In re AMD

• Decision Date: 20 October 2003
• Docket Number: No. 02SC333.,02SC333.
• Citation: 78 P.3d 741
• Parties: In re the Interest of A.M.D., a CHILD, Suzan K. Casteel, Petitioner, v. John M. Davidson, Respondent.
• Court: Colorado Supreme Court

78 P.3d 741

In re the Interest of A.M.D., a CHILD,

Suzan K. Casteel, Petitioner, v. John M. Davidson, Respondent.

No. 02SC333.

Supreme Court of Colorado, En Banc.

October 20, 2003.

Law Offices of Margaret L. Herdeck, Margaret L. Herdeck, Pueblo, Colorado Attorney for Petitioner.

No appearance for Respondent.

Chief Justice MULLARKEY delivered the Opinion of the Court.

I. Introduction

In this child support case, we address whether and to what extent an inheritance may be included in a parent's gross income for purposes of determining child support obligations. The trial court concluded that the principal of an inheritance can be included in gross income, but only to the extent that the beneficiary relies on the principal as a source of income. The remainder of the principal, the court held, should be counted as an asset, and any interest generated by this asset should be included in the parent's gross income. The court of appeals disagreed, holding that while the interest generated from an inheritance qualifies as gross income, the inheritance's corpus, or principal, never does. In re A.M.D., 56 P.3d 1184 (Colo.App.2002).

We agree with the trial court. To the extent that the beneficiary relies on a monetary inheritance as a source of income, the inheritance should be included in the gross income in that year. To the extent, however, that the beneficiary does not expend or use the inheritance, it should be treated as an income producing asset and the interest it generates should be included in gross income. Interest may be imputed if necessary. If the result is inequitable, unjust, or inappropriate, a court may deviate from the guidelines pursuant to section 14-10-115(3)(a), 5 C.R.S. (2002).

II. Facts and Procedural History

Suzan K. Casteel ("mother") and John M. Davidson ("father") were never married but cohabitated for twelve years and had one child, A.M.D. In January 1998, the mother filed an action for paternity, custody, child support, and a determination of parenting time. The parties stipulated to several of these matters but could not reach an agreement regarding child support. In August 1998, the trial court temporarily ordered the father to pay a child support obligation of $32.00 per month pending additional discovery on the father's income and a hearing on the issue.

In 1999, the father received a cash inheritance from his mother. This inheritance was transferred to the father's trust account¹ in four installments, as follows:

$50,000 on 4/20/99

$47,298 on 4/20/99

$27,000 on 7/8/99

$25,000 on 8/19/99

for a total of $149,298 in cash.

The second deposit of $47,298 differed from the other three deposits—it was the deceased's individual retirement account ("IRA"). Federal tax law requires that an heir report an IRA as taxable income when it is received as an inheritance.² Consequently, in 2000, when the father filled out his 1999 tax returns, he reported this IRA as income and paid federal and state taxes on it in the amount of $11,268.

The father made withdrawals from his investment account in 1999 as follows:

$4,000 on 2/23/99

$7,298 on 4/20/99

$7,000 on 7/8/99

$15,000 on 8/19/99

for a total of $33,298 in cash. The first withdrawal of $4,000 came from the preexisting balance on the account (the account already had $29,874.78 at the beginning of 1999). The final three withdrawals corresponded to the deposits of the inheritance.³

In August 2000, after a hearing on the parties' child support and financial issues, the trial court held that the father's gross income for 1999 should include: (1) imputed employment income equivalent to employment at the minimum wage (the court deemed the father underemployed); (2) the amount the father withdrew from the principal of the inheritance in that year; and (3) imputed interest income generated from the inheritance. In determining what amount the father had "withdrawn" from his inheritance during 1999, the trial court looked not to the $33,298 the father actually withdrew from the investment account that year, but rather to the $47,379 IRA that the father reported on his 1999 income tax.⁴

The father appealed, arguing that the trial court erred by including the entire $47,379 IRA as gross income in its 1999 child support calculation. More specifically, the father argued that the trial court should have considered only the $33,298 he actually withdrew that year.

The court of appeals agreed that the trial court miscalculated the father's gross income, but went beyond the father's argument to hold that no portion of the inheritance's principal, regardless of whether or not it was actually withdrawn, could be considered income for child support purposes. In re A.M.D., 56 P.3d at 1184. Instead, only the imputed interest income generated from the net value of the inheritance could be included as gross income. Id. at 1188.

