Child Support: All Income
From All Sources
ALL income counts for child support . . . everything! The law specifically says "all income from all sources." There are some exceptions, however. Need advice? Call, leave your info., or schedule a consult.
Illinois' methods for determining net income are based on "all income from all sources." Whether you use the HFS table with its "standardized taxes" or you skip the table and prove "individualized taxes" to the judge, you've got to start with "all income from all sources." 750 ILCS 5/505(a)(3). I get calls daily to ask if overtime is included in that. "What about bonuses? Really?" "You mean my commission is also included?" Judges admonish folks every day that "gross income means 'all income from all sources!'" Still . . . there are exceptions. Below I've laid out the most common questions people ask and the exceptions to the rule.
ALL INCOME FROM ALL SOURCES
The Uncertainty Principle
Yes, Loans Count as Income
No, Loans Don't Count as Income
Count as Income
Don't Count as Income
Common Sense Approach
In the Old Days
Exceptions: What would laws be without exceptions? "Gross income" does not include:
benefits from means-tested public assistance programs like
Temporary Assistance to Needy Families (TANF),
Supplemental Security Income (SSI), and
Supplemental Nutrition Assistance Program (SNAP);
benefits and income received by the parent for other children in the household, like
survivor benefits, and
foster care payments.
The Tax Code Doesn't Matter: Many people get caught up in the argument that income shouldn't count for child support purposes unless the obligor reports it as income on his tax return. They're wasting their time. "Income" means "all income from all sources" . . . taxed or not. One court has said "there is no authority for the "position that the Internal Revenue Code 'Bible' be used to determine the meaning of net income." In re: Marriage of Partney, 212 Ill. App. 3d 586, 156 Ill.Dec. 679, 571 N.E.2d 266 (5th Dist., 1991), citing Ivanyi v. Granoff, 171 Ill.App.3d 411, 122 Ill.Dec. 49, 526 N.E.2d 189 (2 Dist., 1988). More recently, the First District said "section 505, not the tax code, defined income for child support purposes." In re: Marriage of Baumgartner, 890 N.E.2d 1256 (Ill. App., 2008)
Must Report New or Second Job: One of the more common problems we run into is when a parent deliberately dials down his or her income in anticipation of setting a child support order. Then, once the order is in place, the obligor (the parent paying support) will run out and get a higher-paying job or a second or third job and not report the new income.
Illinois uses "uniform" child support orders. They're printed up by the jillions are there's usually a stack of blank orders in any court room. By law, those pre-printed, uniform orders require EACH parent to notify the other of any new employment. Giving notice allows the support recipient to run into court to seek an increase; and it allows the obligor to run into court to seek a decrease. The requirement includes a new job coming out of a period of unemployment and a second job if already employed. Failure by the obligor (the parent paying support) to notify the support recipient of a new or second job, coupled with nonpayment of child support, constitutes per se indirect criminal contempt of court. The law says:
(h) An order entered under this Section shall include a provision requiring the obligor to report to the obligee and to the Clerk of Court within 10 days each time the obligor obtains new employment, and each time the obligor's employment is terminated for any reason. The report shall be in writing and shall, in the case of new employment, include the name and address of the new employer. Failure to report new employment or the termination of current employment, if coupled with nonpayment of support for a period in excess of 60 days, is indirect criminal contempt. For any obligor arrested for failure to report new employment bond shall be set in the amount of the child support that should have been paid during the period of unreported employment. An order entered under this Section shall also include a provision requiring the obligor and obligee parents to advise each other of a change in residence within 5 days of the change except when the court finds that the physical, mental, or emotional health of a party or that of a child, or both, would be seriously endangered by disclosure of the party's address.
Maintenance Payments Are Income: The law is clear enough; it says:
Spousal support or spousal maintenance received pursuant to a court order in the pending proceedings or any other proceedings must be included in the recipient's gross income for purposes of calculating the parent's child support obligation.
Gifts Are Income: Occasionally, a parent owing child support will receive substantial gifts from parents, a new spouse, friends, an employer, etc. It looks like a dodge to avoid having to pay support on "income." To anyone else, the gifts look like income – he gets $40,000 or $50,000 a year from a wealthy friend or family member and can spend it or save it as he wishes – but he claims that the "gifts" should not be included in "income" when calculating child support. Illinois law says '"income" means income from all sources." So, those gifts are counted as "income."
