How Does Passive Income Impact A Divorce?

June 25,2024 10:20 PM - Comment(s)
These days, it isn’t unusual for people to try to diversify their income streams, so that they aren’t reliant on one source for their financial stability. A lot can be said about having “passive income” going into your bank account.However, when couples divorce, their passive income streams are just “income” when it comes time to determine each party’s financial obligations. Passive income can end up significantly influencing several aspects of a divorce proceeding.

What is passive income? 

Passive income is revenue that’s earned with little active involvement beyond the initial startup or investment. Unlike “active” income, which requires regular work, passive income typically continues to flow in without a whole lot of day-to-day effort. Examples include:
  • Rental income: Earnings from renting out property like apartments, basements, parking spaces, vacation homes, storage units and commercial spaces
  • Dividends: These could be from investments made in small businesses as shareholders or silent partnerships where they aren’t engaged in daily operations
  • Interest income: Early, strategic investments in savings accounts, bonds or other interest-bearing financial accounts could generate significant income
  • Royalties: A lot of creatives have passive income from intellectual property such as books, music, art, programs and trademarks or patents
These are just a few of the possibilities out there, but the key to remember is that all sources of income by both parties are potentially countable.

How does passive income play into a divorce?

There are three main areas where passive income can affect a divorce:
  1. Property division process: Passive-income-generating assets that were acquired after marriage, like rentals and investment accounts, are generally considered marital property. These have to be valued and divided, and that can be tricky to do in the equitable manner required under New York law. 
  2. Spousal support (alimony): Spousal support is usually based on the income and needs of both parties. When passive income increases one spouse’s overall income, that can affect how much support they must pay – or are eligible to receive – to ensure a fair standard of living after the divorce.
  3. Child support obligations: Child support calculations also take into account the income of both parties. Passive income boosts the paying parent’s income, which can then result in a higher child support obligation.
Navigating the issues that come along with multiple, complex income streams in a New York divorce is always easier when you have experienced legal guidance. At The Law Firm of Poppe & Associates, PLLC, our focus is relentless advocacy for our clients. If you or someone you know is considering divorce, reach out to schedule a consultation at 646-600-8007 or bycontacting us online.Let Me Be Your BraveMia Poppe, Esq.Mia Poppe, Esq.Managing Partner