I often get asked questions from clients regarding the impact of their exempt assets upon their child support obligations. The three most common scenarios that assets are classified as exempt from equitable distribution are instances in which the asset was excluded through a pre-marital agreement, acquired prior to the marriage or acquired through an inheritance. I will further discuss these exemption classifications and actions that may transfer typically exempt assets into the marital estate in future blogs.
For purposes of this discussion, assume that the child support payor has $250,000 in pre-marital assets and $250,000 of assets received through an inheritance. The argument is commonly (and incorrectly) advanced that earnings of the payor spouse should only be utilized for purposes of his or her support obligation. This argument is inconsistent with our Court Rules classification of income eligible for child support. Consistent with Appendix IX-A of the New Jersey Court Rules, the following are included as income for child support purposes:
- 1 – Gains derived from dealings in property;
- 2 – Interests and dividends;
- 3 – Annuities or an interest in a trust;
- 4 – Life insurance or endowment contracts;
- 5 – Interest in decedent’s estate or trust ; and
- 6 – The sale of investments (net capital gain) or earnings from investment
With our hypothetical child support payor having $500,000 in exempt assets, it is more than likely that his or her assets will fall under one, if not multiple, categories that are classified as income under the Court Rules. While it is not disputed that the principal of the exempt funds is not subject to the identification of income, it is necessary to look closely at the level of income that is generated from the assets for purposes of establishing child support. To calculate the correct level, it is critical to review year end interest statements (1099-Int/Div Forms), capital gain information (Schedule D – Federal Tax Return), trust documentation and life insurance contracts.
Many individuals overlook these categories when establishing a child support obligation. Whether you are the payor or the payee of child support, it is important to properly analyze exempt asset income for purposes of reaching the correct level of payment.
If you encounter a scenario in which these classifications of income are relevant to your child support calculation, I strongly recommend that you speak with an experienced family law attorney prior to finalizing the support obligation.