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Legal Update: Restricted Stock Awards Considered Part of “Gross Income” When Calculating Child Support Payments
The New Hampshire Supreme Court recently held that restricted stock awards must be included as income for the purposes of calculating child support, providing a reminder to practitioners as well as divorced and divorcing parties of the importance of considering all income from any source when determining child support payments. In the Matter of Greenberg, No. 2019-0734, 2021 N.H. LEXIS 39 (March 24, 2021).
In the Matter of Greenberg concerned the child support obligations of the father, Mr. Greenberg, to his former wife. Mr. and Mrs. Greenberg were married in 2003 and had two children together. Their final divorce decree was entered in December 2015. Pursuant to the uniform support order issued with decree, Mr. Greenberg was required to pay Mrs. Greenberg “28% of any bonus he [received] within 3 days of receipt” as child support in addition to his regular monthly child support payments.
At all times relevant to this action, Mr. Greenberg worked for a publicly-traded company that periodically awarded him shares of restricted stock. The vested restricted stock shares were listed as a “taxable benefit” on his paystub and were treated as income by the IRS.
Neither the divorce decree nor the uniform support order expressly referenced Mr. Greenberg’s restricted stock awards. In 2019, Mrs. Greenberg moved to modify her ex-husband’s child support payments on the basis of a three year review “and possibly based upon a significant change of financial circumstances.” Following a hearing, the Circuit Court held that the monies earned by Mr. Greenberg from the sale of restricted stock shares should be considered for child support purposes. The Circuit Court reasoned that restricted stock awards functioned like a retention bonus, rewarding key employees. On that basis, and consistent with the parties’ divorce decree (requiring 28% of any bonuses received to be paid to Mrs. Greenberg), the Court ordered Mr. Greenberg to pay close to $91,000 in child support. Going forward, Mr. Greenberg was ordered to pay 26% of the net proceeds from the sale of any vested restricted stock. After unsuccessfully moving for reconsideration of the Circuit Court’s decision, Mr. Greenberg appealed to the New Hampshire Supreme Court.
The Supreme Court affirmed the Circuit Court’s decision. In doing so, the Court focused on the language of RSA 458-C – regarding child support guidelines – which defines “gross income” as “all income from any source…” for child support purposes. RSA 458-C:2, IV. The statutory framework further allows the trial court, “in its discretion,” to “order that child support based on one-time or irregular income be paid…” based on the applicable percentage of net income. RSA 458-C:2, IV(c).
Specifically, the Court rejected Mr. Greenberg’s argument that his vested restricted stock constituted a non-includable asset for child support services. While Mr. Greenberg contended that restricted stock did not become income for child support purposes until he sold the shares, the Court concluded “liquidity is not dispositive as to whether something is characterized as an ‘asset’ of as ‘income’ for child support purposes.” Relying on its prior holdings finding that exercised stock options “‘must be included as income for the purposes of calculating child support’ because ‘such options are analogous to a bonus’ and ‘are also included within the phrase all income from any source’”, the Court held that restricted stock awards are to be considered part of “gross income” for child support purposes. In the Matter of Dolan and Dolan, 147 N.H. 221 (2001).
While Mr. Greenberg made several other arguments, the Court rejected those in short order, focusing in on the fact that the restricted stock awards were part of Mr. Greenberg’s compensation package, such that they expressly met the “broad statutory definition of ‘gross income’ for child support purposes.” RSA 458-C:2, IV.
Taken together, the Court’s decision In the Matter of Greenberg reinforces the importance of considering all income from any source – including restricted stock awards – when considering “gross income” for child support payments.
The attorneys at Sulloway & Hollis understand the many legal issues that arise in the domestic relations context. If you have questions about this decision or other matters, please contact us