Are Monetary Gifts Considered Income in Child Support Calculations?

Until 2009, it was uncertain whether monetary gifts received by a mother or father of a minor child could be considered by a court in a divorce or paternity case in calculating child support.  That year, a California Appellate Court agreed to decide that issue.  It is very common for parents to give their married children cash gifts to help them pay expenses, particularly when the married couple is young and just getting started.    Likewise, parents often help their adult single mother child or single father child with their bills.  In this 2009 case, In re Marriage of Alter, the husband’s mother had been gifting him $3,000 per month for years.  After dissolution was filed, the husband moved in and lived with his mother.  The mother then bought a house for her son to live in.  She increased her son’s “allowance” to $6,000 per month.  Of that amount, $3,000 was for him to use for his expenses, and the other $3,000 was for him to give back to his mother as rent for the house that she purchased for him to live in. 

We are now in family court and the Wife is asking the Court to consider her Husband’s receipt of gifts from his mother over the years as income to him for the purposes of calculating child support.  The Husband responded that the money he received from his mother were gifts and not income.  What is the result?

Existing California case law provided little guidance on the point. The Appellate Court agreed it is settled that the principal amount of a one-time, lump sum gift or inheritance is not income but the rents, interest, or dividends generated by the gift are income. However, no cases specifically addressed a pattern of recurring gifts.  The Court looked at other states and found that they went in different directions, with some considering gifts as income and some not. It agreed with the treatment described in the Illinois case of In re Marriage of Rogers (2004), wherein the father received gifts and loans from his family which amounted to a steady source of dependable annual income he had received each year over the course of his adult life. He had never repaid any portion of those sums, nor paid tax on them. Rogers held that these gifts fell within the definition of income contained in the Illinois statute, which defined net income as “‘the total of all income from all sources.’”

The Alter Court concluded that “nothing in the law prohibits considering gifts to be income for purposes of child support so long as the gifts bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit.”  So, the rule is that One-Time Gifts are NOT INCOME.  However, Recurring Gifts are INCOME so long as they “bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit.”  The Trial Court HAS DISCRETION to consider whether to include these recurring gifts as income.  Yet, the Court is NOT REQUIRED to do so.  “While regular gifts of cash may fairly represent income, that might not always be so.”

Winning The Lotto Can Be Bad News If You're Not Divorced Yet

When Holly Lahti of Rathdrum, Idaho learned that she won $190 million in the Mega Millions Lottery in January 2011, it should have been the happiest day of her life.  Under normal circumstances, TV viewers all over the country could expect to see Lahti, smiling and posing with a giant check.  Instead, Ms. Lahti’s joyous win is plagued by a looming court battle with her long-estranged husband.  Although separated for a number of years, the couple is not divorced, and, under Idaho law, Lahti’s husband may be entitled to a portion of her winnings.

In California, income (including lottery winnings)a earned by a person after the date of separation is his or her separate property.  But how does one determine what that date is?  California Courts define separation as “that condition when spouses have come to a parting of the ways with no present intention of resuming marital relations. The fact that husband and wife live in separate residences is not determinative, althought it is usually considered an important factor. The question is whether the parties' conduct evidences a complete and final break in the marital relationship”. 

Determining what constitutes a complete and final break is often a complicated task. Since intentions are, by definition, subjective, courts examine whether the parties' conduct, objectively, reflects that the marriage is over.

For instance, imagine that a spouse moves out of the family home, and lives with a new significant other for the next four years.  Many of us would consider this to be a complete and final break-up of the marriage.  Not so, said the California Court of Appeal in In re Marriage of Baragry (1977) 73 Cal.App.3d 444. 

From 1971 to 1975, Mr. Baragry thought he had the best of both worlds.  He lived with his 28-year-old girlfriend, but continued to have dinner at his former home (with his children and his wife of 20 years) several times a week.  He took his wife to social and professional events, and gave her Christmas, birthday, and anniversary cards.  In 1975, Mr. Baragry filed for divorce and claimed that the substantial sum of money he earned after 1971 was his separate property. The Court disagreed, and ruled that the marriage remained intact until 1975.  The Court may have been persuaded by the fact that Mr. Baragry continued to bring his laundry for his wife to wash and iron twice a month during the entire 4-year period that he claimed they were “separated”.

The moral of this story is that establishing the legal date of separation can be a complicated factual determination, and one may or may not be considered “separated”, regardless of one’s living arrangements.  If Holly Lahti lived in California, this may have made the difference between enjoying a $190 million prize and engaging in a protracted legal battle with an estranged husband.

Check out our blog next month for another fascinating lottery story, and find out why a certain Mrs. Rossi had to give up not half, but all of her lottery winnings!

Marina Ayzenstein
Marina is an Associate Attorney with Richard Ross Associates.