In the Interest of P.C.S.

BEA ANN SMITH, Justice,

dissenting and concurring.

I respectfully dissent from the majority’s holding that Father’s inheritance should be included as a resource in the initial calculation of child support. The majority’s strained interpretation of family code section 154.062(b)(5) ignores the plain language of that section that intends to include '“all other income” as a resource. See Tex. Fam.Code Ann. § 154.062(b)(5) (Vernon Supp. 2009). An inheritance is not commonly or legally considered income. The statute specifically characterizes “gifts and prizes” as income for child support purposes; it fails to treat “inheritances” as income for that purpose.

In straining to convert an inheritance into a resource, the majority overlooks how naturally an inheritance fits the definition of “any other financial resources available for the support of the child” under family code section 154.123(b)(3). See Tex. Fam.Code Ann. § 154.123(b)(3) (Vernon 2008). Rather than a resource, an inheritance is an additional factor that allows the trial court to vary the child support calculated under the guidelines. Father’s $400,000 inheritance is quite properly a financial resource available for the support of his children. Reading the two sections together and harmonizing them, as we must, this Court should hold that the legislature has determined that an inheritance is an “additional factor” under 154.123(b)(3) that allows the trial court to adjust the child support calculated under the guidelines, not a resource under section 154.062(b)(5) to which the guidelines are initially applied.

Calculating Child Support

To calculate child support, one must identify “resources” as defined by the family code, calculate “net resources” as directed in section 154.061 (deducting social security and federal income tax), and then apply the child support guidelines (25% for two children), Tex. Fam.Code Ann. § 154.125(b) (Vernon Supp. 2009), to those net resources. It is a simple mathematical calculation. Child support calculated in this manner is presumed to be in the best interest of the child. Tex. Fam.Code Ann. § 154.122(a) (Vernon 2008). In the final step, the trial court must decide whether the application of the guidelines would be unjust or inappropriate under the circumstances, considering evidence of all relevant factors, including those listed in section 154.123(b)(l)-(17). Tex. Fam.Code Ann. § 154.123(b)(l)-(17). The evidence of additional factors must rebut the presumption that the amount calculated under the guidelines is in the best interest of the children. See Tex. Fam.Code Ann. § 154.123(a). This case involves the interplay between sections 154.062 and 154.123 of the family code: whether Father’s inheritance is a resource to which the child support guidelines are applied or is an additional factor that might warrant increased periodic child support payments for the children.

Resources Include “All Other Income”

Section 154.062 of the family code defines net resources for the calculation of child support. Subsection (b) tells us what items are included as resources; subsection (c) tells us what items are excluded; and subsection (d) tells us what items are deducted from resources to determine net resources. This dispute concerns subsections (b) and (c).

Subsection (b)(l)-(4) lists items that shall be included in resources: wage and salary income; other compensation for personal services (including commissions, overtime pay, tips, and bonuses); interest, dividends, and royalty income; self-employment income; and net rental income. Tex. Fam.Code Ann. § 154.062(b)(l-4). Significantly, all of these items are forms of income. Section 154.062(b)(5) is a catch-all provision for other income:

(5) all other income actually being received, including severance pay, retirement benefits, pensions, trust income, annuities, capital gains, social security benefits other than supplemental security income, unemployment benefits, disability and workers’ compensation benefits, interest income from notes regardless of the source, gifts and prizes, spousal maintenance, and alimony.

Tex. Fam.Code Ann. § 154.062(b)(5).

Finally subsection (c) lists specific items that are not included in resources: return of principal or capital; accounts receivable; benefits paid in accordance with Temporary Assistance for Needy Families program; and payments for foster care of a child. Tex. Fam.Code Ann. § 154.062(c).

The statutory definition of resources does not specifically include or exclude inheritances. The majority concludes that inheritances are included because section 154.062(b)(5) is a catch-all provision. I disagree because that catch-all provision includes “all other income actually being received,” not all other receipts of money. Inheritances may include the receipt of money or other property, but they are not considered income.

