What funds are fair game for child support?

All in the Family

Dan Stefani

Dan Stefani is a principal at Katz & Stefani and primarily handles family law matters that require detailed analyses of complex transactions and business valuations. His work on behalf of mainly high net worth clients, as well as spouses of high net worth individuals, involves valuations of closely held corporations, partnerships and other entities, child custody and support issues as well as paternity and domestic violence.

The days when income to pay child support meant employment income are long gone. The 5th District Appellate Court recently decided a case that further expanded the definition, leaving virtually nothing outside the court’s reach to tap for child support. In In re The Marriage of Fortner, 2016 IL App (5th) 150246, the appellate court found that wrongful-death settlement proceeds received by an ex-husband following the death of his father constituted income for child support purposes in a post-decree modification of child support proceeding.

The trial court found the proceeds of the wrongful-death settlement the ex-husband received did not constitute income for purposes of child support. However, the court found the settlement increased the ex-husband’s financial resources, thereby constituting a change in circumstances that warranted a one-time, lump sum payment of $15,000 in child support to the ex-wife on behalf of their minor child.

The ex-husband received approximately $170,000 from his father’s estate as a result of a wrongful-death claim. The settlement statement in the lawsuit did not include any allocation of the settlement toward the various types of damage components.

He testified his father’s death was one of the worst things he experienced in his life but that he did not rely on his father for financial help. He had also spent the settlement proceeds mainly on himself after paying for funeral expenses. The largest chunk of the proceeds was used to buy two vehicles and a house.

The ex-husband argued at the trial court that the settlement was analogous to a personal-injury settlement and cited the case of Villanueva v. O’Gara, 668 N.E.2d 589 (1996). In Villanueva, the 2nd District Appellate Court found that damages for pain and suffering are not considered income for child support purposes because they make the plaintiff whole as opposed to lost wages, which would be in the nature of income for child support purposes.

The ex-husband here argued the wrongful-death settlement can only be shown to represent damages for his grief and suffering from the loss of his father’s affection because he was not financially dependent on his father. Therefore, the damages were similar to those for pain and suffering in personal-injury suits.

The payee ex-wife argued the settlement proceeds were in the nature of an inheritance because technically the ex-husband received them through his father’s estate. She argued any inheritance received by a payor spouse is income for child support because it is analogous to a gift, which the 1st District Appellate Court held to constitute income.

The trial court found the Illinois Marriage and Dissolution of Marriage Act provides an expansive definition of income; however, proceeds from personal-injury settlements did not constitute income for purposes of child support. The trial court explained that if the ex-husband’s father was wealthy when he died, the ex-husband would have inherited a sizeable estate, increasing his financial resources and quality of life but, again, the inheritance would not be characterized as income.

The trial court further found the wrongful-death proceeds had no resemblance to lost wages; therefore, no portion of the settlement proceeds were income for child support purposes. Despite these findings, the trial court did find that the settlement proceeds drastically improved the ex-husband’s standard of living, so the court ordered a one-time, lump sum payment of $15,000 in child support.

The ex-husband argued on appeal that the trial court erred in ordering the lump sum, and the ex-wife argued the court erred when it found the settlement proceeds did not constitute income for child support purposes. The appellate court agreed with the ex-wife and found the settlement constituted income for child support purposes based on several appellate court cases, including a Supreme Court case that defined income as to include “gains and benefits that enhance a non-custodial parent’s wealth and facilitate that parent’s ability to support a child.”

The court further cited other cases which defined income for child support to include employment gains and benefits, investments, royalties, gifts, lump-sum workers’ compensation awards, individual retirement account distributions, military allowances, pensions, severance pay and deferred compensation, distributions from a trust and gifts from parents.

In addition, the 5th District disagreed with the Villanueva decision, stating the case was wrongly decided and declined to follow the case because it was only persuasive authority.

The court also said there were no other decisions at the appellate level or in the Illinois Supreme Court which directly addressed the question of whether damages for either a personal-injury lawsuit or a wrongful-death settlement constitute income for purposes of child support. Once the court resolved the aforesaid issue, it also affirmed the one-time, lump sum payment.