In Pennsylvania, child support is based on an income-driven system. To calculate child support, both parties' net incomes are obtained and then applied to a guideline. Pursuant to 23 Pa. C.S. §4302, for purposes of child support, "income" includes compensation for services, including, but not limited to, wages, salaries, bonuses, fees, compensation in kind, commissions and other similar items. Income also includes income derived from businesses, gains derived from dealings in property, interest, rents, royalties, dividends, annuities and income from life insurance and endowment contracts. The definition contains other sources as well. However, the definition of income for support purposes does not include gifts and loans.

It is not uncommon for family law practitioners handling support matters to be confronted with the issue of a party receiving money from a family member claimed to be a gift or a loan. Though gifts are not included in the definition of income, can they impact a child support calculation? The recent case of Suzanne D. v. Stephen W., 2013 Pa. Super. 93 (April 22, 2013), tackles this question head-on.

The Suzanne D. case is an appeal and cross-appeal from a "December 21, 2011, order dismissing in part and granting in part Stephen W.'s exceptions to ... the hearing officer's recommendation for child support." The pertinent facts of the Suzanne D. case are as follows: Suzanne D., the mother, and Stephen W., the father, were married and had two children. The parties had equally shared physical custody of the children. After a trial on the parties' economic claims, a recommendation and report was entered by the hearing officer, to which both parties subsequently filed exceptions thereto. However, the parties thereafter withdrew their exceptions and the recommendation and report became a final order. The recommendation and report provided: "The guideline child support order shall be entered based upon the parties' actual net incomes with alimony." Thereafter, the mother filed a petition to schedule a child support hearing, as no child support order was entered pursuant to the hearing officer's report and recommendation that previously became an order.

The mother also filed a motion to award counsel fees, costs and expenses, pursuant to 23 Pa. C.S. §4351(a). The mother's motion for fees was consolidated with her support petition. A two-day trial was held before a hearing officer on the consolidated petitions.

According to the Superior Court opinion, the hearing officer entered a recommendation and seven-page explanation. The hearing officer's recommendation provided that the father was to pay child support in various amounts during various time periods. "The hearing officer further recommended that the mother should not be responsible for any of the children's medical expenses in 2010, as the father was fully reimbursed for said expenses by his father, the paternal grandfather," the opinion said. The parties were ordered to divide the medical expenses for the years after September 1, 2010, as the paternal grandfather ceased reimbursing Stephen W. for medical expenses from that point forward. The hearing officer also recommended that the father pay $22,000 toward the $31,257 in counsel and expert fees incurred by the mother. The parties filed exceptions and cross-exceptions to the hearing officer's recommendation. The trial court held oral argument on the exceptions and cross-exceptions. The trial court also ordered a $500 upward deviation in the father's child support obligation "due to the funds received by the father from the paternal grandfather," according to the opinion. The trial court also adjusted the percentages so that the parties would be responsible for the unreimbursed medical expenses after September 1, 2010. The trial court deferred to the hearing officer's recommendation regarding counsel fees. According to the Superior Court opinion, the father filed a timely notice of appeal and the mother filed a notice of cross-appeal.

The father raised five issues on appeal. This article focuses primarily on his first three issues raised, generally pertaining to whether the trial court erred by finding the additional funds provided to Stephen W. by his father were gifts rather than loans, and whether the trial court erred by ordering an upward deviation if the payments to the father are found to be gifts. The mother's cross-appeal pertained to whether the trial court committed an error of law by finding that the payments made by Stephen W.'s father were not income available for support as the payments were used to maintain Stephen W.'s lifestyle and amounted to "over $350,000 for the period in question."

According to the opinion, Stephen W. argued that the payments that he received from his father were a series of loans that he was obligated to repay. Stephen W. produced a demand note that he signed as evidence that the payments were a loan. According to the opinion: "The father notes that, if he does not repay the loan, the balance will be deducted from his inheritance." Because of this, the father argued that the trial court erred in finding the payments were a gift instead of a loan. "The trial court, in reviewing the record, did not find the father's assertion that the payments were a loan to be credible," the opinion said. According to the father's testimony, the payments by his father were gifts prior to the parties' separation but became loans once the parties separated. The demand note itself was found to be "unpersuasive" by the trial court "since it was possible that the father would not be required to make any repayment under the terms of the note." The paternal grandfather also was unfamiliar with the note and its terms when testifying.

