Income Ratio a. Each year on or before May 1, until the Children are emancipated, the Parties shall exchange copies of their tax returns in order to determine the income ratio to be used for allocating the child-related expenses listed in this Exhibit (the “Income Ratio”). This calculation, as described below, ignores any differences in the Parties’ income from investments because (i) they are dividing their net marital assets equally, and (ii) do not wish to distort their incentives with regard to investing in income-producing assets.
b. The Parties shall include as income in this ratio all earned income, as that term is defined in § 32(c)(2)(A) of the Internal Revenue Code (as amended from time to time), received during the prior calendar year, without deduction for retirement savings, payroll taxes, or other deductions, and shall include any contribution by an employer to a Party’s retirement accounts and any cafeteria-plan payments that are excluded from W-2 wages. For purposes of this calculation, the Wife’s income shall include all child support and alimony payments received during the prior calendar year from the Husband, and the Husband’s income shall be reduced by the same amounts.
c. Both Parties’ incomes shall be reduced by the amount of “pro forma tax” that they will owe for the prior calendar year. The Parties’ “pro forma tax” shall be calculated based on their actual filing status, with no dependency exemptions other than their personal exemption, and with no itemized deductions other than state and local taxes.
d. For purposes of this calculation, alimony shall treated as taxable to the Wife and deductible by the Husband, and child support shall be treated as non-taxable and non-deductible.
e. The resulting calculation shall be used for expenses incurred from May 1 of the year in which the calculation is made until April 30 of the following year.
f. In the event that either of the Parties has remarried and files a joint return, that Party’s income shall be calculated as if s/he were filing Married Filing Jointly, including only that Party’s income and excluding any income from that Party’s spouse.
