In a recent appellate decision, it was held that a parent's deferred income can be used to calculate his or her support obligation. In the case of In re Marriage of Berger, the husband had left a partnership with a very high salary to serve as CEO of a landscaping business in which he received equity. H's initial salary was set at about 1/3rd what he had earned in the prior job.
The new business never did well, and didn't generate a profit. After separation, the husband agreed that he would take a very low salary, deferring a large amount that would be converted to an ownership interest in the company. His deferred salary totaled $350,000. He was meeting his current expenses with substantial assets he owned, and wasn't living a monastic life.The husband then sought to reduce his support. In court he argued support should be set based only on the amount he received monthly, ignoring the potential from the deferred amount. [It probably didn't help his position that he'd borrowed almost $2 million to buy a lot in Laguna and build a house, or that he'd claimed $65,000 per month of income on his loan application, but those are not necessarily factors on which support would be calculated]
The trial judge found he had an earning capacity of 4.5% of his assets, and $2000 per month in salary, cut his child support substantially and reduced his spousal support to zero. Wife didn't like the outcome, so she appealed.
The court of appeal agreed with her, in part: Deferred income must be considered as income available for support. The children are entitled to share in their father's lifestyle - the issue is what to use to determine an earning capacity.
The outcome was a missed blessing in reaching the right result. It approved of the trial court's refusal to impute income to the Husband, because Wife had presented no evidence of his current earning ability or his ability to return to his prior job. Merely establishing what he used to earn was held insufficient. It also approved the trial judge's refusal to consider his loan application in setting income, as being within the judge's discretion.
Although the Court understood the husband's situation, it was still no reason to grant him a "holiday" from paying support. His decision to defer his salary was "voluntary". He could have achieved the same result by taking his full salary and then making a monthly investment in the company from his capital. By deferring his income, he was investing in the company with the expectation that if its fortunes later improved, he would be compensated with additional equity. Of course, by deferring salary, he achieved the side-benefits of a low taxable income and a reduced support obligation, making those funds available to support himself or invest in the company.
Since he had voluntarily agreed to divest himself of his earnings, there was no need to "impute" anything to him in the way of income. His voluntarily deferred salary had to be considered as income available for support. He could not unilaterally arrange his business affairs in such a way as to effectively preclude his children from sharing the benefits of his current standard of living.
Although the Court understood the husband's situation, it was still no reason to grant him a "holiday" from paying support. His decision to defer his salary was "voluntary". He could have achieved the same result by taking his full salary and then making a monthly investment in the company from his capital. By deferring his income, he was investing in the company with the expectation that if its fortunes later improved, he would be compensated with additional equity. Of course, by deferring salary, he achieved the side-benefits of a low taxable income and a reduced support obligation, making those funds available to support himself or invest in the company.
Since he had voluntarily agreed to divest himself of his earnings, there was no need to "impute" anything to him in the way of income. His voluntarily deferred salary had to be considered as income available for support. He could not unilaterally arrange his business affairs in such a way as to effectively preclude his children from sharing the benefits of his current standard of living.
The appellate court also held that his assets could constitute "special circumstances" justifying departure from guidelines: 1) income may be attributed to them; and 2) they may be a a reason to depart from guideline, something rarely done. Because he was had a lot of assets, he was able to defer his salary. Had he not had substantial assets, he would have had to either receive his salary or seek another job. To accept his argument would be "be tantamount to permitting [him] to avoid paying support because he is wealthy." He was obligated to pay child support consistent with his own standard of living.
The appellate court sent the matter back to the trial court to re-calculate support based on its ruling.
If you have any issues like these, consult a certified specialist in family law.
