You know that paying child and spousal support is tough in California where even a high paid attorney complains about his support obligations. In the case of Marriage of Mosley, an attorney pleaded with the court to modify his monthly child and spousal support payments, claiming that he was financially destitute after making his payments.
After sorting out the interesting facts of this case, the Court of Appeal had to address two common issues: 1) how to apply bonus income to the support calculations; and 2) when to impute earning capacity to a party who insists on not working. I think you will find that the Court applied some common sense in rendering its decision.
The Initial Support Orders
Paul and Dawn Mosley were married for twenty years, lived in Orange County, and had five children. Both parties were licensed attorneys. Notably, Paul was a real estate lawyer during the recent real estate boom. Dawn, on the other hand, quit practicing law early on in the marriage to tend to their children. In 2002 the parties were divorced.
The parties’ 2002 Judgment of Dissolution ordered Paul to pay Dawn $6,810 per month and 21 % of all of his bonus income. The child support order was based on the fact that Paul earned $447,150 for the year 2001, which equated a gross monthly income of $32,175. Paul’s timeshare with the children was 32 percent (a factor considered by California’s guideline formula). No income was imputed to Dawn when support was calculated, since she was still unemployed and taking care of the minor children at the time the divorce was finalized.
Paul was also ordered to pay Dawn spousal support, in the amount of $4,100 per month, plus 15 percent of his bonus income. The spousal support order included a provision that the amount of support was insufficient to maintain the marital standard of living. The total amount of support (child and spousal combined), amounted to $10,910, plus 36% of all of Paul’s bonus income.
The Times, They are a Changing!
As Paul’s tax returns revealed, the practice of a real estate attorney was quite lucrative between 2000 and 2003. This chart shows Paul’s income (base salary and bonuses combined), for the listed years:
2000 – $529,652
2001 – $616,697
2002 – $689,215
2003 – $753,651
Unfortunately, the real estate market’s bubble burst. Paul found himself out of a job when his law firm phased out their real estate practice. In February, 2005, Paul took up a new job as in house counsel with a home builder. Paul’s new base salary was $205,000. However, his new compensation package provided that he could also earn a discretionary bonus of up to 150 percent of his base salary. In 2006 Paul filed an Order to Show Cause for modification of support, asserting that there was a material change of circumstances, warranting the court to modify the support orders.
Paul made several arguments in support of his request for modification of the support orders. He explained to the court that he was not capable of paying $10,910 monthly support as ordered, since his take home pay was often less than the amount he was ordered to pay. Paul declared that in the first two months of 2006, he paid Dawn more than the amount of his take home pay and borrowed all of his living expenses. In March, 2006 Paul received the remaining $85,000 of his 2005 bonus, most of which he used to reduce prior borrowings. He estimated that the remaining amount of his bonus would permit him to go two months longer before he would have to start borrowing again. Paul expected he would have to borrow 100 percent of his living expenses for the remaining six months of the year.
Paul also argued that the court should impute income to Dawn based on her earning capacity, since she had been given a Gavron warning (an advisement that she should make efforts to become self supporting), she was an attorney with impressive credentials, and based on her education and work history. Paul asserted that Dawn could earn at least $78,000 a year, and the court should impute those wages to her, in spite of the fact she was not working.
In opposition, Dawn argued that she could not afford a decrease in child or spousal support, since her monthly living expenses amounted to $10,000, and she was already living below the marital standard of living. Dawn also argued that the court should not impute wages to her, since she quit the practice of law several years ago, based on an agreement that she and Paul had entered into at the beginning of their marriage. Paul and Dawn had agreed that Dawn would stay home to take care of the kids, while Paul would go to work, and advance his career.
Finally, Dawn argued that the support orders should not be modified, since there was no showing that Paul’s income had actually decreased to the point where a modification was warranted. Dawn pointed out that Paul’s end of the year income for 2005 amounted to $448,392 (which included his base salary and bonus). Although his 2005 income was less than it had been in several years, it was greater than his base income of $447,150, as reflected in the 2002 judgment. Therefore, Dawn argued, there was no change of circumstances and Paul still had the ability to pay the court ordered support. The trial court denied Paul’s request for modification after determining that there was no change of circumstances warranting a reduction of support. In addition, the court refused to impute income to Dawn, reasoning that there was no showing that a job was available to her, and it was not in the best interest of the children for Dawn to work.
The Court of Appeal Weighs in
In a harshly worded decision, the Court of Appeal reversed and remanded the matter back to the trial court, ordering the court to recalculate child and spousal support, using Paul’s base salary, exclusive of his bonus income.
As the Court explained, “It exceeded the bounds of reason to require Paul to pay nearly 100 percent of his take home pay in support payments, on the assumption, based on only a one-year history with the home builder, that he would continue to receive a six-figure bonus each subsequent year. It placed him in a position of having to borrow for his living expenses, and thus resulted in a miscarriage of justice.” The court further reasoned that, “It would be an abuse of discretion for the court to leave Paul nearly penniless while he awaits the potential of a bonus each year, especially in light of the current plight of homebuilders.”
The Court of Appeal also held that the new order must include a different method for paying support based on Paul’s bonus income, citing In Re Marriage of Ostler and Smith (1990) 223 Cal.App.3rd 33, as follow: “No future bonus is guaranteed. It would therefore not be appropriate to base a support order on Husband’s bonus income and then require him to file motions to modify at such times as the bonus is reduced.” Instead, the Court suggested Paul pay Dawn a percentage of his bonus income, when he actually received it.
The Court of Appeal also directed the trial court to reconsider its ruling with respect to imputing income to Dawn, based on her earning capacity. While discussing Dawn’s earning capacity, the Court restated the law that a court may not impute earning capacity to a parent unless doing so is in the best interest of the children, citing In Re Marriage of Cheriton (2001) 92 Cal.App.4th 269. The Court then held that the same principal applies to when a Court calculates spousal support, citing Family Code, Section 4320.
But the Court of Appeal held that the trial court failed to consider all of the evidence before it in evaluating the best interest of the children. The Court recalled Paul’s testimony that if Dawn contributed to the support of the children, he would not need to spend as much time at work trying to maximize his bonus and would be able to spend more time with the children himself.
It is important to note that where bonus income is at issue, the trial court has the discretion, to include bonus income to the paying parent’s gross monthly income. However, based on the Marriage of Mosley, we know that the trial court should not include bonus income in calculating the monthly payment, if there is not a sufficient track record to predict receipt of the bonus income for future years, and when the support payment will leave the party penniless.