It’s no surprise that in divorce, child support is one of the most contentious issues. The fact is, both parents have an unwavering obligation to financially support their children, which means that you may be responsible for making a monthly payment to your ex-spouse, like it or not. When child support is inevitable, it’s essential to understand what the judge considers when deciding a final award.
Child Support Basics
If you’re going through a divorce or separation and you have minor children, you'll need to decide who should pay child support and how much the final award should be. Each state has a formula for determining the amount of support, but typically both parties’ incomes will be the most significant factor in the calculation. Additionally, the court will usually consider healthcare and daycare costs, how many overnights the child will spend with each parent, and whether either parent has additional children.
What Counts as Income?
One of the most significant variables in any child support case is what the court considers to be income for each parent. There are many sources of money the court may apply as income, including:
- a parent’s salary or hourly wages
- business income
- bonuses or business incentives
- rental income
- lottery winnings
- money a parent receives from an inheritance
- overtime pay from an employer
- Social Security disability or retirement benefits, and
- workers’ compensation
At the beginning of any child support case, both parents are required to disclose any income they receive so the court can make a proper support award. To avoid future punishment or fines, parents should be transparent and inform the court of all income sources at the outset of the case. If parents hide or conceal financial information, they could receive monetary fines or other sanctions.
Trust Funds May be Considered Income
Trusts are an estate planning tool that you can use to protect your family after a person dies. You can set up a trust for your family, or you may be the beneficiary of a trust. If you’re going to receive money from a trust, you’ll need to report the income to the court for child support calculations.
In some cases, beneficiaries of a trust will receive a monthly sum of money. Others will receive a lump-sum on an annual basis. In situations where the recipient isn’t financially responsible (or a minor), the creator of the trust may appoint a trustee and give that person the full authority to decide how to handle the trust funds, and in which ways to disperse the money to the beneficiary. Trusts that leave the power of controlling the funds to a trustee are spendthrift trusts.
For child support, the court will generally consider any money from trusts as income, including spendthrift trusts. Although the court can’t have access to the entire contents of the trust, if the parent paying child support receives any funds from it (or, if the trust has a high value of property but little income), the judge will add the value to the final support award calculation.
The court will also count trust funds against the person receiving child support. As we’ve already discussed, the most critical factor in any support case is how much each parent earns. If you receive trust funds, the court will add the income to your side of the equation, which may reduce the other parent’s overall support obligation.
The rules vary on whether a gift from a trust is considered income available for child support. It’s always best to consult with an experienced attorney who is familiar with your state's laws.
Trusts and Garnishments
Unfortunately, many parents fail to pay child support. When one parent violates the judge's order, the court may impose fines or a variety of penalties (you could be arrested, go to jail, or lose your license). If you have income from a trust, and you’re behind on your payments, the judge may garnish some or all of your trust funds. Garnishment is a fancy way of saying that the creditor can take the money directly from the trust and apply it to your debt without your permission.
Most times, a garnishment occurs at the worst time and without much notice. For example, if your creditor sued you for the balance of a credit card debt, and you failed to pay, the creditor could get a court order to seize the funds in your bank account to pay what you owe. It’s not pleasant, and if you count on your trust money to cover ordinary expenses, you should be sure that you fulfill your child support obligation on time.
It’s important to understand that even in cases where you're the beneficiary of a spendthrift trust (of which you don’t have control), the court can order the trustee to distribute funds to pay for your child support obligation.
If you have a court order for child support, and the other parent isn’t paying, speak with a child support attorney in your area to learn how you can start the process of garnishing trust funds. If the current child support order doesn’t meet your needs, or if you’re paying child support and your financial situation changes, you can always ask the court to modify the order.