California courts frequently struggle with the issue of what constitutes income for the purpose of calculating child support. In a recent decision, a California court relied on common law and federal codes to determine whether or not a montly payment from an annuity from an uncharacterized personal injury settlement constituted income for the purpose of calculating child support.
1. Income for Child Support
2. CHILD SUPPORT Marriage of Rothrock
3. Marriage of Rothrock
9/83: date of marriage
8/90: F begins receiving monthly annuity payments of $1,700 from a personal injury structured settlement
8/92: date of separation
4. Marriage of Rothrock
Marital Settlement Agreement :
Monthly annuity payments are Fs separate property
F to pay child support to M for their three children
Child support to be paid by assignment from annuity
5. Marriage of Rothrock
6/05: F files OSC for modification of child support
F argues :
Per Heiner , annuity is not income for calculating child support
Unfair to make him pay child support for funds needed for medical treatment
6. Marriage of Rothrock
T/Ct: Annuity is not income for child support
Ms argument : annuities are included within the definition of Family Code, Section 4058(a)(1)
Court of Appeal : Affirmed.
Damages received from an undifferentiated settlement and paid out monthly from an annuity are not includible in income for calculation of child support.
9. Marriage of Rothrock
Must meet the common law definition of income: the gain or recurrent benefit that is derived from labor, business, or property . . . , or from any other investment of capital
F.C. 4058 definition of income, based on IRC definition, at 26 USC 61.
10. Marriage of Rothrock
26 USC 104(a)(2):
Personal injury damages (other than punitive ones) received by the injured party as either lump-sum or periodic payments are not considered income for federal tax purposes.
Family Code Section 4058 :
(a) The annual gross income of each parent means income from whatever source derived . . . , and includes, but is not limited to, the following:
(1) Income such as commissions, salaries, royalties, wages, bonuses, rents, dividends, pensions, interest, trust income, annuities , workers compensation . . . . (Emphasis added.)
12. Marriage of Rothrock
Important Lesson :
Look beyond the label
Determine what the purpose of the settlement payment was (e.g., lost earnings)