|
June 2003
Consideration of the Earning Potential
of the Property Awarded When Figuring Support
Laura W. Morgan
Many states have considered whether the earning potential
of the estate awarded can be considered when awarding alimony
and child support. The states have uniformly held that the
amount of income that assets could reasonably generate, not
just the income that in fact do generate, will be considered
income for purposes of support. The policy behind these decisions
is to discourage spouses placing all their assets into non-income
yielding forms and thus shielding all their assets from consideration
in support.
In the case of child support, for example, in In re Marriage
of de Guigne, 97 Cal. App. 1353, 119 Cal. Rptr. 2d 430
(2002), the court imputed income to the extensive property
holdings of the husband in order to maintain the standard
of living the parties had established during the marriage,
where the husband’s income alone could not sustain such
a lifestyle. Likewise, in In re Marriage of Destein,
91 Cal. App. 4th 1385, 111 Cal. Rptr. 2d 487 (2001),
the trial court imputed a reasonable rate of return on the
father’s separate property real estate which was then
non-income producing. Accord In re Dacumos,
90 Cal. Rptr. 2d 159, 76 Cal. App. 4th 150 (1999)
(court can impute income to rental properties that are under-utilized;
imputation of income would be based on fair market rental
value).
Cases from around the nation agree with this principle. Harper
v. Barrows, 570 A.2d 1180 (Del. 1990) (court may consider
assets and impute reasonable rate of return); Greenberg
v. Greenberg, 793 So.2d 52 (Fla. 4th DCA 2001)
(trial court was required to impute income to wife for earnings
that could reasonably be projected, based on liquid assets
awarded to wife as part of property division, when making
alimony and child support determinations in connection with
marital dissolution action); Cummings v. Cummings,
719 So. 2d 948 (Fla. 4th DCA 1998) (amount of money
wife might earn from assets she acquired in equitable distribution
award should be included in her income calculation); Beal
v. Beal, 714 So. 2d 568 (Fla. 1st DCA 1998)
(although support obligor had a decrease in income, court
could consider assets available for support); Gardner
v. Yrttima, 743 N.E.2d 353 (Ind. Ct. App. 2001) (interest,
dividends or other return on investment of divorced mother’s
inheritance was income for child support purposes, and if
inheritance was placed in non-income producing assets the
court could consider whether it was appropriate and equitable
to impute income to the mother); State ex rel. Pfister
v. Larson, 569 N.W.2d 512 (Iowa Ct. App. 1997) (court
may consider substantial assets of parties in making appropriate
support awards); Jung v. Jung, 886 S.W.2d 737 (Mo.
Ct. App. 1994) (all resources available, not just income,
but also assets that can generate income are to be considered
in setting support); In re Marriage of Stuft, 286
Mont. 239, 950 P.2d 1373 (1997) (court may attribute interest
income to $10,000 in bank account, and $14,000 in CD); Schumacher
v. Schumacher, 598 N.W.2d 131 (N.D. 1999) (court imputed
income to under-producing investments by applying passbook
rates to amount of investments listed in prenuptial agreement);
Kosovsky v. Zahl, 257 A.D.2d 522, 684 N.Y.S.2d 524
(1st Dep’t 1999) (court imputed income of
$150,000 based on wife’s investments); Rush v. Rush,
152 Misc. 2d 823, 579 N.Y.S.2d 552 (Fam. Ct. 1991) (imputing
income to non-income producing investments by considering
ability to draw income and principal from trust); Talley
v. Talley, 115 N.M. 89, 847 P.2d 323 (Ct. App. 1993)
(court may consider potential income from idle assets); Sizemore
v. Sizemore, 1994 Ohio App. LEXIS 4596 (1994) (potential
cash flow in two notes considered); State ex rel. Dept.
of Health and Human Resources, Child Support Enforcement Div.
v. Baker, 210 W. Va. 213, 557 S.E.2d 267 (2001) (“attributed
income” consists of moneys that a support obligor should
have earned had he or she diligently pursued reasonable employment
opportunities, or reasonably utilized, applied, or invested
his or her assets).
The child support guidelines themselves in many states specifically
authorize a court to impute a reasonable rate of return on
idle assets. E.g., Alaska Civ. R. 90.3; Fla. Stat. Ann. §
61.08(2)(g); Ga. Code Ann. § 19-6-15; Admin. R. Mont.
46.30.1513(1)(c)(i); Mich. C.S.G. II(J); N.Y. Dom. Rel. Law
§ 240(1-b); Ohio Rev. Code Ann. § 3113.21.5; S.C.
Serv. Reg. 114-4720; S.D. Cod. Law § 25-7-6.5; Tex. Fam.
Code Ann. § 14.053; Vt. Stat. Ann. tit. 15, § 653;
Wis. Admin. Code (HHS) 80.02; W. Va. Code Ann. § 48A-1A-
3(a).
When a court decides to impute income to assets, there are
a number of different ways the court can determine the potential
income. For example, in Montana, the guidelines state:
Income will be attributed to the net-value or market
value of non-performing assets at the current interest rates
for long-term treasury bills at the time the determination
is made or at another appropriate rate determined by a court
or administrative officer.
