Howard Peritz

Treatment of Inherited IRAs

As a general rule, inheritance constitutes non marital property. However, the income from that property is income for calculating child support and maintenance. What happens, though, when the person who receives the inheritance is required by law to begin taking distributions?

The case of In Re the Marriage of Dahm-Schell 2020 Ill App (5th) 200099(11/30/2020) discusses that very issue. During the pendency of the divorce, the husband inherited money from his mother. The inheritance was in the form of IRA's. At the time of the judgment, the trial court properly awarded the IRA's to the husband and included the dividend income from the IRA investments as income for the purpose of calculating maintenance and child support.

Some time later the husband filed for a reduction in support as one of the minor children for whom he was paying support was no longer a minor and his employer had cut his pay. At the time of trial, his monthly income consisted of $7,800 in employment income; $1.67 of interest income; $743.92 of dividend income from the inherited IRA's and $894.25 of draws and distributions from the inherited IRA's. Husband argued that the draws and distributions should not be counted as income as federal law required that he take those distributions and that they were nonmarital in nature. The trial court agreed with husband and indicated it would not include the distributions in the calculation of his monthly income.

The trial court permitted an immediate appeal of its decision and the appellate court heard the mater. The appellate court found that there were no cases directly on point but looked to cases where IRA's were awarded to one side or another that were not inherited. Those cases found that, as the amount in the IRA's was taken into account in the division of marital property, while the dividends and interest generated by those IRA'S WERE included for purposes of calculating support and maintenance, the distributions taken from the IRA's were not as that would constitute double counting of the distributions. However, as the inherited IRA's were NOT already taken into account in the calculation of support and maintenance the distributions, whether mandatory or not, would be included in a calculation of "income from all sources."

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