It's pretty common for the parents of a spouse going through a divorce to help their adult child out financially during a difficult period in their life. Perhaps they send them some money to help cover the mortgage or car payments. However, what about situations where the parents are wealthy and decide to cover all their child's financial obligations indefinitely to the point where their child lives above their marital stand of living?
Getting financial assistance from parents during a California divorce with good intentions is normal, but it could potentially create legal implications in some situations. For example, what if the financial gifts are substantial and recurring? Could this impact child support or alimony? What about attorney's fees?
Let's say a husband in a divorce proceeding is receiving $10,000 a month from his wealthy parents to pay for all of his living expenses. Should this amount be calculated into his income to determine child support or spousal support?
In another example, an out-of-work mother claims no income but now lives in an expensive home purchased by her wealthy parents and who give her a $10,000 “loan” per month for expenses that might not have to be paid back. Should this amount be considered to determine spousal support?
While these examples above may seem rare, California family law courts have had to address these scenarios more often than you would think.
Most people know that parents have no legal obligation to support their adult children or spouse when going through a divorce. In other words, an ex-spouse can't expect their in-laws to take on the legal obligation for child support or spousal support, regardless of their level of wealth.
However, suppose the in-laws decide to provide significant financial support? In that case, a family law court could consider the amount of money received to determine what support should be paid and other related issues like paying lawyer fees. Our California divorce and family law attorneys will review this topic further below.
Is the Money a Loan or a Gift?
A crucial decision by the family court judge is whether the financial support by the parents of an adult child is a loan or a gift:
- A “loan” is typically paid back, but
- a “gift” requires nothing in return.
Judges won't normally consider a loan part of a spouse's income, but a gift might qualify as income to determine legal support obligations. Many parents might decide to label a gift a loan to avoid the money from being considered part of their adult child's income.
This maneuver is far too common to go unchallenged by divorce lawyers. The soon-to-be ex-spouse could decide to dispute whether a significant loan to their spouse is a gift.
Let's go back to the example above. Let's say the husband again receives a $10,000 “loan” from his parents every month, but there is no documentation of the loan, and he never pays any of the money back to his parents.
In that case, the husband will face a difficult challenge proving to the court that the large monthly amount of money he is receiving from his parents is a loan.
Are the Gifts Considered Recurring Income?
Let's now consider another angle. Let's assume the husband's money from his parents is a gift. The court will need to determine whether the money he receives is recurring.
In other words, ongoing and regular gifts could be considered income, and the family law court might decide to use that amount to determine child support and spousal support.
They might also use the amount of the recurring gifts to determine other related issues, such as their ability to pay their own or their spouse's lawyer fees, a common dispute in a California divorce.
What About One-Time Gifts?
Let's say a one-time gift is received, or regular donations were accepted at one time, but now stopped. Now, the family law court is not likely to consider the amount as part of a spouse's income to determine support obligations.
However, suppose it can be shown that the gifts are a regular occurrence or that they were received reasonably regularly over a period of years from their parents. In that case, the court is more likely to consider financial support as part of a spouse's income.
This means the gifts might increase the amount of support obligations by the spouse receiving them or reduce the amount of support received from an ex-spouse if they receive the gifts.
What About Gifts as Income for Child Support?
As discussed above, one-time gifts are not usually considered income to determine child support payments. In other words, gifts and inheritances are generally excluded from taxable gross income.
Let's revisit the wealthy parent's scenario where gifts might be treated as income because there are divorce cases that would be considered a “close call.” Generally, the courts would be obligated not to disregard regular gifts or other forms of something valuable when determining the critical issue of the monthly child support payments.
Sometimes, it's a complicated case where the spouse who will be obligated to make child support payments has wealthy parents willing to provide them with financial support.
Perhaps the spouse has a relatively low-income level from his employer but has always maintained a high standard of living due to the nontaxable gifts received from his parents. California Family Code 4058 says:
- (a) The annual gross income of each parent is income from whatever source derived, such as (1) Income such as commissions, salaries, royalties, wages, bonuses, rents, pensions, interest, annuities, workers' compensation benefits, unemployment insurance benefits, disability insurance benefits, social security benefits.”
This means that the interest or dividends earned from the gifts can be considered income for child support purposes. A one-time inheritance or gift is not usually considered income to determine child support payments, but any interest earned from the gifts will be regarded as income.
Also, when a California family court calculates a parent's annual gross income for child support, they can impute income based on a gift or inheritance or a lump sum cash gift if it was invested and interest was earned.
Are Recurring Cash Gifts Generally Treated as Income?
A parent's regular cash gifts could be considered income for child support purposes. However, there are situations where recurring cash gifts don't accurately represent a parent's income.
This means to include the cash gifts as income for child support payments might not be fair. Thus, the issue must be left to the family court's discretion. The court can calculate other benefits for the child support issue, such as free housing and other one-time or non-cash gifts, if they reduce the parent's expenses.
However, this issue of benefits that reduce living expenses is often the target of debate because it creates confusion in the formula used to calculate child support payments.
Get Help from Professional Family Law Lawyers
Parents sometimes finance divorce proceedings in California with good intentions to help this adult child through a challenging child support or alimony situation.
In a high-asset divorce, the legal fees alone are astronomical. If the court decides they neither spouse has a greater financial ability to pay the legal fees, then they have broad discretion in assessing how gifts should be treated to determine support obligations and lawyer fees.
Suppose you face a difficult divorce due to high assets or high amounts of recurring financial gifts. In that case, you will need to work with an experienced family law attorney to have the best chance of a favorable outcome.
If you need more information about how we can help you with any divorce or family law issues in California, then contact us to review the details of your situation.
Furman & Zavatsky are Certified Family Law Specialists located in Los Angeles County. We offer a free case review by calling (818) 528-3471 or filling out the contact form.