Not all the funds that spouses receive affect child support

Child support is typically based on a spouse’s income…but not all the money that a spouse happens to receive counts as “income.”

For instance, an ex-wife in Minnesota owned 20 percent of a family corporation. When she and her husband divorced, she got custody of their three children and the husband was ordered to pay child support.

Later, the corporation decided to distribute a large amount of funds to the owners so they could transfer them to a new business entity that would lend money to the corporation. As a result, the wife received $2.7 million in distributions, and immediately transferred them to the new entity.

The husband argued that this was “income” to the wife, and since she had so much income, he shouldn’t have to pay as much in child support.

But the Minnesota Court of Appeals said that because the wife was merely re-investing the funds instead of pocketing them, they shouldn’t be treated as income.

In another case, an unemployed man in Illinois was living off assets he’d been awarded in his divorce. He apparently put the assets into a savings account, and withdrew $8,500 each month to cover his living expenses.

When a judge had to decide how much he owed in child support, the judge classified the withdrawals as “income,” and ordered the father to pay $2,000 a month in child support.

But on appeal, the Illinois Supreme Court sided with the father. It said the money in the account already belonged to him, and so withdrawing it did not represent any new gain or benefit.

Instead, the court said, the father’s child support obligations should be based on the needs of his children and his ability to pay.