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How Does Rental Income Factor Into Child Support?

Okay, you’ve been ordered to pay child support after your divorce or separation. We know nobody wants to make these payments, but it’s a reality of your situation. The money, ideally, will be spent on raising your child in the best circumstances possible. So, let’s focus on how these payments will be determined as you’ve already been told you’ll be responsible for making them.

In Virginia, when the courts determine the amount of child support they refer to code § 20-108.2 which provides the guidelines for support. If you have income coming from one or more rental properties you own, then these guidelines recently changed. We want to dive into these changes so you have a better understanding going into your case.

In April 2022, the Governor approved amendments to the code above to provide more clarity on rental income and how it factors into child support payments. Your gross income plays an important role in determining this total, and previous case law was inconsistent at best on how rent payments should be factored in.

Previously, the courts would go back and forth on whether or not to allow rental property owners to deduct the mortgage payment from the total rental income. For example, consider an individual who is receiving $2,000 monthly rental payments but has a $500 monthly mortgage payment. In some cases, the court would consider this to be a net of $1,500 towards their gross income, subtracting the mortgage, whereas other cases would consider this to be a net of $2,000, refusing to subtract the mortgage.

The new amendment says the gross income must be subject to the “deduction of reasonable business expenses,” with the word reasonable carrying a lot of weight in this section. The courts no longer consider mortgage payments as a reasonable business expense as you derive a direct dollar-for-dollar benefit from principal mortgage payments (in the form of the value of the property). Specifically, the “cost of acquisition, depreciation, or the principal portion of any mortgage payment” will no longer be considered a “reasonable business expense.”

However, there are still some expenses associated with the property that you can deduct from your gross income. The tax and interest portion of your mortgage can be deducted as you are not deriving a direct benefit from this in the way you do a principal payment.

Once this and other factors are calculated, the court will stick these numbers into a formula that determines child support. The state also abides by a spousal support (or maintenance) calculator but has, thus far, not made amendments to the calculation of spousal support to include these changes.

At Rinehart Bryant, PLLC, we’re constantly keeping up with these important changes to Virginia law so we can best serve you. We can guide you through the process and make sure the right number is determined, whether you’re paying or receiving the support. Contact your Virginia family law firm today.

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