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Family Law Reader

Family Law Reader

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).

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