California Family Law Report

Case of the Month Archive

Trial court misinterpreted MSA as setting floor on spousal support . . .

In partial reversal, Sixth District holds that trial court had authority to order child-support payments reduced despite clause in MSA that made child support “ ‘absolutely non-modifiable downward,’ ” and that trial court did not err by considering father’s recurring gifts of money from his mother as income in calculating child support

Cindie and Jack Alter were married in 1989, and they later had two children, Samantha and Alexandra. Jack worked for his family’s retail drapery business, which he inherited after his father died in 1996. Cindie was a lawyer, but she didn’t practice during the marriage. According to Cindie, Jack’s mother began sending $4,000 a month to the couple after Jack’s father died.

Jack and Cindie separated in 2001. Soon thereafter, they executed an MSA, which, among other things, provided that Cindie would have sole legal and physical custody of the kids, and that Jack would pay monthly child support of $4,000, plus add-ons for tuition and other expenses. The MSA also stated that Jack’s child-support obligations “ ‘shall be absolutely non-modifiable downward throughout the term that child support shall remain in effect.’ ” With regard to spousal support (which did not terminate on Cindie’s remarriage), the MSA required Jack to pay $3,000 a month, which could be reduced to not less than $1,000 a month if Cindie received part of Jack’s inheritance, earned more than $75,000 a year, or married someone who had an annual income or net worth that exceeded specified amounts. After the MSA was finalized in July 2001, Cindie and the kids moved to Georgia.

In December 2004, Jack filed a motion to reduce child support to guideline, to reduce the add-ons, and to terminate spousal support. In opposition, Cindie contended that the MSA barred a downward modification of child support, and that Jack had not shown changed circumstances. At trial in June 2007, Jack testified that the drapery business had not been uniformly successful since his father’s death, that he had not received income he anticipated from a commercial building because his mother sold it, and that his income of $7,000 a month was not enough to pay his support obligations. Jack admitted that his mother gave him $3,000 a month; paid for the children’s schooling, tutoring, and summer camp; let him use her credit cards to buy clothes for the kids; and footed the bills for his frequent trips to Georgia to visit them. He also stated that his mother gave him money when he needed it, paid his attorneys’ fees, and volunteered to pay the child support that he couldn’t. Jack claimed that all the funds he received from his mother were loans, and he produced promissory notes, dating back to 2005, all of which he’d signed on the same day. Jack explained that his mother’s attorney e-mailed him the notes, which he printed, signed, and returned to counsel; those that he produced were the ones that he still had in his computer. He also asserted that his mother had begun treating the funds she gave him as loans after learning the terms of the MSA. Cindie, who had reactivated her law license in Georgia, testified about her salary as a clerk for a Georgia superior court judge, which had jumped from $19,500 in 2005 to almost $61,000 in 2007. She also told the court about the payments she and Jack received after his father’s death, and about dividend income she reported on her 2005 tax return, which came from accounts she held jointly with her father but to which she did not have access. Cindie claimed that the expense of opposing Jack’s request, coupled with the cost of suing the builder of her house, had depleted most of her savings. Cindie’s I&E declaration showed dividend income of $50 a month, and indicated that other dividends were “ ‘paper income’ only.”

In an order issued on July 2, 2007, the trial court found that Jack’s income had materially changed, that the MSA clause precluding a downward child-support mod did not trump the court’s authority to modify child support, and that the monthly payments to Jack from his mother were income for purposes of calculating child support. The court also found that Cindie received dividend income of $10,319 in 2005, $480 a month in 2006, and $100 a month in 2007. The court reduced Jack’s child-support payments, but not the add-ons. In a first amended order issued a week later, the court made an additional finding that the MSA set a $1,000 floor for spousal support, and ordered Jack’s payments reduced to that amount. After Jack filed objections to the findings regarding Cindie’s income, the characterization of his mother’s payments, and the $1,000 floor for spousal support, the court issued its final order on October 29, 2007. That order pegged Jack’s monthly child-support obligation at $2,850 for 2005, $2,839 for 2006, and $3,045 for 2007, and set his spousal-support obligation at $1,000 a month, beginning on January 1, 2007.

Cindie appealed, Jack cross-appealed, and the Sixth District affirmed in part, reversed in part, and remanded.

The best-laid plans . . .
Cindie renewed her contention that the MSA clause that precluded a downward modification of child support barred the trial court from making such a mod. Not so, the justices said. At the outset, the panel pointed out that Fam C §3651 authorizes the trial court to modify or terminate support orders regardless of any agreement, except for spousal-support orders that the parties agree may not be modified. Cindie asserted that although the parties cannot limit their children’s right to support, they can agree to set “an absolute floor for support that the court is bound to honor.” In support of her contention, she relied on Puckett v. Puckett (1943) 21 Cal.2d 833, 136 P.2d 1, Newhall v. Newhall (Newhall I) (1958) 157 Cal.App.2d 786, 321 P.2d 818, and Newhall v. Newhall (Newhall II) (1964) 227 Cal.App.2d 800, 39 Cal.Rptr. 144. The justices found those cases inapplicable, however, because they dealt with integrated property settlement agreements, which were superseded by Fam C §3585, which makes MSA child-support provisions separate and severable from property and spousal-support provisions. Child-support obligations are always imposed by law, the panel continued, even when the support amount is based on the parties’ agreement, because such agreements are always subject to court approval. As the Sixth District said in In re Marriage of Bereznak (2003) 110 Cal.App.4th 1062, 2 Cal.Rptr.3d 351, 2003 CFLR 9377, 2003 FA 1105, agreements that attempt to limit the trial court’s jurisdiction over child support “ ‘are not binding on the children or the court, and the court retains jurisdiction to set child support irrespective of the parents’ agreement.’ ” Moreover, the panel was not convinced that public policy favors setting a floor on child-support payments, as Cindie argued. The justices pointed out that such a policy would be counter to both Fam C §3651 [permits child support to be modified up or down] and Fam C §4053(b) [imposes equal responsibility on both parents to support their children], since it would require a parent to pay the amount ordered regardless of whether it represented a fair share of the obligation or was beyond the parent’s ability to pay. Summing up, the panel found that the agreement was not a bar to the trial court’s jurisdiction to modify child support up or down.

