Economic windfalls and child support: how should gifts, inheritances, and prizes be treated?

• Author: Berenson, Steven K.

In the spring of 2013, the attention of many turned to one of the largest jackpots available in the history of the Powerball multistate lottery. Eventually, it was reported that Pedro Quezada of New Jersey was the sole winner of the prize. Quezada opted to take a $211 million lump-sum payment, rather than receiving the full amount of the $338 million prize in installments. However, New Jersey authorities made clear that the $29,000 Quezada owed in child support arrears would be deducted before any payments were made to him. (1)

Other than perhaps Quezada himself, few people would have any quibble with this relatively small deduction from his jackpot winnings. After all, the obligation to support one's children is firmly established in both law and morals. To the extent Quezada can use his newfound wealth to make up for any past failures to satisfy his child-support obligations, he should do so. Similarly, many would agree that Quezada's minor children should be able to share in his lottery winnings. However, reasonable people may disagree regarding whether this should be in the form of increased mandatory child support payments, or whether Quezada should be able to independently determine how to share (or not share) his newfound wealth with his children as part of his parental prerogative.

The issues arising from Quezada's situation become more challenging if we imagine his jackpot as being more modest, such as a $50,000 prize. These issues are exacerbated if we imagine Quezada was not behind in his child support payments, but rather was current with this obligation. Further, consider a situation where Quezada was having difficulty making his mortgage payments and in danger home foreclosure. Finally, if the $50,000 prize was adequate to remove the risk of foreclosure, the question of what Quezada should do with his winnings is even more difficult. In these varied circumstances, should Quezada still be compelled to use at least some of the $50,000 winnings as increased child support payments?

The possible variations on this scenario are endless. Consider a situation where $50,000 was left to Quezada in his mother's will. Should the money be treated any differently for child support purposes? Would it impact the analysis if Quezada had faithfully taken care of his mother through her declining years, or if his mother had left him the money despite being estranged from her son entirely? Further, would it make any difference if rather than an inheritance, Quezada's mother, while living, provided her son with $2000 each month to pay his mortgage, after having learned of his financial distress?

Given the different answers these questions generate, it is not surprising that the law differs greatly from state to state, and even within states, regarding how the separate categories of gifts, inheritances, and prizes are treated for child support purposes. Taken as a whole, the law here is a mess. There are no consistent theoretical underpinnings for the manner in which these items are treated in existing child support law. Thus, the law in this area needs rationality and harmonization.

The purpose of this Article is to come up with an ideal manner in which gifts, inheritances, and prizes (referred to collectively from this point forward as GIPs), should be treated under child support law. This Article begins with an analysis of existing law regarding the treatment of these categories of resources for child support purposes. (2) After demonstrating the confused, conflicting, and contradictory state of the existing law in this area, it goes on to examine the goals and purposes of child support law. (3) It is only in relation to such goals and purposes that a recommendation can be made for the ideal treatment of GIPs. Thus, the third section examines GIPs in relation to the previously discussed goals and purposes of child support law. (4) Finally, this Article concludes with a recommendation to policymakers regarding the ideal treatment of GIPs in child support law. (5)

1. CURRENT TREATMENT OF GIPS UNDER STATE CHILD SUPPORT LAW

   In 1988, Congress mandated that states adopt standardized mathematical guidelines for determining child support, making this a condition for receiving federal assistance for child support and enforcement programs. (6) As a result, all states have adopted such guidelines. However, the federal government did not impose any strictures as to the form such guidelines should take. (7) Therefore, there are significant differences in these guidelines from state to state. For example, even though the starting point for calculating guideline support in virtually every state is the incomes of the parents, states differ significantly in how they determine each parent's income.

   Nowhere are these differences in income determinations greater than in the case of GIPs. For example, some state child support statutes expressly include gifts within their definition of countable income for child support purposes. One such state is Texas, which expressly includes gifts in its definition of "net resources," which are counted for purposes of calculating child support. (8) Not surprisingly, the Texas Court of Appeals held cash payments and other in-kind contributions made from a father to his adult son, who was a college student, were gifts that counted as the son's net resources in determining the child support payments he owed. (9) Similarly, Colorado expressly includes "monetary gifts" in its definition of income for child support purposes. (10) Thus, the Colorado Supreme Court held a party could conduct discovery to determine whether the opposing parent in a child support dispute did in fact receive such gifts from their new spouse. (11) North Dakota also includes gifts in its calculation of income, provided the amount of such gifts exceeds $1,000 in a year. (12) Arizona and Maryland also expressly include gifts in income for child support purposes. (13)

   In contrast, child support guidelines in other states expressly exclude gifts from consideration as income, at least for one time or nonrecurring gifts. For example, although the Alaska Rule of Civil Procedure 90.3 does not expressly address gifts, an official Comment to the Rule states that "the principal amount of one-time gifts ... should not be considered as income." (14) Based on this language, the Alaska Supreme Court has concluded that even recurring gifts should not be counted as income for child support purposes under the Alaska guidelines. (15) Connecticut law expressly excludes gifts from spouses or domestic partners from income in calculating child support, but otherwise includes regularly recurring gifts in income. (16)

   The most common situation in state child support calculation is where the guidelines neither expressly include nor expressly exclude gifts from income calculations. (17) Rather, the state guidelines are silent regarding the treatment of gifts. In such circumstances, states are split regarding whether to include or exclude the gifts from income. (18) One important factor in this analysis is the recurrence or non-recurrence of such gifts, with recurring gifts more likely to be included in income than nonrecurring gifts. (19) However, some states have concluded that even recurring gifts should not be treated as income for child support purposes, because the donor may cease to provide such gifts at any time. (20)

   While state child support guidelines provide judges with the presumptive amount of child support orders, courts can deviate from the guideline amount, provided they issue written findings of fact as to why such a deviation is in the child's best interests. (21) Thus, some states that do not include gifts in income for child support purposes have nonetheless concluded that gifts may be considered by the court in determining whether to deviate from the guideline amount. (22)

   Turning to inheritances, it may appear that there should be no difference in the manner in which states treat inheritances from the manner in which they treat gifts in calculating child support. As a number of courts have pointed out, an inheritance is really nothing more than a testamentary gift. (23) Indeed, some states do treat gifts and inheritances together in their child support statutes. (24) On the other hand, some state child support statutes expressly deal with inheritances while remaining silent about gifts; the converse is true as well. (25) As suggested above, most state statutes are silent as to both categories, leaving the courts to determine how to treat gifts and inheritances in calculating child support.

   As is the case with gifts, courts are divided regarding whether an inheritance should be counted as income for child support purposes when the relevant statutory definition of income fails to specifically mention inheritances. For example, in Indiana, an appellate court concluded an inheritance of $135,000, which was to be paid in two installments, counted as income for child support purposes. (26) There, the applicable child support statute expressly included gifts and prizes in its definition of income, but was silent as to inheritances. (27) The court found the inheritance to be a type of gift, and therefore, concluded that it fell within the express terms of the statute. (28) An appellate court in Virginia reached the same conclusion in similar circumstances. (29) Using slightly different reasoning, a Texas appellate court also reached the same result. (30) The court reasoned the general words of inclusion for the Texas definition of income drew inheritances within the purview of the statute, even though inheritances were not expressly mentioned, as was the case with gifts and prizes. (31) In Tennessee, where the relevant regulatory language simply defined as countable "all income from any source ... whether earned or unearned," the court concluded inheritances should be included in income for child support purposes, so long as...