What does a “bonus” mean? The answer to that question ended up costing a woman nearly $500,000.00 in spousal support.
This issue arises from the case of Marriage of Minkin (2017) 11 Cal.App.5th 939, a case decided by Division Three of the California Court of Appeal’s Fourth Appellate District. In 2004, Wife (“Patricia”) and Husband (“Robert”) agreed that Robert would pay Patricia 41 percent of his annual bonuses as additional spousal support besides a base amount of $7,000.00 a month. Specifically, they agreed “‘[p]ayment of this additional spousal support is contingent on the award of such bonus and [Robert] shall provide [Patricia] with documentation of the bonus award, or non award, each year of the ten year period”. The problem was that the stipulated judgment did not define the term “annual bonus”.
Two years later, in 2006, Robert changed jobs. Then, in January, 2010, Robert lost his position but then got a new job which he held till late 2012.
After all of this, Robert learned that Patricia was cohabitating with someone, a factor under the Family Code that can cause a lowering of spousal support in California. So he filed a motion to either lower or terminate the spousal support all together.
In August, 2013, the judge reduced spousal support to $4,500.00 and further ordered that the additional spousal support based on annual bonuses would be deemed to have ended in December, 2012.
Patricia responded by filing a request to determine spousal support arrears, claiming that Robert did not pay what he owed on bonuses he received between 2005 and 2012. She therefore sought approximately $387,000.00 in unpaid spousal support plus approximately $184,000.00 in interest.
The judge ruled that Robert owed Patricia $203,000.00 in additional spousal support but that was it. The court found that “an annual bonus was income paid to Robert in the discretion of his employer and without recourse if the employer elected not to pay”. The Court of Appeal affirmed, 3-0. Writing for the panel, Justice Richard M. Aronson stated “an annual bonus is a discretionary payment based upon performance, and not, as Patricia argued, all payments above base salary”.
This was important because, over the years, Robert had been compensated in a number of ways, including, but not limited to, salary, relocation pay, participation in a senior management incentive plan, a 457(f) long-term incentive plan, and a 457(b) deferred compensation plan. But at the job he actually had at the time of the stipulated judgment back in 2004, Robert simply received a salary and a discretionary bonus. Accordingly, the appeals court felt it was fair to only consider as bonus pay from subsequent jobs “payments similar to, and that served the same purpose as, the annual bonuses Robert received when the couple entered into the stipulated judgment — that is, discretionary payments by the employer based on performance”. In other words, there was “no evidence they contemplated Robert’s future compensation would include the 457(f) long-term incentive plan and other miscellaneous components he received” after leaving the original position.
What the decision really boiled down to is that the experts Patricia used at the hearing said that all of the 457(f) long-term incentive plan payments were bonuses, while Robert’s expert said that “payments to Robert under the senior management incentive plan were bonuses because they were tied to performance, and a portionof the payments Robert received under the 457(f) long-term incentive plan were bonuses because they were based on the amount he received under the senior management incentive plan during the previous year.
The lesson learned here is that the parties, when they negotiated the new deal, should have been thinking ahead to what would happen if Robert got a new job that compensated him differently than the job he had at the time of the settlement.
Because the Minkin case was certified for publication, it is binding on all trial courts in California and may be cited as precedent by trial judges and by attorneys.
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