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Structured Annuity Payments as Compensation for Personal Injury Do Not Constitute Income for the Purpose of Determining Child Support Payments

At the time of the divorce, husband and wife had three children.  Husband and wife entered into a material settlement agreement that stated husband received $1,700 a month for a personal injury settlement and that would be considered his sole and separate property. Husband agreed to pay child support in the amount of $300 per month for the oldest child, $400 per month for the second oldest, and $500 per month for the youngest child for a total of $1,200 while each child remained under the age of 18. Subsequently, the case was reassigned to Los Angeles county and father was ordered by the divorce court to pay $550 per month for each minor child. Husband’s divorce lawyer filed an order to show cause to modify the child support obligation. Husband alleged that only one minor child remained in wife’s home, and his divorce attorney requested a modification to the guideline amount because he was unemployed. Wife’s divorce lawyer contended that husband’s personal injury award should be used to pay for child support payments husband had fallen behind on. The divorce court modified the child support from $550 per month to $153 per month and held wife was to pay half of children’s uninsured medical expenses and owed husband $1,693. Wife’s divorce lawyer appealed the judgment.

On appeal the court disagreed with Wife’s family law attorney and determined the divorce court had properly excluded as income the personal injury settlement. Under the tax code any damages received from physical injury do not constitute income. Additionally, the parties stipulated in the marriage settlement agreement that the physical injury payments were to be the sole property of husband. The court concluded that the personal injury payments did not constitute income for the purposes of determining child support. Further, the court explained the fact that the parties labeled the period payments as “annuity” is not dispositive but is intended for a tax benefit purpose. The court held annuity payments do not constitute income in determining child support. The court agreed with husband’s divorce attorney and found there was no abuse of discretion by lowering the child support payments because there had been a change in husband’s financial circumstances. Lastly, the court upheld wife obligation to pay for half of children’s uninsured medical costs. Thus, the court held in favor of father and upheld the divorce court’s decisions.

In re Marriage of Rothrock (2008) 159 Cal.App.4th 223