Why being a businessman sucks
Once again in August 2011 we see that everyone should try to work for the government, and not themself. It is truly astounding how many ways that an honest and prudent self employed person can get essentially penalized by the laws of the State of California in divorces. Lets list them for fun, starting with the latest.
Last Thurday, our local inland empire court of appeal has sided on the part of the ‘good’ (child support services) against the ‘evil’ (people who owe support).
In this case, the father got custody as the wife was in rehabilitation for alcohol abuse. He was ordered to pay support. He eventually got a reduction of that support, but was unable to pay all of it. This presumably was partially due to the cost of raising the parties children, and partially due to the literal wreckage of the home and the parties credit. The lower court (Pacheco) granted his request for hardship as to his current pension income, allowed his social security to be garnished but allowed his IRA to be invaded. It was not clear from the ruling as to whether the involuntary levy of the IRA resulted in tax or penalty to the prior owner. This may have been a fair decision by Pacheco, and also the court of appeal. Regardless, the situation calls for legislative intervention at the national and state level.
Let me say preliminarily, that government employees have money taken from them for their pension benefits, and more money gets chipped in by their employer at that time. Then after retirement, the vastly underfunded pension fund then gets subsidised by the 12 people in California that still pay income taxes. This pension money cannot be touched or levied upon. The current contributions (and matching) are removed from income for calculation of support.
If a self employed person wants to save for retirement, first of all, this savings is considered to be voluntary, and support has to be paid on the full income. Second of all, even if you do manage to scrimp and save it after the larger support order is made (in an IRA), they will be able to take it away from you. Third of all, this all can be done by computer without meaningful rights to object, and (in this case) even though you have custody of the minor children in the case.
So if you are self employed, how do you save for retirement? Certainly staying married is a good solution, but not an option for some people. I have no answer for you.
Lets list those reasons that it sucks to be self employed in California, starting with the new one, then with the old ones, and then go on to general complaints about support calculations in general.
1. Your IRA is appparently not safe.
2. There is no allowance in the support calculations for reasonable retirement savings (other than that social security that you may never receive). So child and spousal support will be higher for you than for an employee of someone else.
3. They will all too often make you pay for the accountant to audit yourself, and to pay your exes attorney to call you a liar.
4. They will all too often find that your ‘business’ (you) has goodwill, and you have to pay your spouse for half that as part of the final ruling. If there is business debts, then those should go with the business as part of the value of the business, but would only offset the goodwill. Any potential lawsuits or future capital gains tax liability out there are not considered in the value for a divorce as too speculative and not “immediate and specific.”
5. If you have employees, you are lazy and underpaid. If you have no employees, they will claim you are a workaholic and have no time for the children.
6. Regardless of if you have employees, you now may have to pay for workers compensation, and self employment tax. Liability Insurance is also not cheap, not even getting into the issue of health insurance. That is all a legitimate writeoff, but if you are not making a profit, they will then say that you should be imputed a fair wage for support calculations.
7. If you decide you need a tax writeoff, buying land does not help. Homeowners technically pay more support than renters in California. If you own rental property, the court will disregard the depreciation, and may een consider that non-taxable income. If you rent out a room, new rulings indicate that may be income as well, and cannot be offset by the mortgage.
8. If you want to remarry, make sure you marry someone with no kids and a great job, as then your tax bracket goes up. Having a wife who stays at home with her kids brings your tax bracket down, and you pay more support.
9. Last but not least, if you are a success, then you will have to pay income tax, to support all the people who are not paying any tax at all (and/or lying about their income), or working for governmental agencies.
I thing we need to take better care of our honest business owners, land owners and married couples, there is no time in California history that we have needed them more. Part of that, is to find ways to motivate them to stick in the fight, and allow them a possibility of retirement someday.
We desperately need a better plan for allowing and protecting retirement savings than what we have. If we do not, we may see a level of elder poverty previously never seen in the history of this nation.
