Courts often average irregular income to set child support, and crypto gains are irregular. Below I stick to documented approaches to irregular income and label the rest as my reasoning. The upside is that every approach I found rewards clear records, and records are something you can build today.
Irregular income: Averaging in Tennessee: One Reported Case
A law-firm summary of Blackshear v. Blackshear (Tenn. Ct. App., March 19, 2014) describes a father who owned outdoor advertising companies and petitioned in 2011 to reduce support, saying his income had dropped. The mother said most of his income came from capital gains when he sold a billboard.
The trial court set his income at $2,500 a month based on cash flow, said capital-gain income should be averaged over the life of the asset, and reduced support to $73 per month.
The Court of Appeals agreed with the mother that the trial court should have averaged his actual income over time instead of relying on cash flow, suggested a special master might be appropriate, held that the father had not met his burden of proof, and sent the case back (Memphis Divorce summary).
The post is a 2014 blog summary, not the opinion, and doesn’t say whether the appellate court specifically addressed capital-gain averaging, as opposed to income averaging generally. I treat the capital-gain point as the lower court’s reasoning as reported.
Averaging in Arkansas Guidelines
Arkansas Administrative Order 10 says variable income such as commissions and bonuses is averaged over a reasonable period, and that for certain nonrecurring income the court may average it or require a one-time support payment (Arkansas Administrative Order 10, as posted by CourtRules.net). The CourtRules.net page carries the 2022 version of the order.
A Different Tool in California: the Smith/Ostler Order
A Smith/Ostler order sets a base monthly support amount from regular income and then adds a percentage of extra income, such as bonuses, commissions or stock awards, as the money is received. The page cites Marriage of Ostler and Smith (1990) 223 Cal.App.3d 33, where the appellate court rejected averaging bonus income into a fixed monthly figure and held that support should be based on income actually received.
No fixed percentage is set by law (Provinziano Law). The page’s example: a $240,000 salary gives $4,000 a month base support, and a $100,000 bonus with 13% allocated to child support yields $13,000 when received. The page doesn’t discuss crypto.
Averaging Gains: An Example With Assumed Numbers
Assume realized crypto gains of $0, $0 and $90,000 over three years, a total of $90,000. Averaging over the three years gives $90,000 ÷ 3 = $30,000 a year. A percentage-of-receipts approach would instead charge a share of the gain in the year it arrives. At an assumed 10%, that is $9,000 in year 3 and nothing in years 1 and 2. The percentage is made up for illustration, and neither source says what a court would choose for crypto.
| Approach (assumed) | Year 1 | Year 2 | Year 3 |
|---|---|---|---|
| Average of gains | $30,000 | $30,000 | $30,000 |
| 10% of gains when received | $0 | $0 | $9,000 |
My Reasoning on Crypto
This is my own reasoning, not a court’s. Averaging smooths income that moves up and down, and a percentage-of-receipts approach avoids guessing future income. Crypto gains arrive irregularly and in amounts that depend on when you sell, so I think either approach could be argued for them.
Steps for Documenting Crypto Gains
- Keep dated records of every realization, so any method your state uses can be applied to real figures. That is my suggestion.
- Look up your state’s model in the NCSL brief above, then find your state’s guideline text to see how it treats irregular income.
- Define terms in any agreement. The Provinziano page says appeals often turn on weak drafting, such as failing to define “bonus” (Provinziano Law). By analogy, I’d define what “realized gain” means.
- Plan for reporting and true-ups. The same page says well-drafted orders require notice when variable income arrives and some reconcile annually (Provinziano Law).
- Set money aside from a large realized gain in case support is adjusted later. That is my suggestion.
Find Which Calculation Model Your State Uses
The three cases above come from three different states, so the first practical step is to learn which model yours follows. The NCSL guideline models by state brief (last updated July 10, 2020) describes three models. Income shares, used by 41 states plus Guam and the U.S. Virgin Islands, aims to give the child the share of parental income the child would have had if the parents lived together. Percentage of obligor income, used by six states (Alaska, Mississippi, Nevada, North Dakota, Texas and Wisconsin), looks only at the paying parent’s income. The Melson formula, used by Delaware, Hawaii and Montana, is a more complex version of income shares. Because the brief is from 2020, a state may have changed since, so use the model name as a starting point for finding your state’s current guideline text.
The model matters for gains because a percentage-of-obligor-income state looks at the paying parent’s realized income alone, while an income-shares state compares both parents’ incomes. In either case, the dated record of each realization described above is the evidence the calculation starts from. That connection is my reasoning, not a statement from the NCSL brief.
Irregular Income Questions
How long is the averaging period under the Arkansas order? The text says “a reasonable period” for variable income, without giving a number.
Can a settlement address future gains? The Smith/Ostler example above shows an order can specify a percentage of extra income when received. The page does not say which states allow similar orders.
Does the Tennessee case set a rule for crypto? No. It is a reported case about variable business income and a billboard sale.
My Take on Averaging Gains
- In my view, whichever method a state uses, the party with clear dated records of each realization is better placed to explain the numbers.
- In my suggestion, if you are drafting an agreement, spelling out how gains are measured and when they count avoids most disputes the sources describe.
Sources
- Memphis Divorce: summary of Blackshear v. Blackshear
- Provinziano Law: Smith/Ostler orders
- Arkansas Administrative Order 10 (CourtRules.net)
This article offers general information and my own opinions, not financial, tax, or legal advice. The figures in worked examples are assumed. Laws, tax rules, and products change and can differ by location, so check current official sources and talk to a qualified professional about your own situation.
Related reading: The Timing Trap Nobody Explains When Crypto Gains Meet Child Support Filings and Your Ex Already Got Half the Crypto in the Divorce — Can It Still Count as Income for Child Support?.