We reverse the holding of the court of appeals. Instead, as the trial court correctly held, the broad definition of gross income in section 14-10-115(7)(a)(I)(A), 5 C.R.S. (2002), includes monetary inheritances. We agree with the trial court that only the portion of the inheritance that the father withdrew and spent should be included in gross income, and that the remainder of the inheritance should be treated as an interest-generating asset. The trial court, however, erred in its calculations of the father's 1999 gross income, and erred in its valuation of the ongoing asset upon which to impute interest.

III. Analysis

Our discussion is divided into three parts. First, we address the threshold question of whether an inheritance is gross income under Colorado's child support guidelines. Second, in concluding that a monetary inheritance is gross income for child support purposes, we address in detail how much, if any, of the inheritance should be included in gross income. Third, we discuss the amount of interest that should be included in gross income.

1. Inheritance As Gross Income

To determine whether an inheritance can be gross income for purposes of calculating child support, we look first to the plain language of Colorado's child support guidelines contained in the Uniform Dissolution of Marriage Act. §§ 14-10-101 to XX-XX-XXX, 5 C.R.S. (2002). Colorado's child support guidelines define "gross income" very broadly:

"Gross income" includes income from any source and includes, but is not limited to, income from salaries; wages ...; bonuses; dividends; severance pay; pensions and retirement benefits ...; royalties; rents; interest; trust income; annuities; capital gains ...; monetary gifts; monetary prizes ...; and alimony or maintenance received.

§ 14-10-115(7)(a)(I)(A) (emphasis added). Section 14-10-115(7)(a)(I)(A) does not expressly address the term "inheritance" in defining gross income. However, courts have taken an inclusive approach to other one-time gains such as lottery winnings, capital gains, and personal injury settlement payments. Each is considered gross income. In re Marriage of Bohn, 8 P.3d 539 (Colo.App.2000) (lottery winnings); In re Marriage of Zisch, 967 P.2d 199 (Colo.App.1998) (capital gains); In re Marriage of Fain, 794 P.2d 1086 (Colo.App.1990) (personal injury settlement payments).

Moreover, section 14-10-115(7)(a)(I)(A) specifically includes "monetary gifts" in gross income. A monetary inheritance is a particular form of a "monetary gift"—it is simply testamentary, rather than inter vivos, in nature. Thus, the plain meaning of "monetary gifts," and gross income, properly includes monetary inheritances. Because the language is clear, we need not look any further to support our statutory interpretation. Even assuming some ambiguity, however, a review of the legislative history reveals no legislative intent to exclude one-time monetary receipts such as inheritances from gross income. To the contrary, when the legislature rewrote the definition of gross income in 1996, it approved the inclusion of one-time cash receipts by adding large lottery winnings to the definition of gross income. See Hearings on S.B. 96-2 Before the Senate Judiciary Comm., 60th Gen. Assembly, 2nd Reg. Sess. (Mar. 12, 1996) (statement of Andrea Baugher, Colorado Division of Child Support Enforcement); see also In re A.M.D., 56 P.3d at 1186.⁵ Furthermore, the statute explicitly includes monetary prizes, bonuses, capital gains, and severance pay. These sources of income can all fluctuate dramatically from year to year. From this, we conclude that the legislature understood that annual incomes vary, and it intended for gross income to reflect actual monetary receipts, even if these receipts are non-recurring windfalls or one-time events.

The court of appeals acknowledged the broad statutory definition of gross income, but then interpreted our decision in In re Marriage of Nimmo, 891 P.2d 1002, 1007 (Colo.1995), to mean that if a gift is received as a one-time lump sum rather than "regularly received from a dependable source," it cannot qualify as a "gift" under the meaning of section 14-10-115(7)(a)(I)(A). In re A.M.D., 56 P.3d at 1186.

The court of appeals misconstrued Nimmo and applied its holding too broadly. Nimmo involved a discovery dispute between divorced parents. The ex-wife had remarried and was not employed outside the home. In that case, we considered whether the ex-husband was entitled to conduct discovery regarding all current and ongoing gifts received by his former wife, "including without limitation, jewelry, clothes, entertainment, travel, and restaurant meals,"⁶ provided to her by her new husband. Nimmo, 891 P.2d at 1004. This court held that the ex-husband was entitled to conduct discovery on these gifts in order to prove that future gifts would be "regularly received from a dependable source" rather than "speculative." Id. at 1008 (citing Barnier v. Wells, 476 N.W.2d 795, 797 (Minn.Ct.App.1991), holding that a future "expected gift" cannot be used to determine child support obligations unless the gift is ...