Child Support and Inheritance

[nebraskaiowan]

What is the name of your state? Nebraska. I have a child in Iowa and I live in Nebraska. Do I have to report my inheritance as earned income that will raise my child support, or can i put it in a trust for me since it is my Parents money and not mine?

 

[Just Blue]

What is the name of your state? Nebraska. I have a child in Iowa and I live in Nebraska. Do I have to report my inheritance as earned income that will raise my child support, or can i put it in a trust for me since it is my Parents money and not mine?

Please clarify;
Are your parents deceased? Are you in arrears?

 

[Taxing Matters]

What is the name of your state? Nebraska. I have a child in Iowa and I live in Nebraska. Do I have to report my inheritance as earned income that will raise my child support, or can i put it in a trust for me since it is my Parents money and not mine?

An inheritance is not earned income. It is not taxable income. Whether the other parent can get the child support increased if he/she went to court to modify support isn't something that anyone here can tell you.

 

[LdiJ]

An inheritance is not earned income. It is not taxable income. Whether the other parent can get the child support increased if he/she went to court to modify support isn't something that anyone here can tell you.

We can to some extent. In practice one time economic events generally do not cause an increase in child support, but any income streams that arise from that one time economic event do. So, for example if someone wins 25k in the lottery that is not going to raise their child support, but if they invest that money in a tech stock that seriously takes off and has regular dividend income, that would go into the pot for a child support recalculation.

Some inherited assets do result in taxable income. Traditional retirement accounts, for example.

 

[nebraskaiowan]

Please clarify;
Are your parents deceased? Are you in arrears?

Yes father just [assed away in April and yes I am but when I get anything i was going to write a check to child support enforcement but don't want child support to go up because of inheritance

 

[bcr229]

I am sorry for the loss of your father.

A one-time inheritance is not taxable income, but as LdiJ pointed out, if you inherit something like an IRA and take minimum distributions over a few years that could affect your income, or if use a cash inheritance to start a business or invest in the stock market and it generates income, that could affect the child support calculation in future years. If the money just sits in a checking account earning a pittance then it's likely not going to matter.

 

[Taxing Matters]

We can to some extent. In practice one time economic events generally do not cause an increase in child support, but any income streams that arise from that one time economic event do.

The problem with a general statement like that is that even large one time events like an inheritance can result in a change in support in a number of states, including Nebraska. In a case where the custodial parent inherited well over $200,000 the trial court found that as a result of the improvement of the custodial parent's financial condition a reduction in the noncustodial parent's child support obligation was justified. The Nebraska Supreme Court affirmed, stating:

In sum, the trial court found that Teresa's financial status had improved because of the inheritance, albeit in an amount that was difficult to determine with precision. The court accordingly reduced Ralph's alimony obligation by approximately one-third to account for the change in Teresa's financial status. We do not find this modification to be untenable in light of this record, and we, accordingly, affirm.​

Krause v. Krause, 9 Neb. App. 774, 779, 619 N.W.2d 611, 616 (2000). As a result, it would be important to know the details of the inheritance as well as the relative financial conditions of both parents and what changes have occurred with each of them since the last order was entered to figure out if any modification might be granted. So as a starter, it would help to know how much this inheritance is. A small one is not likely on its own to trigger a modification, but as the above case illustrates, a larger one might.

Some inherited assets do result in taxable income. Traditional retirement accounts, for example.

True, but for the benefit of the OP inheriting the asset itself does not result in taxable income. In the case of retirement accounts, for example, inheriting the account isn't taxable income. It's only when the person takes distributions from the account that taxable income results.

 

[Taxing Matters]

And to add to my earlier reply, if it is Iowa law that controls the modification, the law in that state also is that inheritances may factor into a substantial change in financial condition:

Courts may “modify child, spousal, or medical support orders when there is a substantial change in circumstances.” Iowa Code § 598.21C(1) (2013). All relevant factors are considered in determining a substantial change in circumstances, including “[c]hanges in employment, earning capacity, income, or resources of a party”; a party's receipt of “an inheritance, pension, or other gift”; “[c]hanges in the residence of a party”; and “[r]emarriage of a party.” Id. § 598.21C(1)(a), (b), (f), (g); see In re Marriage of Sisson, 843 N.W.2d 866, 870 (Iowa 2014). In addition to being substantial, the changed circumstances must be material, “essentially permanent, and not within the contemplation of the court at the time of the decree.” Sisson, 843 N.W.2d at 870-71.​

Marriage of Schoper, 898 N.W.2d 203 (Iowa Ct. App. 2017)(bolding added).

 

[Eekamouse]

Yes father just [assed away in April and yes I am but when I get anything i was going to write a check to child support enforcement but don't want child support to go up because of inheritance

How far in arrears are you?

