Are my Reverse Stock Splits, Gifts and Loans considered income to determine my obligation to pay child support? Part 1 of 2
A good way to determine the answers to these questions is look at what case law has dictated.
Specifically, In re Marriage of Anderson, 405 Ill.App.3d 1129, 938 N.E.2d 207, 344 Ill.Dec. 938 (3d Dist. 2010), provides a remarkably expansive look, as well as a retrospective, as to what other than earned income may or may not be income for purposes of child support.
In Anderson, the former wife, in a post judgment modification case, claimed that the trial court erred by ignoring three sources of income:
1. the proceeds from the sale of the stock owned by her husband in a closely held family corporation;
2. bonus/commission income from his new employer; and
3. gifts and loans that her husband may have received from his parents.
The wife first claimed that the reverse stock split’s net proceeds her husband received should be treated as income subject to child support. The court held that the proceeds from the reverse stock split of her husband’s AEC shares did not involve a gain or recurring benefit or employment compensation. Her husband received the proceeds as a result of an involuntary purchase of stock he owned, which resulted in a capital loss. In reality, the forced sale reduced her husband’s wealth because he no longer received the yearly dividends that the stock generated. The court went on to say:
In reaching our conclusion, we note that the distribution of stock may constitute income for child support purposes if the stock is sold pursuant to an employment bonus-based option. See Colangelo, 355 Ill.App.3d 383, 290 Ill.Dec. 986, 822 N.E.2d 71.Here, however, the sale of [her husband’s] stock was necessitated by the company’s decision to implement a reverse stock split of minority shareholders, a decision over which [her husband] had no control. He then used the proceeds to purchase other investment assets. Under these circumstances, the proceeds do not qualify as “net income” under section 505(a)(3) [of the IMDMA]. 938 N.E.2d at 2013.