Is a Workers' Compensation Settlement "Income" for Child-Support Purposes?

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Workers’ compensation payments are excluded from income for purposes of federal income taxes. But are they “income” for purposes of calculating a party’s child support obligation? At the close of its September term, the Illinois Supreme Court announced it would resolve this question in Mayfield v. Mayfield.

Mayfield presents two questions: (1) is a lump-sum workers’ compensation settlement “net income” within the meaning of Section 505(a)(3) of the Illinois Marriage and Dissolution of Marriage Act; and (2) if so, is the 20% rule-of-thumb set forth in Section 505(a) of the Act for calculating the per-child support obligation applicable to the entire settlement?

The parties in Mayfield were divorced in 2003, and the husband was ordered to pay child support. In the years that followed, as the children’s living arrangements changed, the child support obligation was adjusted multiple times. Finally in 2011, the wife petitioned to modify child support because the couple’s eldest child – who had been living with the husband – had reached the age of majority. At the hearing on the wife’s petition, the husband disclosed that he had received a $300,000 lump-sum workers’ compensation settlement the year before. The husband conceded that he had not notified his former wife of this development. Following In re Marriage of Dodds, which held that workers’ compensation payments are income for purposes of child support, the Circuit Court ordered the husband to pay 20% of the settlement to his ex-wife, and to continue paying child support.

The Appellate Court affirmed. Section 505 of the Illinois Marriage and Dissolution of Marriage Act provides that the benchmark calculation for support of one child is 20% of the supporting party’s net income. But the Act does not define “income.” The Appellate Court pointed out that the Workers’ Compensation Act provides that compensation awards are computed on the basis of the “average weekly wage” of the employee. Since workers compensation payments replace lost wages, “it is only logical that it is a type of ‘income’” under the Dissolution Act, the Court held. The Court noted that a number of states have expressly included workers compensation awards in their definitions of income for purposes of child support.

Turning to the second issue, the husband argued that the Circuit Court had erred by applying the 20% base multiplier to the entire amount of the workers compensation award, which was intended to replace wages for the remainder of his working life – well beyond the age of majority of the couple’s minor child. The Appellate Court disagreed, pointing out that if a parent obtained a similar lump sum through an employment bonus or an investment, the entire amount would be includable as ordinary income.

Mayfield should be argued and decided by the Court in the next four to eight months.

 

Published In: Family Law Updates, Tax Updates, Worker’s Compensation Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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