The Falacy of "The Uncertainty Principle": In the 2003 case of IRMO Harmon, the obligor/father received an annual $10,000 gift from his mother. The appellate court concluded that because of the uncertainty as to future gifts, they shouldn't be included in "net income." The following year, however, the Illinois Supreme Court laid down the law in In re: Marriage of Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386 (2004) saying that the "uncertainty principle" of Harmon didn't make sense as EVERYTHING is uncertain: people lose their jobs, markets ebb and flow, investments rise and fall . . . life is made of uncertainty. If we exclude "gifts" because their future receipt might be uncertain, we might as well exclude everything, because everything is uncertain.
So, gifts are income . . . period. The way these matters are supposed to be handled is that all income -- including gifts -- is to be included in calculating "net income" and then, if warranted, the court may deviate from the child support award under 750 ILCS 5/505(a)(3.4). based on the "uncertainty" of future gifts.
The Supreme Court confirmed this approach in IRMO Mayfield (below), saying:
"the income must be included by the circuit court in the first instance when it computes a parent's ‘net income’ . . . . Thus, a one-time payment is income, but its nonrecurring nature may factor into the trial court's decision on how to allocate it [considering a deviation from the guidelines] — presumably, under section 505(a)(2)(e) [now, 505(a)(3.4)], which concerns “the financial resources and needs of the non-custodial parent.” 750 ILCS 5/505(a)(2)(e) (West 2010)
In re: Marriage of Mayfield, 2013 IL 114655, 989 N.E.2d 601, 371 Ill.Dec. 11 (Ill., 2013)
Loans MAY Be Income, Too: Believe it or not, loans may count as income when you're figuring out child support payments.
Yes, Loans Count As Income -- Rogers II: In In re: Marriage of Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386 (Ill., 2004) (The Rogers case went back and forth to the appellate court several times; to keep the cases clear, this one is called Rogers II) the obligor earned $15,000 per year as income, but took in another $46,000 as "gifts and loans" from his parents. The trick was that he never had to pay back the loans. The Supremes explained the Appellate Court's decision:
"For purposes of determining a parent's net income, section 505 of the Act authorizes the deduction of amounts expended in repayment of certain types of debts. There is no corresponding provision authorizing the exclusion of loan proceeds."
In re: Marriage of Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386, 392 (Ill., 2004).
The Supremes went on to say that maybe sometimes loans should count, and maybe sometimes they shouldn't . . . but in THIS case, they should:
"Although the father challenges the appellate court's construction of the statute, we have no occasion in this case to address whether and under what circumstances loan proceeds are properly regarded as an element of income for child support purposes. The reason for that is that the sums at issue here are loans in name only."
In re: Marriage of Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386, 392 (Ill., 2004) (emphasis added).
No, Loans Don't Count As Income: The Illinois Supreme Court, in Rogers, left the door open about whether loans should count as income. Then along came IRMO Tegeler, 365 Ill.App.3d 448 and IRMO Baumgartner, 890 N.E.2d 1256 (Ill. App., 2008).
Scott Tegeler was a farmer who paid child support. He had access to a $600,000 line of credit. He had to tap that line of credit every year to run the farm from harvest to harvest. His annual loans varied from $460,000 to $660,000. Paula Tegeler argued that those loans should have been included as income for child support purposes. The appellate court rejected her theory as producing "nonsensical results," saying:
We believe that, in general, loans should not be considered income. We note that the Black's Law definition of "income" quoted by the supreme court in Rogers II, cited earlier in our opinion, specifically includes gifts as income but does not mention loans. Rogers II, 213 Ill.2d at 137, 289 Ill.Dec. 610, 820 N.E.2d 386. More significantly, loans typically should not be counted as income because they usually do not directly increase an individual's wealth. See, Worrall, 334 Ill.App.3d at 553-54, 268 Ill.Dec. 411, 778 N.E.2d 397; cf. Rogers II, 213 Ill.2d at 137, 289 Ill.Dec. 610, 820 N.E.2d 386 (monetary gifts considered income to the father because they increased his wealth and ability to support his child).
In re Marriage of Tegeler, 365 Ill.App.3d 448, 848 N.E.2d 173 (2d Dist., 2006).
Craig Baumgartner paid child support and took out a mortgage loan to buy a house. Susan Tegeler said that money should count as income for child support purposes. The First District Appellate Court rejected Susan's cliams, saying:
We do not hold that loan proceeds may never constitute income. However, a residential mortgage loan, made by a bona fide lender, does not constitute income. Such loans do not meet the definition of "income" as set forth in Rogers II as they do not share similar features with the examples set forth in the definition cited therein.
In re Marriage of Baumgartner, 890 N.E.2d 1256 (Ill. App., 2008)
If you want to exclude loans from your income, look to Tegeler and Baumgartner.
