Another Father’s Attempt to Reduce Child Support Fails

Recently, I wrote about the father in the Salvatore v. Salvatore case who attempted to reduce child support and failed. Now the Appellate court has decided another case, reversing the trial court that allowed a modification of child support.

Father’s Seeks to Reduce Child Support

In this recent case, the father, Michael J. Hickey, petitioned for a reduction of child support. Michael claimed that an involuntary termination with his employer led to an early retirement. At age 64, he no longer earned $180,000 and wanted to modify his support obligation. The trial court granted his request and reduced the amount he had to pay to $1,700.00 from $3,043.00. The Court calculated guideline support, but then allowed a slight deviation upward due to the amount of money and assets he had.

Michael’s ex, Cherie, argued that Michael’s net income was much higher than the court determined and that his retirement was not a substantial change in circumstances. Cherie complained that the court had not added in Michael’s deferred compensation to his income, and wouldn’t consider the $400,000.00 withdrawal from his retirement account as income.

Change in Father’s Total Income

The Appellate Court reviewed Michael’s total income and determined that there was not a substantial change in his overall financial picture. Michael had $2.585 million in brokerage account and three homes that included a vacation residence. It was demonstrated that he had a travel budget of $60,000 a year, so although his income changed, his overall financial picture did not.

In his 2017 financial affidavit, Michael said that his 2016 income had been $129,000. He did not include the fact that he’d withdrawn $400,000 from a retirement account. Michael stated that his gross income was $8,677.00 per month. The gross monthly income included a $2,641 pension benefit, $5,416 in investment income, $600 in rental income, and $20 in other dividends. He did not list the $83,000 in deferred compensation that he had been awarded as part of his severance package.

Michael has numerous assets including three homes and two cars. His investment portfolio was valued at $2.585 million. In September 2017, the trial court issued its decision. The court granted Michael’s petition to modify, reducing Michael’s support amount from $3,043 to $1,700 per month. The Court relieved Michael of any responsibility to pay for ordinary medical expenses, although the parties would split extraordinary medical expenses. Michael’s contribution to extracurricular activities was capped at $3,500 per year. Michael’s total yearly contribution would be $23,900.00 unless something medically occurred that wasn’t covered by insurance. The trial court ruled that a reduction was warranted for Michael because of his change in employment and his reduced income.

The trial court did not include any of the $400,000.00 withdrawal when calculating the new support amount. The court said that an assessment of Michael’s assets cannot be considered income for child support purposes. The court appeared to throw Cherie a small bone however when it deviated from guidelines and added an extra $400.00 a month.

The court rejected Cherie’s position that Michael should draw upon his $2.5 million in assets, and the interest earned from it, in order to keep the child support at $3,043 per month. The court stated:

“Assuming [Michael’s] income is now only $78,000 per year; Michael would be required to draw down his assets in the amount of $193,000 per year in order to equal the $271,000 annual income upon which child support was based. Assuming he lives for another 20 years, until age 84, this would require a sum of $3,860,000. Michael does not have this sum available. In addition, it would assume that Michael wants to leave $0 in his estate for his heirs. To require, or to impute to someone the requirement that they regularly draw on their assets until liquidated, when they are not actually currently engaged in doing that, is speculative and not supported by the facts.”

Cherie argued on appeal that Michael failed to establish that a substantial change in circumstances warranted a reduction of the $3,043 support amount, which had been based on a net income of $180,000 per year. She asked the Appellate Court to reinstate the 2010 award. She also argued that, even if there was a substantial change in circumstances, the statutory factors support the $3,043 support amount. She asserts that Michael’s net income was much higher than he claimed and that under the circumstances, particularly Michael’s wealth and spending patterns, it would warrant an upward deviation.

Substantial Change in Circumstances Required to Modify or Reduce Child Support

A child support judgment generally can be modified only upon a showing of a substantial change in circumstances. “The burden of showing a substantial change in circumstances sufficient to justify a modification of a child support award is on the party seeking the relief.” In re Marriage of Kern, 245 Ill. App. 3d 575, 578 (1993). Once the court determines that modification is appropriate, the court should consider the statutory guidelines when determining the new child support amount. In re Marriage of Stockton, 169 Ill. App. 3d 318, 325 (1988). The court should consider:

• the financial resources of both the custodial and noncustodial parents;
• the educational, physical, mental, and emotional needs of the child; and
• the standard of living the child would have enjoyed had the marriage not been dissolved.

The Debate Over What is Considered “Income”

There is a lot of debate in court about what actually constitutes “income.” If you only receive the lump sum once (as in lottery winnings) is that considered income? What about the house you were awarded during the marriage? If you sell that, will that be considered income? Section 505(a)(3) broadly defines net income as “the total of all income from all sources, except” certain specified deductions, such as federal and state income taxes, social security payments, mandatory retirement contributions, union dues, individual and dependent insurance premiums, prior obligations of support or maintenance, and expenditures for the repayment of certain debts. 750 ILCS 5/505(a)(3) (West 2016).

Definitions of income accepted by our supreme court include something that comes in as an increment or addition, a gain or recurrent benefit that is usually measured in money, and/or the value of goods and services received by an individual in a given period of time.

Even if the IRS allows certain things to either be categorized as income or expenses for their purposes related to income, it doesn’t necessarily mean that the court adopts those same parameters for child support purposes. A nonrecurring, one-time income source must be included in the court’s computation of net income, however. If the evidence shows that the parent is unlikely to continue receiving payment from that source, then the court may consider that fact when determining whether and to what extent a deviation from the guideline amount is appropriate.

