«CHILD AND SPOUSAL SUPPORT [REVISED 2012] ABOUT CJER The California Center for Judicial Education and Research (CJER), as the Education Division of ...»
• Speculative. If the bonus or commission income is not predictable, the court may consider (a) excluding it from the calculation of gross income, but ordering the parent who may receive the income to notify the other parent on receipt so the other parent may attempt to modify the support payments, or (b) ordering that when bonus or commission income is received, a certain percentage must be paid as additional support. The latter is the better practice. See Marriage of Ostler & Smith (1990) 223 CA3d 33, 272 CR 560.
The court may properly include regular twice-yearly bonuses that a parent receives from his Indian tribe in income unless it determines that the parent is unlikely to receive similar bonuses in the future. M.S. v O.S.
(2009) 176 CA 4th 548, 97 CR3d 812. When the parent’s income includes a regular salary and may include a discretionary end-of-year bonus, the court should make the support award calculated on the basis of the regular 201–13 Child Support and Spousal Support §201.11 salary alone, with a percentage allocation applied to the bonus, if and when actually paid. Marriage of Mosley (2008) 165 CA4th 1375, 82 CR3d 497.
c. [§201.10] Overtime Overtime earnings must ordinarily be included in the calculation of a parent’s gross income. County of Placer v Andrade (1997) 55 CA4th 1393, 1396–1397, 64 CR2d 739.
But these earnings may be excluded if:
• There is admissible evidence that it is unlikely that the overtime income will continue, for example, when there has been a change in employment conditions or the parent is no longer willing to accept voluntary overtime (55 CA4th at 1397); or
• Imputing overtime in the calculation would lock a parent into an “excessively onerous work schedule” (Marriage of Simpson (1992) 4 C4th 225, 228, 234–235, 14 CR2d 411).
When a parent ceases to work overtime, Simpson requires the parent’s income to be tied to an “objectively reasonable work regimen,” defined by “established employment norms.” Depending on the parent’s occupation, that norm may include more than 40 hours per week. A reasonable work regimen is dependent on all relevant circumstances, including the choice of jobs available within a particular occupation, working hours, and working conditions. 4 C4th at 235–236.
JUDICIAL TIP: When a parent takes a second job to make up for the impact of support payments on his or her lifestyle, that income is subject to child support liability. Under Andrade, if the parent earns it, the court must include it. If he or she voluntarily stops working overtime, the court may consider imputing overtime under earning capacity. If the court does so, it must follow the Simpson limitation on an excessive work regimen.
d. [§201.11] Employee Stock Options Employee stock options are part of a parent’s employee compensation package and must be included in income for determining child support when the option is exercised, i.e., the stock is acquired and then sold. Marriage of Cheriton (2001) 92 CA4th 269, 286, 111 CR2d
755. Under both the California child support statutes and federal tax law, the employee-parent may recognize income when stock options are exercised. At the very least, however, income is recognized when the underlying stock is sold at a gain. 92 CA4th at 288.
Given the sporadic nature of stock options, the court may adjust the child support order under Fam C §4060 (adjustment when monthly net §201.12 California Judges Benchguide 201–14 disposable income figure does not accurately reflect actual or prospective earnings) or Fam C §4064 (order adjusted to accommodate seasonal or fluctuating income). See 92 CA4th at 289 n11 (may be appropriate to allocate some of the proceeds to periods other than the year of receipt);
There are apparently no reported California cases on whether unexercised stock options, at least if vested, can be considered income for determining support. But an Ohio case has held that vested options that have not been exercised may be considered income on the theory that it would be income if the parent simply exercised the option. Murray v Murray (Oh App 1999) 716 NE2d 288, 293–295.
JUDICIAL TIP: The court should be careful not to “double dip.” If splitting options between spouses, the court must not also include the same asset in income for support purposes.
e. [§201.12] Income From Gifts or Inheritances Although proceeds from inheritances and gifts are generally not considered income for child support purposes (see §201.26), interest, rents, dividends, or other forms of income actually earned from gifts and inheritances are considered income in calculating child support. County of Kern v Castle (1999) 75 CA4th 1442, 1453–1454, 89 CR2d 874.
However, gifts may be considered income for child support purposes if the gifts bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit. Marriage of Alter (2009) 171 CA4th 718, 737, 89 CR3d 849 (trial court may treat recurring gifts of cash to child support obligor as income to be used in calculating obligor’s child support obligation).
In addition, the court has discretion to impute income based on an inheritance corpus or gift corpus or on interest that could have been earned if the sum was invested, and include that income in calculating child support. Kern v Castle, supra.
f. [§201.13] Lottery Winnings Lottery winnings may be considered as income in determining child support. County of Contra Costa v Lemon (1988) 205 CA3d 683, 689, 252 CR 455. In County of Contra Costa v Lemon, the child was receiving public assistance, and the parent’s income would have yielded a support order below the public assistance minimum had the winnings been excluded from income. Dicta in two subsequent cases have indicated that lottery winnings in determining support should be limited to public assistance cases. See County of Kern v Castle (1999) 75 CA4th 1442, 1450–1451, 89 CR2d 874 (Lemon distinguished; public assistance 201–15 Child Support and Spousal Support §201.14 circumstances “played a major role, perhaps the pivotal role in the court’s decision”); Marriage of Scheppers (2001) 86 CA4th 646, 651, 103 CR2d 529.
