The Penniless Attorney and His Obligation to Pay Child and Spousal Support
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.
Conclusion
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.
----------------------------------------------------
Donald P. Schweitzer
Law Offices of Donald P. Schweitzer
201 South Lake Avenue, Suite 700
Pasadena, California 91101
http://www.PasadenaDivorce.com
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.
Conclusion
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.
----------------------------------------------------
Donald P. Schweitzer
Law Offices of Donald P. Schweitzer
201 South Lake Avenue, Suite 700
Pasadena, California 91101
http://www.PasadenaDivorce.com
posted by Hugh Harris-Evans at 9:23 AM
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