Spousal support and child support are two of the stickier issues that need to be resolved during divorce in California.
What’s more, the internet is riddled with misinformation that makes it hard to get straight answers to questions like these…
What’s the purpose of spousal support and child support? How is child support calculated? What’s the difference between temporary spousal support and “permanent” spousal support in California? What are the rights of a supported party, and when a supporting party is required to pay spousal support?
I sat down with family law attorney Jim Hoover to discuss all this and more.
Let’s jump in.
California Spousal Support 101
What is spousal support?
James Hoover: Depending on what state you’re in, spousal support can also be known as alimony or maintenance, but in California, it’s called spousal support.
It’s a certain monthly amount base, payable from one spouse to another spouse for the purpose of maintaining the marital standard of living to the extent it is equitable for both parties.
This is because it’s very difficult to have the marital standard of living be maintained for both parties for a reasonable period of time before the obligee should or does become self-sufficient.
There is temporary spousal support, also called pendente lite spousal support, pending the end of the litigation or dissolution process, and then there’s long-term spousal support or permanent spousal support. Those designations can be misnomers.
Can you elaborate a bit more on spousal support in California?
Overall, the purpose is to maintain the standard of living. I wish that all parties, when they got married, were handed the California Corporation’s code about partnerships and fiduciary duties with respect to same because there actually is cross-reference in the family code.
A marriage is a partnership, for better or for worse, in sickness and in health, in good times and bad times, and there is a disparity of the efforts of the parties’ strengths and weaknesses.
So, one spouse may focus on a career. The other spouse may focus on domestic duties, or both of them have careers, but one career is sacrificed to a certain extent so that they could concentrate on domestic duties. It is gender-neutral; it doesn’t make a difference who, the wife or the husband.
When the parties separate, it’s a way of equalizing that standard of living because one spouse could have focused on one’s earning potential, career, and wealth gain, had they not had to devote themselves to the domestic duties during the marriage. That’s a very simple and could be charged as an archaic way of looking at it, but that’s the purpose of support.
How is temporary spousal support calculated in California?
Temporary spousal support is calculated on a presumptively correct guideline formula and what’s called the dissomaster, which should strike fear in the hearts of all support obligors and obligees.
What I mean by that is, we’re going to take your financial life, husband and wife, and we’re just going to put some input into this computer generator, and it’s going to pump out an output, despite your financial dreams, aspirations, the boat you just bought that you have leveraged, your mortgage in Hawaii, vacation rental, the home that you bought, your kids’ private school education, all of your financial life that you probably gave rise to this divorce.
We’re now going to throw that all out and say that, “Husband, you owe wife $4,000 a month in spousal support.”
It’s sticker shock, but it’s a presumptively correct guideline formula that the courts use. Under the relevant code sections, temporary spousal support is based upon need and ability to pay.
That’s the more subjective approach, need and ability to pay, but what the courts have done is they have found a way to do that, maintain the immediate status quo, by lumping the child support dissomaster algorithm and the spousal support dissomaster algorithm together.
The most important factor for the court to consider is earned and unearned income income. So, that’s another reason that that’s why the dissomaster, our spousal support calculator, is very scary for people because it’s very income-generated, income-driven, actual income. We’ll go into a bit as other factors, imputed income and what is the income available for spousal support payments, but the dissomaster does do just actual income.
Can you give an example of how this may work?
Sure. Recently, I had a trial. I represented wife. We have a five-year restraining order against her husband. Husband also depleted $800,000 of the community assets in the last three years to gamble at a casino and he has physically beaten my client.
He has been employed for 28 years, but he just lost his job; he filed a request for order for support, and I am not proud of this, to put this on media, but I lost that case.
My client has to pay him $2,000 a month in spousal support, despite all of the factors.
Why? Because this judge decided to simply look at the dissomaster, and that’s what I mean by striking fear in people, because it doesn’t take into account the nuances of a case, despite my advocacy.
Temporary spousal support will look at the price of support payments provided by a supporting party with respect to incomes.
For you as a Certified Divorce Financial Analyst, you will look at tax implications. You’ll look at 401K contributions. You’ll look at itemized deductions. You’ll look at health insurance. The purpose of doing all that and putting this input is to truly determine the net spendable income between the parties to try to maintain that immediate status quo. But it’s done by the presumptively correct guideline formula dissomaster; that’s temporary spousal support.
Permanent Spousal Support in California
What is permanent spousal support?
Permanent spousal support should strike less fear in both the supported and supporting party litigants because it’s a more subjective analysis, and you’re allowed to take into more of the nuances.
You’re allowed to argue permanent support factors on this, but with temporary spousal support, it doesn’t always happen, and courts may order a supporting party to pay spousal support regardless of external factors.
Permanent spouse support is under California Family Code Section 4320. It needs to be noted that permanent doesn’t mean it will last forever, and permanent doesn’t mean that it will take three years to determine it. We could do permanent spousal support a couple weeks into a divorce, and it may only last for a year. We don’t know, but it’s the measure in which the court will consider more subjective factors.
What factors does the court take into consideration for permanent spousal support in California?
in California, we look at the age and health of the parties, the length of marriage. We also look at the income of the parties, the actual income of the parties, the income available for support from the parties, the earning capacity of the parties, the ability and opportunity to work.
We look at whether one party sacrificed his or her career to focus on domestic duties. We look at domestic violence. We look at the marital standard of living, whether that’s a subject of analysis or more of an objective analysis. We look at the tax implications. We look at the assets, a reasonable rate of return on the assets.
We look at the expenses of the parties, expense-driven analysis. We look at whether or not one is receiving income from third parties. We look at income expenses, earned and unearned income assets, and debts of the parties.
Can you give an example for permanent support as well?
I have a case in which we’ve asked for permanent spousal support, and I have trial in a few months on it. The opposing party says he earns zero income, and my client is an Uber driver, and therefore, she should pay him about $1,000 a month.
Well, we’re asking for $10,000 a month from him. So, how could I prevail on that when he has actually no income? He’s a trust fund recipient to an estate that’s $25 million. There was a marital standard of living for the six years that they were married, in which she enjoyed that estate, along with him.
He has no W2. He has no earned income, but he has an estate. He lives in a $3 million home that’s paid off. He goes on vacations. He has, literally, a chauffeur who drives him around. That is a much more nuanced subjective analysis that the court will consider in making sure that there is an equalization between the parties.
Now, that would not be done merely on a temporary basis. It could be, but it requires more effort for the court to do so.
So, those are the permanent spousal support factors that the court must take into consideration.
What is considered as income for calculating spousal support in California?
It’s not clearly defined under the Family Code in California. So, I do the following.
In California spousal support cases, I always reference Family Code Section 4058. Why? Because 4058 is a child support provision regarding what is the income available for child support? It’s very broadly defined.
In all of my pleadings, I always reference Family Code Section 4058 for spousal and child support, and no one really blinks an eye. They just kind of nod and go, “Oh, okay, sure.”
But what is actual income for spousal support? I think it should be defined, broadly, as for child support.
It includes actual income. And what is actual income?
Earnings, commissions, bonuses, and what you’re going to see on someone’s W2 in tax returns. Another form of actual income is self-employment, what you’re going to see in a schedule C or a K1.
Of course, when you look at that, income available for taxes is not income available for support. In other words, someone may say, “Well, I only earned $80,000 running my construction business.”
Okay, but when you do it just that forward depreciation for perks, do you run your car through it? Do you eat out, and you entertain? You take people to Hawaii, and those are perks that we’re going to need to add back for your income. We also need to look at whether there’s cash transactions that may not be reported so that the would-be supporting party won’t have to pay spousal support. Self-employment income is an important issue to address and to note.
We also look at rental income on a Schedule E of a tax return. We also need to make sure we’re cognizant of what’s called pass through income and Pearlstein type income as a case. What I mean by that is, you may look at a tax return, and you may see that the obligor reports $300,000 in income, but it’s called pass through income through, typically what’s called a schedule Ameri C Corp or an S Corp.
I know enough just to get myself in trouble and I refer to a qualified expert to address, but basically, the support obligor has to pay taxes on it, but doesn’t actually receive the income, and it goes back to the court, where there’s an argument of is that actual income realized? Is it accessible and/or attainable?
The other issue is what’s called Pearlstein, which is an investment income.
For example, if you have an E-Trade account where you’re buying and selling stock. Well, I had a case in which a person owned sports franchises and sold a sports franchise and bought another one. That income was indeed income available for spousal support when all the person was doing was rolling it into another investment; so there were paper profits. Again, realizable, accessible, attainable, and it indeed was argued in the court.
Other issues for income available for support include, what I call, imputation of income. In other words, the obligor or the obligee looks at you and says, “I don’t have it. I don’t have it.”
Let’s go back to the Pearlstein income for a second. Are we talking a kind of imputed rate of return? Are we talking interest and dividends? Are we talking capital gains? Are you looking at all of those kind of interchangeably, or do you differentiate between those and look at them differently?
I look at the latter. I differentiate between them and then look at them differently. What I’m looking at is, I sell a hundred shares of Apple stock, and I buy a hundred shares of Yahoo. I don’t have the market rates, but in other words, I sell some stock, so I have a gain, but I take that gain and I buy other stock, and so it’s not available for support, per se.
The other issues you’re addressing, reasonable rate of return on investible assets, et cetera, that is, indeed, what I call imputation of income if it’s not actual, and that is available for support.
So, I’m looking at someone who has a portfolio, who is buying and selling, where I can overall put a general imputation of income.
But if he went out and sold a million dollars worth of, say, Facebook stock, then invested it into Apple stock, a court will look at me and could say, “Mr. Hoover, I don’t know if that’s realizable, accessible, and attainable because he reinvested it.”
I would say, “Yes, Your Honor, I have been told that there’s an imputation of income based upon a rate of return on investible assets.”
The court would say, “Aha, you’re right. We can do that. So, if you want to slap a 3% or a 5% rate of return on that million dollars and put that in husband’s column, Mr. Hoover, I’ll allow you to do that, but we’re not going to just put a million dollars in husband’s column,”
Does that make sense?
Yes.
Let’s move on to imputation of income. There are six or so main ways to impute income.
The most common one we see is the income available for spousal support. By the way, what I’m doing for spousal support can also be done for child support. So, these are arguments that I would do, both, for spousal and for child support.
There are some nuanced differences that I don’t agree with and/or don’t necessarily understand. Put it that way, I still go in there and I will argue both. I think there’s some law that the court can’t impute income-based partner and capacity.
It’s just merely a support, or I could have it backwards, merely child support. I disagree with that. I go in and I always argue both, because this is a court of equity, which means the court needs to do what’s fair.
As for the imputation of income, in general, we’re looking at several main ways.
Number one, I think this is where someone tells you, “I don’t have it. I don’t have the income. My W2 is not in my taxes,” et cetera.
Well, they may have an earning capacity. In other words, they may not actually be earning income, but they could go out there and get a job, and become self-supported within a reasonable period of time. They have the ability to do so, based upon their educational background, their vocational background, their work history, and any impediments to working, and they have the opportunity to do so. In other words, the job market is great out there, and so that’s called earning capacity.
The court in California could say, “Sir, we know you’re not working, but you’ve been earning in $150,000 for the last 20 years, and I have reliable information and evidence in front of me that you could go out there and get a job in the next couple of weeks earning that same amount. So, for purposes of support, I’m putting it in your column. I’m not going to force you to work. That’s called slavery. I will not do that. You are not forced to work, but if you choose not to work and if you choose not to find a job under a seek work order within a reasonable period of time, I will impute income to you based upon your earning capacity.”
Number two is what we just talked about, a reasonable rate of return on investible assets. So, for example, if you’ve got a million dollars in stock, but you’re not selling any of it, the court can impute a reasonable rate of return. I see that anywhere between 3% and 5%, or if you have a vacation rental property that you decide you’re not going to rent it, you’re just rich.
You’re like, “I’m not going to rent it. I just have this property that’s worth $2 million, and I love it. I love thinking about it.” The court can say, “That’s great. You can think about it, but we’re going to be slapping a 3% or a 5% rate of return on that. Basically, what you could rent that for, we’re going to put that in your column.”
Number three, we look at bank statements. The person could be a liar, so we need to see. Let’s take a look, because you say you have no income, but I want to see what’s going into your bank account. What’s happening here? And so, we’re going to impute income to you based upon the funneling of money into your accounts.
On the same analysis, number four, is expensed-driven. Let me see what your expenses are.
Number five, cohabitation with someone else of the opposite sex or someone you have a romantic relationship with under Family Code Section 4323.
There’s a rebuttable presumption of income, which is really the reverse. It’s called a reduced need in support. In other words, courts can say, “You’re not working. You’re not earning income, but you have a standard of lifestyle that’s increased because someone else is subsidizing it.” If that’s the case, if someone else is subsidizing it, then the support obligor shouldn’t have to do so. That’s also what’s called marriage of Schlafly.
In other words, in that particular case, the obligor was living in a residence that was paid off by his parents. So, he had a reduced need for spousal support, due to reduced expenses. Because of that, the court actually imputed income.
The court could do it by what is called downstream deviation of a dissomaster, which means rather than baking that in as income, the court can say, “Yeah, I’m going to just support upward because you actually have fewer expenses, so you have more net spendable income.” Not really, but that’s court of equity, and that’s what they do.
The phantom income is when you look at someone’s declared income and expense declaration. You look and you see, okay, wait a minute, you say you have no income, but you’ve got expenses of $10,000 a month and you have no corresponding installment debt.
So, A plus B equals C is not working out. Something is missing, and I call that phantom income. The courts usually give people quite a few breaks, because they just don’t fill those out right, but that’s a certain argument you can make.
Finally, gifts from others. I make it very clear with people that if you’re receiving gifts from others because you’re in financial straights, make sure it’s deemed a loan. That’s because otherwise, recurring gifts can be treated as income available for support for child or spousal support obligee or the support obligor.
Mind you though, this whole process, this is a court of equity. So, I’d say 75 percent of time, the court will look at me, nod up and down and say, “Thank you, Mr. Hoover, for the education/lecture. I’m still going to go with that I don’t see any W2 income.” So, it goes back to the W2.
In terms of the gifts, do you also think it makes sense, strategically, instead of having recurring monthly gifts, would it make sense to do a larger one time gift as an alternative to a loan? Would that be a harder argument for the other party to make that a one time gift is considered as income available for support if it’s a one time?
Yes. I’d say you’re right, but if it’s recurring $10,000 a month, then it looks just like you’re getting a paycheck. But, then the court could say, “Well, your parents gave you $120,000, $10,000 a month for the entirety of the year. It’s a one time, but I’m going to amortize it out over the year and put that in your column.”
Or, I’m a quarterback winning, so what I’m going to do, is I’m going to reduce the amount that the support obligor owes you. However, my argument there is, “Your Honor, had the support obligor been providing for my client, he or she never would’ve had to borrow this money in the first place. So, don’t punish her for his failure to fulfill his or her fiduciary duties of supporting one’s spouse.”
Child Support in California
What is child support?
Child support is a certain monthly amount, like spousal support, based in Ostler-Smith, payable for one parent to another for purpose of equalizing the standard of livings in the parents’ homes, to meet the needs of the child.
What you have heard about the standard of living and spousal support, you’re also going to hear in child support. It’s the child’s right to have an equalized standard of living in both parents’ homes to the extent possible. The idea is so that the child shares in both parents’ income and wealth as if they are under the same roof.
For example, if the child is over at mom’s house, dad cuts mom a check. When the child is over at dad’s house, mom cuts dad a check, regardless of the timeshare and regardless of the actual incomes and wealths.
But that’s ridiculous. It’s not done that way.
So, there is a presumptively correct guideline formula to determine what that support is.
Is there a difference in terms of how you look at income available for support for child support purposes versus spousal support?
No, although I will say that the court is much more receptive to arguments in child support.
I find the courts are more receptive to my advocacy for child support because there’s actually a Family Code Section, 4058, that addresses it. In addition, it’s the kid’s right.
It’s not mom’s right or dad’s right. It’s this innocent victim of the divorce who has a right to share in this, and who probably does not have an advocate in the court at that time.
Are there any differences in temporary child support versus post-judgment child support, or are those both calculated the same?
They’re calculated the same, whether it’s five days after the separation or filing for a divorce, or it’s three years afterwards. It’s a function of looking at various input into the dissomaster, and it’s presumptively correct.
You’re looking at a timeshare, actual incomes of the parties, tax implications of that income. There were contributions to 401Ks. You’re looking at health insurance. You’re looking at itemized deductions for interest, mortgage interest and property taxes, and the like. In fact, it’s very difficult to deviate from child support and family law guidlines.
In fact, all of my arguments in advocacy regarding imputation of income can be applied to child support.
In actual income, all those arguments regarding Pearlstein, and regarding pass through income, self-employment income, and the five ways to impute income, you can do that.
But the issue we have here is, once you put all that into dissomaster and it gives an output, if your client is displeased with the result for a good reason, then Family Code Section 4057B allows you different ways to deviate from guideline, but it’s tough.
It’s tough to deviate from a guideline because it is really presumptively correct if that’s the amount to be paid.
As a special bonus, Jim shared some of his top tips for people going through a divorce.
Top 11 Things to Consider in a California Divorce
- Be honest with yourself and others.
- Treat your spouse with dignity and respect (even if only for your and your child(ren)’s sake).
- Communicate your intentions with your spouse unless doing so places you at risk: this decreases insecurity and poor decision-making.
- Respect your child(ren)’s need(s) to have a healthy relationship with both parents.
- Seek probate/estate counsel to modify/revoke any will/trust/intestacy pending divorce.
- Run a “credit check” with a credit bureau to determine preliminary assets/debts (further disclosures will be required).
- Compile a list of all assets, debts, income and expenses you have, and share with your spouse (further disclosures will be required).
- Maintain the financial status quo as much as possible (ongoing payment of expenses, access/contributions to bank accounts) pending support and division of assets, if any.
- Seek advice from family law counsel as to your rights and responsibilities related to domestic violence, custody of children, asset and debt division, support and related matters. Education equals empowerment.
- Seek advice from therapists, mortgage professionals, estate planners and divorce financial advisors. Again, education equals empowerment.
- Know that divorce takes time and effort, and that peace, justice, closure comes from you, not a judge.