Black’s Law Dictionary has a succinct definition of income: “The gain derived from capital, from labor or effort, or both combined, including profit or gain through sale or conversion of capital.” Black’s Law Dictionary 687 (5th ed. 1979). The ninth edition explains that from as early as the sixteenth century income has encompassed the concept of earnings or profit. Black’s Law DictionaRY 831 (9th ed. 2009). This concept is reflected in non-legal dictionaries as well. Webster’s dictionary defines income as “a gain or recurrent benefit usu. measured in money that derives from capital or labor; also: the amount of such gain received in a period of time.” MeRRIam Webster’s Collegiate Dictionary 680 (11th ed. 2003). The Oxford English Dictionary defines income as “that which comes in as the periodical produce of one’s work, business, land, or investments.” Oxford English Dictionary 805 (2d ed., 1989, Vol. VII). The New Oxford American Dictionary defines income as “money received, esp. on a regular basis, for work or through investments,” also noting that this sense dates from the late sixteenth century. New OxfoRD American Dictionary 859 (2001).

All of the items listed in section 154.062(b)(l)-(4) are income. Most of the items included in section 154.062(b)(5) are commonly considered income: severance pay, retirement benefits, pensions, trust income, annuities, capital gains, social security (but not SSI) benefits, unemployment, disability and workers’ compensation benefits, and interest from notes. No one would quarrel that these all constitute “income actually being received.” Likewise, alimony and spousal maintenance involve taxable income shifted from the payor to the recipient; such payments are treated as taxable income to the recipient.

Gifts and Prizes

Gifts and prizes are specifically named as resources in section 154.062(b)(5). Neither one represents gains from capital, labor, or effort. Prizes received as a result of luck or skill are neither earnings nor profits; however, they are taxable as income. If you win the lottery, you must first deduct the income tax that will be due before claiming your winnings. To clear up any ambiguity (and to avoid reliance on the income tax treatment), the family code has specifically defined prizes as “other income” that will be included in resources for the purpose of calculating child support.

Likewise, gifts are not considered income in the common and ordinary understanding of earnings or profits; gifts are not taxed as income under the Internal Revenue Code.¹ But the family code is not limited by income tax regulations in defining net resources. In holding that adjusted gross income was not the equivalent of net resources, a Houston appellate court has held that family code provisions need not mirror federal income tax regulations in their method of calculating income. Powell v. Swanson, 893 S.W.2d 161, 163-64 (Tex.App.-Houston [1st Dist.] 1995, no writ). For the limited purpose of calculating child support, the family code has specifically characterized gifts as income that should be included as resources.

Inheritances

If a child support obligor receives a gift or prize, the family code specifically tells us both shall be included as resources in calculating child support. But what if the obligor receives an inheritance? The statute does not say that inheritances will be included as “other income.” In other words, it does not specifically characterize an inheritance as income for the purpose of calculating child support. This is significant because section 154.062(b)(5) sweeps inheritances into the category of resources only if an inheritance is income.

Black’s Law Dictionary defines inheritance as “1. Property received from an ancestor under the laws of intestacy. 2. Property that a person receives by bequest or devise.” Black’s Law Dictionary 853 (9th ed. 2009). An inheritance is not earned; it does not represent gains or profits; it does not fit the legal or common concept of income. The principal of assets received by will or intestacy are never taxable income to the recipient. Rather, the passage of assets from one individual to another at death may cause an imposition of estate taxes on the estate of the decedent. Moreover, the principal of an inheritance is more like a capital asset, which section 154.062(c) tells us shall not be included in resources. Once an inheritance has passed to a recipient, any income generated by that capital asset is considered income; the asset itself is not income. On his 2006 income tax return, Father reported $7040 in interest and $6528 in dividends earned from his inheritance; he did not, and was not required to, report the $400,000 inheritance as income. The earnings on his inheritance is income; the inheritance itself is not income.