Good old Mom . . .
Jack argued that the lower court erred by considering his mother’s payments as part of its child-support calculation. As he saw it, the funds were gifts or loans, neither of which should be considered, or, alternatively, they were a special circumstance that might warrant a departure from guideline, similar to the free rent that the payor received in In re Marriage of Loh (2001) 93 Cal.App.4th 325, 112 Cal.Rptr.2d 893, 2001 CFLR 8869, 2001 FA 1023. When the justices reviewed the evidence on which the trial court based its order, it showed that Jack’s mother had a history of paying most of the kids’ bills, and routinely gave Jack and Cindie money during the marriage. Moreover, she had paid Jack’s legal bills and offered to pay the child support that he was unable to cover. The evidence failed to show that Jack ever paid any of the money back. Thus, the panel found, the trial court could reasonably infer that “Jack’s mother was very generous and did not expect to be repaid.” And since Jack didn’t work for his mother, the trial court did not err by determining that her payments to him were gifts.

When gifts turn to income . . .
A finding that the payments were gifts, the justices said, did not automatically mean that they could not be considered in calculating child support, as Jack averred. The justices recognized that Fam C §4058(a) does not include gifts in the list of things that must be considered as part of a payor’s income, but that list “is expressly described as a nonexclusive list.” And since §4058 does describe annual gross income as “income from whatever source derived,” it did not preclude the trial court from considering gifts in its calculation. The panel could find no case law dealing with “how to characterize recurring, monetary gifts such as those Jack received from his mother.” In In re Marriage of Schulze (1997) 60 Cal.App.4th 519, 70 Cal.Rptr.2 488, 1998 CFLR 7829, 1998 FA 835, for example, the payor had received “recurring benefits” from his parents, but those were properly characterized as employee benefits that were statutorily includable as income because the parents were his employers. The justices further noted that Webster’s Third New International Dictionary (1993) defines income as “ ‘a gain for recurrent benefit that is usu[ally] measured in money and for a given period of time, derives from capital, labor, or a combination of both.’ ” But Black’s Law Dictionary (8th ed., 2004) defines income as “ ‘[t]he money or other form of payment that one receives, usu[ally] periodically, from employment, business, investments, royalties, gifts and the like.’ ” (Emphasis added in opinion.) “Thus,” the panel concluded, “the common definitions of ‘income’ do not unequivocally preclude considering recurring gifts of money as income.” The justices were not swayed by the fact that federal tax law does not consider gifts as income. They reasoned that the purpose of federal tax law is to “identify that which, consistent with prevailing federal tax policy, might be taxes,” while the purpose of child-support statutes, per Fam C §3900, is to “insure that parents take ‘equal responsibility to support their child in the manner suitable to the child’s circumstances.’ ” In addition, per Fam C §4053, the guideline takes into account the “ ‘actual income’ ” of the parents, not their taxable income. Thus, federal tax law was not controlling here. The panel was more inclined to find persuasive out-of-state cases, such as Ordini v. Ordini (Fla Dist Ct App 1997) 701 So.2d 663 [income included gifts from husband’s parents who supported parties during marriage], Barnier v. Wells (Minn Ct App 1991) 476 N.W.2d 795 [regular gifts from dependable party considered income], and In re Marriage of Rogers (Ill 2004) 213 Ill.2d 129 [gifts and loans received by father every year without obligation to repay are income], where regular gifts of cash were considered as income. The panel distinguished Loh because, unlike the cash that Jack’s mother routinely gave him, that case dealt with noncash benefits. Summing up, the justices concluded that the trial court had discretion to consider regular gifts of cash as income in calculating child support.

No harm, no foul . . .
The justices quickly disposed of Jack’s contention that the trial court should have imputed the same amount of dividend income to Cindie for 2006 and 2007 that it had for 2005. The panel reasoned that Cindie had argued convincingly that she had no access to the accounts that generated the dividends and that she never actually received most of the money; thus, the lower court could have imputed even less income to Cindie than it had. Given that, the justices said, Jack was not prejudiced by the imputations that the court actually made. The panel was similarly unimpressed by Jack’s argument that the money his mother spent on the kids’ expenses should be imputed as income to Cindie. He had neither raised that argument at trial nor provided any authority for it on appeal. Thus, the justices declined to consider it. As for his assertion that the lower court should have modified the add-ons as well as the main child-support order, the panel noted that the trial court said it lacked sufficient evidence to make such a modification, and Jack had presented none to show that his mother had stopped paying those expenses. Accordingly, the panel found no error.

Just a misunderstanding . . .
Finally, the panel considered Jack’s assertion that the lower court misinterpreted the MSA as establishing a $1,000 floor for spousal support. When the justices looked at the wording of the MSA, they could see that it placed conditions on when spousal support could be reduced to $1,000 a month, but it didn’t make that support “absolutely nonmodifiable to less than $1,000.” Thus, the trial court had misinterpreted the MSA. The panel declined to imply findings to support the judgment because Jack had specifically objected to the trial court’s findings with regard to the spousal-support order. Since the evidence did not support the lower court’s finding that there was a $1,000 floor on spousal support, the justices reversed and remanded for the trial court to reconsider the spousal-support part of its final order.