In re AMD, 00CA1857.

• Decision Date: 11 April 2002
• Docket Number: No. 00CA1857.,00CA1857.
• Citation: 56 P.3d 1184
• Parties: In re the Interest of A.M.D., a Child, and Concerning Susan K. Casteel, Appellee, and John M. Davidson, Appellant.
• Court: Colorado Court of Appeals

56 P.3d 1184

In re the Interest of A.M.D., a Child, and Concerning Susan K. Casteel, Appellee, and

John M. Davidson, Appellant.

No. 00CA1857.

Colorado Court of Appeals, Div. I.

April 11, 2002.

Certiorari Granted November 4, 2002.

Law Offices of Margaret L. Herdeck, Margaret L. Herdeck, Pueblo, Colorado, for Appellee.

Carolyn M. Kelly, P.C., Carolyn M. Kelly, Colorado Springs, Colorado, for Appellant.

Opinion by Judge ROTHENBERG.

John M. Davidson (father) appeals from the trial court's order increasing his child support obligation to Susan K. Casteel (mother) for the parties' minor child. The primary issue in this appeal is the treatment of a party's inheritance in calculating child support. Because we agree with the father that the trial court erred in this regard, we reverse and remand for further proceedings.

The parties were never married, but lived together for twelve years during which time the minor child was born. In January 1998, the mother filed this action for paternity, custody, child support, and a determination of parenting time. The parties resolved most of the issues by agreement, but could not agree on child support and parenting time.

In December 1998, the father received an inheritance from his mother. It was valued at $149,298 and included an Individual Retirement Account (IRA) belonging to her. He was required to report as income, for tax purposes, distributions from the IRA, and in April 1999, he reported a distribution of $47,379. After federal and state taxes were paid on that amount, he received $33,298.

In October 1999, after a hearing, the trial court reduced the father's parenting time and calculated his child support obligation. The court included as gross income the father's entire IRA distribution for 1999 of $47,379, and any future distributions from the inheritance, including withdrawals the father contemplated from the principal of the remaining inheritance. The court refused the father's request to deduct taxes that he was required to pay or would be required to pay in the future on the inheritance.

The court also imputed to the father interest income of $218 per month in 1999 and for each subsequent year for the purposes of calculating child support. The $218 figure was based on expert testimony that the $47,379 gross distribution would produce that monthly income. The court also found the father had sustained an injury in 1981 and because he had not been employed full time since that time, the court imputed to him an additional minimum monthly income of $893. The mother's monthly gross income was determined to be $2,212 in 1998 and $2,363 in 1999.

I. Calculation of Child Support

The father raises several contentions regarding the manner in which the trial court calculated child support. We agree the matter must be remanded for recalculation of child support.

A.

The father first contends the court erred in including as gross income the entire 1999 distribution he received from his mother's IRA and future distributions he will receive from the inheritance. He relies upon income tax rules that exclude inheritances from gross income and maintains that these tax rules should be determinative under the child support guidelines. While we reject the father's argument that tax rules are determinative in calculating child support, we agree the trial court incorrectly included as gross income the entire distribution received by him in 1999.

The basic child support obligation is determined by applying the schedule in § 14-10-115(10)(b), C.R.S.2001, to the parents' combined gross incomes. See § 14-10-115(10)(a), C.R.S.2001.

Under § 14-10-115(7)(a)(I)(A), "gross income" includes "income from any source," including a long list of specific items such as "monetary gifts." The definition was recently amended to include large lottery winnings. See In re Marriage of McCord, 910 P.2d 85 (Colo.App.1995)(concluding lottery winnings were included as "income from any source," as used in § 14-10-115(7)(a)(I)(A), under prior version of statute, which included "gifts and prizes" in gross income, but did not exclude certain lottery winnings).

Inheritances are not specifically mentioned in the statute. "Gifts" are mentioned in the statute, but in In re Marriage of Nimmo, 891 P.2d 1002, 1007 (Colo.1995), the supreme court adopted the rule that a "gift" under the Uniform Dissolution of Marriage Act "may properly be used to determine the amount of a child support obligation" only if it is "regularly received from a dependable source." Applying that definition, the father's one-time lump sum inheritance from his mother does not constitute a "gift" under § 14-10-115(7)(a)(I)(A) because it was not regularly received from a dependable source.

