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A Divorce Court Must Use a Representative Period of Time in Determining a Party’s Disposable Income

Wife’s Orange County divorce attorney initiated a divorce proceeding and the divorce court calculated husband’s temporary child support obligation based on the most recent two months of the husband’s earnings. The Husband, worked as a commissioned financial advisor for a major investment firm. The husband had a unique income structure, which included four components. First, the husband’s employer forgave a loan of $1.039 million issued to the husband as an employee incentive. Second, the employer forgave the interest on the debt. Both the forgiven loan amount and the forgiven loan interest constitute “income” under federal tax law, and thus must constitute income in determining child support. Third, husband received $2,340 as a monthly draw. Fourth, husband earned an amount that fluctuated monthly depending on his commissions.

At the request of wife’s Orange County divorce attorney, the Orange County divorce court ordered that husband pay $3,619 per month plus an additional 16% of any income in excess of $21,950 per month as child support. Further, the divorce court ordered husband to pay $4,338 per month plus 20% of any income in excess of $21,950 per month. Both child support and spousal support orders were based on a finding that the husband earned $21,950 per month. The Orange County divorce court used a time period of the first two months in 2003 to calculate husband’s income.

The husband’s Orange County divorce lawyer appealed the divorce court’s order. On appeal the Court determined the divorce court had abused its discretion by using an unrepresentative sample of two months in calculating the husband’s income. The Court of Appeal stated, the Orange County divorce court should have used a representative sample, which would have constituted at least the last 12 months. The Court of Appeal in Orange County explained that in determining the income for a parent with a fluctuating monthly income stream, the divorce court should be trying to predict the “likely income for the immediate future, as distinct from extraordinarily high or low income in the past.” The Court of Appeal found that due to the nature of the husband’s work, choosing a two-month period as a sample from which to calculate the husband’s income was “arbitrary,” and resulted in an unrealistic figure of $21,950 in monthly income, as had been argued by husband’s Orange County divorce attorney. Lastly, the Court explained that an appropriate representative sample period would fluctuate depending on the nature of the occupation. A two to three-year period may be appropriate to calculate the income of a book author, whereas a shorter time may be appropriate in calculating the income of a salesperson. Thus, the Court of Appeal reversed the child support and spousal support order because the two-month time period was unrepresentative. Further, in calculating income the time period “must be long enough to be representative, as distinct from extraordinary.”

Riddle v. Riddle (2005) 125 Cal. App. 4th 1075