We know the legislature is not bound by the IRS’s definition of income, but in this case the family code did not specifically characterize an inheritance as income for child support purposes. Although the legislature chose to define “gifts” and “prizes” as income for the purpose of calculating child support, it chose not to include “inheritances” in that category. This Court should not rewrite the statute to read that “gifts, prizes and inheritances” are included as income. Unless it is specifically treated as income under subsection (b)(5), an inheritance is not a resource. To hold otherwise, the majority ignores the fact that all items to be included as resources under subsection (b) comprise the single category of income, or are specifically characterized as income in (b)(5) for the limited purpose of calculating child support. The majority also ignores the fact that the receipt of principal or capital assets is excluded from resources under subsection (c). Unless the legislature has specifically defined income to include inheritances, the principal of an inheritance should not be included in resources.

Nor should we accept Mother’s invitation to hold that “inheritances are merely gifts received pursuant to a will.” The legislature understands the difference between a gift and an inheritance. In defining separate property, the family code states that it shall include property acquired during marriage by “gift, devise, or descent.” Tex. Fam.Code Ann. § 3.001(2) (Vernon 2006). If a gift is an inheritance, the terms “devise or descent” in that statute would be superfluous. Courts must not interpret a statute in a manner that renders any part of the statute superfluous. City of Marshall v. City of Uncertain, 206 S.W.3d 97, 105 (Tex.2006). We should not read the term gifts to include inheritances. “When the Legislature employs a term in one section of a statute and excludes it in another section, the term should not be implied where excluded.” Laidlaw Waste Sys. (Dallas), Inc. v. City of Wilmer, 904 S.W.2d 656, 659 (Tex.1995).

The majority contends that because section 154.062(b)(5) lists “gifts and prizes” as income, the limiting words of “all other income” can be ignored. Surely if a gift or a prize is income, any receipt of cash is income, the majority suggests. But precisely the opposite is true. Everything included as a resource under subsection (b)(l)-(5) is income. The majority wants to ignore that all items in subsection (b) fit into the single category of income. The catch-all provision of subsection (b)(5) begins with the words “all other income”; the intent of the statute could not be clearer.

By specifically listing gifts and prizes in section 154.062(b)(5), the legislature did not nullify its statutory instruction that resources shall include only “all other income”; instead it characterized gifts and prizes as income for this limited purpose. The legislature characterized “gifts and prizes” as income for the limited purpose of calculating child support. Significantly, it failed to characterize inheritances as income. The inclusion of “gifts and prizes” does not change the catch-all provision to read that “all other receipts of money” shall be included in resources, as the majority boldly writes: “[W]e conclude the legislature’s intent is that all receipts of money not specifically excluded by [section 154.062(c) ], whether nonrecurring or periodic, whether derived from the obligor’s capital or labor or from that of others, must be included in the definition of ‘resources.’” In the Interest of P.C.S. and L.R.S., No, 05-08-00438-CV, 320 S.W.3d at 537 (Tex.App.-Dallas Aug. 12, 2010 no pet. h.) (emphasis added). When it is not statutorily characterized as income, an inheritance is like return of principal or capital, which is specifically excluded from resources by subsection (c).

The language of the statute is the best evidence of the legislature’s intent. Section 154.062(b)(5) is unambiguous: Resources shall include “all other income actually being received,” not all receipts of money. If the words of a statute are clear and unambiguous, we apply them according to their plain and common meaning. City of Rockwall v. Hughes, 246 S.W.3d 621, 625-26 (Tex.2008). Carefully chosen words, such as “all other income,” shall be construed according to the rules of grammar and common usage. Tex. Gov’t Code Ann. § 311.011(a) (Vernon 2005). This Court may not rewrite the statute to state that resources shall include “all receipts of money.”

Finally, the majority insists that under the Texas Government Code, the word “including” in section 154.062(b)(5) is a term of enlargement and not of limitation. See Tex. Gov’t Code Ann. § 311.005(13) (“ ‘Includes’ and ‘including’ are terms of enlargement and not of limitation or exclusive enumeration, and use of the terms does not create a presumption that components not expressed are excluded.”). The majority insists that by listing various items in section 154.062(b)(5), such as gifts and prizes, the legislature did not intend to exclude other items, such as inheritances.

