“How much do you make?” While that may not be an appropriate or welcome question in casual conversation, it is the fundamental inquiry used to calculate the amount of spousal maintenance obligations awarded in an Illinois divorce. But for many divorcing couples, especially for those with high-net-worth, significant investments, or multiple sources of wealth, determining the actual amount of “income” which will be the foundation of these calculations involves a lot more than looking at pay stubs. Whether you are seeking a maintenance award or want to keep any such payments to a minimum, it is important to understand what constitutes “income” under Illinois Marriage and Dissolution of Marriage Act (the “Act”)
New Spousal Maintenance Guidelines
In response to the 2017 federal tax overhaul that eliminated the tax deduction for spousal maintenance payments, Illinois lawmakers in 2018 changed the guidelines for determining how monthly payments are calculated.
As of 2018, these guidelines now apply to couples with a combined “gross income” of less than $500,000. For divorces finalized in 2019 or later, the award should be 33.3% of the payor’s net (not gross) income, minus 25% of the recipient’s net (not gross) income. The amount calculated as maintenance, however, when added to the gross income of the payee, may not result in the payee receiving an amount that is more than 40% of the combined net income of the parties.
Since net income is derived from gross income, defining the spouses’ “gross income” is the key to figuring out maintenance awards, both under the guidelines and for couples over the $500,000 threshold.
“Gross Income” Defined
Section 504 of the Act, which covers spousal maintenance, defines “gross income” as “all income from all sources,” and refers to the definition of gross income used in Section 505 of the Act regarding child support. Under that section, “gross income” means “the total of all income from all sources, except for:
- Public assistance benefits
- Benefits and income received by the parent for other children in the household.
Outside of those exceptions, almost every dollar, every appreciation in value, every dividend paid and every capital gain is included in gross income. The Illinois Supreme Court has ruled that the definition of “income” under the Act mirrors that found in Webster’s Dictionary:
“As the word itself suggests, ‘income’ is simply ‘something that comes in as an increment or addition * * *: a gain or recurrent benefit that is usu[ually] measured in money * * *: the value of goods and services received by an individual in a given period of time.’”
In re Marriage of Rodgers, 213 Ill. 2d 129 (2004)
Over the years, Illinois courts have made decisions about the specific forms of income to be included in gross income for purposes of spousal maintenance calculations. These include:
- Monetary gifts
- “Loans” in name only, such as those from a family member, a corporation, or a business the payor spouse has an ownership interest in when there is little or no expectation that the loan will be repaid or any evidence to support the claim that it is a loan rather than a gift -such as documentation, requests for repayment, or reporting the money as a loan on tax returns.
- Salaries, bonuses, and commissions
- Pension proceeds
- Workers’ compensation benefits
- Interest and appreciation of an IRA
- Liquidation of an IRA
- Distribution of stock sold pursuant to an employment bonus-based option
Spousal Maintenance Questions? Call Chicago Divorce Attorney Louis Fine Today
An experienced divorce attorney, working in concert with accounting and tax professionals, can ensure that the amounts used to calculate maintenance obligations include every appropriate income stream and exclude those carved out by the law so that any maintenance award is fair and equitable.
If you have questions or concerns regarding gross income or spousal maintenance generally, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation.