How to Calculate income in California Divorce Cases
How do you figure out what someone earns? In California family law cases, this is information that is absolutely necessary to calculate guideline child support and guideline spousal support. In most cases, it is sufficient to just look at the person’s pay the past 12 months, but a recent decision by the California Court of Appeal reminds us the 12-month rule does not always work.
This case, Marriage of Pletcher, involved a decision by the trial judge to find that husband’s income for purposes of establishing guideline spousal support was “the most recent year of historical income, which happened to be” the “best year ever by a wide margin” for the husband (Mitchell). What’s more, the evidence showed that Mitchell, who operates an investment management business, is compensated by many of his clients by the increase in their portfolios from one year to the next. The inference, said the appeals justices, was that after a banner year, Mitchell was “unlikely to see an equivalent increase in the overall value of the assets he manages”. Moreover, the appeals court noted how different Mitchell’s income was from year to year. It turns out he was paid $1,130,00 for 2014; $540,000.00 for 2015; $490,000.00 for 2016; $505,000.00 for 2017; $1,097,000.00 for 2018; and $1,590,00.00 in 2019. This showed that relying on just the most recent 12 months was not appropriate. In any event, the judge’s approach required Mitchell to pay $31,000.00 per month to his wife (“Jill”).
Mitchell had argued to the trial court that it should look at his income going all the way back to 2008. The trial judge scoffed at this because 2008 included the period of the “great recession”. But just using 2019 was not appropriate either. As the justices indicated in the 3-0 decision, “[t]he inquiry into a party’s ability to pay is prospective in nature. Although the evidence is necessarily historical, the court is attempting to forecast what the party will be able to pay as the litigation progresses. In most cases, this is not particularly challenging. A review of the payor’s income over a 12-month period is normally adequate, as most people’s income does not fluctuate dramatically from year to year”. But because Mitchell’s income varied wildly each year, the appeals court said that Mitchell “is not most people”. Reasoning that “’the time period on which income is calculated must be long enough to be representative, as distinct from extraordinary”, the three justices reasoned that they had encountered “a case that required a longer time period to generate a representative sample”.
In sending the case back to the trial judge, the Court of Appeal suggested that the court either “expand its data set to include additional years that capture the volatility in Mitchell’s income” or use what is called the Smith/Ostler approach, which involves setting support on an amount of income guaranteed to be received each year and then ordering a percentage of any extra pay or bonuses for income that goes above the guaranteed amount to be paid as additional support. The justices suggested that if the trial court wanted to just use a greater sample of the past, it could use five years. The justices also said that these suggestions did not mean that Mitchell would pay less in spousal support, finding that the amount of spousal support ordered by the judge was not erroneous; only its methodology was. And the appeals court said that that by no means were these two suggestions the only way the judge could figure out Mitchell’s income; other ways might work provided that the “12-month” only approach was not used.
This case involved temporary (pretrial) spousal support, which is often if not always determined by using a computer formula. For support ordered at the actual time of trial, a judge is not supposed to use the computer but is instead required to look at a multitude of factors contained in Family Code section 4320. But this important distinction probably would not have affected the outcome in the Pletcher case, because in either temporary support cases or so-called “permanent support” cases (LOL nothing is permanent), a court must always consider the income of the prospective payor.
This case was certified for publication, meaning that it is precedent throughout the State of California. As noted above, most people’s income can easily be determined by looking at their year to date figures from their paystubs. But the Pletcher case could easily be relevant in cases involving law firm partners, physicians, dentists, and others – including some self-employed blue color workers.
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