumstance? We, as we've discussed in previous episodes, income is one of the primary drivers for spousal support. And I won't get into the various factors and all of those things that I've discussed in previous episodes. I'll assume that you've either listened to those or we'll go back and listen to those. To familiarize yourself, but really what we need to understand is that support is determined by Eric's income in part. So we're really confronting the unpredictability of variable income. So there's a. A couple different approaches that we divorce lawyers take in this circumstance. One is we have a, an average and that can look at Eric's income. And we can look at, for example, from month to month really looking at his year holistically. If Eric. predictably has 250, 000 from year to year, it doesn't really matter that in one month he might make zero and then another month he makes a hundred thousand dollars. At the end of the day, we know that, he's going to be making 250, 000. And so he's going to need to plan accordingly, but more problematically is when. Eric's income can vary from year to year. And so we can get into arguments and various experts can be involved about whether or not we use a three year average versus a five year average. Do we take the last two years or do we apply a more kind of expansive time horizon? You could get into arguments about a straight line. Each year five means the same as the most recent year, or can we take a weighted average? Let's say that Eric's income is increasing from each and every year that might militate in favor of a weighted average. So we're going to use more, put more emphasis on the most recent year compared to a year before. Three years ago. Another options is Eric and Melanie could reach an agreement that could have an income or a revenue share model. So let me give an example. So let's say that Eric is a salesperson and he earns a base salary of 100, 000 but that he earns a commission of 250, 000 or he has the option or possibility of earning a commission or there's been some sort of history of him earning 250, 000. Erica Melanie could agree to a base level of support. Based on the 100, 000, and then if Eric gets a bonus or a commission or some sort of distribution from his business, that is part of that 250, 000, he pays Melanie a particular percentage of that. And 1, rule of thumb is we could have Eric paying 20 or 25%, and that would be. Around the net amount because we have to take into consideration the taxes. So if Eric gets a check for, let's say, 100, 000 from a commission, he would then in turn pay Melanie to 25, 000. And that would allow Eric to save money to Pay for his taxes and for his obviously his own needs, but things do get really tricky and it depends on if you are talking about an initial divorce whether you're talking about temporary maintenance versus permanent maintenance and all of those different complex issues that we have discussed and we'll be getting into more complex discussions and including variable income, but for now, hopefully that gives you an idea of it. What variable income can matter for spousal support in a colorado divorce.

Ryan Kalamaya 5:24

Thanks for listening or watching this short lesson on the Divorce Ude podcast. If you found this helpful, please leave a review or share with a friend. It does help for others that are going through or thinking about a Divorce in Colorado. If you want to find out more information, Please visit Kalamaya Law or Divorce at Altittude dot com and that's K A L A M A Y A law. Remember, this is educational information, it's not intended to be legal advice. Please consult with an attorney about the particulars of your case. We're happy to answer questions. Feel free to give us a call at (970) 315-2365.