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Increased Income Can Be a Mixed Bag in a Child Support Proceeding

In re Marriage of Yabush, 2021 IL App (1st) 201136

Typically, when a parent that pays child support and gets a significant increase in pay, this is good news for the parent that is entitled to receive the child support payments. However, this is not always the case. In Yabush, Eric Yabush’s income grew from $513,000 in 2017 to $2.2 million in 2018. In a typical case, Eric’s ex-wife, Melinda Yabush, would have requested that the court find that a substantial change in circumstances occurred, which would trigger a recalculation of Eric’s child support obligation. Here, however, Melinda opposed Eric’s claim that a substantial change in circumstances occurred. Given the wording of the marital settlement agreement (the “MSA”) Melinda and Eric entered into, Melinda believed she would receive more child support under the MSA than under a new child support order. This does not happen frequently, which emphasizes the fact that not all child support cases are the same.

The Basic Facts

Eric and Melinda were married in 2002 and had two minor children. The parties entered into the MSA and were divorced in 2011. At the time the parties divorced, Eric worked in sales for a marketing company and earned approximately $138,000. Under the MSA, Eric agreed to pay Melinda $2,226 per month in child support “representing 28% of his net base pay . . .” The MSA also provided that Eric would pay “28% of the net income from any bonuses or commissions he receives,” and “shall provide [Melinda] with documentation on or before January 30th of each year, showing his income from all sources for the previous calendar year.” The requirement that Eric provide Melinda with information showing his “income from all sources” is commonly referred to as a true-up clause. The true-up clause in the parties’ MSA obligated Eric to provide Melinda with “documentation on or before January 30th of each year, showing his income from all sources for the previous calendar year.” This information would allow Melinda to verify that Eric was, in fact, paying 28% of his bonuses and commissions.

In the years following the parties’ divorce, Eric did well financially. By 2014, Eric’s income had risen to $420,000, and by 2017 Eric was earning $513,000. In late 2017 or early 2018, Eric left his employer and started a new company. Eric’s new company was incredibly successful and his income rose to $2.2 million in 2018.

Eric interpreted the MSA as requiring him to pay 28% of his total net income as child support. As a result, Eric’s child support obligation continued to increase over the years. In April 2018, Eric filed a petition to reduce his child support obligation. Eric argued that (a) the significant increase in his income constituted a substantial change in circumstances, and (b) his paying 28% of his current income was “well beyond the needs of the children.”

The Circuit Court was tasked to determine whether a substantial change in circumstances occurred. Under Illinois law, the party trying to change a child support obligation must first prove that a substantial change in circumstances occurred. A significant increase in the paying parent’s income can constitute a substantial change in circumstances, and this is typically an argument made by the parent entitled to receive the child support.

Melinda argued, however, that while Eric’s income had increased, the increase did not constitute a substantial change in circumstances. While Melinda’s argument seems odd, it makes sense if she was entitled to receive 28% of the net income Eric earned on the $2.2 million under the MSA. If the Circuit Court found a substantial change in circumstances, it is highly likely that under a recalculation of the child support Melinda would receive a lower amount of child support when compared to the amount her and Eric believed she was entitled to receive under the MSA.

Melinda argued that the possibility of Eric earning more income was contemplated by the parties when they entered into the MSA. Melinda pointed to the language in the MSA that set Eric’s child support obligation. First, while the MSA set a base amount of child support of $2,226 per month, it stated that this represented 28% of Eric’s “net base pay.” Second, the MSA directed Eric to pay 28% of the “net income from any bonuses or commissions he receives.” Finally, the MSA contained the true-up clause.

The Circuit Court agreed with Melinda and dismissed Eric’s petition on the ground that he had not shown a substantial change in circumstances. The Circuit Court found that the parties had agreed that Eric would pay 28% of any performance based pay he received. In addition, the MSA did not put a cap on the amount of child support Eric would have to pay. The Circuit Court also found that the parties “built their agreement to automatically adjust [Eric’s] support obligation so that it would stay proportionate to his fluctuating income.”

Eric appealed the Circuit Court’s decision and the First District reversed the Circuit Court’s decision.

The First District’s Analysis

The First District assumed that the massive increase in Eric’s income would constitute a substantial change in circumstances, putting aside the MSA. The First District stated, however, that “when the parties have entered a marital settlement agreement, as is the case here, a substantial change in circumstances will not be found when the parties’ present circumstances were contemplated when they entered into their agreement.” Under this framework, the occurrence of a substantial change in circumstances would be determined by whether or not Eric and Melinda contemplated Eric’s new circumstances when they entered the MSA in 2011.

The First District looked at the MSA’s language to determine Eric and Melinda’s intent back in 2011. The First District agreed that the MSA contained a “true-up” clause, and that such a clause generally:

has been held to support a finding that there was no substantial change in circumstances due to an increase in the supporting party’s income because the presence of such language indicates that the parties contemplated some change in income.

The First District stated, however, that the agreements in the true-up cases on which Melinda relied had “more expansive language making clear that the supporting party would pay a percentage of any additional income.” (Emphasis original). In Eric and Melinda’s MSA, however, the parties agreed that Eric would pay 28% of any bonuses or commissions, but did not apply the 28% to all of Eric’s future income: “paying 28% of ‘the net income from any bonuses or commission’ is certainly not identical to paying 28% of ‘any additional income.’”

Under the MSA, Eric’s child support payments on his base pay were set at $2,226. While Melinda could petition the court to raise those payments, if a substantial change in circumstances occurred, the MSA did not provide for the child support on Eric’s base pay to automatically rise. The MSA, however, did expressly provide that the child support payments Eric would have to pay on his bonuses and commissions would vary depending on how much he earned. Melinda could get an increase in the child support she received if Eric received higher bonuses or commissions. On the other hand, Melinda faced the risk that, in some years, she could receive less in child support, if Eric received smaller bonuses and commissions. Given the risk Melinda faced of Eric’s receiving lower bonuses and commissions, it would be unfair to let Eric claim a substantial change in circumstances if he received larger bonuses and commissions.

The First District did not end its analysis on this point. The First District also pointed out that the reason Eric’s income increased so dramatically was that he left his prior job and opened his own business. The First District stated that the evidence clearly showed that “at the time the parties entered into the agreed judgment for dissolution of marriage, petitioner’s position as a salesman in a marketing business was well established, as was the fact that his compensation was in the form of base pay plus bonuses or commissions.” The First District did not find evidence in the record showing that the parties “contemplated that petitioner would start his own business and earn such a substantial increase in income, and there is no language in the agreed judgment for dissolution of marriage supporting such an interpretation.”

The absence of any evidence showing that Eric and Melinda agreed to Eric paying 28% of his net income regardless of any increases in his net income or employment, meant the Circuit Court should have focused on the increase in Eric’s income. The First District held that the dramatic increase in Eric’s income was a substantial change in circumstances and reversed the Circuit Court’s decision.

True-up clauses are frequently used when a parent who pays child support has an income with wide variations due to bonuses and commissions. The First District’s decision in Yabush shows that these true-up provisions will not foreclose child support modifications, if the true-up provision is limited to performance pay. The decision in Yabush highlights the need to carefully negotiate child support provisions in an MSA and child support order. At the Law Offices of George M. Sanders, we understand the complexities of Chicago child support law. If you are embarking on this process, it is important to have an experienced attorney on your side. Get in touch with us today so that we can assist you in negotiating a child support order that most benefits your family.

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