NC Court of Appeals clarifies “Gross Income” for child support calculations

Amy Johnson Caskey was employed as a police officer for the Town of Matthews. Her husband Perry was a police officer for the City of Monroe. After they separated, they resolved all of their issues except child support which was decided by a Union County Judge Gwyn.

Perry was ordered to pay child support to Amy based on Amy’s gross income before deductions for Social Security and Medicare (FICA) taxes, medical insurance premiums, life and disability insurance premiums, and her employer’s contributions to Defendant’s retirement and 401(k) plans.

This seems consistent with the NC Child Support Guidelines which define gross income as “income before deductions for federal or state income taxes, Social Security or Medicare taxes, health insurance premiums, retirement contributions, or other amounts withheld from income.”

However, Amy appealed claiming that these deductions should not have been included in her gross income for the purpose of calculating child support. And the NC Court of Appeals agreed with her.

The NC Court of Appeals found this to be an issue of first impression and ruled that contributions made by an employer to an employee’s retirement accounts, including any 401(k) accounts, and insurance premiums may not be included as income for the purposes of the employee’s child-support obligations unless a trial court, after making the relevant findings, determines that the employer’s contributions immediately support the employee in a way that is akin to income.

The Court also distinguished between income that a parent has immediate access to and income the parent can access without incurring a penalty. If the income reduces living expenses, it should be counted as income. As to employer contributions to retirement plans, the following factors should be considered in assessing whether benefits should be considered as income: (1) a parent’s control of whether or in what amount a retirement contribution is made; (2) the parents’ established course of conduct in retirement planning (prior to and after the dissolution); (3) the amount of the contribution (from nominal to a large amount that could suggest the inappropriate sheltering of income); (4) whether and to what extent there are incentives for the contribution; (5) whether the contribution qualifies for favorable tax treatment; and (7) any other relevant evidence.

This new ruling together with the New Child Support Guidelines to be released 1 October 2010 should make for exciting litigation of child support issues in the coming months.

The case is Caskey v. Caskey, ___ N.C.App. ___ (2010).