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Voluntarily Deferring Income is Not Proper Basis for a Reduction of Spousal or Child Support

Racheal Berger (Appellant) and Marc Berger (Respondent) were married in 1991 and separated in November of 2002. Respondent’s Orange County divorce lawyer petitioned for divorce in December 2004 and was ordered to pay Appellant $4,000 per month in spousal support, and $3,500 in child support for both daughters. The family residence was sold and the proceeds of $2 million were divided between the parties. In 2001, prior to the divorce, Respondent left his employment where he earned $600,000 per year, to devote his time to X-scapes. Since there were financial difficulties at X-scapes, Respondent entered into an amendment to his employment agreement which called for salary reductions and deferment of income.

In February 2006, through their Orange County divorce lawyers, the parties stipulated to a suspension of Marc’s temporary support obligation beginning December 2005. The divorce trial commenced in April of 2006, and Respondent reported that his income varied. Respondent testified that X-scapes had been paying him an income of $2,000 per month, but that theoretically X-scapes was accruing liability to him for the period in which he had not been paid a significant salary. Furthermore, Respondent stated that he had approximately $800,000 in cash left over from the division of community assets. The divorce court agreed with Marc’s Orange County divorce lawyer and concluded there was insufficient evidence demonstrating Respondent had any current opportunity to earn the level of salary he once had while working in finance. The Orange County divorce court required Respondent to report on a quarterly basis the financial circumstances of X-scapes and any job searches undertaken. Furthermore, the family law court concluded that Respondent should pay a combined total of $1,115 in monthly support for his two daughters and no spousal support. Moreover, the family law court declined to order Respondent to pay for Appellant’s Orange County divorce lawyer’s attorney fees.

Appellant’s Orange County divorce attorney pointed to no evidence suggesting or demonstrating that Respondent could have resumed work at his prior salary. While there is a probability that he could earn similar sums in the future, there must be evidence, not merely speculation. There is no evidence demonstrating Respondent would even have employment available to him if he decided to return to the type of work he had done prior to X-scapes, let alone what the employment would pay.

The Court of Appeal considered whether it was an error to reject the conclusion of the Orange County divorce court that Respondent’s income, or at least his present earning capacity, is established by the salary he was contractually entitled to receive from X-scapes. Family Code Section 4053 sets forth certain principals to be adhered to in implementing the uniform guidelines for establishing child support. The statute states that “a parent’s first and principal obligation is to support his or her minor children according to the parent’s circumstances and station in life,” that “[b]oth parents are mutually responsible for the support of their children.” Fam. Code §4053. And that “[e]ach parent should pay for the support of their children according to his or her liability.” Id. Given these guidelines, it is clear that the Orange County family law court erred in interpreting Respondent’s current deferral of income as special circumstances warranting a departure from guideline child support. By agreeing to defer his salary to preserve his company’s capital, Respondent was investing in the company. The Court of Appeals concluded that Respondent cannot unilaterally and voluntarily arrange his business affairs in such a way as to effectively preclude his children from sharing in the benefits his current standard of living. In re Marriage of LaBass & Munsee (1997) 56 Cal.App.4th 1331, 66 Cal.Rptr.2d 393 held that  “a parent does not… ‘have the right divest himself of his earning ability at the expense… of minor children.” And therefore, Respondent’s income must be treated as currently earning his X-scapes salary. His voluntary choice to forgo receipt of that salary changes nothing for purposes of calculating his income.

The Court stated that even if it agreed with Respondent’s Orange County divorce lawyer that Respondent’s decision to forgo receipt of his salary might have precluded the family law court from characterizing it as income for purposes of support, the Court would still conclude that the family law court erred in not recognizing this as special circumstances. As set forth in Family Code section 4057, “application of the formula would be unjust or inappropriate due to special circumstances in the particular case.” “Special circumstances include…cases in which both parents have substantially equal time-sharing of the children and one parent has a much lower or higher percentage of income used for housing than the other parent.” Fam. Code §4057. In this case, the special circumstances are established by the fact Respondent voluntarily agreed to continue working for an employer that is no longer providing him with a current salary, a choice he can afford to make. So even if Respondent’s Orange County divorce lawyer was correct and the divorce court was not required to treat Respondent’s deferred salary as income, the circumstances before this Court would clearly call for application of that “special circumstances” assets rule which would result in the court deviating upward from guideline child support.

This Court agreed with Appellant’s Orange County divorce lawyer held that Respondent must be treated, for purposes of support, as though he was receiving the full X-scapes salary to which he was originally entitled and reserve the court’s order decreeing that each party should bear their own fees and costs without contribution from the other party. The judgment of the Orange County family law court is reversed, and the case is remanded for the limited purpose of reconsidering the court’s awards of child support, spousal support, and attorney fees.

In re Marrige of Berger, 170 Cal.App.4th 1070 (2009)