One-Time, Lump Sum Gains: How does the law treat one-time gains like inheritances, wrongful death proceeds, and workman's compensation awards? Sometimes they count and sometimes they don't. Go read my article on One-Time, Lump-Sum Gains.
Lump Sum Workmen's Comp Settlements are Income: Lump-sum workers' compensation settlements are income for the Illinois Marriage and Dissolution of Marriage Act's child support provisions. This issue has been well settled for many years. See, e.g., In re Marriage of Dodds, 222 Ill.App.3d 99, 164 Ill.Dec. 692, 583 N.E.2d 608 (2d Dist., 1991), and In re Marriage of Schacht, 343 Ill.App.3d 348, 277 Ill.Dec. 889, 797 N.E.2d 236 (2d Dist., 2003).
In re: Marriage of Mayfield, 2013 IL 114655, 989 N.E.2d 601, 371 Ill.Dec. 11 (Ill., 2013) comes from the Illinois Supreme Court and it nicely confirms the previous appellate cases. After eight years of marriage and two kids, Shannon and Howard Mayfield divorced in 2003. In 2007, Howard was injured at work and sought workmen's comp benefits. In 2011, their eldest child emancipated, their youngest was 14, and they went back to court to modify support. It came out that Howard had received $240,000 on a lump sum workmen's comp award and never told Shannon. He paid off his mortgage, remodeled his home, paid off some debt, took a nice vacation, paid off all three cars, bought some "jewelry and furs," parked $30,000 in a Money Market account and bought a $40,000 piece of hunting land and a nice motorcycle.
Shannon wanted 20% of the $240,000. Howard said that wouldn't be fair because the lump sum award constituted "the equivalent of monthly payments for the duration of [his] life expectancy of 34 years which comes out to $580.30 per month . . . . Where the child is a teenager, and where clearly the award is to compensate for limited monthly payments over the life expectancy of the workman's compensation, it would be manifestly unfair to award a 20% portion of the entire settlement, to the former spouse. Such an award would grant the former spouse child support . . . effectively, for 25 years after the child has reached her majority.”
The trial court awarded Shannon $48,000 (20% of $240,000). Ouch! Howard appealed, lost, and took it to the Illinois Supreme Court. He lost there, too. The Supremes said:
Recurring or not, the income must be included by the circuit court in the first instance when it computes a parent's ‘net income’ and applies the statutory guidelines for determining the minimum amount of support . . . . Thus, a one-time payment is income, but its nonrecurring nature may factor into the trial court's decision on how to allocate it — presumably, under section 505(a)(2)(e), which concerns “the financial resources and needs of the non-custodial parent.” 750 ILCS 5/505(a)(2)(e) (West 2010).
Like the gifts and loans in Rogers, the lump-sum workers' compensation settlement that Mayfield received was income. Indeed, he treated it as income, and apparently spent most of it. Although he alluded to the nonrecurring nature of the settlement, and proposed an order setting child support at 20% of the prorated monthly equivalent, he never specifically asked the trial court to depart from the guidelines.
In re: Marriage of Mayfield, 2013 IL 114655, 989 N.E.2d 601, 371 Ill.Dec. 11, (Ill., 2013).
Investment Income, Bonds and Securities Gains Is Income: Obviously, they're all income. Dept of Public Aid ex rel Jennings v. White, 286 Ill.App.3d 213 (1997).
Pension Payments Are Income: In IRMO Klomps, 286 Ill.App.3d 710, 221 Ill.Dec.883, 676 N.E.2d 686 (5th Dist., 1997) husband was awarded a percentage of his military pension as part of the property settlement. When he received the payments, the court treated the payments as income for child support purposes. He appealed arguing that the pension payments were part of the non-modifiable property settlement and, to shift part of the payments from him to his ex-wife was, in effect, a property settlement modification. He lost. The appellate court said "[c]learly, military pensions, at the time that they are paid to the non-custodial parent, are income for child support purposes." IRMO Klomps, 286 Ill.App.3d 710, 221 Ill.Dec.883, 676 N.E.2d 686 (5th Dist., 1997). See, also, IRMO Baumgartner (Baumgartner I), 384 Ill.App.3d 39, 322 Ill.Dec. 337, 890 N.E.2d 1256 (1st Dist., 2008).
Severance Pay and Deferred Compensation Is Income: Obviously. Dept of Public Aid ex rel Jennings v. White, 286 Ill.App.3d 213 (1997).
Trust Distributions Are Income: IRMO Sharp, 369 Ill.App.3d 271 (2006).