 

[LdiJ]

The problem with a general statement like that is that even large one time events like an inheritance can result in a change in support in a number of states, including Nebraska. In a case where the custodial parent inherited well over $200,000 the trial court found that as a result of the improvement of the custodial parent's financial condition a reduction in the noncustodial parent's child support obligation was justified. The Nebraska Supreme Court affirmed, stating:

In sum, the trial court found that Teresa's financial status had improved because of the inheritance, albeit in an amount that was difficult to determine with precision. The court accordingly reduced Ralph's alimony obligation by approximately one-third to account for the change in Teresa's financial status. We do not find this modification to be untenable in light of this record, and we, accordingly, affirm.​

Krause v. Krause, 9 Neb. App. 774, 779, 619 N.W.2d 611, 616 (2000). As a result, it would be important to know the details of the inheritance as well as the relative financial conditions of both parents and what changes have occurred with each of them since the last order was entered to figure out if any modification might be granted. So as a starter, it would help to know how much this inheritance is. A small one is not likely on its own to trigger a modification, but as the above case illustrates, a larger one might.



True, but for the benefit of the OP inheriting the asset itself does not result in taxable income. In the case of retirement accounts, for example, inheriting the account isn't taxable income. It's only when the person takes distributions from the account that taxable income results.

The case you cited above, had to do with alimony not child support. I certainly agree that if the person receiving alimony had an economic windfall that it could and should effect alimony, but the question was about someone paying child support, not someone receiving alimony.

 

[Taxing Matters]

The case you cited above, had to do with alimony not child support. I certainly agree that if the person receiving alimony had an economic windfall that it could and should effect alimony, but the question was about someone paying child support, not someone receiving alimony.

I concede that if Nebraska is the state that has jurisdiction then that state's guidelines as set out by the Supreme Court and the case law focus almost exclusively on income rather than the total financial circumstances.

But as the child (and presumably the custodial parent/guardian) live in Iowa, there is a distinct possibility that Iowa law applies here. If that is the case then in Iowa inheritances and gifts are taken into account to determine a substantial change in financial circumstances for both alimony AND child support, as the Iowa Court of Appeals stated in the Shoper case I cited in my earlier reply. And while that case, too, involved alimony the court specifically states the law in Iowa to be that "Courts may ‘modify child, spousal, or medical support orders when there is a substantial change in circumstances’” and then goes on to state that inheritances and gifts are among the things to be considered in making that determination. In this the Court is simply applying the very clear rules of Iowa Code § 598.21C, which applies the same standards to modifications of child support, alimony, and medical support orders. So for the OP, it may make a considerable difference which state has jurisdiction.

As we don't yet know which state that is, it is premature to say that only the income from the inheritance would be counted and not the inheritance itself. In Iowa the inheritance itself would be a factor the court considers in setting child support.

 

[LdiJ]

I concede that if Nebraska is the state that has jurisdiction then that state's guidelines as set out by the Supreme Court and the case law focus almost exclusively on income rather than the total financial circumstances.

But as the child (and presumably the custodial parent/guardian) live in Iowa, there is a distinct possibility that Iowa law applies here. If that is the case then in Iowa inheritances and gifts are taken into account to determine a substantial change in financial circumstances for both alimony AND child support, as the Iowa Court of Appeals stated in the Shoper case I cited in my earlier reply. And while that case, too, involved alimony the court specifically states the law in Iowa to be that "Courts may ‘modify child, spousal, or medical support orders when there is a substantial change in circumstances’” and then goes on to state that inheritances and gifts are among the things to be considered in making that determination. In this the Court is simply applying the very clear rules of Iowa Code § 598.21C, which applies the same standards to modifications of child support, alimony, and medical support orders. So for the OP, it may make a considerable difference which state has jurisdiction.

As we don't yet know which state that is, it is premature to say that only the income from the inheritance would be counted and not the inheritance itself. In Iowa the inheritance itself would be a factor the court considers in setting child support.

Ok, let me give an example of what I am talking about.

Lets say that in 2020, someone got an inheritance/won the lottery/got lucky at the races and had a one time economic event that gave them a 1 million dollar windfall. Lets say that they were also the non-custodial parent to a child and the custodial parent took them to court to modify child support based on that windfall. Lets say that after six months the court awarded them an increase in support based on that windfall. As soon as that year was over, the custodial parent could easily file to modify support based on the fact that their countable income for child support purposes had reverted to their pre-inheritance levels.

I have never, in my 25 plus years of participating on forums like these ever seen a case where a one time economic event resulted in a child support modification other than if an income stream from that event resulted.

The fact than an inheritance CAN be taken into consideration does not mean that child support can or would be set for the entire minority of a child based on that inheritance.

 

[Taxing Matters]

I have never, in my 25 plus years of participating on forums like these ever seen a case where a one time economic event resulted in a child support modification other than if an income stream from that event resulted.

What you see in these forums, even over a long period of time, does not reflect all possible outcomes. We have not seen, for example, every type of tax situation that can and does arise out there discussed on these boards.

The fact is that Iowa law allows the inheritance to be taken into account. A skilled lawyer therefore should be able to use that to modify child support in the case of a large inheritance just has been done in alimony cases where the law allows inheritances to be taken into account (recognizing that not all states allow for that, but Iowa does).

Remember, just because YOU have not seen it, does not mean it has never been done or that it cannot be done.

 

[FlyingRon]

But that being said, ducking paying the arrears when you now have the means to do so isn't going to make a better situation.

 

[LdiJ]

But that being said, ducking paying the arrears when you now have the means to do so isn't going to make a better situation.

I agree, and an inheritance can definitely be attached for arrears.