What is Residual Income? A Comprehensive Legal Overview
Definition & Meaning
Residual income refers to the income that remains after all debts and expenses have been paid. This includes costs such as housing, taxes, and other financial obligations. It is often generated through indirect means, such as receiving royalties from a book or rental income from property. Once debts like a mortgage are settled, the funds previously allocated to those debts contribute to the residual income. This type of income is sometimes referred to as passive income, as it can be earned without direct involvement in the activity that generates it.
Legal Use & context
Residual income is relevant in various legal contexts, particularly in finance and lending. Lenders often assess an individual's residual income when evaluating loan applications. This assessment helps determine whether the applicant can manage additional debt responsibly. Understanding residual income can also be beneficial in estate planning and tax considerations.
Real-world examples
Here are a couple of examples of abatement:
For instance, if a person earns $5,000 per month but has $3,000 in monthly expenses, their residual income would be $2,000. This residual income could be used to apply for a loan.
(Hypothetical example) A writer who publishes a book may earn royalties of $1,000 per month after all related costs are accounted for, contributing to their residual income.