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Fam C §4057.5 applies to all new-mate income, whether from earnings or from return on investment . . .
In reversal, Third District holds that trial court erred by including community-property income attributable to Dad’s new mate in calculating child-support mod; only Dad’s half of income from community-property investments should have been considered
In re Marriage of Knowles
(October 6, 2009) |
California Court of Appeal, 3 Civil C057851, 178 Cal.App.4th 35, 100 Cal.Rptr.3d 199, 2009 FA 1411, per Nicholson, Acting PJ (Robie and Butz, JJ, concurring). Butte County: Glusman, J, reversed with directions. For appellant-father: Bill J. Cook, CFLS, (530) 893-2220. For respondent-mother: Les Hait, CFLS, (530) 895-3352. CFLP §§E.4.0.3, E.22.9.3.17. |
During their marriage, Thomas and Elizabeth Knowles had one child, a son; when they divorced, the trial court awarded them equal custody and ordered Thomas to pay $506 a month in child support. Thomas, who ran a family ranch in partnership with his parents, later married Sara, an attorney. She and Thomas made some lucrative real estate investments that yielded capital gains in excess of $3.1 million in 2004 and 2005. They invested those funds in an A.G. Edwards brokerage account, which was held solely in Sara’s name “for ‘convenience,’ ” and in a real estate development in Chico called Meriam Park. Thomas stopped working for his parents and started a commercial charter aircraft business, which has not been successful.
Meanwhile, on January 6, 2005, Thomas’s ex (now Elizabeth Anastasi) filed a motion for a child-support increase. After several continuances and other proceedings, the court issued a statement of decision and judgment in which it imputed income of $4,166 a month to Thomas, based on his former partnership income, and determined that $18,450 a month was a reasonable rate of income from his brokerage account and from Meriam Park. Calculating his support obligation from those figures, the court ordered Thomas to pay child support of $1,557 a month, retroactive to January 6, 2005, plus $20,000 for Elizabeth’s attorneys’ fees. In addition, the court issued an OSC re sanctions against Sara, based on her actions representing Thomas in the mod proceeding. On December 12, 2007, the court ordered Sara to pay $2,000 in sanctions to Elizabeth, and indicated that it would report Sara to the State Bar.
Sara didn’t appeal, but Elizabeth and Thomas did. He challenged the trial court’s use of new-mate income in its child-support calculation, and the Third District reversed with directions in a partially published opinion.
Leave hers alone . . .
Thomas contended that the trial court violated Fam C §4057.5(a)(1) by including Sara’s share of the income from their community-property assets when it modified his child-support obligation. Reviewing how his income had been calculated, the justices noted that the lower court imputed to Thomas (1) $4,166 in monthly earned income, (2) $10,950 in monthly income from the brokerage account, and (3) $7,500 in monthly income from Meriam Park; the latter two figures were based on a reasonable rate of return from the entire community interest in those assets. But Fam C §4057.5(a)(1), the panel noted, expressly prohibits a trial court from considering the income of the payor’s new mate in calculating a child-support order, absent a finding that failing to include that income would work a severe hardship on the child. Here, the brokerage account and Meriam Park were clearly community property, which meant that Thomas and Sara shared equally in their value. And since the lower court had not made a finding of severe hardship, it should not have included Sara’s share of those assets in calculating Thomas’s income. The trial court, the panel noted, found “ ‘no statutory or case law’ ” that provided that Fam C §4057.5(a)(1) applies where new-mate income is in the form of capital gains or passive income, such as that from interest or dividends. “ ‘Public policy,’ ” the trial court said, “ ‘points directly in the opposite direction.’ ” Thus, the lower court had included all of the community assets of both Sara and Thomas in its calculation. The justices disagreed with that analysis, pointing out that §4057.5 is the applicable statute, and concluding that it applies to all new-mate income, whether that income is earned or represents a return on investment. As for public policy, they found that “when a statute is on point, the public policy of this state is contained in that statute.”
Terms of distinction . . .
