Income Available for Support – A Complicated Issue

The question of a party’s income available for support has been the scourge of many attorneys and forensic accountants for a long time. It is a difficult and evolving issue, with new cases coming out honing and refining the interpretation of Family Code section 4058. Below, we take a look at a few common topics that are raised in child and spousal support cases.file0002132358706

Inheritances

If one party gets a seven figure inheritance from Great Aunt Birgit, is that income available for support? This was the question raised in County of Kern v. Castle. The Court determined that inheritances are not income available for the purposes of child support.

However, the Court determined that income on the inheritance, that is to say, return on the investment from the inheritance, can be considered in setting support.  The Court also held that the reduction in living expenses from an inheritance can also be considered in setting support, pursuant to Family Code section 4058(a)(3).

The analysis might be a little different in spousal support cases. In spousal support, the Court is required to consider assets in setting spousal support. Further, the Family Code mandates that the Court consider if a spouse can be supported by his or her separate property estate alone. If this is the case, then it would be an abuse of discretion to award spousal support under such circumstances.

Capital Gains

In Mejia v. Reed, the Supreme Court of California agreed with the principle that support payments “are paid from present earnings, not liquidation of preexisting assets.” That principle has been applied to many other support cases, including Marriage of Pearlstein. In the Pearlstein case, Husband sold a business and received stock and cash proceeds in exchange for the sale. He did not sell the stock he received and reinvested the cash proceeds from the sale.  In this case, the Court held that 1) unrealized capital gains (i.e. gains for assets that haven’t been sold) are not income available for support, and 2) even realized gains (i.e. gains that occur after assets have been sold) are not income available for support as long as the realized gains are reinvested.  In this case, since Husband reinvested the cash proceeds of the business and did not sell the new stock he acquired, the trial court committed an error in finding the proceeds Husband received from the sale of his business were income available for support.

Monetary Gifts

The Court has the discretion to consider monetary gifts as income available for support. This is was the question for the court in Marriage of Shaughnessy. In that case, the parents made an annual gift of $20,000 to one of the parties and the Court held that such a gift could be counted as income. An interesting question, not addressed in Shaughnessy, was whether or not income from monetary gifts should be counted as taxable or non-taxable income. Few people pay taxes on such gifts. If the gifts are characterized as non-taxable income then the income available for support of the person who receives the gifts is increased. In such cases, the person receiving the gift would either pay more support or receive less support than if the gift was characterized as taxable income.

The above examples are only the tip of the iceberg.  The law surrounding “income available for support” and the Court’s authority to impute an earning ability to a party in a family law case is evolving all the time.  That is why it is important to discuss the facts of your case with an experienced family law attorney to be sure you understand your rights.

Please contact us if you are considering a divorce from your spouse, a legal separation, or have questions regarding income available for support. Nancy J. Bickford is the only Certified Family Law Specialist (CFLS) in San Diego County who is also a licensed Certified Public Accountant (CPA) with a Master of Business Administration (MBA). Don’t settle for less when determining your rights. Call 858-793-8884 in Del Mar, Carmel Valley, North County or San Diego.

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