In conducting its analysis, the Superior Court cites that "neither gifts nor loans" are included in the expansive definition of income under §4302. The court further provided a reminder that it held "that a gift is not income for purposes of determining child support" in the case of Jacobs v. Jacobs, 884 A.2d 301 (Pa. Super 2005). The Superior Court reasoned that "because a gift is given not in exchange for services, it does not meet the statutory definition of income." However, the court stated that a gift may be considered "a reason for deviating from the guideline amount of child support." According to the opinion, the grandfather had a history of making many gifts to the father. The father also testified that he asked his father for money as needed. According to the grandfather's testimony, there were no repayment terms for the loans to Stephen W., but there was an interest rate. The opinion notes that the grandfather was inconsistent with his deposition testimony. Further, according to the opinion: "The record supports the trial court's finding that the father was not credible and that the payments were gifts." Therefore, the Superior Court found that the trial court did not abuse its discretion in determining that the payments to the father were gifts.

The mother's argument that the payments are income since they covered the father's living expenses was denied by the Superior Court. The court analyzed her argument and repeatedly reiterated that, under the Jacobs decision, gifts are not income for support purposes. Further, the court stated: "The statute does not define income to include gifts. Monetary gifts from family members are a common practice, and would not have been unknown to the drafters of the statute. Had the General Assembly wished to include gifts as income for support it would have done so." Because of this, the court stated: "We are not empowered to add language to the statute simply because it may seem equitable to do so."

The court then analyzed whether the trial court erred in deviating upwardly from the child support guideline calculation because of the gifts received by the father. Pursuant to Rule 1910.16-5, there are nine factors to be followed by the court in determining whether to deviate from the child support guideline calculation. Interestingly, gifts received by a party are not enumerated in the nine factors. However, the ninth factor provides: "Other relevant and appropriate factors, including the best interests of the child or children." On appeal, the father reiterated that the mother did not specifically seek a deviation based upon the "gift." After an in-depth analysis, the court held: "Gifts are an appropriate factor to consider in determining whether a deviation is warranted." However, the court failed to state which factor applied to this premise. According to the opinion: "The record reflects that the father's monthly income is almost doubled by the grandfather's gifts. This is in addition to the expenses for the children that the grandfather pays or reimburses. There is no indication in the record that the grandfather will cease providing money to the father as the father requests it." The court further stated: "Given the substantial gifts and the disparities in the parties' incomes, there was no abuse of discretion in the trial court's determination that a deviation was warranted."

The court also affirmed the trial court's decision to affirm the hearing officer's decision to not require the mother to pay her proportionate share of the medical expenses and extracurricular activities that were paid by the paternal grandfather. The court reasoned that because the father did not incur the expense, neither should the mother. Lastly, the court upheld the counsel fees award primarily based upon the parties' disparate incomes and the fact that the father paid none of his own legal fees. The court highlighted that the trial court "recognized the difficulty for [Suzanne D.] to pay her legal fees, as well as the effect on the children in the event she was not awarded fees."

This case is very important for family law practitioners. Often during a support case, a litigant will claim that gifts he or she receives should not be considered in calculating a support order, since gifts are not included as income. This case reiterates that gifts shall not be considered as income, but opens the door to the court deviating from the guideline support calculation because of such gifts. In the Suzanne D. case, there was an upward deviation in the support obligation. However, if the payee is the recipient of substantial gifts, an argument could be made that a downward deviation should be applied. This case adds a new and interesting wrinkle in the ever-evolving world of child support. •

Gifts May Warrant Deviation in Child Support (PDF)

Michael E. Bertin is a partner at the law firm of Obermayer Rebmann Maxwell & Hippel. Bertin is co-author of the book Pennsylvania Child Custody Law, Practice, and Procedure. He is the chair of the family law section of the Philadelphia Bar Association, co-chair of its custody committee, and a past member of council and the executive committee of the family law section of the Pennsylvania Bar Association.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.

Reprinted with permission from the June 11, 2013 edition of THE LEGAL INTELLIGENCER © 2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 347-227-3382, reprints@alm.com or visit www.almreprints.com. # 201-06-13-07