2. [§201.14] Discretionary Income The court may, in its discretion, include employee benefits or selfemployment benefits in a party’s gross income, after considering the benefit to the employee, any corresponding reduction in living expenses, and other relevant facts. Fam C §4058(a)(3).
Such benefits may include, but are not limited to, the following:
• Car allowance or company car. See Marriage of Schulze (1997) 60 CA4th 519, 528–530, 70 CR2d 488.
• Expense accounts, such as for meals and entertainment. See Stewart v Gomez (1996) 47 CA4th 1748, 1756, 55 CR2d 531 (reimbursed meal expenses).
• Employee rent-free housing. See Marriage of Schulze, supra (rent subsidy received from parents who were also husband’s employers).
• Uniform allowance.
• Company credit cards.
• Unused vacation.
• Unused sick leave.
• Health and fitness or country club memberships.
• Medical reimbursement plan.
• Personal expenses paid.
• Stock options or ESOPs.
• Day care.
Some California cases have held that trial courts have discretion under Fam C §4058(a)(3) to treat any benefits as income to the extent they reduce the recipient party’s living expenses. See County of Kern v Castle (1999) 75 CA4th 1442, 1445, 1451, 89 CR2d 874 (proceeds from an inheritance used to pay off mortgage); Stewart v Gomez (1996) 47 CA4th 1748, 1754–1755, 55 CR2d 531 (free housing that party received on Indian reservation). But this expansive reading of Fam C §4058(a)(3) was sharply criticized in Marriage of Loh (2001) 93 CA4th 325, 334–336, 112 CR2d 893. In Loh, the court held that apart from the fact that Fam C §4058(a)(3) clearly confines itself to employment benefits, a blanket “anything that reduces living expenses” approach to Fam C §4058(a)(3) §201.15 California Judges Benchguide 201–16 would encompass new mate income, which the Legislature has specifically forbidden in determining child support (see §201.16), and would generally “bog down” the computerized process of child support in problems of where to draw the line between things that “reduce living expenses and things that merely make life better.” 93 CA4th at 334–336 n8. Following the Loh approach, the court in Marriage of Schlafly (2007) 149 CA4th 747, 759–760, 57 CR3d 274, held that mortgage-free housing unrelated to employment is not includable as income. Rather, it is a special circumstance that may justify an upward deviation from the guideline amount.
JUDICIAL TIP: Most judges avoid taking a blanket approach that includes anything that reduce living expenses as income. First compute net disposable income; then, if there are circumstances making application of the statewide uniform guideline formula (see §201.31) unjust or inappropriate, the “special circumstance” rebuttal revision of Fam C §4057(b)(5) provides an escape valve.
Marriage of Loh, supra, 93 CA4th at 335; see §201.52.
C. [§201.15] Fluctuating Income To determine a parent’s monthly net disposable income, the annual net disposable income figure is normally divided by 12. Fam C §4060. If that calculation does not accurately reflect the actual or prospective earnings at the time of the support determination, the court may make appropriate adjustments to the disposable income figure. Fam C §4060.
An adjustment may be necessary when a parent has seasonal or fluctuating income, and the parent’s most immediate past monthly earnings do not reflect the inherent “ups and downs” in the earnings cycle.
See Fam C §4064 (court may adjust child support order to accommodate parents’ seasonal or fluctuating income). In such cases, the court must determine a representative time sample from which to calculate an average monthly income that is a reasonable predictor of the parents’ likely income for the immediate future. Marriage of Riddle (2005) 125 CA4th 1075, 1081–1084, 23 CR3d 273 (court erred in calculating support based on only latest 2 months of commissioned investment salesperson’s earnings).
The court may allow for a time sample longer than the 12-month benchmark period of Fam C §4060 if it is more representative of a party’s income. For instance, a two- or three-year average might be necessary to obtain a representative picture of an author’s royalty income; royalties are likely to be highest with a book’s initial release. 125 CA4th at 1084. A longer period, however, may be unrealistic for a commissioned salesperson because the resulting income figure may only reflect the past overall economy and may not be an indicator of the salesperson’s 201–17 Child Support and Spousal Support §201.16 immediate future income. 125 CA4th at 1084. On the other hand, consideration of a too short time period may distort the income calculation, as when a large one-time commission was paid or sales were unusually slow during the period. 125 CA4th at 1084.
D. [§201.16] Income of Parent’s New Spouse or Nonmarital Partner The income of either parent’s new spouse or nonmarital partner may not be considered in determining or modifying child support, except in an extraordinary case in which excluding that income would lead to extreme and severe hardship to the child subject to the child support award. In such a case, the court must also consider whether including this income would lead to extreme and severe hardship to any child supported by the parent or by the parent’s new spouse or nonmarital partner. Fam C §4057.5(a).
JUDICIAL TIP: Family Code §4057.5(a) effectively precludes modification of support based on an increase in the custodial parent’s standard of living due to remarriage, because new-spouse income may only be taken into account if a child will suffer by not considering such income. See Marriage of Wood (1995) 37 CA4th 1059, 1067–1068, 1071, 44 CR2d 236 (disapproved of on other grounds in 39 C4th 179, 187; Marriage of Knowles (2009) 178 CA4th 35, 41, 100 CR3d 199). So although the statute appears to be evenhanded, it effectively applies only to the noncustodial parent.