Is a One Time Capital Gain Income for Child Support?

How does a one time capital gain factor in to child support? Is a one time capital gain income for child support? Let me tell you a little story.

I was just ordering a cuppa joe and a muffin at the Starbucks next to the courthouse when I bumped into Ronnie, a lawyer friend of mine, who was looking kind of rumpled.

“Ronnie,” I said cheerfully, “you look like you are not having such a great day, pal.”

“Yeah, I just lost a hearing in front of Judge Wilde. I was trying to get child support increased for my client. The house just sold, under the divorce decree, and I was arguing that increased the ex-husband’s income by $100,000, the amount of his capital gains. Judge Wilde denied my motion.”

“I just can’t understand it,” said Ronnie. “The Maryland Code says capital gains are included in income. Look, I wrote it on my legal pad. FAMILY LAW § 12-202(c)(4) states:

Based on the circumstances of the case, the court may consider the following items as actual income: . . .; (ii) capital gains.”

“He mentioned some case named Tanis v. Crocker or something like that.”

“Well,” I said. “I’ve got my laptop here, and this fine establishment has free WiFi, so let’s look it up.”

In a few seconds, we were reading on Lexis about the dispute between Margaret Tanis and Michael Crocker over child support. The couple married in 1975, had two children together, and divorced in 1988. They agreed on $750 a month in child support. In 1994 Ms. Tanis decided to ask for an increase in child support, arguing among other things, that the court should include the gain from the sale of his house, about $60,000, in Mr. Crocker’s income.

Although the trial court increased child support to $1,032.10, it did not calculate or include the capital gains. Mrs. Tanis was unhappy with the result and appealed.

The Maryland Court of Special Appeals reversed the trial judge and sent the case back to him. The Court said:

There is no basis in the record for the trial court’s stated reason supporting its decision to exclude the capital gain appellee realized from his actual income. Hence, that decision was clearly wrong and an abuse of discretion….the court should reconsider computation of child support and whether to award attorney’s fees to appellant; it should determine the amount of capital gain appellee realized from the sale of the house; and, in accord with MD. CODE ANN., FAM. LAW § 12-202(c)(4), it should determine whether, “based on the circumstances of the case,” that capital gain should be included as a part of appellee’s actual income. Tanis v. Crocker, 110 Md. App. 559 (Md. Ct. Spec. App. 1996).

“So,” I said to Ronnie. “It looks like you had the right idea to try to include a one time capital gain to increase child support. But the judge has discretion based on the circumstances of the case as long as he decides whether or not to include a one time capital gain. And my guess is that most judges won’t include the house sale that is part of the divorce and a result of the divorce decree.”

Ronnie thought about this for a second, and then said, “The thing I like about being a divorce lawyer, is that you learn something new every day. Can I have some of that muffin?”