How Could Your Disability or Personal Injury Settlements Impact a Child Support Obligation?

You may know that a child support obligation is based on the parents combined gross income and the number of overnight stays the child spends with each parent. What you may not know is how a personal injury settlement or disability award may impact a child support obligation. For this answer, we turned to attorney Laurie Schmidt at Schmidt Law Group, P.C., a Denver family law attorney to provide information on the impact a personal injury settlement could have on a child support obligation or award.

In order to assess how a disability or personal injury settlement could impact a child support payment, you must understand how Colorado calculates the payment and what the state considers as income.

Determination Of Amount Of Child Support

Colorado has a presumptive amount of support based on the combined gross incomes of the parents. After obtaining the presumptive amount of support, this amount is allocated to each parent in proportion to their incomes and then adjusted for the number of overnights stays the child spends with each parent.

This presumptive amount of child support does have an income limitation. It stops at combined earnings of $30,000.00 per month. If the parties earn over this amount per month, a judge would set the amount based on the needs of the children; however, the amount may never fall below the highest presumptive amount of support.

Other important expenses that would impact a child support obligation is the cost of health care for the children or extraordinary medical expenses, such as braces or ongoing care. Additionally, if you or the other parent have children from another relationship, there would be a credit for the support and care of those children, which could reduce your or the other parent’s gross income.

Determination Of Income Of Each Party

In Colorado income is defined as actual gross earnings, not just money received from employment. The basic rule is to include any amounts received as income unless it is specifically excluded by statute. C.R.S. 14-10-115(11) includes as income both disability insurance benefits received, and funds held or payable from any insurance claim that would replace wages or provides income in lieu of wages.

Income calculated with Lump Sum Settlements versus Structured Payments

The principal amount of the settlement, if received as a lump sum, would be attributed to you as income for the year it is received. This may not include the full amount of the settlement or award. For example, it may not include the portion of the award that was intended for medical expenses, attorney’s fees, or other costs and fees associated with your case.

If your settlement structure includes payments, the payments are considered a financial resource and would be considered income in calculating child support obligation.

Gains on Invested Funds from a Personal Injury Settlement

Should you decide to invest the proceeds from a personal injury settlement, any subsequent gains, earnings, or dividends received on the settlement funds may be considered income in a child support calculation. For example, if you decided to place your settlement funds in an annuity, a trust, or a retirement plan such as in IRA, the future earnings could be included as earnings in determining your income. This even includes an irrevocable trust.

It does not matter if you withdraw the earnings or if the earnings stay in your investment account, it can still be considered income for the purposes of calculating child support. Knowing what may be considered income is important when planning for a possible increase in a child support payment, but the actual impact may be less than expected.

Determining the Needs of the Child

When determining or modifying a child support obligation, the court must consider the needs of the child. This can be the actual expenses incurred for a child, such as medical, activities and school-related expenses, as well as basic needs such as housing and food. What may be surprising is the manner in which a court would determine the needs of a child. “Need” is not based on an average child’s needs, nor is it based on your child’s actual needs.

The “needs” of the child are tied to the earnings for the parents. In the context of a personal injury settlement, a court may consider the ability to provide an enhanced living situation in determining the needs of the child. Additionally, the court may consider the standard of living for the child if the family had stayed together, and base the needs of the child on maintaining that standard of living for the child despite the separation of the family.

Impact Of Your Settlement On A Child Support Amount

It may feel like your ex-spouse is trying to take a portion of your settlement unjustly and this can feel very unfair. In Colorado, child support is for the benefit of the child. The law presumes payments are going for the support of your child and there is no way to direct how your ex-spouse spends the child support payments. Nor does your ex-spouse have to prove how the payments are spent.

The size, timing, and structure of the settlement would determine the impact on a child support obligation. Depending on your financial situation prior to and after the personal injury settlement, it may have little or no impact on a child support obligation.

For your settlement to be considered factually in court, it is vital that the entire story of your personal injury claim be presented accurately and clearly. Having a family law attorney well versed in child support will give you the best opportunity to have your settlement considered fairly for you and your children.