Are Recurring Gifts Treated As Income?

One-Time Gifts Are Not Usually Treated As Income for Child Support

By analogy to tax law, which excludes gifts and inheritances from taxable gross income (IRC § 102(a)), one-time or “sporadic” gifts and inheritances normally are not “gross income” for child support purposes.

[See Marriage of Schulze (1997) 60 CA4th 519, 529, 70 CR2d 488, 495 (Rent subsidy in form of free housing from a parent); County of Kern v. Castle (1999) 75 CA4th 1442, 1453, 89 CR2d 874, 882 (inheritance); Marriage of McQuoid (1991) 9 CA4th 1353, 1360, 12 CR2d 737, 740 — W not charged with rental subsidy income based on fact she and children were living with W’s mother.]

However, there are the “tough cases” with wealthy parents were gifts treated as income.

Similarly, it probably would not be appropriate to disregard gifts (or other “freebies”) when calculating child support in the “really tough case” where an obligor, as the offspring of a very wealthy family whose parents are not his or her employers, manages to live quite well even on a low annual gross income (as defined by § 4058) because of nontaxable gifts received from his or her parents.

[See Marriage of Schulze, supra, 60 CA4th at 530, 70 CR2d at 495, fn. 10]

However, the interest or dividends earned from the gifts/inheritance is income that can be used for child support purposes. In this situation, gifts treated as income.

While one-time inheritances and gifts themselves generally are not “income” for child support purposes, interest, rents and dividends actually earned from gifts and inheritances are income to be included in calculating child support. [Fam.C. § 4058(a)(1); County of Kern v. Castle, supra, 75 CA4th at 1453]

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Imputed Income

Moreover, in calculating a parent’s annual gross income for child support, the court has discretion to impute income based on an inheritance (or gift) corpus or on interest a lumpsum cash inheritance (or gift) could have earned if invested; this is so even if the parent has entirely exhausted the corpus.

[See County of Kern v. Castle, supra, 75 CA4th at 1453–1454, 89 CR2d at 882—abuse of discretion not to consider as H’s income interest that could have been earned on $240,000 inheritance used to pay off his house mortgage]

Recurring Gifts Can Be Treated As Income

As distinguished from the above (one-time or sporadic gifts/inheritances), regular gifts of cash received by a parent may be treated as income for child support purposes so long as the gifts bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit. [Marriage of Alter (2009) 171 CA4th 718, 736–737]

By the same token, there may be circumstances where regular cash gifts do not “fairly represent income.” Thus, the inclusion thereof as income for presumptively-correct child support “must be left to the discretionof the trial court.” [Marriage of Alter, supra (emphasis added)]

H’s receipt of $3,000 monthly gifts from his mother for many years, later increased to $6,000 (of which he used $3,000 to pay the rent she charged him on a house she purchased for him to live in), was properly considered as H’s income in calculating guideline child support. “The periodic and regular nature of the payments means that the money is available to [H] for the support of his children.”

[See Marriage of Alter, supra, 171 CA4th at 737 (also rejecting H’s contention that $3,000 of the $6,000 should be treated as free rent, not includible income for formula support but instead to be viewed as a circumstance to adjust formula support upward under §§ 4056 and 4057)]

Benefits That Reduce Living Expenses

A line of authority upholds court discretion to treat as income in the formula calculation otherwise nonincludible benefits, such as free housing and other one-time or noncash gifts, to the extent they reduce the recipient parent’s living expenses.

[See Stewart v. Gomez (1996) 47 CA4th 1748, 1754–1755—disabled parent’s free housing on Indian reservation treated as income by analogy to § 4058(a)(3); County of Kern v. Castle (1999) 75 CA4th 1442, 1451—error not to factor into child support calculation $1,150 additional monthly disposable income H enjoyed after paying off his mortgage with inheritance; see also Marriage of Chakko (2004) 115 CA4th 104 (personal living expenses paid by obligor’s wholly owned business]

However, a blanket “anything that reduces living expense” approach to § 4058 income has been sharply criticized.

Among other reasons, § 4058 itself confines that approach to employment benefits (¶ 6:200); and the most common instances of “things that reduce living expense” are new mate income, which the Legislature has placed off limits in adjudicating child support. Moreover, this approach would inevitably “bog down” the computer/formula calculation of child support in problems of where to draw the line (“[d]iscount coupons received in the mail, free or discounted tickets to entertainment events … or even the value of an employer’s contribution to Social Security might be characterized as ‘income’ ”).

[See Marriage of Loh (2001) 93 CA4th 325, 334–336, 112 CR2d 893, 899–900 & fn. 8; Marriage of Schlafly (2007) 149 CA4th 747, 758–760, 57 CR3d 274, 281–282—error to include as income rental value of H’s mortgage-free house that is not an employment benefit]

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