The Dallas Court of Appeals issued an opinion today in a Dallas child support case and held that an inheritance should be included as income for the purposes of calculating child support.  The father received a one-time inheritance of approximately $400,000 and, because he was going through a hard financial time, used that money to live on.  He argued that although his “net worth has increased by virtue of his inheritance,” his income has diminished materially and substantially since the time of the divorce. Tmother contended that his inheritance should be considered part of his income for calculating child support.  Thus, the mother sought an increase in child support based on the inheritance.

Texas Family Code 154.062 defines Resources to include:

  1. 100 percent of all wage and salary income and other compensation for personal services (including commissions, overtime pay, tips, and bonuses);
  2. interest, dividends, and royalty income;
  3. self-employment income;
  4. net rental income (defined as rent after deducting operating expenses and mortgage payments, but not including noncash items such as depreciation); and
  5. all other income actually being received, including severance pay, retirement benefits, pensions, trust income, annuities, capital gains, social security benefits other than supplemental security income, unemployment benefits, disability and workers’ compensation benefits, interest income from notes regardless of the source, gifts and prizes, spousal maintenance, and alimony.

The court of appeals held that the inheritance amounts to "all other income" under number 5 of the statute.

However, one justice of the three judge panel disagreed.  She stated that an inheritance is not considered income in any definition.  In her opinion, the court could consider the inheritance as a factor in calculating child support over the State of Texas guidelines under Texas Family Code section 154.123.

I agree with the dissent here.  An inheritance is not "income" — a party does not pay income taxes on an inheritance.  This is important because the court must apply the guideline percentages for figuring the amount of child support to the income numbers.  So, an unexpected inheritance could result in a dramatic and improper increase in child support based on the percentage.  However, a court can consider all of the relevant factors, such as an inheritance, in deciding whether applying the guideline percentages to a case are fair and equitable in that particular circumstance.  It seems like the more reasoned and logical approach to consideration of an inheritance would be to consider it an "other factor" rather than applying the guideline percentage to that amount.