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Are Reverse Stock Splits, Gifts and Loans Considered Income for Support?

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Categorized as Child Support

When it comes to evaluating income for support in Illinois family law cases, questions about money received from reverse stock splits, gifts and loans can be answered by looking at what case law has dictated.

Illinois Case Marriage of Anderson Defines Income for Support

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 the Anderson case, the former wife, in a post-judgment support 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 and commission income from his new employer; and
  3. Gifts and loans that her husband may have received from his parents.

Reverse Stock Split Do Not Qualify as “Net Income”

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.

Monetary Gifts and “Loans” Considered Income

The second argument by the wife was that the trial court erred as a matter of law in failing to include gifts that her husband might receive from his family as income under 750 ILCS 5/505(a)(3). The reviewing court stated, “the trial court is required to include all income, regardless of its recurring nature, in calculating net income.” Einstein v. Nijim, 358 Ill.App.3d 263, 831 N.E.2d 50, 294 Ill.Dec. 527 (4th Dist. 2005). The relevant focus under Statute 505(a)(3) is the noncustodial parent’s economic situation at the time the child support calculations are made. If a parent receives payments that would qualify as “income” under the IMDMA, these payments may not be excluded on the basis that they might not be received in the future. See In re Marriage of Rogers, 213 Ill.2d 129, 820 N.E.2d 386, 391, 289 Ill.Dec. 610 (2004).

In re Marriage of Rogers case, the noncustodial father received yearly gifts and loans from his parents totaling more than $46,000, which he had never been required to repay. The court concluded that the annual gifts were income for purposes of determining child support because they represented a valuable benefit to the father that enhanced his wealth and facilitated his ability to support his son. Id.

Bonuses or Commission Included as Income

The third argument made by the wife in Anderson, supra, was that the trial court improperly computed her husband’s net income by failing to include any future bonuses or commissions that he might earn. The reviewing court held “as with [her husband’s] gifts, the trial court’s refusal to include 28% of [her husband’s] bonuses in its calculation of net income was an abuse of discretion.” 938 N.E.2d at 214. In Einstein, supra, the court held that the bonus payment received, although possibly not recurring, should be included for support purposes.

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