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Restricted Stock Units:  Income for Child Support Purposes

In a recent appeal arising from a post-divorce modification action, Hoegen v. Hoegen (14-P-1491), the Massachusetts Appeals Court decided that income realized from vested restricted stock units (RSUs) must be included in the calculation of child support.

In doing so, the Appeals Court reversed the decision of the trial court judge, who found that "the mother did not prove that the father's income from [RSU] should be included in calculating child support as there was no evidence that said [RSU] income was not derived from the stock plan listed as an asset on the father's financial statement at the time of the divorce and in which any interest of the mother in said stock plan was waived by the mother in the parties' separation agreement."  

The father in the Hoegen case made the classic "double dipping" argument in an effort to shield his RSU income from inclusion in child support calculations.  He claimed that he retained his RSUs as property division under the parties' divorce judgment, and that the wife waived all rights, title and interests in the RSUs. Accordingly, he argued that income from the RSUs should be excluded when the parties periodically recalculated child support after the divorce by agreement.  

The Appeals Court rejected the "double dip" argument.  The court cited to Champion v. Champion, 54 Mass.App.Ct. 215, 221 (2002) (rejecting the proposition that "an improper double benefit exists whenever income produced by an asset included in a party's equitable share of the marital estate is considered in determining the need for or the ability to pay support orders") to indicate, in basic terms, that a double dip is proper under the right circumstances.  The Hoegen decision highlights for parties and practitioners that (i) parties cannot bargain away the rights of their children to benefit from an increase in a support obligation driven by a parent's increase in income, (ii) just because you receive the value of an asset at the time of divorce, it does not mean that the income you derive from that asset should not be included in the definition of gross income for purposes of a subsequent child support calculation; and (iii) while income derived from RSUs is not specifically included in the broad definition of income under the Massachusetts Child Support Guidelines, such income does fall squarely within the catch-all phrase stating that "any other form of income or compensation not specifically itemized" may be included. See Massachusetts Child Support Guidelines I-A(28).

In sum, knowing that income from RSUs is going to be included in subsequent child support calculations at the time you are negotiating a final divorce agreement should help significantly in negotiations.  For example, you may decide to push for a broader definition of child-related expenses for which the support recipient will be solely responsible.  You may ask for a cap on your financial exposure to contribute to the payment of child-related expenses that are outside the scope of what the parties agree will be covered by periodic child support payments (such as extra-curricular activity and educational expenses, certain anticipated significant uninsured medical or dental expenses, etc.).  For more information about how income from RSUs affects child support, feel free to call any of our highly-experienced family law attorneys at Fitch Law Partners LLP.

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