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Estate Planning Newsletter

Inheritance as Income for Purposes of Child Support

The federal Child Support Enforcement Act of 1984 requires each state to develop its own set of systematic guidelines for calculating awards of child support. Generally, state child support guidelines are based on the parents’ incomes and expenses, however, these guidelines vary significantly from state to state.

One consistent factor considered in determining an adequate child support amount, is the income of the paying parent and their ability to pay. A further consideration is what affect, if any, an inheritance of property, money or other assets, has on the amount of child support.

Calculating Child Support Levels

State child support guidelines vary nationwide. In addition, some states offer judges wide discretion in setting the actual amount while other states require judges to follow the guidelines strictly. As a result, highly discrepant amounts could be awarded in two virtually identical cases decided in different jurisdictions. However, most states outline specific factors to be considered in determining child support.

Factors considered in determining child support typically include the following:

  • The needs of the child (including medical, educational, daily care and special needs)
  • The income and needs of the custodial parent
  • The paying parent’s income and ability to pay
  • The child’s standard of living prior to the divorce
  • Finally, while courts often consider the standard of living of the family prior to the divorce, it is also understood that the paying parent cannot be expected to maintain two households on the income that used to support only one household.

Paying Parent’s Ability to Pay

In calculating a child support payment, the court will usually require each parent to submit a statement of their finances. In the statement, the divorcing spouses are required to truthfully outline all monthly income and any expenses that they incur. A court will calculate an amount of child support after considering all of the relevant factors under the applicable state guidelines.

An individual’s income is the major factor in determining the amount of child support that they are able to pay. Most courts consider not only the actual earnings of the parents, but also their “ability to earn” if there is evidence that they could be earning more. What is considered as “income” for child support purposes also varies from state to state.

Definition of Income

“Income” is often defined in terms of what is taxable under federal tax laws. Gross income is therefore all income derived from any source such as money, goods, interest or other economic benefit received. Net income is the amount which results after all taxes have been extracted. For tax purposes, gross income does not include gifts or inheritances received.

Inheritance as Income

Although an inheritance is not itself included in income for taxation purposes, any interest earned on the inheritance is considered income. The same applies in determining child support. Thus, income derived from interest on an inheritance is considered income for child support purposes. However, whether an actual lump sum inheritance (or the principal) can be considered as income of the recipient parent in determining their child support obligation is less clear.

Most courts analogize an inheritance to gifts or lottery winnings in making their determination. Some courts, such as in Pennsylvania and New Jersey, have allowed the lump sum inheritance to be included as income in calculating child support payments. Other courts, such as in New York and California, have declined to do the same, but still include the interest earned on the inheritance as income. However, even these courts have acknowledged that although the inheritance itself is not income, it may be considered as an additional factor for purposes of child support. For example, a court may consider the principal of an inheritance as a source for “additional support” for the child and/or for the improved lifestyle that it provides (i.e., mortgage-free and debt-free living).

Modification of Child Support Payments

Once a child support award has been issued, it is not necessarily permanent. Child support decrees may be modified to reflect new, changed circumstances that affect the child or other parties. For example, a substantial increase in one parent’s income is significant enough to constitute a material change to support a modification. A subsequent large inheritance by one parent may be sufficient to constitute a material change, depending upon the state and whether or not an inheritance is considered income.

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