Elizabeth contended that the panel should rely, as the trial court had, on Fam C §4008, which provides that community, quasi community, and separate property are subject to a child-support obligation. The justices said that §4008 “is not inconsistent” with their interpretation of Fam C §4057.5, noting that §4008 applies when a trial court determines what resources are available for discharging a child-support obligation. On the other hand, §4057.5(a)(1) prohibits the inclusion of new-mate income when the trial court is calculating child support. In this case, the justices continued, the trial court failed to recognize the distinction between discharging a child-support obligation and calculating that obligation; it erred by applying §4008 instead of §4057.5(a)(1). Elizabeth also asserted that the lower court could have come up with the same order by finding a hardship or by considering Thomas’s capital gains as income; thus, the panel should affirm it as a correct judgment even if the trial court arrived at it for the wrong reasons. Quickly brushing that assertion aside, the justices found that “it is not at all clear” that the lower court would have reached the same conclusion had it used the correct reasoning. The statement of decision was clear and specific, and it lacked a hardship finding or any implication that the court could have come to the same conclusion via another avenue. Summing up, the panel reversed the child-support order, and remanded for the trial court to make a new determination that properly applies Fam C §4057.5(a)(1).
Nonpub . . .
In the unpublished parts of the opinion, the justices found no merit in Thomas’s contentions regarding the retroactivity of the order, the trial court’s failure to grant hardship deductions for his other two children, and its alleged bias against Sara. The panel also found meritless Elizabeth’s contention that the lower court should have treated Thomas’s capital gains as income instead of attributing a reasonable rate of return to his investments.
We’ve waited a long time for another case dealing with consideration of new-mate income under Fam C §4057.5. One of the few cases that has, In re Marriage of Wood (1995) 37 Cal.App.4th 1059, 44 Cal.Rptr.2d 236, 1995 CFLR 6844, 1995 FA 714, is cited here, but it came down in 1995. Neither the statute nor the cases provide any definitive answer regarding what actually constitutes either an “extraordinary case” or an “extreme and severe hardship,” although Wood seems to say that new-mate income can be considered where one of the parents is voluntarily unemployed or underemployed. Those facts apparently aren’t present here, even though Thomas left a presumably well-paying partnership and “abandoned all earned income” to start his unsuccessful charter aircraft business. Fam C §4057.5 fails to say how much of the new mate’s income will be considered in an appropriate case, and there is no case law on the issue. We can only wonder why there aren’t more cases dealing with this; doesn’t anyone “marry up” anymore? Or have prenups become so prevalent among those who do that this has prevented more cases from occurring? Who knows?
Remember that new-mate income can be considered for the limited purpose of determining a parent’s tax liability. The guideline requires the court to reduce gross income to net by subtracting taxes “actually payable (not necessarily current withholding) after considering appropriate filing status, all available exclusions, deductions, and credits.” Once the tax effect of new-mate income is “considered,” the change in a payor’s available net income can be dramatic, even without actually adding any of the new-mate income to the pot. In County of Tulare v. Campbell (1996) 50 Cal.App.4th 847, 57 Cal.Rptr.2d 902, 1997 CFLR 7363, 1996 FA 776, the trial court relied on §4057.5 in refusing to consider the income of the father’s new spouse for any purpose (not even to enter it in the DissoMaster™ child-support calculation). When the father appealed the support order, the Fifth District reversed and remanded. The panel observed that Fam C §4055(b)(2) directs the trial court to compute net disposable income according to Fam C §4059, which requires that the net incomes of the parties be calculated by deducting the actual amounts attributable to, among other things, their state and federal income tax liabilities; Fam C §4059(a) also mandates that the deduction accurately reflect each party’s tax status. As the justices in Campbell reasoned, where a parent files a joint tax return with a new spouse, it is impossible to arrive at an accurate figure for the parent’s actual tax liability without using the new spouse’s income in the gross-to-net calculation; thus, that panel concluded that §4057.5 does not preclude consideration of new-mate income for the limited purpose of determining a parent’s actual tax liability. Similarly, in In re Marriage of Carlsen (1996) 50 Cal.App.4th 212, 57 Cal.Rptr.2d 630, 1996 CFLR 7331, 1996 FA 774, the Third District held that the trial court had properly considered the income of a child-support payor’s new mate in determining the recipient’s tax rate for the purpose of calculating a support mod.
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