The marital standard of living (MSOL) is one of the 16 factors that are set out in Family Code section 4320 that are to be considered by a divorce court in the determination of spousal support. The MSOL is one of the more important factors considered by the divorce court but it is certainly not the only one and not a controlling factor. The MSOL does not set a floor or a ceiling for spousal support in a divorce but rather is looked at as a guidepost.
If the parties agree on the MSOL and the other issues relative to spousal support there is no need to involve a divorce judge. Judges accept agreements arrived at by the parties to a divorce on these issues. Generally, when MSOL is being discussed in terms of dollars, the amount is addressed in net after-tax dollars. In other words, if the MSOL is determined to be $10,000 per month, that means that a party would need to have after-tax income of $10,000 per month to meet the MSOL. In the analysis of the determination of the MSOL, it should be understood that spousal support is taxable to the recipient spouse after the divorce. It should also be acknowledged that the focus of the MSOL analysis is on the supported spouse. However, if the potential payor-spouse does not earn income sufficient to pay the potential recipient-spouse spousal support, there generally won’t be a spousal support order made by the divorce court regardless of the extent of the need. Typically, an average of the data relative to financial circumstances of the community during the last three to five years of the marriage prior to the date of separation is used in the MSOL analysis. Divorce courts consider all evidence that is presented in trial in the determination of the MSOL. If an accountant is asked to do an expenditure analysis for three years or five years, he will complete that task. It is relevant to understand that the accounting fees for this work can be substantial especially if the same work is being done by both sides.
Divorce judges have wide discretion in determining how to define the MSOL. Divorce courts are not required to define the MSOL using a specific dollar sum. After hearing the evidence, a divorce court may simply describe the MSOL as “high,” “med-high” or use another descriptive term.
The MSOL may also be defined by using the total income for a reasonable period of time less the actual taxes and set the MSOL at the net number or simply stated—the family law court may use the net income of the community for a three to five period. The divorce court may exclude years that were not representative years or exclude sources of income that are non-recurring. For example, if the total income during a three-year period was $1,000,000 and the total taxes paid were $250,000 the net income would be $750,000. That sum would be divided by 36 months and the MSOL for the community would be a net of $20,833 per month or $10,416 per month for each party. This approach has been cited in a few reported divorce appellate court opinions but is used less frequently than the mainstream method which is described below.
If the divorce court elects to use the expenditure approach to the analysis, the analysis starts with a determination of the actual expenditures of the community during the three to five-year period prior to the date of separation. Most experts agree that the expenditure analysis excludes non-recurring expenditures (house remodel, catastrophic losses, a child’s wedding, etc.). The total community expenses are often divided by two to arrive at the MSOL for each party.
As an example, if the total monthly community expenditures averaged $14,000 over the 36 months, the sum of $7,000 would be assigned to each side as their respective MSOL.
Alternatively, the total expenditures could be multiplied by 60% or another percentage to reflect the fact that it costs more for two to live separately than together. Using a percentage approach would be:
$14,000 times 60% equals an MSOL or $8,400 net per month for each party.
Another way to address the allocation of the $14,000 is to equally divide all expenditures except housing related costs and then add the housing costs onto each party’s share of the other expenses. In other words, if the total expenses were a net of $14,000 per month and that number included housing costs of $4,000 per month, the analysis would be:
$14,000 less $4,000 equals $10,000 divided by two equals $5,000 for each party plus $4,000 for housing related costs for a total MSOL of $9,000 net per month for each party.
In determining how to allocate the total community expenses and the issue of housing costs, it may be relevant to consider whether it is appropriate to allocate all of the costs of a particular house to each party. It may not make sense to do so in certain situations. For example, if a house was 7,000 square feet and all five kids were grown adults, would it make sense for each party to replace the house for themselves post-divorce. Arguably, the house actually related to the children’s life style not that of the parties.
The divorce court, in its analysis of the MSOL may also take into consideration a wide variety of other financial issues like the community’s ownership of a vacation home during the marriage that is to be sold due to the divorce and will not be available to either party after the divorce. Arguably, it is relevant that the loss of this asset will impact the MSOL of each party. A divorce court may assign some value to the loss of the use of this type of asset as a part of the MSOL.
The MSOL is used in the context of determining whether the amount of post-divorce spousal support is sufficient for the supported spouse to maintain the marital lifestyle after a divorce. If the MSOL and needs of the supported spouse equaled a net of $9,000 per month and the spousal support order was a taxable $8,000 per month that sum resulted in a net of $5,555 per month—that spouse would not be able to live at the MSOL after the divorce. In this situation, the supported spouse would have the ability to return to the family law court to seek an upward modification of the spousal support order if and when the supporting spouse’s income increased. The MSOL would serve as a benchmark for the family law court in evaluating the circumstances relative to a modification of the support order after the divorce judgment is entered.
On the other hand, if a spouse’s MSOL was determined to be $9,000 net per month and that spouse’s combined net income after the divorce from employment and investment earnings equaled or exceeded $9,000 per month, there would be no need for post-divorce spousal support.