January 1, 2014
New Hampshire Family Division Rule 1.25-A requires parties to provide pay stubs as part of the documents to be disclosed in a divorce. A pay stub may hold much more information than you think. Beyond the employee’s wages and taxes withheld, here is some other information that can be obtained from the stub:
What kind of wages are being paid?
Beyond regular earnings, the employee may be earning bonuses, overtime, sick pay, holiday pay and other benefits. These can lead to additional questions:
You may see earnings for “GTL” or “Guaranteed Life.” If the employee has bought life insurance through the company, and the employer pays or subsidizes the cost of the insurance, then the cost of insurance above a $50,000 policy is taxable (for FICA and Medicare) to the employee. This also applies to insurance coverage on spouses and children above $2,000. The presence of this charge lets you know there is at least one life insurance policy carried through the employer.
Is there income related to stock options? This might be listed as “ISO” or “NQSO” income. If stock options are exercised the employee may be holding onto the stock, or he/she may have already sold it and pocketed the cash. You will need to follow the trail to find this out. The presence of this type of income may mean there are more shares awarded that can be exercised and sold in the future as well.
Also look for income from exercising restricted stock shares. These are similar to stock options and there could be more shares available in the future to the worker.
Is the employee having excess money withheld from pay? This could be indicated on a separate line from normally-calculated federal withholding. Over-withholding and then getting a big tax refund is a way to hide assets. Also look at the withholding allowance: this is usually referenced on the stub as M or S (married or single) with a number after to indicate the number of dependents claimed. If this information is not consistent with the worker’s marital situation he/she may be trying to overwithhold taxes.
It is important to ask the employee to describe each deduction so that you understand what money is coming out of gross income.
There are many forms of after-tax deductions, but some of the more common ones include:
There is so much to be told in the pay stub! This simple document can help you to find expenses that might not have been included on the client’s expense sheet - deductions that come from the paycheck are often overlooked. It is also one way to locate hidden assets. And finally it can help you to calculate a realistic income: you may want to disallow some of the deductions when calculating income for the purposes of child support or alimony.