When it comes to getting (or paying) support in a family law case, most people think about their active earned earnings, such as what they get from their job. But what about passive income? Understanding whether these earnings can be used for support is an essential part of understanding family law.
Many people may also feel that the kind of income they have is inactive, or they may try to claim it as passive in the hopes that it won’t be included for support. So, what’s passive income? Here’s what to consider.
Things like rental income, book royalties, and other types of income that come in after doing the work are considered passive income. Yes, the person had to buy the property and maintain it, but they aren’t working for the rent the same way they would be working at a job. The rent is paid to them every month for the use of the space.
The same is true with someone who’s being paid royalties. They may have put a lot of work into writing a book, but that work isn’t active now. They get paid every time the book sells, but they aren’t doing any current work for that money. These are the kinds of incomes that are considered passive, based on the laws of the IRS.
Not Everyone Understands Passive Income Rules
The rental property owner who acts as their own property manager may feel like they aren’t getting passive earnings. After all, they have to screen tenants and collect rent. They also need to maintain the properties and make sure they fix anything that’s broken. They can hire a company to do those things, but they still have to pay for that service and any additional repairs.
With someone receiving royalties, the argument may be that the idea of actively marketing the book, or they’re still writing more books, is active income. Despite those types of opinions, the IRS is clear that these types of income are considered passive. Whether passive or not, income is income for support.
When it Comes to Support, Income Counts
The short answer is yes. Passive earnings is income available for support. No matter where income is coming from, it’s used to calculate how much support a person should be paying. That can include both spousal support and child support. Some people try to come up with many other types of losses that reduce the amount of income they’re showing, so they can pay less in support. But only some types of losses are allowed, and other deductions to avoid support can cause big trouble.