As a divorce lawyer who also does some probate litigation and trusts and estate work, I have always been interested in the interplay between divorce and trusts and estates. Recently, the issue of whether gifts are considered income for purposes of calculating child support came across my desk.
Now in talking about gifts, I don’t mean the ugly reindeer sweater grandma sends you for Christmas every year. When speaking of gifts, I am referring to a specific estate planning strategy where wealth is transferred to others via use of a gift tax exclusion. Gift tax exclusion, sounds scary, but it is actually a pretty simple concept. A gift tax exclusion is the amount of money, or other assets, one person can give to another person in any given year without incurring a gift tax (simply put, how much dough grandma can give you before it has to be reported to taxing authorities).
For 2019, the annual gift tax exclusion is $15,000, which means any one person can give another person cash or assets totaling $15,000 in 2019 without triggering a gift tax. It is common in families where there is money to spare for parents to gift children, spouses, grandchildren, nieces, nephews, the dog (just kidding about the dog) an amount equal to the annual gift tax exclusion amount. By way of example, a recipient family of four would have additional monies/assets of $60,000 (4 x $15,000) in 2019 in the event gifts equal to the annual gift tax exclusion amount were made to each family member.
Should these gifts be treated as income for purposes of calculating alimony and child support in the event divorce becomes a reality for the family receiving such gifts? While there is no case law directly on point in Massachusetts, and the Massachusetts Child Support Guidelines do not specifically enumerate gifts as a source of income to be considered for purposes of calculating child support, there is a catch-all in the Child Support Guidelines, which provides that a source of income for calculating child support can include “any other form of income or compensation not specifically itemized above.” Massachusetts General Laws Chapter 208 Section 53(c) also includes this catch-all in defining income for purpose of calculating alimony. Given this catch all, it is possible that a spouse who is regularly receiving significant gifts from family members, or others, could have such amounts included in their income for purposes of calculating child support and alimony in a Massachusetts divorce.
In Rhode Island, gifts are excluded from the marital estate for purposes of property division. This means that gifts received during the marriage are generally not divided between spouses as property at the time of divorce. The Rhode Island Child Support Guidelines, however, specifically provide that gross income for purposes of calculating child support includes gifts and all other forms of earned/unearned income. As such, a spouse who is regularly receiving significant gifts from family members, or others, is likely to have these monies/assets included in their income for purposes of calculating child support in Rhode Island.
So, in the event grandma steps up her gift giving game, and divorce is potentially on the horizon, be sure to speak with a knowledgeable divorce attorney and/or estate planning attorney, who can advise you as to the risks and benefits of receiving such gifts, and help craft a plan to ensure gifts meant for one spouse do not end up in the hands of the other spouse.