This is Part 1 in a two-part series on the basics of net resources for the calculation of child support.
To calculate current child support, courts must (1) determine the amount of the obligor’s income available for support (“net resources”), apply the child-support guidelines to the obligor’s net resources to determine guideline support, and (3) consider any additional factors that might justify deviating from the guidelines and adjust the support as appropriate. When looking at these factors, it is clear that an attorney’s time would be best spent by focusing on the net resources aspect of the calculation.
Here I address net resources as defined under the Texas Family Code and several important child support issues related to net resources that have been addressed by the Texas Supreme Court and various intermediate appellate courts. Maybe these cases will help you bulk up net resources beyond the guideline basics.
The purpose of child support is to help a custodial parent maintain an adequate standard of living for a child. Farish v. Farish, 982 S.W.2d 623, 627 (Tex. App.-Houston [1st Dist.] 1998, no pet.). A parent’s child support obligation is not limited to that parent’s ability to pay from current earnings, rather it extends to his or her financial ability to pay from any and all available sources. McLane v. McLane, 263 S.W.3d 358 (Tex. App.-Houston [1st Dist.] 2008, pet. denied).
When looking for ways to maximize net resources, start with section 154.062 of the Texas Family Code. The code provides a list of about twenty-six sources of income that are to be considered when determining an obligor’s net resources. These include: (1) wages, (2) salaries, (3) commissions, (4) bonuses, (5) overtime, (6) tips, (7) interest, (8) dividends, (9) royalty income, (10) rental income, (11) severance pay, (12) retirement benefits, (13) pensions, (14) trust income, (15) annuities, (16) capital gains, (17) social security (excluding supp. income), (18) unemployment, (19) disability, (20) worker’s compensation, (21) interest on notes, (22) gifts, (23) prizes, (24) spousal maintenance, (25) alimony, and (26) self employment income.
Most of these are fairly straight forward and easy to calculate, however, others are not. Let’s think about the following:
- How do you calculate the net resources of an employee paid hourly?
- How do you calculate the net resources of a self-employed individual that deals mainly in cash?
- What about a salesman whose income is less than consistent?
- College student/athlete that does not work?
- What about a member of a partnership that never pays distributions?
Next, look at some sources of income that are not specifically included on the list, but that courts have found to be included in an obligor’s net resources.
Inheritance – The Dallas Court of Appeals recently addressed the inclusion of an inheritance in the net resources of an obligor for the purposes of calculating child support. In re P.C.S., — S.W.3d –, 2010 WL 3171767 (Tex. App.—Dallas 2010, extension to file petition for review granted Sept. 30, 2010). Although the trial court concluded that a cash inheritance received by the obligor of about $400,000 was not included in the statutory definition of “net resources” for the purpose of setting his child support obligation, the Dallas Court of Appeals reversed the trial court. The appellate court concluded that a cash inheritance from a third party paid to the obligor of child support is a “resource” under the inclusive language of Texas Family Code Section 154.062(b)(5).
Personal Injury Award – Can one-time personal injury settlement awards be considered in determining net resources? The First Court of Appeals recently upheld a trial court’s consideration of a personal injury settlement in determining net resources available for child support. Smith v. Hawkins, 2010 WL 3718546 (Tex. App.—Houston [1st Dist.] 2010) (memo. opinion).
Alimony – Can a reduction in alimony being paid lead to an increase in support? Possibly. Thomas v. Thomas, 895 S.W.2d 895, 897-98 (Tex. App.—Waco 1995, writ denied). In Thomas, the trial found that the obligee’s income had decreased nearly 88% due to termination of alimony and the children’s proven needs were significant. The court increased the obligor’s child support from $1,250 to $3,000 per month. The court of appeals affirmed.
Tax Credits – Can the court include tax credits, like depreciation, in determining net resources? The Forth Worth Court of Appeals added the depreciation taken in prior years back into the obligor’s gross income to determine his gross income for the purpose of calculating child support. Laprade v. Laprade, 784 S.W.2d 490, 493 (Tex. App.—Fort Worth 1990, writ denied).
When the income being earned by an obligor, or lack thereof, is significantly less than the obligor’s earning capacity, always question whether that parent is intentionally unemployed or underemployed. Courts may impute income to an obligor based on the obligor’s earning potential, however, the unemployment or underemployment must be intentional. Tex. Fam. Code §154.066. Some court have held that in addition to being intentional, the court must determine whether unemployment or underemployment is maintained for the purpose of decreasing resources available for child support, while other have declined to recognize such a requirement. In re P.J.H., 25 S.W.3d 402, 405-06 (Tex. App.—Fort Worth 2000, no pet.); McLane v. McLane, 263 S.W.3d 358, 362 (Tex. App.—Houston [1st Dist.] 2008, pet. denied); Iliff v. Iliff, 339 S.W.3d 74 (Tex. 2010) (finding that such a requirement ignored the plain language of Tex. Fam. Code §154.066).
Incarceration – Can acts that led you to become incarcerated be considered intentional acts which lead to unemployment? Several appellate courts seem to say – yes. Slaughter v. Slaughter, No. 13-99-497-CV, 2001 Tex. App. LEXIS 2783, at 6-8 (Tex. App.—Corpus Christi 2001, pet. denied) (memo. opinion); Reyes v. Reyes, 946 S.W.2d 627, 628-30 (Tex. App.—Waco 1997, no writ); Hollifield v. Hollifield, 925 S.W.2d 153, 156 (Tex. App.—Austin 1996, no writ). In Slaughter, the trial court refused to reduce the obligor’s child support, finding that the acts which landed him in prison were intentional and that he had other assets of minimal value from which support could be paid if necessary. The court of appeals found no abuse of discretion.
Retirement – Can retirement be a form of intentional unemployment? Again, several appellate courts seem to say – yes. Smith v. Detrich, 2010 WL 143287 (Tex. App.—Austin 2010, no pet.) (memo opinion); In re S.B.C., 952 S.W.2d 15 (Tex. App.—San Antonio 1996, no writ). In both Smith and S.B.C., the obligors had elected to retire from the military, remain unemployed, and had skills to obtain employment.
A brief review of the case law available on intentional unemployment and underemployment shows that courts often impute income base on intentional unemployment or underemployment, and that appellate court rarely find such to be an abuse of discretion. Most often, evidence of intentional unemployment or underemployment can be shown by the obligor’s earning in the past. Accountants are not limited to tracing – they can testify concerning earning capacity of an obligor within a specific field. The United States Department of Labor publishes average earning information for nearly every occupation in existence. The information can be found online at www.bls.gov/oes/current/oes_tx.htm.
Next week my post will discuss deemed income and child support beyond the guidelines.