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Is A Loan Considered “Income” For Child Support Purposes?

In re Marriage of Ash/Matschke

Illinois law instructs judges to broadly define income when calculating child support payments and maintenance payments. What is the definition of “income”? Typically, we think of income as salary and any bonuses and commissions received. The word “income” under Illinois law is much broader than this common understanding. In Marriage of Ash/Matschke, the First District addressed whether loans Allison Ash received from her parents constituted income. Allison received thousands of dollars in loans from her parents, and if those loans were deemed income, it would have significantly lowered the amount of child support she was entitled to receive. The First District held that Allison had presented sufficient evidence that the loans she received from her parents were not income.

The Underlying Facts

Allison and Mason Matschke were married in 1995 and had four children during the marriage. The parties were divorced in October 2017. At the time, one child was emancipated and the other three were still minors. Mason was ordered to pay Allison approximately $5,390 per month in child support and $6,500 per month in maintenance. Overall, Mason was supposed to pay Allison approximately $11,890 per month in support.

About eight months later, in May 2018, Mason filed a petition to modify the child support he was ordered to pay. Mason alleged that his income had gone down and their second child had become emancipated. At the hearing on his petition, Mason argued the above points, but also argued that the loans Allison received from her parents were income to Allison.

In a financial affidavit, Allison disclosed that she had borrowed approximately $700,000 from her parents to help cover her living expenses and another $800,000 to help cover her attorneys’ fees. The First District’s decision does not specify when these large sums were allegedly borrowed. It seems highly unlikely that Allison borrowed approximately $1.5 million between the divorce proceeding and the filing of Mason’s motion. Indeed, evidence was presented that suggests Allison received approximately $24,000 per month from her parents in loans during that time period. This would represent loans of about $168,000 between October 2017 and May 2018. If the Circuit Court treated the $1.5 million or the $168,000 in loans as income to Allison, it would have justified a sharp drop in the child support Mason would have to pay.

Allison argued that she intended to pay back the loans to her parents. The First District’s opinion did not state if any evidence was presented to the Circuit Court as to how Allison intended to repay such large amounts. Allison testified that she meets with her parents on a monthly basis to discuss her bills and that they “write a check, and [she] signs an IOU that [her parents] have kept for the past five years.” Further, Allison maintained a detailed log of the loans she entered into with her parents. Allison testified that she needed the loans to cover the children’s expenses because Mason was not paying the ordered support. The First Circuit stated that “Mason owes Allison $63,041.69 in outstanding child support and maintenance payments and approximately $10,000 in child-related expenses, for the period of October 16, 2017, to May 16, 2018.”

The Circuit Court refused to treat the loans Allison received from her parents as income. The Circuit Court did find that Mason’s income had declined and calculated a guideline child support amount of $1,346.18, which would represent a sharp drop in the child support Allison previously received. Under the divorce judgment, Allison was supposed to receive approximately $5,390 per month in child support. The Circuit Court, however, found the $1,346.18 guideline child support number too low and not in the children’s best interests. One of the parties’ children had special needs, which increased Allison’s child-related expenses and prevented her from working. The Circuit Court made an upward deviation from the guideline amount and ordered Mason to pay Allison $3,048 in child support. This still represented a drop of almost $2,300 per month in child support. Mason appealed the Circuit Court’s decision.

First District’s Analysis

The First District pointed out two basic rules under Illinois law concerning monies a child receives from his or her parents. First, payments from a parent to a child are presumed to be gifts, but the presumption is rebuttable. This means that a presumption existed that the payments Allison received from her parents were gifts. If the payments were gifts, a court could very easily deem the payments income to Allison.

Second, even if a party can prove that the payments were loans, a court can still treat the loans as income. The First District stated that:

Since we must construe the provisions of the Marriage Act liberally so as to promote its underlying purposes . . . and the statute omits loans from its exceptions from “gross income,’ we believe the legislature intended courts to consider loans as potential income towards the support of a child.

To distinguish loans that represent income from loans that do not, the First District stated that a court should look at two important factors: (1) whether the money directly increases the recipient’s wealth . . ., and (2) whether repayment of the loan is required . . .” Further, the First District stated that if “the trial court determines that the loan is not income for support purposes, it must make written findings setting forth its reasoning.”

The First District refused to reverse the Circuit Court’s determination that the payments Allision received from her parents were loans, and that those loans did not constitute income to Allison.

First, Allison testified that she would sign an “IOU” when she borrowed money from her parents. Further, Allison testified that her “loans are detailed in a notebook/log.” The Circuit Court held that Allison and her parents “keep track of every payment they have made [to Allison], they sign notes for these payments, and they expect ALLISON to pay the loans back.

The First District did not expressly address the gift presumption argument. Instead, it assumed that the evidence supported Allison’s argument that the payments were loans. The evidence that Allison’s parents had her sign loan notes, that they tracked all of the payments made to Allison and expected Allision to pay back the money would support an argument that the payments were not gifts.

Do these loans constitute income? The First District pointed to Allison’s testimony that she intended to pay back the loans. The First District also stated that “the loans here did not provide Allison with a steady source of additional money that enhanced her wealth.” Allison “used the money from her parents to pay for expenses that would have been covered by Mason’s support and maintenance payments,” payments that Mason apparently refused or failed to make. Further, “Allision testified that she would not have borrowed from her parents if Mason had kept current with his payments . . . [and] there is no evidence that she used the loans for anything other than expenses that would have been primarily covered by payments under the dissolution judgment.”

Mason argued that Allison borrowed “substantially more” than the amount he was obligated to pay her. The First District rejected this argument because Mason apparently based this argument with scant citations to the record. The First District did acknowledge that Allison admitted she had borrowed $700,000 from her parents, but the opinion does not specify the time period. If Allison had borrowed this amount after the divorce judgment was entered, this amount of debt could not have been caused by Mason’s apparent failure to pay child support and maintenance. We cannot tell from the opinion if this information was in the record. The First District’s statement that Mason did not support his argument with sufficient evidence suggests that Mason did not develop this information in the proceeding before the Circuit Court.

The First District’s decision in Ash/Matschke showcases a number of different factors. First, appellate courts broadly define the word “income,” and many things that people do not consider income will be viewed as “income” for child support purposes. Second, calling money received from a parent or someone else a “loan” will not necessarily prevent you from having the money classified as income. Third, maintaining records showing that the payments are, in fact, loans is crucial.

Finally, failing to pay court-ordered child support can have far reaching consequences. The First District stressed that the record contained evidence that Allision had to borrow funds from her parents because Mason was not paying some or all of the child support or maintenance he was ordered to pay. The First District and the Circuit Court were apparently troubled by Mason’s failure to pay support and then using loans Allision received to cover the shortfall as a reason to reduce his child support obligation.

Child support issues can be complex, with many elements coming in to play. When you find yourself in the midst of a child support dispute, it is essential to have the guidance of a knowledgeable Chicago child support attorney. The Law Offices of George M. Sanders is here to help. Reach out to us to get professional, legal assistance with your case.

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