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What Is Income In An Illinois Child Support Case?
Child support in Illinois is determined by the two parents’ incomes. The two incomes go into a formula which “reflects the percentage of combined net income that parents living in the same household in this State ordinarily spend on their child.” 750 ILCS 5/505(a)(1)
This formula is called the “child support guidelines.” Unless the “court makes a finding that application of the guidelines would be inappropriate” 750 ILCS 505(a)2), one parent will be paying the other parent guidelines support.
Child support in Illinois is then determined as follows:
“Computation of basic child support obligation. The court shall compute the basic child support obligation by taking the following steps:
(A) determine each parent’s monthly net income;
(B) add the parents’ monthly net incomes together to determine the combined monthly net income of the parents;
(C) select the corresponding appropriate amount from the schedule of basic child support obligations based on the parties’ combined monthly net income and number of children of the parties; and
(D) calculate each parent’s percentage share of the basic child support obligation.” 750 ILCS 505(a)(1.5)
So, the only thing that either parent can do to change child support is to change their income or the other spouse’s income. More commonly, parents will characterize money or other assets as being income or NOT being income.
What Is Income In An Illinois Child Support Case?
“[T]he circuit court has a duty to make its own calculation of a parties’ income.” In re Marriage of Evanoff, 2016 IL App (1st) 150017
The formula uses “net income” as the input in calculating child support.
““[N]et income” means gross income minus either the standardized tax amount” 750 ILCS 5050(a)(3)(B)
So, now we have to find out what “gross income” and “the standardized tax amount” are in order to calculate net income.
“[G}ross income” means the total of all income from all sources” 750 ILCS 5050(a)(3)(A)
“[S]tandardized tax amount” means the total of federal and state income taxes for a single person claiming the standard tax deduction, one personal exemption, and the applicable number of dependency exemptions for the minor child or children of the parties, and Social Security and Medicare tax calculated at the Federal Insurance Contributions Act rate. 750 ILCS 5050(a)(3)(C)
Gross income is easy to calculate but most of us don’t even know what our “standardized tax amount” is until our accountants tell us after we do our taxes each year.
The law allows for the parties to use a tool to “guesstimate” the standardized tax amount.
“The Illinois Department of Healthcare and Family Services shall promulgate a standardized net income conversion table that computes net income by deducting the standardized tax amount from gross income.” 750 ILCS 5050(a)(3)(C)
In reality, the parties calculate both the standardized tax amount at the same time they calculate the child support amount using this online calculator provided by the Illinois Department of Healthcare and Family Services. You just type in both of your gross incomes, and the calculator figures out your standardized tax amount and your child support obligation.
In Illinois, while the parties must follow the child support guidelines unless a court grants them leave to deviate from the child support guidelines, the parties can agree on a standardized tax amount without permission or supervision by the court.
“Agreement. Irrespective of whether the parties agree on any other issue before the court, if they jointly stipulate for the record their concurrence on a computation method for the individualized tax amount” 750 ILCS 5050(a)(3)(E)(I)
I can only imagine this agreement on tax amounts happening if two accountants were getting divorced.
Absent an agreement on child support, the courts have to calculate the child support.
The courts will make their decision in a summary hearing which is “based on allocated parenting time, financial affidavits, tax returns, pay stubs, banking statements, and other relevant documentation” 750 ILCS 5/501
Summary hearings mean no testimony and no documents beyond those listed above. This means even determining the standardized tax amount based on this limited information (which just gets plugged into the calculator). This is simple and effective method for determining child support…unless someone has an unusual source of income or strange expense.
When there is an unusual source of income or strange expense in an Illinois child support matter, the parties must have a full evidentiary hearing. An evidentiary hearing will require whatever testimony and evidence either party wishes to present. The court will then calculate the standardized tax amount “on the basis of the record established.” 750 ILCS 5/505(a)(3)(E)(III)
Incomes That Aren’t Always Incomes For The Purposes Of Child Support In Illinois
This entire process, once you are under the hood of the child support calculator, is extremely complicated. The process gets much more complicated once various irregularities regarding income are considered or demanded to be considered by one party.
