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The Orange County Divorce Court Erred by Using the Husband’s Temporary Support Obligation Figure to Establish Permanent Spousal Support

Michael Schulze and Andrea Schulze were married in 1983 and separated from each other in 1992. Their dissolution came to trial in January 1994. Michael regularly earned in excess of $100,000. Before the separation, Michael’s compensation exceeded $160,000. In 1992, Michael’s salary was reduced because his parents decided to redistribute 49% of the company to their three children. However, Michael did not receive any stock and in 1992 Michael was grossing about $80,000. The Orange County divorce judge used Michael’s actual pre-tax monthly support income of $6,628 to calculate family support. In addition to Michael’s actual earnings, the Orange County divorce judgment included two items of imputed income. First, the order added $600 to Michael’s income because of a rental subsidy and added $500 to Michael’s income for the use of the company car. The $500 and the $600 were characterized as “nontaxable” income, meaning that neither figure increased Michael’s tax liability for the purpose of calculating his net income. The numbers were crunched into DissoMaster, and the judge entered $6,628 as Michael’s wages and salary. The Orange County divorce court next entered the rental subsidy and the car allowance on a line entitled “other nontaxable” Michael was given credit for spending 20% of his time with the children.

Based on these numbers, the DissoMaster produced a “guideline” result of $2,713 in total child support for the three children, plus $914 as “guideline” spousal support. The Orange County divorce court’s order provided that Michael was to pay $3,626 in combined child and spousal support. The program proposed that Michael pay “family support” for a total of $4,778. The Orange County divorce court’s order was for $4,780 per month in total support. 

The purpose of temporary spousal support is to maintain the status quo as much as possible pending trial. By contrast, permanent spousal support is supposed to reflect a complex variety of factors established by statute. In re Marriage of Olson (1993) 14 Cal.App.4th 1, 17. Permanent spousal support, noted the Olson court, cannot be calculated by a computer program, because permanent support must be “fixed only after consideration of the applicable statutory factors. The Court of Appeal located in Orange County did not think that coincidence could explain the uncanny closeness of a permanent spousal support order with a proposed DissoMaster temporary support order. Section 4320 requires an independent evaluation of all of a variety of specifically enumerated factors. The error of the Orange County divorce court, in this case, resulted in a bottom line payment of what could only be termed a confiscatory percentage of Michael’s after-tax income. The family support order of $4780 was almost exactly what the DissoMaster proposed. There is nothing to indicate that the permanent support order was arrived at independently of the influence of a figure never intended to be used to for permanent support orders. Because it was clear that the Orange County divorce court did not arrive at spousal support independently, the family support award was reversed to that extent and the cause remanded for the establishment of a spousal support component-based, from the ground up, on the Section 4320 factors.

Next, the Court explained that the rent subsidy on the condo and the company car as “nontaxable” was an error by the Orange County divorce court. The $500 value for the car is, on its face, an employee benefit reducing Michael’s living expenses. This Court explained that characterizing the rent subsidy on the condo as “nontaxable” was an error. The $600 rent reduction requires a little more analysis. The problem here is that the circumstances are not ordinary because Michael’s parents are also his employers. The imputation of the free rent may be upheld as compensation from those employers. The Orange County divorce judge characterized the imputed income as “nontaxable,” but such a characterization runs counter to the inclusion of the items as “income” within the Section 4058. Section 4058 does not mention gifts or other “freebies” that come one’s way in life. The operative language is subdivision (a), i.e., the annual gross income… means income from whatever source derived. If the car and the condo were truly “nontaxable,” it would be because they were gifts to Michael from his parents, not a form of compensation. Gross income, in federal tax law, does not include gifts.

Given that the imputed income from the car and condo were only includable as income by virtue of an implied finding that they were “employee benefits,” the Orange County divorce court should have included, in calculating family support, the extra income that Michael would have had to pay on it. The case must, therefore, be remanded for a recalculation, in which the extra tax liability that would result from the inclusion of the car and the condor are factored in.

Michael’s Orange County divorce attorney next challenges the attorney fee award totaling $12,500, $5,000 which was imposed specifically as a sanction for having frustrated possible earlier settlement of the case. Michael’s Orange County divorce attorney claims there is insufficient evidence of availability of funds to pay for both awards. He further argued that the $5000 sanctions order represents an abuse of discretion, because it was based on a lack of evidence that Michael had done anything to frustrate settlement, and because there was no appropriate notice of the possibility of a sanction award. The $5,000 appears to be the result of the Orange County’s divorce court’s understandable lack of sympathy for the last minute estate planning on the part of Michael’s parents which produced a precipitous drop in his income. However, Andrea’s Orange County divorce attorney points to no evidence that the distribution of 49 percent of the stock of the parent’s company was at Michael’s instigation. Lacking the predicate of a showing of frustration, the $5,000 award must be reversed. The $7,500 figure itself is unassailable. It is undisputed that neither party had any savings or liquid assets’ Michael’s parents had lent him about $8,000 to pay his own fee’s. Nothing showed that Michael had, or was reasonably likely to have, the “ability to pay” the $7,500 forthwith. In light of the absence of any liquid assets, it was unreasonable for the Orange County divorce court not to have allowed Michael to pay $7,500 attorney fee order in manageable installments, consistent with the income he had left after he paid the family support order.

The judgment of the Orange County divorce Court is reversed to the extent that the family support award incorporates $914 in permanent spousal support because the $914 was not based on the section 4320 factors, but rather on the DissoMaster calculation. The judgment is also reversed to the extent that the child support was calculated without taking into consideration the taxability of the $1,100 of imputed income based on employee benefits. The judgment is further reversed to the extent that it requires Michael to pay $5,000 in sanctions and to the extent that it requires Michael to pay $7,500 in attorney fees in a lump sum rather than in manageable installments.

In re Marriage of Schulze, 60 Cal.App.4th 519 (1997).