Close Menu
Katz & Stefani
Call Today for a Consultation: 312-364-9000
  • Facebook
  • Twitter
  • LinkedIn
  • GooglePlus

Growing Income Pool…..Inheritances can be Tapped for Support

Published in Chicago Lawyer Magazine, April 2022
By Daniel Stefani

The Illinois Supreme Court  helped to clarify the definition of “income” as it relates to setting child support and maintenance. The definition may also change depending on whether the court is setting initial support provisions to a dissolution of marriage verses a modification of an existing obligation years following a divorce.

While it seems counterintuitive, the high court has now included in its definition of “income” for support purposes, not only income generated by an inherited IRA, but also any mandatory distributions or withdrawals from an inherited IRA. This definition appears to have a limited scope and only extending to support set incident and not in future proceedings for a support modification.

In November 2021, the Supreme Court rendered an opinion in In Re the Marriage of Schell, 2021 IL 126802. At trial, parties stipulated the husband received an inherited IRA that was nonmarital property. The trial court held only the dividends from the husband’s inheritance should be considered and added to his monthly income for maintenance and child support purposes, and not the mandatory distributions from the IRA.

The wife appealed the following certified question which was amended by the 5th Appellate Court to read …“whether mandatory distributions or withdrawals taken from an inherited IRA containing money that has never imputed against the recipient for purposes of maintenance and child support calculations constitutes ‘income’ under …. the maintenance and child support statute.” As part of fashioning the certified question, the panel noted the question was relevant to both maintenance and child support as the term “income” for support purposes had the same meaning for both types of support.

The appellate panel ultimately found that the definition of “income” is broad enough that it includes an individual’s inheritance when calculating child support and maintenance obligations. The panel answered the certified question in the affirmative and held that the mandatory distributions that the husband received from the inherited IRA must be included as “income” in the calculations.

The  panel reversed and remanded the proceedings to the trial court; however, the Supreme Court allowed the husband’s PLA. At the high court, the husband argued that because the inherited IRA funds already belonged to him at the time of the divorce, the mandatory distributions did not represent a benefit that increased his wealth, which is one test of whether something qualifies as income. He also claimed there was a “double-count” between the IRA as an asset and income. He claimed the statutory definition of income does not include his nonmarital inheritance because he reinvested the funds in his own retirement account. The wife argued the inheritance fit within the  definition even though she agreed it was a non-marital asset. At  trial   she argued it was “income.”

As a fundamental point, the Supreme Court reiterated there are many payments in a divorce which would qualify as income for support purposes that would not be taxable as income under the IRS code. As such, the IRS definition of income was not determinative in the high court’s definition. Therefore, even though a mandatory distribution from an inherited IRA is taxable by the IRS, it does not necessarily mean that it is “income” under the divorce statute.

Rather the Supreme Court focused on whether the distributions represented a gain or benefit to the husband. The high court also acknowledged that in modification of support cases well after the divorce, an asset that was assigned to a litigant incident to a divorce should not later be defined as “income” for support purposes. Those cases were clear that it was an unfair “double count” because the asset had been previously considered in setting maintenance and child support purposes.

Here the Supreme Court noted the husband never earned or contributed to the inherited IRA. Therefore, it represented a gain or benefit. It also noted that because the inherited IRA was acquired pre-divorce, it was included in the initial calculations of the support obligations so it was not a double count. The justices also cited case law supporting that income earned after a divorce is non-marital but is considered “income” for support purposes. So the classification of the inherited IRA as a non-marital asset did not preclude it from being “income.”

The trend by state divorce courts has been to be overly inclusive in the definition of “income” for support purposes. This opinion represents an even further expansion of the definition. Past examples of the expansion have been gifts from family members which has been classified  as “income.”

Because the high court granted the immediate leave for appeal, it appears the court i prioritizing this issue and sending a signal to the lower courts that definitionally, “income” for support purposes should be interpreted as broadly as possible.

Dan Stefani is a principal at Katz & Stefani. The firm’s practice is limited to family law matters. 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, detailed analysis of complex financial transactions, child custody and support issues as well as paternity and domestic violence.

[email protected]

Katz & Stefani

  • Facebook
  • Twitter
  • LinkedIn
  • Google Plus
Katz & Stefani, LLC
222 North LaSalle Street
Suite 2150, Chicago, Illinois 60601
Katz & Stefani, LLC
2201 Waukegan Road
Suite 160, Bannockburn, Illinois 60015