The Lawletter Vol 40 No 6
All 50 states have now had child support guidelines for more than a decade. Increasing numbers of states are experimenting with spousal support guidelines, especially for temporary support while a divorce case is pending.
When applying any set of guidelines for spousal or child support, the first step is always to compute the incomes of the parties. Such computation raises a set of tricky issues when retirement benefits are involved.
In Milinovich v. Womack, 343 P.3d 924 (Ariz. Ct. App. 2015), the father was a retired professional baseball player. His income dropped materially when his playing years ended, and he filed a motion to reduce his child support. To compute the guideline amount of support, the court had to determine the father's income.
After retirement, the father had an earned income of only $5,000 per month. To provide himself with additional money, he withdrew $40,000 per month from a short-term retirement account.
The trial court treated the father's withdrawals as income, and the father appealed. The appellate court affirmed. "We hold that Father's receipt of principal withdrawn from his short-term retirement account falls within the Guidelines' broad definition of gross income and categorizing these monies as income is both consistent with the overall purposes of the Guidelines and the best interests of the child." Id. at 928.
The father argued that the withdrawals were not income at all but, rather, withdrawal of principal. The court's response turned heavily upon the fact-specific nature of the account from which the withdrawals came. The father and his financial advisors were aware throughout his career that professional baseball players lose their skills well before normal retirement age. They deposited part of the father's earnings into an account, the purpose of which was to support the father after his playing years ended and before he began to use his long-term retirement benefits.
The account balance was therefore accumulated all along with the specific intent that it be used to pay living expenses. Given this fact, the withdrawals were income:
Father suggests that including his withdrawals as gross income would lead to inconsistent application of the Guidelines. As an example, he poses a scenario in which a spouse earns $60,000 a year and deposits part of it into a savings account. According to Father, when the spouse later withdraws principal from that account it would not be included as gross income. See In re Marriage of McGrath, 2012 IL 112792, 361 Ill.Dec. 12, 970 N.E.2d 12, 15 (2012) (concluding that funds drawn from a savings account should not have been included in the calculation of net income for child support purposes). In that type of situation, Father is likely correct. But there are countless ways of investing for future needs, and determining whether a particular investment vehicle falls within the definition of gross income requires consideration of the Guidelines on a case-by-case basis. Our focus here is on the investment mechanism Father created, which he used to fund his daily living expenses. This investment strategy differs significantly from a savings account.
Id. at 929. Thus, the court recognized that the withdrawals at issue were materially different from withdrawals from a true savings plan.
As a practical matter, it is also significant that the husband's earned income was only $5,000 per month, while the withdrawals were $40,000 per month. The practical consequence of refusing to treat the withdrawals as income would be that the father would have a substantial income, but only a small support obligation.
The sort of plan at issue in Milinovich may well be limited to those who retire early—mostly professional athletes. But the case still shows the sort of fact-specific analysis required to determine whether funds in the nature of retirement benefits are income under spousal and child support guidelines.