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Family LawThe newsletter of ISBA’s Section on Family Law

June 2012, vol. 55, no. 10

The Supreme Court weighs in on a question of income

The definition of income for child support purposes is somewhat murky, but in a recent Illinois Supreme Court decision, In re Marriage of McGrath, 2012 IL 112792, family law practitioners got the final word on whether money regularly withdrawn from savings accounts can be considered income. According to the Illinois Supreme Court, it cannot.

In McGrath, the judgment dissolving the marriage of Mary Ellen and Martin McGrath was entered in September 2007. The parties’ marital settlement and joint parenting agreements were incorporated into the judgment, providing, inter alia, that the parties’ two children would live with Mary Ellen, and, because Martin was then unemployed, child support was reserved. In July 2008, Mary Ellen filed a petition seeking child support. At the hearing, the evidence showed that Martin, who remained unemployed, covered his living expenses by withdrawing $8,500 per month from his savings account. The trial court held that the savings account withdrawals constituted Martin’s net income. Based on that finding, the judge set child support at an amount which it found to be a slight downward deviation from guidelines.

Martin appealed, arguing that the court erred in ruling that money withdrawn from a savings account constituted “net income” for the purposes of determining his child support obligation. The Appellate Court affirmed, saying, “An unemployed parent who lives off regularly liquidated assets is not absolved of his child support obligation.” In re Marriage of McGrath, 2011 IL App (1st) 102119, ¶11. The Appellate Court reasoned that, because the legislature adopted an expansive definition of “net income,” defining it as “the total of all income from all sources” in section 505(a)(3), regular withdrawals from an unemployed obligor’s savings account could be considered income when setting a child support obligation. Id, ¶11.

Undaunted, Martin appealed to the Illinois Supreme Court, which overturned the Appellate Court’s decision. The Court declined to interpret the statutory term “income” as meaning anything other than its plain and ordinary meaning. The Court turned to Webster’s and Black’s for the ordinary definition of income—“the money or other form of payment that one receives, usually periodically, from employment, business, investments, royalties, gifts, and the like.” Therefore, the justices reasoned that, because the money in the savings account already belonged to Martin, withdrawing it did not create a gain or benefit to him and could not therefore transform it into income for purposes of calculating child support. 2012 IL 112792, ¶14.

So what has the Court left us with? There remain avenues of redress where a child support obligor is unemployed or vastly underemployed and using financial resources to cover his/her living expenses.

The Supreme Court in McGrath observed that the Act itself provides a method of remedying the problem. “If application of the guidelines generates an amount that the court considers inappropriate, then the court should make a specific finding to that effect and adjust the amount accordingly. One factor that the court can consider . . . is ‘the financial resources and needs of the non-custodial parent.’” Id, ¶16. Thus, a needs-based order would have been appropriate in the circumstances of the case on appeal and in other circumstances where an obligor has access to funds which cannot be defined as income but insufficient or no income on which to base a reasonable support order.

Similarly, the Supreme Court recognized the doctrine of imputing income as set forth in In re Marriage of Gosney, 394 Ill.App.3d 1073 (2009). The Gosney court reviewed the case law on imputing income and determined three instances in which imputing income is appropriate: 1) where the obligor voluntarily becomes unemployed; 2) where the obligor is trying to avoid having to pay support; and 3) where the obligor hasn’t accepted an offer or opportunity for employment. If these factors do not apply, income cannot be imputed. Id. at 1077.

Nevertheless, in McGrath the Illinois Supreme Court declined to address the issue of whether disbursements from an IRA constituted net income, the basis for the trial court’s conclusion that savings withdrawals were income. In the First District case of In re Marriage of Eberhardt, 387 Ill.App.3d 226 (2008) and the Second District case of In re Marriage of Lindman, 356 Ill.App.3d 462 (2005), withdrawals from IRAs were held to be income for purposes of child support, while the Fourth District rejected that proposition in In re Marriage of O’Daniel, 382 Ill.App.3d 845 (2008). Since McGrath involved no withdrawals of retirement funds, the Supreme Court specifically side-stepped the issue in a footnote.

While the Supreme Court in McGrath has eliminated one means of establishing a child support order in the case of unemployed obligors with one hand, it has given its imprimatur to alternative methods of obtaining relief for custodial parents. How long will it be before the High Court settles the IRA as income debate?


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