Non-recurring Income And Child Support In Illinois
Child support assumes that most people get income via paychecks on a regular basis. Some people get paid by buying and selling things, though. Sometimes this is a regular occurrence and sometimes it is not.
Each Illinois domestic relations court will decide for itself if a non-recurring income event will be considered in awarding child support.
“While non-recurring income may properly be included in calculating net income for purposes of child support (In re Marriage of Hart (1990), 194 Ill.App.3d 839, 141 Ill. Dec. 550, 551 N.E.2d 737), this is not an inflexible rule and the trial court has the discretion to exclude such income. To hold otherwise could lead to absurd results, as where a party’s income is artificially inflated by a large capital gain on the sale of a residence.” In Re Marriage of Miller, 595 N.E.2d 1349 (Ill. App. Ct. 1992)
Most parties agree at a standard percentage rate for non-recurring income such as bonuses or stock options as the child support amount. Typically, Illinois family law practitioners use the old child support law to calculate the amount of the non-recurring income that should go to child support: 20% of net income for one child, 28% of net income for two children, 32% of net income for three children, 36% of net income for four children, 40% for five children, etc.
When income is non-recurring but MIGHT re-occur again, the court can use the average of prior to the years in order to determine present day income. “[W]hen a party’s current income is difficult to ascertain or uncertain, a court may consider [the party’s] past earnings. Moreover, when a party’s income fluctuates from year to year, income averaging is an approved method to apply in determining the party’s current income.” In re Marriage of Gabirel, 2020 IL App (1st) 182710 (Citations Omitted).
How many years income can the court average? That’s up to the court but the minimum should be “[a]t least the three prior years should be used to obtain an accurate income picture.” In re Marriage of Freesen, 275 Ill. App. 3d 97, 103 (1995)
3 years may not be enough to determine the true average (especially if there is an outlier year).
“[T]here is no iron-clad rule requiring a trial court to consider only the last three years of income in arriving at net income for child support purposes. At least the three prior years should be used to obtain an accurate income picture. Beyond that, however, it must be left to the discretion of the trial court, as facts will vary in each case.” In re Marriage of Freesen, 275 Ill. App. 3d 97, 103 (1995)
Gifts and Child Support In Illinois
Illinois child support is calculated using gross income less taxes which equals the net income that determines child support.
The reliance on net income implies that an income that is not taxed is not income for child support purposes. This is wrong.
“Internal Revenue Code does not dictate what constitutes “income” under the statutory child support guidelines.” In re Marriage of Tegeler, 848 NE 2d 173 – Ill: Appellate Court, 2nd Dist. 2006
Gifts, to a certain extent, are not taxed but they still can be used to calculate child support.
The “inclusion of gifts as “income” is proper under the plain and ordinary language of section 505(a)(3) itself.” In re Marriage of Rogers, 820 NE 2d 386 – Ill: Supreme Court 2004
“Although the Act does not define “income,” our supreme court has construed the plain and ordinary meaning of that term to mean “`something that comes in as an increment or addition, a gain or recurrent benefit that is usu[ually] measured in money.’” In re Marriage of Schlei, 46 NE 3d 286 – Ill: Appellate Court, 3rd Dist. 2015
What about when a parent gets married to a wealthy new spouse? The same logic should apply but I’ve never seen an Illinois domestic relations court count the new spouse’s support as a gift or as income. The courts probably don’t want two divorces on their hands.
Business Income And Divorce
People who own businesses usually take a lot of liberties with what they consider to be expenses. Often it can be a company car or even an office they use as a home.
Or businesspeople take all sorts of allowable expenses such as mileage and depreciation which is allowable to reduce net income per the IRS but grossly distorts the actual net income of the parent.
