“Net Income” for Child Support Purposes

Significant discrepancies in regard to either inquiry raise red flags, a warning that there may be undisclosed or under-reported income. If parties have one or two primary accounts out of which they pay expenses, the amount they are spending as opposed to what they are declaring is a preliminary inquiry which has great value. There may be legitimate reasons for the discrepancies: People may be living beyond their means, using increasing debt to fund a lifestyle, cannibalizing assets to fund such discrepancies, or experiencing legitimate business expenses.                                        

Three relatively recent cases highlight the trend in the law to focus on “cash flow.” In In re Marriage of Baumgartner, 384 Ill.App.3d 39 (1st Dist. 2008), proceeds from the sale of a residence that were reinvested in a second residence did not improve the parties’ cash flow and were not income for child support. In In re Marriage of Lindman, 356 Ill.App.3d 462 (2d Dist. 2005), retirement account distributions used to pay expenses were viewed as income for child support. In In re Marriage of Rogers, 213 Ill. 2d 129 (Ill. 2004), loans from parents not subject to taxation, utilized for living expenses, and then forgiven were deemed income for child support.  This trend indicates the need to focus on what people are spending and what lifestyle the child would have enjoyed had the marriage not been dissolved, not what the obligor declares as income for tax purposes.  Where there is a question of net income, one must start with the tax returns, but the inquiry should not end there.