A California Court of Appeals has ruled that Trial Court was wrong in reducing the child support obligation of a high earner where salary reduction did not materially impair his ability to pay current child support amount because his other wealth more than made up for the reduction; Trial Court imputed too low a rate of return on his many millions in assets.
In the case of In re Marriage of Usher, Mother and Father were married in 2006; their child was born in February 2006. During the marriage Father, a “successful director and producer” earned $4.25 million per year; Father also had “substantial assets” in cash, investment funds, and real and personal property. Mother and Father separated in 2008.
In October 2009, Trial Court entered the parties’ stipulated divorce judgment which provided, among other things, that Father would pay child support of $12,500 per month, would permit Mother and Child to live in his Pacific Palisades home until June of 2010, and would pay an additional $5,000 per month for child support after they moved out. Father was also to pay spousal support of $15,329 per month to Mother for two years (October 2009, through September 2011), after which Mother waived any further right to spousal support. The judgment stated that Father was a high earner under Family Code Section 4057(b)(3), that the child support amount deviated from guideline, that Child’s needs would be “adequately met” by the chosen amount, and that the parties had arrived at the amount with the aid of attorneys and accountants. In June of 2010, Mother and Child moved into another house in the same Pacific Palisades area, which rented for $7,500 per month, and Father’s child support payments increased to $17,500 per month.
In June of 2014, Father filed a request to reduce his child support payments to $5,184 per month, plus a percentage of any income earned above $841,272 per year. Father claimed to be earning substantially less now ($70,106 per month instead of $350,000 per month) and that the requested amount was arrived at by DissoMaster (the program that calculates California child support guideline), using his current salary, minus insurance and property taxes, and a 30% timeshare for Father. In opposition, Mother contended that Father’s salary reduction was not a material change of circumstances because he had “numerous alternative sources of income and assets from which to pay” child support. Before the hearing, Father conceded that Trial Court should impute some income from his other assets and contended that a rate of return of 1% would be reasonable in the current financial climate. Father’s CPA claimed that Father was against tying up his assets for long periods and was pursuing a very conservative investment strategy. Mother contended that Father’s investments should yield a 4.5% return.
At the hearing, CPA’s for both parties testified regarding Father’s income, Father’s investment income and the rate of return, and the amount of income to be imputed to Mother. When the hearing concluded, Trial Court found that the reduction in Father’s salary constituted a material change in circumstances, imputed a 4.5% return on Father’s non-income producing assets (anticipated property sales) and a 1% return on his other investments (Father’s average for last five years). Trial Court calculated Father’s monthly income at $140,000 and Mother’s imputed income at $3,343 per month, deducted property taxes on Father’s Montecito home of $6,000 per month and came up with a child support order of $9,842. Trial Court also ordered Father to pay Ostler and Smith (a percentage) child support on any earned income of more than $1,681,692 per year, plus Child’s private school tuition, medical insurance premiums, medical expenses not covered by insurance, and 85% of Child’s costs for extracurricular activities. Claiming that Trial Court erred by reducing child support and imputing a rate of return on Father’s investments that was too low, Mother appealed.
Now, California Court of Appeals has reversed Trial Court. The Appellate Court has ruled that:
(1) Where a child support order is arrived at by a stipulated divorce judgment, Trial Court must consider the parties’ intent and their reasonable expectations when making a reduction;
(2) This Stipulated judgment stated that current child support payment was necessary to meet the Child’s needs and support him in accordance with Father’s lifestyle;
(3) At the hearing, Father presented no evidence that his salary deduction made him unable to pay the current child support amount;
(4) The reduction in income, standing alone, is not a sufficient change of circumstances to support a child support reduction where payor is still able to meet his obligation with income from other assets;
(5) The parties’ agreement that the current child support order was necessary to meet Child’s needs was evidence that a child support reduction would cause Child’s needs to be unmet (Father failed to show that Child’s financial needs had diminished);
(6) Evidence did not support imposition of a 1% rate of return on Father’s investment portfolio; and
(7) Trial Court’s imputing an unreasonably low rate of return on Father’s investments resulted in a child support order that deprived Child of funds to support the lifestyle that Father had agreed was appropriate and could easily afford to provide.