In a client’s California divorce, a trust fund beneficiary’s attorney argued that, for purposes of calculating child support, the beneficiary’s income available for support should only include his net disposable income and not the tens of millions of dollars held in trust for his benefit.
This is an excerpt from the trust beneficiary’s Settlement Conference Statement the attorney wrote to support his legal argument. It’s provided for educational purposes only.
In determining the income available for child support, the Court can consider income from whatever source derived, including trust income. (Fam. Code § 4058(a)(1).) “The key financial factor in the guideline formula is net disposable income,” which is typically determined by the parties’ annual gross income as stated on recent tax returns. (Marriage of Cheriton (2001) 92 Cal.App.4th 269,290; Marriage of Loh (2001) 93 Cal.App.4th 325,332.) For the purposes of computing child support, “income” should be broadly defined while the exclusions are specific and must be narrowly construed. (Afsaw v. Woldberhan (2007) 147 Cal.App.4th 1407,1425.)
Inter vivos and testamentary gifts, such as trusts established by wealthy family members, are not income within the meaning of section 4058. (Marriage of Scheppers (2001) 86 Cal.App.4th 646, 649-651.) Nor is the principle amount of a lump sum gift or inheritance. (County of Kern v. Castle (1999) 75 Cal.App.4th 1442, 1453.) However, the rents, interest, or dividends generated by these gifts are income available for support under section 4058. (Id.)
That being said, the court will not overlook nontaxable items, such as gifts, “that form a part of the parent’s regular cash flow.” (Marriage of Alter (2009) 171 Cal.App.4th 718, 734-35 (emphasis added).) Section 4053 of the Family Code requires the court to consider a parent’s actual income, rather than their taxable income, when settling support. (Id., at 735.) In Alter, the court properly included regular, predictable cash gifts received over a decade as income available for child support, even though these gifts were not taxable. (Id. at 737.) This is because “nothing in the law prohibits considering gifts to be income for purposes to child support so long as the gifts bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit.” (Id. at 736-37.)
The court “must arrive at a stable number in order to make a support order, even if income does fluctuate from month to month.” (Riddle v. Riddle (2005) 125 Cal.App.4th 1075, 1081.) “The theory is that the court is trying to predict likely income for the immediate future, as distinct from extraordinary high or low income in the past.” (Id. (emphasis supplied).) Thus, “it is a manifest abuse of discretion to take so small a sliver of time to figure income that the determination essentially becomes arbitrary.” (Id.)