“For purposes of calculating child support, net business income from the operation of a business means gross receipts minus ordinary and necessary expenses required to carry on the trade or business.” 750 ILCS 5/505(a)(3.1)
Any benefit that looks like a gift from the business to the parent or, more frequently, saves the parent money should be considered as income for the purposes of child support in Illinois. In re Marriage of Heil, 599 NE 2d 168 – Ill: Appellate Court, 5th Dist. 1992
Specifically, depreciation deductions are ALWAYS totaled back into the business owner’s income.
“The accelerated component of depreciation and any business expenses determined either judicially or administratively to be inappropriate or excessive shall be excluded from the total of ordinary and necessary business expenses to be deducted in the determination of net business income from gross business income.” 750 ILCS 5/505(a)(3.1)(A)
Accelerated depreciation is not allowed but nonaccelerated depreciation MAY be allowed.
“It is clear that section 505(a)(3.1)(A) now explicitly excludes accelerated depreciation from the calculation of net business income and does not explicitly mention nonaccelerated depreciation…. The implication from the continued omission of nonaccelerated depreciation from the plain language of the statute is that it could still be deducted, but only if the court, in its discretion, determines it to be an appropriate and reasonable business expense that is required to carry on the trade or business.” In re Marriage of Hochstatter, 2020 IL App (3d) 190132
Another issue with business income in a divorce is that a business owner has the option of retaining their earnings. Retaining earnings means leaving money in a business account ostensibly for future business expenses instead of distributing the money as income to the business owner.
Retained earnings reduces income which would be calculated for the purposes of child support and/or maintenance.
Retained earnings are commonplace in every business, however.
Illinois divorce courts have found that it will not consider retained earnings income if the “retained earnings [are] necessary and appropriate business actions and [are] not excessive” In re Marriage of Moorthy, 2015 IL App (1st) 132077
Reimbursement By Employer
Often a job will require an employee, such as a truck-driver or a travelling salesperson, to make their own expenses in the course of their work. Those expenses are then tabulated and submitted to the employer whereupon they are reimbursed.
An Illinois court is allowed to consider those reimbursements as income for the purposes of calculating child support. Just because a cash payment has been “designated by employers as `reimbursement,’ [the payment can] constitute `wages’ to the extent that the payments represent real economic gain rather than actual reimbursement for travel purposes.” In re Marriage of Worrall, 778 NE 2d 397 – Ill: Appellate Court, 2nd Dist. 2002
Reimbursements will almost always be considered income for child support purposes.
“Any item of reimbursement or in-kind payment received by a parent from a business, including, but not limited to, a company car, reimbursed meals, free housing, or a housing allowance, shall be counted as income if not otherwise included in the recipient’s gross income, if the item is significant in amount and reduces personal expenses.” 750 ILCS 5/505(a)(3.1)(B)
Personal Injury Awards And Child Support
In the case of personal injury and workers compensation awards, the award is usually made as a lump-sum payment to the injured party. When that party is a parent who has an Illinois child support obligation, a portion of that lump-sum award must be transferred to the other parent as child support.
“[A] personal injury settlement constitutes “net income” for purposes of section 505(a)(1) of the Illinois Marriage and Dissolution of Marriage Act (750 ILCS 5/505(a)(1) (West 1996)) (Marriage Act or the Act) only to the extent that it reimburses the injured party for lost earnings.” In re Marriage of Wolfe, 699 NE 2d 190 – Ill: Appellate Court, 2nd Dist. 1998
Almost all personal injury award and especially workers compensation awards are broken down into proportions of the award. One amount will be for pain and suffering, another amount for restitution and the bulk will be for wages lost due to the injury. That amount award for wages lost will computed as income for the purposes of child support in Illinois.
Retirement Withdrawals As Income For The Purposes of Child Support
Withdrawals from retirement accounts are taxed at the time of withdrawal. This is because the deposits were not taxed to encourage saving. Withdrawals from a retirement account may look like income for the purposes of awarding child support in an Illinois divorce, but withdrawals from a retirement account are not to be considered income for the purposes of calculating child support in an Illinois divorce.
