do annuities or personal injury damages constitute income for calculating child support?

Income for Child Support

CHILD SUPPORT

Marriage of Rothrock

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

Marriage of Rothrock

Marital Settlement Agreement: Monthly annuity payments are F’s separate

property

F to pay child support to M for their three children

Child support to be paid by assignment from annuity

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

Marriage of Rothrock

T/Ct: Annuity is not income for child support

M appeals

M’s argument: annuities are included within the definition of Family Code, Section 4058(a)(1)

Your ruling?

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.

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.

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.

Income?

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, worker’s compensation . . . . (Emphasis added.)

Marriage of Rothrock

Important Lesson: Look beyond the label

Determine what the purpose of the settlement payment was (e.g., lost earnings)

www.Pasadenadivorce.com(626) 683-8113