By: Laura Wish Morgan
Child support guidelines use as plenary a definition of income as possible. Any source of funds available for support will usually be considered. A sharp split has arisen of late, however, as to whether the interest earned on an Individual Retirement Account (IRA) should be considered “income” for purposes of child support.
On the one hand, there are cases that hold such interest is income. The Colorado case of In re Marriage of Tessmer, 903 P.2d 1194 (Colo. Ct. App. 1995), was one of the first to consider this issue, and held that such interest is income: [W]hen, as here, a parent is deemed fully employed, “gross income” means “actual gross income.” However, contrary to father’s contention, in our view use of the word “actual” in the statute does not limit gross income to that “actually received.” Hence, we also disagree with his contention that, until he withdraws interest or dividends from his IRA, those funds may not be included for purposes of determining gross income.
Similarly, in Dunn v. Dunn, 952 P.2d 268 (Alaska. 1998), the court stated:
We have not considered whether earnings in an IRA should be considered income to a non-custodial parent for child support purposes. Other jurisdictions, however, have ruled on the issue, finding that interest earned in an IRA can be considered as income when calculating child support. See, e.g., In re Marriage of Tessmer, 903 P.2d 1194, 1196 (Colo. App. 1995) (holding that gross income can include interest or dividends accruing to father’s IRA); In re Pedersen, 862 P.2d 411, 414 (Mont. 1993) (holding that court can attribute income to assets, including those in an IRA); Rapp v. Rapp, 623 N.E.2d 624, 626 (Ohio App. 1993) (stating that “annual interest from an obligor’s IRA or employee savings plan could be considered as gross income when determining child support”).
The superior court did not err in including dividends earned in Larry’s IRA as income for purposes of calculating child support. On the other hand, some courts have held that because there may be penalties associated with withdrawing from an IRA, such interest should not be considered. In Narus v. Narus, No. 03A01-9804-CV-00126 (Tennessee Court of Appeals, December 31, 1998) (unreported), the court stated: As a third concept under her first issue, Mother argues that the trial court should have included in Father’s projected income, dividends and interest on his IRA. We disagree. Father testified that he was not presently withdrawing funds from his IRA. Under the circumstances of this case, it is immaterial that Father was age-eligible to make such withdrawals without penalty; the fact is that he was not making such withdrawals, and, hence, this IRA income was not a part of his spendable income. In our judgment, the definition of income – and specifically the references to “dividends” and “interest” in that definition.
Similarly, in Bullock v. Bullock, 719 So.2d 113 (La. Ct. App. 1998), the court stated: We agree that Mrs. Bullock’s IRA earnings were properly not included in the determination of her gross income. We initially note that the trial Judge sustained Mrs. Bullock’s objection to the introduction of evidence regarding this IRA account because earnings on this account are not available to her and do not form part of her income. Additionally, a review of this proffered document reveals that Mrs. Bullock has made no withdrawals since the inception of the account. An unreported case from Virginia, Tucker v. Tucker, No. 1474-92-2 (Va. Ct. App. 1993) (unpublished), agreed: Mr. Tucker contends that the trial court erred in failing to impute income from the IRA accounts to Mrs. Tucker when computing child support. He correctly argues that Code § 20-108.1(c) states that “gross income shall mean income from all sources” and includes “dividends…pensions… interest… capital gains….” However, the IRA accounts did not produce any income to Mrs. Tucker during the parties’ marriage. We recognize that an IRA account is not a pension in the usual sense.
The funds from such an account are more accessible than from most pensions, if penalties are paid. An IRA account does not normally produce available income until it matures and the owner is old enough to withdraw funds. Such was not the case here. The trial judge did not abuse his discretion by refusing to impute income on the IRA. Furthermore, the record contains no evidence of interest earned on the IRA accounts.
The better argument, I believe, is not to treat the interest as income. In many states, reasonable contributions to a retirement plan are not considered income. The interest is part of that contribution, and constitutes a legitimate retirement planning decision. The law should not hold that a parent needs to bankrupt his or her retirement to support a child. The law should be flexible enough to hold that reasonable contributions to a retirement plan, and the interest thereon, is not income for purposes of child support.