Does Having Money Saved Affect Your Child Support?
When a court calculates child support, it usually doesn't care what you do with your money after you earn it. If you spend a bundle on a vacation in Venice, you'll owe the same amount as you would if you had saved the money. Most courts include income from a wide variety of sources, however, so savings can factor in.
If your savings generate interest or dividends, courts in most states include these earnings as part of your income when calculating support. If the earnings are negligible, this may not affect your support obligation much. If the bulk of your income is unearned, however, your support calculations will reflect the amount you receive. It's money available to support your children, just as wages, salary, self-employment income and commissions are. Annuity and retirement benefits are often included in gross income as well.
States are divided as to whether they base child support on gross income or net income. Even states that use gross income, before any deductions, usually subtract pre-existing orders, however. These can be for child support or alimony, and calculations also usually accommodate other children who currently live with you and depend on you for support. States that calculate based on net income also allow deductions for taxes, mandatory retirement contributions, and sometimes union dues.
Imputation of Income
If you're voluntarily unemployed or underemployed, courts can impute income to you or make other adjustments for this. For example, if you're a non-practicing attorney living off investment income, the courts in most states will not only include your investment income in child support calculations, but they'll additionally assign income to you comparable to what you would probably earn if you were practicing. They typically base these calculations on what someone in the same profession earns in your state. It doesn't matter if you’re actually bringing in the income – your support is calculated as though you were. In lieu of imputing income, some courts, such as those in New Jersey, will look to your assets if you have them. These would include savings vehicles, particularly if they're the types of accounts where you could easily access the cash.
Under federal law, all states have guidelines or formulas which they use to calculate child support in every case that comes before the court. Most states use the income shares model, basing calculations on both parents' incomes, but some still use the percentage of income model. This method only takes the non-custodial parent's income into consideration. Child support is calculated based a percentage of his income. In both cases, the guidelines only go up to a certain income. For example, in Texas, which uses the percentage of income model, the cap is $6,000 a month. If you earn $10,000 a month from various sources, child support is only calculated on the first $6,000. Therefore, if only a small portion of your income comes from savings or investment interest, in many cases it wouldn't make a difference.
- Online Home of the Wyoming Legislature: Article 3 – Child Support
- DivorceNet: Imputing Income for Child Support
- Rick Kennon: Understanding How Child Support is Calculated
- Washington State Department of Social and Health Services: Survey of Child Support Guidelines – Do They Use Net Income or Gross Income?
- National Conference of State Legislatures: Child Support Guideline Models by State
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.