I take issue with the majority’s accusation that the dissent is guilty of applying the forbidden principle of ejusdem, generis. I agree that “including” is a term of enlargement and that the list is not exclusive. However, under the text of this statute, the unexpressed items must be components of “other income.” The majority errs when it concludes that section 154.062(b)(5) is a catch-all provision for “all other receipts of money.” By its own terms, that section is a catch-all provision for any receipt that is considered income, or has been characterized as income by the family code. Inheritances are not income and are not specifically characterized as income for child support purposes; therefore, they may not be included in resources under subsection (b)(5). Furthermore, inheritances more nearly constitute principal or capital that are specifically excluded from resources by subsection (c).

There are many reasons the legislature may not have intended to treat inheritances as resources in calculating child support. The majority does not address the fact that “an inheritance” may or may not be cash. If inheritances are to be included among “all other income being received,” how do you treat non-cash items that may greatly increase the wealth of the recipient but not provide any additional cash flow, or may even diminish cash flow to maintain unproductive real property? Does the majority wish to insert the word “cash inheritances” in the statutory list rather than “all inheritances”?

The child support guidelines must be applied to all items included as net resources to calculate monthly child support. In this case, all $400,000 of Father’s inheritance would have to be added to his resources in the year of receipt. Is it unreasonable for the unemployed recipient of a $400,000 cash inheritance to use some of that cash to invest in his own business so he has an income to pay child support in the future? Or to pay off debts so he has more available cash flow? If such a lump sum inheritance is included in resources in one year, will it skew net resources so dramatically that the objective of calculating reasonable ongoing child support will be undermined? This court should not rewrite the statute to include inheritances as resources. The legislature is better equipped than the courts to make such policy changes.

The Family Code’s Solution: Section 154.123(b)(3)

It is not necessary to rewrite section 154.062(b)(5) or contort its language to include an inheritance as a resource to calculate fair child support payments. Happily, the family code offers courts a better alternative. The legislature did not overlook the impact that receipt of an inheritance might have on just and appropriate child support payments. While it did not list inheritances as other income to be included in resources under section 154.062(b)(5), the legislature specifically provided that “any financial resources available for the support of the child” could be a relevant factor for adjusting child support calculated under the guidelines. See Tex. Fam.Code Ann. § 154.123(b)(3).

With all due respect, I contend that family code sections 154.062 and 154.123 must be read in harmony to determine how inheritances should affect the calculation of reasonable child support. Gifts and prizes are included as resources to which the guidelines must be applied, under section 154.062(b)(5), while inheritances more easily fit the definition of an available financial resource that might justify varying from the guidelines under section 154.123(b)(3). Unlike section 154.062 which requires merely a mathematical application of the guidelines to net resources, section 154.123(b)(3) gives the trial court considerable discretion in determining what percentage of an inheritance should be dedicated to the support of children over what periods, in light of all other resources and all other circumstances of the parents and the children.

The trial court below wisely followed the interplay of sections 154.062 and 154.123 on the facts presented in this motion to modify child support payments. The court determined that Father’s inheritance was an asset, not income, and thus could not be included as a resource under subsections 154.062(b)(5) and 154.062(c)(1). Preliminarily, the court calculated child support by applying the guidelines for two children (25%) to the net resources of Father; this produced monthly child support of $1024.25. Next the court considered the inheritance and other additional factors under subsections 154.123(b) to order additional monthly child support payments of $570, plus one half of uncovered medical expenses. The total monthly child support payments of $1594, before medical expenses, represented 39 percent of Father’s net resources. This thoughtful decision-making process properly reflects how family code sections 154.062 and 154.123 are to be harmonized.

Conclusion

The trial court correctly held that an inheritance is not income but an asset, and thus cannot be included as a resource under the family code as it is now written. I would overrule Mother’s first issue and affirm the trial court’s ruling. In every other regard, I concur in the majority’s opinion.

1 . An exception to this rule are gifts from an employer to an employee. See 26 I.R.C. § 102(c) (West 2002).