One of the first questions clients ask in an alimony case is often: “How much does my spouse make?”
It is an important question. But in a high-income or financially complex divorce, it may not be the only question.
Executives, professionals, and business owners may receive income in ways that are considerably more complicated than a paycheck deposited every two weeks. Salary may be only one component of compensation. Bonuses, distributions, dividends, retirement benefits, and other sources of income may also be relevant when evaluating an alimony claim.
That is why a careful alimony analysis often requires looking beyond a tax return or W-2 and understanding the larger financial picture.
How is alimony determined in North Carolina?
North Carolina does not use a simple mathematical formula to determine alimony.
Instead, the court considers a number of statutory factors, including the spouses’ relative earnings and earning capacities, the amount and sources of earned and unearned income, the length of the marriage, the standard of living established during the marriage, the parties’ assets and liabilities, their relative financial needs, and the tax consequences of an award.
The court may also consider contributions one spouse made to the education or increased earning power of the other and the contribution of a spouse as a homemaker.
As a result, two marriages involving the same annual salary can produce very different alimony issues.
Why can business-owner income be difficult to analyze?
When one spouse owns a closely held business, determining income available for support can become more complicated.
A business owner may receive a salary, distributions, bonuses, benefits, or other forms of compensation. At the same time, a company may need to retain money for payroll, debt service, inventory, taxes, capital expenditures, or working capital.
This creates an important distinction: money generated by a business is not necessarily the same thing as money personally available to the owner.
The opposite can also be true. Looking only at an owner’s stated salary may not always provide a complete picture of the financial benefits associated with ownership.
For that reason, alimony cases involving businesses often require a closer examination of the company’s financial records and the way the owner has historically been compensated.
Executive compensation can create similar issues
Business owners are not the only spouses whose income may require closer analysis.
Executives and highly compensated professionals may receive bonuses, commissions, deferred compensation, equity awards, retirement benefits, or other forms of compensation in addition to base salary.
Some compensation may vary substantially from year to year. Other compensation may not be immediately available in cash.
Understanding the timing, history, and structure of compensation can therefore be important when evaluating both a spouse’s actual financial circumstances and the sustainability of a proposed support obligation.
Standard of living matters too
An alimony analysis is not limited to income.
North Carolina law also directs courts to consider the standard of living the spouses established during the marriage and their relative financial needs.
In a high-net-worth divorce, that can require a detailed understanding of how the family actually lived.
What did the household historically spend? Which expenses were recurring? Which were unusual or discretionary? What will each spouse reasonably need after separation? What debts and other obligations will each party carry?
The answers matter because an income number viewed in isolation does not necessarily explain the economic reality of the marriage.
Property division and alimony should not always be viewed separately
Alimony and equitable distribution are distinct legal claims, but the financial consequences of each can intersect.
A spouse receiving significant assets in property division may have a very different post-divorce financial position from a spouse receiving primarily illiquid property. One spouse may leave the marriage with substantial investment or retirement assets while another retains a business that requires continued management, investment, and risk.
North Carolina’s alimony statute specifically directs courts to consider the parties’ relative assets and liabilities and also recognizes circumstances in which income has already been considered in valuing marital or divisible property.
For clients with significant assets, support should therefore be evaluated as part of the broader financial picture rather than as an isolated monthly payment.
Good alimony analysis starts with good information
Whether a client may be paying or receiving alimony, one of the most important early steps is gathering reliable financial information.
That may include tax returns, pay records, financial statements, business records, account statements, compensation documents, household expenses, and information concerning assets and liabilities.
The goal is not simply to find the largest possible income number. It is to understand how the parties’ finances actually work.
In financially complex divorces, that distinction can be critical.
Alimony decisions can affect both spouses for years after a marriage ends. Before negotiating or litigating support, clients should understand the sources of income, the financial needs of both households, the marital standard of living, and how the proposed support arrangement fits with the rest of the divorce.
The salary number is important. The story behind that number can be even more important.
Kisha Patel is a North Carolina Board Certified Specialist in Family Law and Senior Litigation Counsel with McIlveen Family Law Firm in Raleigh. Her practice includes high-net-worth divorce, equitable distribution, alimony, business-owner divorce, child custody, and other complex North Carolina family law matters.