Nevertheless, the general phrase "income from any source," as used in § 14-10-115(7)(a)(I)(A), has been construed broadly to include payments that are received under a structured settlement in a personal injury claim, see In re Marriage of Fain, 794 P.2d 1086 (Colo.App.1990), as well as the interest included in payments received under a settlement reducing the return of an original investment, see In re Marriage of Laughlin, 932 P.2d 858 (Colo.App.1997).

In In re Marriage of Armstrong, 831 P.2d 501 (Colo.App.1992), a panel of this court also held that income an inheritance could generate should be included within "gross income." The panel reasoned that under the plain language of § 14-10-115(7)(a)(I)(A), "gross income" includes "all payments from a financial resource, whatever the source thereof." In re Marriage of Armstrong, supra, 831 P.2d at 503.

There, the parties' marriage was dissolved in 1982, and child support was set at $400 per month. When the father later received a $395,000 inheritance, the mother sought an increase in child support. In granting the increase, the trial court ruled that "the income which the inheritance could be expected to generate, within a reasonable degree of accounting, must be considered as a financial resource or income for purposes of determining child support." In re Marriage of Armstrong, supra, 831 P.2d at 502.

On appeal, the father contended the trial court erred in finding that the income his one-time, postdecree inheritance could generate was a financial resource that constituted gross income for the purpose of calculating and modifying child support. There, as here, the father argued that because inherited funds were not considered gross income for federal or state tax purposes, they should not be so considered under the child support guidelines.

The panel in Armstrong rejected the argument that income tax rules were determinative of the definition of a source of income under the child support guidelines. In re Marriage of Armstrong, supra, 831 P.2d at 503; see In re Marriage of Nimmo, supra, 891 P.2d at 1006 n. 7 ("[A] source of income under the child support guidelines is not determined by other definitions which may be used for federal or state income tax purposes." (quoting In re Marriage of Armstrong, supra, 831 P.2d at 503)); In re Marriage of Fain, supra.

Similarly, we reject the father's contention here that federal or state tax laws are determinative of gross income and that his inheritance should not have been considered such for the purposes of calculating child support. In so holding, we note that while inheritances may not be treated as income for tax purposes, see 26 U.S.C. § 102 (2000), distributions from an inherited IRA are mandatory and fully taxable as income upon receipt. See 26 U.S.C. § 408(d)(1) (2000).

B.

However, we agree with the father that the trial court must reconsider the manner in which it calculated the child support.

In In re Marriage of Armstrong, supra, 831 P.2d at 503, the panel upheld that portion of the trial court's ruling which included "as part of [the father's] income, a sum that the inheritance could be expected to have yielded." The trial court treated the father's inheritance as a financial resource that would generate income, reasoning that:

[U]se of the income for determining the amount of child support without invasion of the principal allows the corpus to be used during the minority of the children and to be freed for use by [the father] once the child support obligation is extinguished, either through emancipation or when the children reach the age of majority.

In re Marriage of Armstrong, supra, 831 P.2d at 502 (emphasis added).

On appeal, the panel in Armstrong cited that reasoning with approval. Although the panel did not directly address whether the entire corpus of the inheritance could be considered as gross income during the year it was received, the above-quoted language from Armstrong suggests it should not be so treated because, to do so, would necessarily invade the principal.

We recognize that in cases not involving inheritances, panels of this court have approved a different approach. In In re Marriage of Zisch, 967 P.2d 199, 201 (Colo.App. 1998), after acknowledging "the lack of clear guidance on this issue," a majority of a division of this court held that for purposes of child support, the total amount of a large one-time capital gain should have been included in a party's gross income during the year it was received. The panel in Zisch concluded that, in subsequent years, the asset could be considered a financial resource of the parties that could reasonably be expected to generate income, and such income should be included for child support purposes. See also In re Marriage of Upson, 991 P.2d 341 (Colo.App.1999)(including as a capital gain in determining "gross income" the post-property division appreciation realized on the sale of a home acquired in a property division from a dissolution of marriage); In re Marriage of Bregar, 952 P.2d 783 (Colo.App.1997)(addressing capital gains).

Also, in In re Marriage of Bohn, 8 P.3d 539 (Colo.App.2000), a division of this court, relying on Zisch, upheld the trial court's determination...