Gross income is defined in Family Code 4058(a) as income from whatever source derived, except for income that is legally exempt from the child support calculation. Deductions are then subsequently subtracted from the gross income figure in order to arrive at the net disposable income of a parent. Thus, it is important for your family law attorney to properly consider deductions and exemptions in order to arrive at the correct figure of your net disposable income when calculating child support.
Exclusions from Income
Exclusions are those which are not included in computing the gross income of a parent. To distinguish this from deductions, which are figures that are subtracted once all the sources of income have been totaled.
Gross income does not include the following sources of income:
- Child Support payments, including any child support received for children from another relationship. (Family Code 4058(c))
- Public assistance, where eligibility is based on need. An example of this is Supplemental Security Income (SSI). It is important that the public assistance given is based on need. Basic Social Security retirement benefits are not considered based on need and are thus included in gross income.
- Proceeds from student loans. (After all, they’re loans and must be paid back).
- Life insurance proceeds. Interest income from life insurance proceeds, however, may be included in gross income.
- Gifts that are not reoccurring.
- The entirety of an undifferentiated personal injury award. The court, however, may determine that a portion of the award be allocated as parental income.
- Payments from personal injury settlement annuities when the settlement states that all sums paid constitute “damages on account of personal injuries or sickness”.
- Spousal support received from a party to the child support proceeding.
- Noncustodial parent’s share of increased equity value of family home.
- Noncustodial parent’s unliquidated stock received from sale of business in which he or she was a majority stockholder.
Life Insurance & Inheritance
Although life insurance proceeds and inheritances are excluded in the computation of gross income, the interest earned from these proceeds may be included in gross income. Inheritances may also be considered by the court in computing gross income to the extent that it has reduced a parent’s living expenses. The inclusion of interest must be based on a reasonable rate of return. With regard to gifts, the court also has discretion to consider recurring gifts of money as income.
Personal Injury Awards
Undifferentiated personal injury awards and annuities are generally not included in computing gross income. In some instances, however, a settlement agreement may spell out the different components of the payment. For example, the settlement agreement may stipulate that a part of the payment is for lost past or future wages, in which case the portion allocated for wages may be included in the gross income of a parent. The party who challenges what appears to be an undifferentiated settlement bears the burden of proving it otherwise.