Income - Definition & Exceptions

The maintenance and child support statutes have an expansive definition of income under which pretty much all money a person receives counts as income, unless it is explicitly excluded from consideration. This article will refer to C.R.S. 14-10-115, which is the child support statute, but the definition of income is virtually identical under the maintenance statute. C.R.S. 14-10-114(8)(c).

Colorado uses gross (pre-tax) income for purposes of calculating maintenance and child support.

Definition of Gross Income

Per C.R.S. 14-10-115(5)(a)(I), “Gross income includes income from any source, except as otherwise provided.” While not limited to these sources, the statute sets an A-Z list (literally) of examples of income, including:

• Salary, wages, tips
• Overtime pay, when overtime is required as a condition of employment
• Voluntary overtime
• Commissions
• Self-employment or contractor payments
• Bonuses
• Investment income (dividends, capital gains, annuities, interest, etc)
• Severance pay
• Retirement benefits
• Royalties
• Rents
• Gifts & trust income
• Social security benefits
• Workers’ compensation & disability insurance
• Unemployment insurance benefits
• Monetary gifts or prizes
• Business income (partnership, closely-held corporation), except that if a passive, minority investor with no management role, then it may be limited to actual distributions received.
• Expense reimbursements which reduce living expenses
• Alimony/maintenance. If non-taxable, a 1.25 multiplier is applied, per C.R.S. 14-10-115(5)(a)(I.5)

Note the inclusion of various non-taxable receipts, such as monetary gifts or trust income. By way of example, if a person’s family gives them money, those receipts count as income.

What is Excluded from Income

Rather than trying to figure out what counts as income, it is simpler to think of the very few specific items which are excluded from income per C.R.S. 14-10-115(5)(a)(II):

1. Child support
2. Benefits from a means-tested program, including SSI or food stamps
3. Income from second jobs
4. Social security benefits received by the children, or on their behalf, as a result of death of disability of a stepparent.
5. Retirement account earnings which are undistributed, unless the person could have taken a distribution without penalty.

Business Expenses

If a person has income from self-employment, rent, royalties, gross income excludes the “ordinary and necessary expenses… required to produce such income.” C.R.S. 14-10-115(5)(a)(III)(A).

However, just because the IRS allows a deduction, it does not mean the court will! A self-employed person may well deduct mobile phone or vehicle expenses, for example, but as indicated above, if they reduce the person’s living expenses, those deductions will be added back to income.

Additionally, only straight-line depreciation may be deducted, not accelerated depreciation nor any tax credits, or any business expenses a court deems inappropriate. C.R.S. 14-10-115(5)(a)(III)(B).

Adjustment for Non-Joint Children

Pursuant to C.R.S. 14-10-115(6), a parent who is legally responsible for non-joint children receives an adjustment to his/her income as follows:

1. Actual child support paid pursuant to court order.
2. Deduction for children living with the parent per the guidelines.
3. Actual support paid (established through documentation) for child living outside of the person’s home, not to exceed the guidelines amount.

Pursuant to C.R.S. 14-10-115(6)(b), the adjustment to income is capped at 75% of Schedule of Basic Child Support Obligations.

Parents with support orders from years ago may remember that non-joint children did not count, or only partially counted. Over the years, Colorado had additional restrictions on counting non-joint children, such as only adjusting for children born before the children at issue, then later counting children born afterwards only to the extent they do not contribute towards a decrease in support payable (i.e. an after-born child would count “defensively” to mitigate the effects of an increase, but would not count if support was going down. As of January 1, 2017, the distinction between children born before or after the children at issue was abolished, and all non-joint children count in the same way.

Finally, this adjustment is an adjustment to income, NOT to the child support itself. So if a parent is paying $500/mo for the support of a non-joint child, the $500 is deducted from the parent’s income, then the resulting support or maintenance is calculated. It is not a credit which is deducted from the actual maintenance or support owing.

Military Members & Retirees

For active duty, income includes all pay & allowances received, even the non-taxable ones, including Basic Pay, BAH, BAS, professional pay, jump pay, etc. For more information, see the Understanding Military Pay & the LES article in the Military Divorce Guide.

For retirees and veterans, income includes not only military retirement, but disability income as well. There is a common misconception that VA disability does not count as income, since it is a tax-free benefit which state courts are prohibited from dividing as property. This is incorrect. Nothing in federal law restricts a state’s ability to treat any tax-free income, including disability, as income for purposes of calculating support or maintenance. Moreover, the U.S. Supreme Court has approved disability counting as income in Rose v. Rose, 481 U.S. 619 (1987). Finally, Colorado explicitly counts VA disability payments as income. In re: Marriage of Nevil, 809 P.2d 1122 (Colo.App. 1991).

Reserve income will count in the calculation if a person has no other full-time employment. However, for a person who works a regular 40-hour job, and also does military reserve duties, the reserve income would be second employment, and be excluded from the definition of income.