Family Law Newsletter
The newsletter of ISBA’s Section on Family Law

March 2011, vol. 54, no. 5

Income is more than a paycheck when determining child support

750 ILCS 5/505 (a)(3)(a) sets forth that “net income is defined as the total of all income from all sources (Italics added) less the deductions set forth in this section.”

Income is not defined in terms of “cash” payments or monies earned but rather the total of all income from all sources. Webster’s Third New International Dictionary defines income as “the money or other form of payment one receives.” It has likewise been defined in Black’s Law Dictionary as “the money or other form of payment that one receives, usually periodically, from employment, business, investments, royalties, gifts, and the like.” (at page 778, 8th ed. 2004). Under these definitions, a variety of payments or benefits received by an employee or sums received by the payor will qualify as “income” for purposes of Section 505(a)(3) of the Act even though the sums would not be taxable, as income, under the Internal Revenue Code.

The Illinois statute relating to income is one of inclusion and not a differentiation or exclusion of the types of income. This is consistent with Illinois public policy of maximizing child support awards.

The language of the statute and case law is clear that income is income from all sources and not just earned income, even if the income is non-recurring income. The concept of income under the statute is generally interpreted broadly by the courts. In IRMO Dodds, 222 Ill App 3d 99 583 NE 2nd 608 (2nd dist 1991), the court held that lump sum worker’s compensation award, was income under the statute. IRMO of Hart, 194 Ill App 3rd 839 551 NE 2nd 737 (4th dist 1990), held that non-recurring income, is included as income for determining child support and may not be deducted in calculating net income pursuant to the statute. The 5th District in the case of IRMO Klomp, 286 Ill App 3rd 710, 676 NE 2nd 686 -1997), indicated that pension benefits, although classified as marital asset and property in the divorce case, is still income for purposes of child support. IRMO Lindman, 356 Ill App 3rd 462, 824 NE 2nd 1219 (2nd dist 2005), indicated that an IRA, also awarded as property, the withdrawals thereof, are still considered income, for purposes of child support. The Eberhardt court, 387 Ill App 3d 226, 900 Ne 2nd 319 (1st dist 2008), also concurs with the courts in determining that income is not limited to specific type of income or monies or assets.

In IRMO: Marriage Worral, 334 Ill App 3d 550, 778 Ne 2nd 397 (2nd dist 2002), the court spoke that income is income is from all sources, and the Illinois Supreme Court specifically made that clear when it stated that in the case of IRMO: Rogers, 213 Ill 2nd 129 820 NE 2nd 386 (2004), which set forth that gifts made to the payor, were to be considered as income, for purposes of child support.

Military allowances for off base housing, (IRMO: Baylor, 324 Ill app 3d 213, 753 Ne 2nd 1264 (4th dist 2001), as well as, other payments or contributions reflecting sums or assets, given to an employee, as part of their compensation, constitutes income for purposes of support.

The 5th District refused to allow the payor/spouse to deduct his bonuses even though it is the subject to the payor meeting certain employee expectations and goals to obtain the bonus, from the gross amount of income in determining child support . IRMO Anderson, no 3-09-0829 (Nov. 15th 2010 (Tazewell Co.).

In the case of Einstein v. Nijim, 831 NE 2nd 50 (4th dist 2005), the court included the bonus of the payor as income for child support, , despite the argument that bonus was non-recurring. This court also included the $300 bi-monthly automobile allowance, as income, for purposes of determining child support.

The court addressed the issuance of stock grants as income in the cases of IRMO: Colangelo and Sebela, 355 Ill App 3d 383, 822 NE 2nd 571 (2nd dist 2005). The Husband was awarded stock options in his divorce as his share of the distribution of marital assets. When he exercised the stock options, that were awarded to him in the divorce, he argued that the exercise of the stock should not be included as income for child support. The court disagreed with him and found that the exercise of the stock option constituted income for child support purposes.

Other states have addressed issues regarding stock, in that the Ohio case of Murray v. Murray, 128 Ohio App. 3d 662 716 Ne 2nd (123th dist Warren County 1999), held that unexercised stock options, did constitute income for child support purposes, under their statute, which is similar to our Section 505. In that case, the Ohio court noted that the Husband received stock options, on a periodic basis and that these options were also a part of his compensation for his employment. That court noted that as a matter of policy, if unexercised stock options were not included in the payor’s income, “an employee receiving such options, would be able to shield a significant part of his income, from the courts and deprive his children, of the standard of living, they would otherwise enjoy and that is in direct contradiction to the very purpose of the child support statute.

The Supreme Court, in the Rogers case also commented on the issue of non-recurring income. ‘The relevant focus under Section 505, is the parent’s economic situation at the time the child support calculations are made by the court. If a parent has received payments that would otherwise qualify as “income,” under the statute, nothing in the law permits those payments to be excluded, from consideration, merely because the payments might not be forthcoming in the future. The Act does not provide for a deduction of recurring income, in calculating net income for purposes of child support...”

Other states have explored the issue of what is to be included in determining what gross income is to be considered in determining child support.

The Missouri Supreme Court, in the case of Keller v. Keller, 224 SW 3rd 73, examined the payor’s withdrawal of loans to himself and he was the sole shareholder of the corporation. The court also considered the increase in corporations retained earnings, which had more than doubled since the marital dissolution. The court concluded that these were financial resources, from which he personally benefited. That court considered retained earnings, even though the payor did not receive those funds personally, to be included as income to the payor, for purposes of determining child support. (Missouri RSMO 452 340).

The California case of IRMO Cheriton, 111Cal. Rptr 2d 755 (Cal app 2001), states that stock options are part of a parent’s compensation and is included, as income, for the purpose of child support. “Where a parent enjoys “substantial income, in addition, as part of his overall employment compensation and must be used to calculate child support” Cheriton at pg. 767, citing IRMO Kerr, 77 Cal App.4th at P 96. The Cheriton case also discusses the meaning of “gross income,” which is similar to the wording of the Illinois statute, “gross income means income from whatever source derived ”Section 4058, subd (a).”

The moral of the story is: If it looks like, smells like, and feels like a gain, income or additional asset or money, whether it was earned or received, it is income. ■

Member Comments

The courts have done a terrible job of confusing income with cash flow. I suppose under their analysis if the payor sold property at a loss, that would be income because he has more cash. economic idiocy.
Excellent article and very timely for a case currently being set for trial. I disagree with Ted Harvatin. I have always felt that, as an example, someone has a basis of stock of $500,000.00 and sells it for $400,000.00 and sustains a $100,000.00 loss, shouldn't the cash received be considered in ability to pay support? I think so, again, even if not recurring. The article is very succinct and well written and, I'm sure, appreciated by those who practice daily in the domestic relations area.
And here I disagree with Mr. Kaplan. While the liquidation of an asset can be considered by the Court to determine the obligor's ability to pay an obligation such as child support arrearage, and the existence of such an asset can certainly be considered when making a deviation from the statutory guideline child support percentage, it should not be considered "income" for purposes of calculating guideline support with the sole exception of the actual realized gain.