Converting Assets for Loss NOT Income: In In re: Marriage of Marsh, 2013 IL App (2d) 130423, 378 Ill.Dec. 109, 3 N.E. 3d 389 (2d Dist., 2013), the former husband cashed in a bunch of stock. He sold it at a loss. The cash he realized from the transaction was held not to be income.
Double Dipping -- Income From Assets Awarded in the Divorce: Imagine this: at the time of your divorce you have two bank accounts -- a $10,000 checking account and an $10,000 savings account. Your spouse gets the checking account and you get the savings account and you agree to pay 20% of your "net income" for child support. The next day you go to the bank and withdraw $5,000 from the savings account. Do you owe your former spouse $1,000 (20%) of that withdrawal? Of course not! Right? It just makes sense -- the savings account is an asset that was awarded to you and by withdrawing funds you're not experiencing any "income," you're simply converting an asset from one form (a deposit) into another form (cash). Simple; right? Wrong!
Several cases say "all income from all sources" includes gain derived from the conversion of assets awarded as part of the divorce settlement.
Disbursement from IRAs: View these cases with common sense and do your legwork to understand the facts.
Count as Income: In In re: Marriage of Lindman, David and Kayla Lindman divorced after 19 years of marriage. They agreed that the kids would go with Kayla and David kept the house and a big, fat IRA. He was earning about $80,000. The next year he took in $80,000 in IRA distributions for a total of $160,000 / year. Then he lost his job but was still living an $80,000 / year lifestyle thanks to big IRA distributions. He asked for a reduction in support. Kayla argued that the IRA distributions should be counted as part of "all income from all sources. The appellate court agreed, relying on the Illinois Supreme Court's decision in In re: Marriage of Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386 (2004), saying:
The supreme court has counseled that, consistent with its ordinary meaning, 'income' is '"something that comes in as an increment or addition . . . : a gain . . . that is usu[ally] measured in money." Rogers, 213 Ill.2d at 136, 289 Ill.Dec. 610, 820 N.E.2d 386 [at 390] quoting Webster's Third New International Dictionary 1143 (1986). Additionally, 'income' may be defined as the money or payment received from a variety of sources, including investments. Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386 [at 390], quoting Black's Law Dictionary 778 (8th ed. 2004).
. . .
. . . IRA disbursements are a gain that mey be measured in monetary form. Rogers, 213 Ill.2d 129, 289 Ill.Dec. 610, 820 N.E.2d 386 [at 390]. Moreover, IRA disbursements are monies received from an investment, that is, an investment in an IRA. . . . Thus, given it's plain and ordinary meaning, 'income' includes IRA disbursements.
In re Marriage of Lindman, 356 Ill. App. 3d 462, 291 Ill.Dec. 969, 824 N.E.2d 1219 (2d Dist., 2005).
In In re Marriage of Eberhardt, 387 Ill.App.3d 226, 900 N.E.2d 319 (1st Dist., 2008), Karen and Stephen Eberhardt divorced after 26 years of Marriage. Karen took custody of their 13-year-old daughter and Stephen took three big, fat IRAs. Like David Lindman, Stephen withdrew money from the IRAs awarded to him as part of the property settlement. The court held that IRA disbursements could be included determining gross income under section 505 of the Act.
Don't Count as Income: The 4th District Appellate Court rejected the Lindman - Eberhardt analysis. In In re: Marriage of O'Daniel, 382 Ill.App.3d 845, 889 N.E.2d 254, (4th Dist., 2008), the former husband sought a modification of support ten years after the divorce. He had suffered periods of unemployment and had taken large distributions from an IRA. The court refused to include the IRA distributions as part of "all income from all sources," saying:
The Second District's decision does not adequately take into account that IRAs are ordinarily self-funded by the individual possessing the retirement account. Except for the tax benefits a person gets from an IRA and the penalties he or she will incur if he or she withdraws the money early, an IRA basically is no different than a savings account, although the risks may differ. The money the individual places in an IRA already belongs to that individual. When an individual withdraws money he placed into an IRA, he does not gain anything as the money was already his. Therefore, it is not a gain and not income. The only portion of the IRA that would constitute a gain for the individual would be the interest and/or appreciation earnings from the IRA.