The court in its opinion included the following analysis to help decide this case:

“Consistent with this understanding of income, courts have determined the following to constitute income under section 505(a)(3): (1) deferred compensation (Posey v. Tate, 275 Ill. App. 3d 822, 826 (1995)); (2) pension payments (People ex rel. Myers v. Kidd, 308 Ill. App. 3d 593, 596 (1999)); (3) a military allowance (In re Marriage of McGowan, 265 Ill. App. 3d 976, 978 (1994)); (4) a gift from parents (Rogers, 213 Ill. 2d at 137); (5) a lump sum worker’s compensation award (In re Marriage of Dodds, 222 Ill. App. 3d 99, 103 (1991)); cf. Villanueva v. O’Gara, 282 Ill. App. 3d 147, 151 (1996) (the entire amount of a personal injury settlement should not have been included as income, where the settlement largely made the parent whole and did not increase his wealth); and (6) IRA disbursements (Lindman, 356 Ill. App. 3d at 466 (Second District). But see O’Daniel, 382 Ill. App. 3d at 850 (Fourth District).).”

This court ruled that deferred compensation is income for the purposes of determining child support and quoted Posey, 275 Ill. App. 3d at 826. The Appellate Court here found that the trial court erred in failing to include Michael’s $83,000 in deferred compensation when determining his 2017 income. They found Michael’s net income to be $128,000 at a minimum. The court then looked at whether there had been a substantial change in circumstances.

A Substantial Change in Circumstances

A substantial change in circumstances typically means that the child’s needs, the obligor parent’s ability to pay, or both have changed since the entry of the most recent support order. In re Marriage of Pylawka, 277 Ill. App. 3d 728, 731 (1996). Michael pled in his petition that there was a substantial change in circumstances regarding his child’s needs. The trial court agreed that the child’s needs presumably increased since 2010 because their son was a small child when the initial order of support had been set.

In Michael’s petition to reduce child support, he pled that he had a reduced ability to pay support based on a change in his employment status. Michael had the burden to show that the change in his employment status resulted in an economic reversal sufficient to constitute a substantial change in circumstances, warranting a reduction of support, even in the face of his son’s increased needs. The reviewing court found that Michael had the means to continue to meet his $3,043 monthly support obligation without risking his financial security in retirement, and that is where the trial court erred.

The Appellate court said that the trial court based its substantial-change determination entirely on Michael’s change in employment status and reduced income. While these are important factors, they are not the only factors. The court erred by failing to consider all of the factors relevant to a substantial-change analysis.

Substantial Change Analysis

In a substantial-change analysis, income is not the only measure of a parent’s continued ability to pay child support. In re Marriage of Deike, 381 Ill. App. 3d 620, 627-28 (2008). Rather, income becomes the controlling factor after there has been a substantial-change determination and as the court sets the new guideline amount (and, even then, the court must look to the other factors to determine whether a deviation from the guideline amount is warranted). Stockton, 169 Ill. App. 3d at 325. To determine whether there has been a substantial change in circumstances, the court should take a holistic view of the parent’s financial position and consider all financial resources, including assets and even the financial status of a new spouse. Deike, 381 Ill. App. 3d at 627-28. The court should consider all money and property that the parent can access, even if it means selling the property.

Illinois courts have routinely held, in the context of maintenance, that reduced income in retirement does not automatically constitute a substantial change in circumstances. Rather, reduced income in retirement is but one of several factors to consider in determining whether there has been a substantial change in circumstances.

The Appellate court here compared this case with Schrimpf, 293 Ill. App. 3d at 253. In Schrimpf, the court held that there had not been a substantial change in circumstances, despite the obligor’s reduced income in retirement.

The husband’s working income had been $67,000, and his retirement income, composed of social security and pension payments, was $36,000. The court reasoned that, despite his reduced income, the husband “planned well” for retirement and could access additional funds from his pension and insurance policy to satisfy his $750 monthly maintenance obligation. The terms of the husband’s pension allowed him to increase his monthly distribution at any time. Requiring the husband to reach into retirement assets to fulfill his existing obligation was not tantamount to an increase in the maintenance award because the husband was comparatively well off, with access to $600,000 in cash and ownership of a vacation home with his second wife.

A substantial change in circumstances within the context of a parent’s retirement includes a substantial change in the child’s needs or the parent’s ability to pay. The courts have found that there is no obligation more important than supporting one’s minor child. (See, e.g., McLauchlan, 2012 IL App (1st) 102114.)

Appellate Court’s View of Retirement Accounts

The Appellate court concentrated on the fact that Michael’s lifestyle has not decreased. In retirement, Michael has continued to live as though his net income is at least $180,000. In fact, in 2016, he spent substantially more than that amount. Rather, Michael’s spending patterns show the power of his capital and demonstrate that there has been no change in his financial circumstances to warrant a reduction in his support. Without question, Michael’s retirement lifestyle demonstrates his continued ability to meet his existing obligation.

Contrary to the trial court’s assessment, the Appellate court stated that well-funded retirement accounts are meant to finance one’s life, and existing obligations are part of one’s life. Traditional earned income is expected to be lower in retirement, but this should not result in a presumption that there has been a substantial change in economic fortune resulting in a decreased ability to pay child support. The petitioner must prove, based on his unique circumstances, that his financial position in retirement renders him less able to pay the full child support amount. Michael failed to do so.

Get Trusted Advice from an Experienced Child Support Attorney

Modifying child support is not as easy as many think. There are factors that need to be looked at carefully and all potential outcomes should be considered. Contact Anderson Boback & Marshall today to speak with our experienced child support attorneys and determine if you seek to increase or reduce child support.