Including Capital Gains to Calculate Child Support
Thursday / September 06, 2007
A one-time capital gain is included in the
noncustodial parent's income for child support
purposes.
We usually think of capital gains in connection with
federal income taxation. But
"capital gain" also has an important meaning in
child support law, at least in Tennessee. The
Tennessee Supreme Court made this point clear in
a recent decision, Moore v. Moore.
The Moore family business was Ed's Cycles. After their father passed away, Mr. Moore and his sister each owned half the business. When Mr. Moore divorced in 1991, he was awarded his shares of stock in Ed's Cycles. The court granted his wife custody of the couple's two children. The court set child support at $100 per week.
Ten years later, Mr. Moore sold out to his sister. She agreed to pay him $687,550 for his stock in Ed's Cycles, payable twenty percent down and the balance monthly over five years. She also paid him $100,000 not to compete with the business.
Later that year, Mr. Moore's ex-wife sued to increase his child support obligation, claiming that a “significant variance” existed between Mr. Moore’s child support obligation and the amount of child support that would be owed "if the income from the stock sale were included in the calculation."
Neither the trial court nor the court of appeals thought that a one-time capital gain like this one should be included in Mr. Moore's income for child support calculation purposes. But the Tennessee Supreme Court disagreed. Really, the Court had no choice because Tennessee's child support guidelines define gross income to “include all income from any source . . . whether earned or unearned, and includes but is not limited to . . . capital gains.”
As is so often true in child support cases, one can see both sides of the argument. To include proceeds from the sale of property Mr. Moore was awarded in the divorce for child support purposes seems unfair. Yet it also seems unfair for Mr. Moore to pay a relatively nominal amount of child support when he just received a check for $237,510 and would receive monthly payments for five years. The Tennessee Supreme Court provided a rationale: It quoted Tennessee's child support guidelines, which state that “to the extent that either parent enjoys a higher standard of living, the child(ren) share(s) in that higher standard.”
The Moore family business was Ed's Cycles. After their father passed away, Mr. Moore and his sister each owned half the business. When Mr. Moore divorced in 1991, he was awarded his shares of stock in Ed's Cycles. The court granted his wife custody of the couple's two children. The court set child support at $100 per week.
Ten years later, Mr. Moore sold out to his sister. She agreed to pay him $687,550 for his stock in Ed's Cycles, payable twenty percent down and the balance monthly over five years. She also paid him $100,000 not to compete with the business.
Later that year, Mr. Moore's ex-wife sued to increase his child support obligation, claiming that a “significant variance” existed between Mr. Moore’s child support obligation and the amount of child support that would be owed "if the income from the stock sale were included in the calculation."
Neither the trial court nor the court of appeals thought that a one-time capital gain like this one should be included in Mr. Moore's income for child support calculation purposes. But the Tennessee Supreme Court disagreed. Really, the Court had no choice because Tennessee's child support guidelines define gross income to “include all income from any source . . . whether earned or unearned, and includes but is not limited to . . . capital gains.”
As is so often true in child support cases, one can see both sides of the argument. To include proceeds from the sale of property Mr. Moore was awarded in the divorce for child support purposes seems unfair. Yet it also seems unfair for Mr. Moore to pay a relatively nominal amount of child support when he just received a check for $237,510 and would receive monthly payments for five years. The Tennessee Supreme Court provided a rationale: It quoted Tennessee's child support guidelines, which state that “to the extent that either parent enjoys a higher standard of living, the child(ren) share(s) in that higher standard.”
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