In re: Marriage of O'Daniel, 382 Ill.App.3d 845, 889 N.E.2d 254, (4th Dist., 2008)
Common Sense Approach: Personally, I think Lindman and Eberhardt got it wrong. The O'Daniel court seems to me to present the more reasoned and fair approach. Go back to Lindman (above) for a simple, concise analysis of how to look at IRA distributions and child support. The court said:
Consider, for example, the following situation. In year one, a court sets a parent's child support obligation at X. This amount is based on a calculation of the parent's year one net income, which includes money the parent puts into an IRA. In year five, the parent begins receiving disbursements from the IRA, and, that same year, the parent asks the court to modify his or her child support obligation. To determine whether modification is proper, the court looks to see whether there has been a change in circumstances. In making that determination, the court considers as part of the parent's year five net income the amount of the disbursements from the IRA. It may be argued that the court is double counting this money, that is, it is counting the money on its way into and its way out of the IRA. In other words, the money placed in to the IRA from year on to year five is being counted twice. To avoid double counting in this situation, the court may have to determine what percentage of the IRA money was considered in the year one net income calculation and discount the year five net income calculations accordingly.
In re Marriage of Lindman, 356 Ill. App. 3d 462, 291 Ill.Dec. 969, 824 N.E.2d at 1226 (2d Dist., 2005)
Converting an IRA to a Roth IRA: When an obligor converts an IRA to a ROTH IRA, that conversion may be "income:"
" . . . the conversion to a Roth IRA is a taxable event indicating some type of benefit or income to [the obligor]. Section 505(a)(3) defines net income for child support purposes as "the total of all income from all sources." 750 ILCS 5/505(a)(3) (West 2010). The trial court did not abuse its discretion when it included the $5,000 as income.
Pratt v. Pratt, 2014 IL App (1st) 130465 (Ill. App., 2014)
Savings Withdrawals Are NOT Income: Martin and Mary Ellen McGrath divorced in September 2007 -- just days after the financial collapse and right at the beginning of the Great Recession. Martin was unemployed, so the couple agreed to "reserve" his child support obligation (they skipped it and said they could look at it, later). Martin lived on savings awarded to him as part of the divorce. He was tapping about $8,500 per month. He was maintaining a lifestyle that cost about as much as Mary's did . . . and she was maintaining a household with two kids! Mary thought he should have to pay support based on those withdrawals from savings. The trial court agreed with Mary and Martin appealed. The case bumped all the way up to the Supreme Court.
The Supremes said:
although the Act provides a definition of "net income"—the total of all income from all sources minus certain deductions—it does not separately define the term "income." Thus, this court explained that the term must be given its plain and ordinary meaning.Rogers quoted the following definitions from Webster's and Black's: "something that comes in as an increment or addition *** : a gain or recurrent benefit that is usu[ally] measured in money *** : the value of goods and services received by an individual in a given period of time" (Webster's Third New International Dictionary 1143 (1986)), and "[t]he money or other form of payment that one receives, usu[ally] periodically, from employment, business, investments, royalties, gifts and the like" (Black's Law Dictionary 778 (8th ed. 2004)). Rogers,213 Ill. 2d at 136-37. Money that a person withdraws from a savings account simply does not fit into any of these definitions. The money in the account already belongs to the account's owner, and simply withdrawing it does not represent a gain or benefit to the owner. The money is not coming in as an increment or addition, and the account owner is not "receiving" the money because it already belongs to him.
McGrath v. McGrath, 2012 IL 112792 (Ill., 2012) (emphasis added).
Social Security Income: When the obligor receives social security retirement or disability income (SSDI), he should also receive an additional payment for dependent, minor children. The law says that the social security payments AND the dependent benefit payments all count as income to determine the obligor's net income. The obligor, however, should receive a dollar-for-dollar credit against his support obligation for any dependent benefits paid to the child or the obligee on behalf of the obligor. The law says:
Social security disability and retirement benefits paid for the benefit of the subject child must be included in the disabled or retired parent's gross income for purposes of calculating the parent's child support obligation, but the parent is entitled to a child support credit for the amount of benefits paid to the other parent for the child.
In the Old Days: I include this tidbit for anyone who must crunch child support arrearages for a period predating the current law and involving social security recipients and dependent benefits. Before the 7/1/2017 modification of the Illinois' child support law, dependent benefit payments were treated differently. Back then if dependent benefits were paid to the obligee, that freed the obligor from any child support liability.
The Ilinois Supreme Court said that once that separate payment made its way to the child's custodial parent or guardian, the obligor had no further obligation -- that Social Security payment completely satisfied the obligor's child support obligation. In re: Marriage of Henry, 156 Ill.2d 541, 542, 622 N.E.2d 803 (1993).
So, prior to 7/1/2017 there can be no arrearages if the obligee received the dependent benefit payment. Arrearages might exist, however, after 7/1/2017.