“When an individual withdraws money he placed into an IRA, he does not gain anything as the money was already his. Therefore, it is not a gain and not income. The only portion of the IRA that would constitute a gain for the individual would be the interest and/or appreciation earnings from the IRA.” In re Marriage of O’Daniel, 382 Ill. App. 3d 845, 850 (Ill. App. Ct. 2008)
If a parent is able to control their own income by having their own business, switching to a lower paying career or simply working less, their income may be imputed for the purposes of calculating child support.
“If a parent is voluntarily unemployed or underemployed, child support shall be calculated based on a determination of potential income. A determination of potential income shall be made by determining employment potential and probable earnings level based on the obligor’s work history, occupational qualifications, prevailing job opportunities, the ownership by a parent of a
substantial non-income producing asset, and earnings levels in the community.” 750 ILCS 5/505(a)(3.2)
The Illinois Supreme Court further explains how to impute income in In re Marriage of Gosney, 394 Ill.App.3d 1073 (2009). The test for imputing income to a non-working spouse in an Illinois divorce is as follows:
1) where the obligor voluntarily becomes unemployed or underemployed;
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
Only if ALL of these factors apply can an Illinois family law court impute income by saying, “This is what you should be making so I will assume you are making this amount for the purposes of calculating child support”
Once underemployment is established, the income must be imputed to the underemployed spouse.
“If a parent is voluntarily unemployed or underemployed, child support shall be calculated based on a determination of potential income.”750 ILCS 5/505(a)(3.3)
Potential Income is calculated “by determining employment potential and probable earnings level based on the obligor’s work history, occupational qualifications, prevailing job opportunities, the ownership by a parent of a substantial non-income producing asset, and earnings levels in the community.” 750 ILCS 5/505(a)(3.3)
What Happens When A Parent Has No Income Or The Parent’s Income Cannot Be Determined?
When there is no income or the income of a parent cannot be determined then the most important input in determining child support is missing. Therefore, child support cannot be computed using the Illinois guidelines. So, the application of the guidelines would be inappropriate.
“The court shall determine child support in each case by applying the child support guidelines unless the court makes a finding that application of the guidelines would be inappropriate, after considering the best interests of the child and evidence which shows relevant factors including, but not limited to, one or more of the following:
(A) the financial resources and needs of the child;
(B) the financial resources and needs of the parents;
(C) the standard of living the child would have enjoyed had the marriage or civil union not been dissolved; and
(D) the physical and emotional condition of the child and his or her educational needs.” 750 ILCS 5/505(a)(2)
These are all pretty fuzzy alternatives to the Illinois child support guidelines. Child support effectively becomes a list of the children’s expenses compared with the parents’ supposed capacity to pay those expenses.
What About Income And Maintenance (Formerly Known As Alimony) When Calculating Child Support?
When counting “gross income” for child support, maintenance formerly known as alimony must be deducted from the payor’s gross income and added to the payee’s gross income.
“Obligations pursuant to a court order for spousal maintenance in the pending proceeding actually paid or payable to the same party to whom child support is to be payable or actually paid to a former spouse pursuant to a court order shall be deducted from the parent’s after-tax income, unless the maintenance obligation is tax deductible to the payor for federal income tax purposes, in which case it shall be deducted from the payor’s gross income for purposes of calculating the parent’s child support obligation.” 750 ILCS 5/505(a)(3)(F)(II)
What Is Income In An Illinois Alimony Case?
Maintenance (formerly known as alimony) cases treat income the exact same way as child support cases do.
“Gross income. For purposes of this Section, the term “gross income” means all income from all sources, within the scope of that phrase in Section 505 [the child support section] of this Act, except maintenance payments in the pending proceedings shall not be included.” 750 ILCS 5/504(b-3)
“Net income. As used in this Section, “net income” has the meaning provided in Section 505 of this Act, except maintenance payments in the pending proceedings shall not be included.” 750 ILCS 5/504(b-3)
By now, you’re probably thinking, “I thought child support was supposed to be the easy part of divorce!” Well, actually child support is one of the easier issues in an Illinois. Contact me today to speak with an experienced Chicago divorce lawyer.