Murky Waters: Is Mom’s “Gift” Income on Which You Must Pay Support?
The definition of “income” for purposes of paying spousal or child support would seem to have been resolved decades ago. In 1985 when Pennsylvania passed its statute defining “income” it adopted a definition that essentially mirrored the definition of income used by the Internal Revenue Service (26 U.S.C. 61). That definition does not include money or property received by gift. And, consistent with that, the Supreme and Superior Court has held that cash or property gifted is not income for purposes of calculating a support obligation. The Supreme Court spoke to this doctrine in Humphreys v. DeRoss 790 A,2d 281 (Pa. Supreme 2002) and it is reflected in Jacobs v. Jacobs, 884 A.2d 301,307 (Pa.Super.2005). Humphreys suggested that income of this kind may justify deviation from guideline but does not merit treatment as income.
The law has scarcely been consistent. In Kolbe v. Kolbe, the husband’s father gave the husband cash. 142 A.2d 365,366 (Pa.Super. (1958). The father attempted to make the payment look like a loan. The court deemed unclear the issue of whether the gift from the father was included as income or not. Id. In Funk v. Funk, the Superior Court determined that the trial court erred in not considering as income “monthly financial assistance” the wife received from her parents. 545 A.2d 326,334 (Pa. Super, 1988). However, no other details were provided about these payments, except to say there was insufficient evidence to determine whether the aid was in the form of loans. Id. at 328 n. 1.
Now we have a non precedential ruling in Moore v. Hernandez, 2930 EDA 2022 decided on July 17. Father got payments of $3,000 a month from a trust established by his mother. Father testified that his payments stopped during the support litigation. This left the hearing officer to decide whether it was or wasn’t “income” within the definition of 23 Pa.C.S. 4302.
The Superior Court opinion informs us that the hearing officer was provided with nothing more than Father’s testimony. The trust document was not provided by either party. The Trial Court affirmed the recommendation including it as income and basing the support on earned compensation plus the $3,000 that had been paid historically. The Superior Court affirmed on July 17, 2023 based on an analysis of an undistributed earnings case, Fennell v. Fennell, 753 A.2d 866 (Pa. Super. 2000).
Unfortunately, this is an application of the wrong law. Mr. Fennell owned 19% of a corporation that reported earnings, but the majority shareholders did not distribute the earnings. The trial court in that case was satisfied that even though Mr. Fennell’s family members were also shareholders in the same corporation, history has shown that profits were not distributed.
Taking husband at his word in the present case, Mr. Hernandez testified he wasn’t getting the $3,000 because his mother had suspended the payments from the trust. We have no reference to what his personal tax return showed. Income of this kind is ordinarily taxed to the trust and reported on the trust’s return (Form 1041). But when evaluating support obligations Section 4302 of the support law adds to the definition of income “any form of payment due and collectible by an individual regardless of source.”
Money that comes by way of gift is not “due and collectible.” The recipient donee has no ability to enforce the payment as a matter of law. It is distressing that Mr. Hernandez did not produce the trust to show the payments were entirely in his mother’s control. But the burden to show income resides in the party asserting that the payments meet the statutory definition of income. In defense of the plaintiff (Ms. Moore), not all trusts are sited in Pennsylvania and it is also not uncommon for trust recipients to get income or even principal in a setting where the trust instrument is not provided to beneficiaries. So, there are logistical problems that can arise when trust payments are involved. But, the opinion in Humphreys suggests that courts are to evaluate whether the payment looks and smells more like a gift or an entitlement. Justice Newman’s Humphrey’s opinion states: “In light of the fact that the legislature specifically included “income from an interest in an estate or trust” but did not include the principal of an inheritance or trust, it is logical to assume that the legislature did not intend to include the principal. Strunack v. Ecker, 424 A.2d 1355 (Pa.Super, 1981) (where certain things are specified in a statute, omissions are exclusions).”.
So, we have an appellate case where neither the courts nor the parties explored precisely what were the obligor’s entitlements under the trust, if any, but he will pay support based on them whether he receives them or not. Again, this is a case that should have been remanded by the trial court to the hearing officer to explore what the trust said about entitlements versus trustee’s discretionary payments. Armed with that information we might be able to graduate to the next question; that of whether a vested income beneficiary is a gift recipient with payments that don’t count for support or a person with a payment stream that is “due and collectible” pursuant to the terms of the trust. The testimony about being “cut off” from Mom was not really useful. The world is full of trustees who do things that don’t conform to the trust instruments from which they operate.