Admin. R. Mont. 46.30.1513(1)(c)(i).
The Michigan guidelines instruct the court to use the current
average interest rates for passbook savings accounts, treasury
bills, treasury bonds, certificates of deposit, or the like.
Mich. C.S.G. II(J).
In Ohio, the statute allows the court to impute income to
any non-income producing asset at the local passbook savings
rate. Ohio Rev. Code Ann. § 3113.21.5.
In Vermont, the statute provides that income will be attributed
at the current rate for long-term treasury bills to non-income
producing assets with an aggregate fair market value in excess
of $10,000, other than the primary residence. Vt. Stat. Ann.
tit. 15, § 653.
In the case of spousal support, the same principles have
been uniformly applied. E.g., Beckworth v. Beckworth,
2003 WL 1130815 (Alaska March 12, 2003) (evidence was sufficient
in divorce action to support estimate of after-tax return
of 6.5% on investment for ex-wife for purposes of calculating
alimony needs, although ex-husband’s expert placed return
at 8.72% and ex-wife’s expert placed return at about
7%; trial court questioned experts’ investment strategy
for ex-wife, given that she may be more conservative than
the experts due to age, disabilities, and substantial dependence
on investment income, court took judicial notice of rate of
return on low-yield investment vehicles, and court noted that
actual rate of return could be even lower); In re Marriage
of Kennedy, 193 Cal. App.3d 1633, 239 Cal. Rptr. 151
(1987) (trial court could consider rate of return earned on
balance of property division after purchase of home for purpose
of determining spousal support, but trial court in calculating
that former wife should have generated $2,080 in monthly income
from investing money she received from sale of spousal residence
improperly used full $250,000 figure and 10 percent return);
In re Marriage of Thornton, 138 Ill. App.3d 906,
486 N.E.2d 1288 (1985) (while only small portion of the awarded
marital property could be readily characterized as income
producing at present time, wife received substantial share
of valuable marital property amounting to over one-half million
dollars which she could potentially reinvest and upon which
she could realize reasonable rate of return); In re Marriage
of Ryman, 172 Ill. App.3d 599, 527 N.E.2d 18 (1988) (trial
court should have determined reasonable rate of return on
wife’s investment of inheritance funds, so as to enable
it to take income producing ability of funds into account
in determining wife’s income and amount of any award
of maintenance); D.K.H. v. L.R.G., ___ S.W.3d ___,
2003 WL 1872998 (Mo. App. W.D. April 15, 2003) (in analyzing
whether wife’s income-producing assets were sufficient
to meet her reasonable needs, for purpose of maintenance claim,
Court of Appeals would use projected rate of return of 9.1%
provided by wife’s expert in determining wife’s
monthly income from assets, if no other evidence of actual
monthly income or rate of return was offered into evidence);
Miller v. Miller, 160 N.J. 408, 734 A.2d 752 (1999)
fairest solution for imputing income to ex-husband’s
investments, to determine modification of alimony, was to
impute a rate of return based on average five- year historical
rate of return on A-rated long-term corporate bonds in specified
index); Matter of Marriage of Kathrens, 47 Or. App.
823, 615 P.2d 1079 (1980) (wife, who would receive under property
division over two million dollars in cash which could be invested
at substantial rate of return, and whose award was free from
any liability except for $8,400 amount outstanding on trust
deed held on residence awarded to wife, would not be entitled
to spousal support after entire judgment was paid).
A recent case from Vermont has, however, put a limit on the
amount of income the court can impute to assets. In Clark
v. Clark, 172 Vt. 351, 779 A.2d 42 (2001), the father
argued that the court erroneously failed to impute income
to mother for stocks that father contends were performing
poorly and stocks that were not generating any income at the
time of the hearing. As a policy matter, the father argued,
courts should require child support obligors and obligees
“to at least make reasonable investments.” The court
disagreed:
It is not the role of the judiciary to second guess
personal investment decisions or to micromanage investment
portfolios. And while we note that, “[i]n a given set
of circumstances, the court may determine that it is appropriate
to require a parent to reinvest or liquidate certain assets
to provide for his or her children,” this is not such
a case. Ogborn v. Hilts, 692 N.Y.S.2d 490, 492 (App.
Div. 1999) (quoting Webb v. Rugg, 602 N.Y.S.2d 716,
718 (App. Div.1993)).
172 Vt. at 355, 779 A.2d at 46. See also In
re Marriage of Panama, 2002 WL 1354407 (Nonpublished/Noncitable)
(Cal. Ct. App. 2 Dist. June 20, 2002) (trial court did not
abuse its discretion by imputing approximately one percent
rate of return, the amount earned during previous year, for
income from former wife’s liquid assets for purposes
of determining whether to modify former husband’s child-support
obligation, rather than 5.5% as recommended by husband); Breihan
v. Breihan, 73 S.W.3d 771 (Mo. Ct. App. 2002) (wife should
not be required to risk her marital assets in order to generate
higher rates of return, nor should trial court impute greater
amount of income to wife, for maintenance purposes, based
on more aggressive investments).
|
