California Family Law Attorney
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December 15, 2010
  IS LEGISLATION NEEDED To Redefine "GROSS INCOME" Under Family Code Section 4085?
Posted By Thurman Arnold

Q. I have a question about proposing legislation to fill a loophole in the Family Code section 4058 definition of gross income, as it relates to net ERISA disability benefits. Under Family Code section 4058, gross income includes disability benefits, (including net, untaxable benefits). Under ERISA, if an insurer denies payment of disability benefits, the insured must file a quasi-administrative appeal of the benefits denial decision to overturn the denial. If that quasi-administrative appeal is successful, benefits are reinstated, but the insured cannot recover attorney fees expended to successfully prosecute the quasi-administrative appeal. (If the quasi-administrative appeal fails, one may appeal that decision in federal district court, obtaining attorney fees if successful.) Because generally, ERISA preempts state law regarding insurance, one may not sue the insurer for bad faith denial of ERISA disability benefits.

In my case, an insurer denied ERISA disability benefits, a decision I had reversed on quasi-administrative appeal under ERISA. That appeal cost me 45% of my net disability benefits, as a contingency fee. The family court commissioner found that the contingency fee merely increased my expenses, but the contingency fee did not reduce my gross income under section 4058, in spite of the fact that I only received 55% of the benefit I would otherwise have received. Because this result is inconsistent with the definition of gross income under section 4058, subd. (a)(2), (in which a business proprietor's income is defined as gross receipts minus business expenses), inconsistent with appellate decisions defining gross income as income that is actually received, and imposes a double burden on those who lose disability benefits, requiring that child support be paid from unreceived income, I would like to propose legislation to amend the Family Code to fix this inconsistency. The proposal would merely define section 4058 gross income as including disability benefits, less the attorney fees and costs expended to obtain those benefits.

Do you think that such a change to the Family Code is warranted?

Best regards,



This is a penetrating question, a very specialized inquiry, and an unfortunate story - thank you for taking the time to bring it to my attention. I do wonder if I have all the facts, however, because it is also surprising.

My initial response is that the court must have erred, much as you point out. You mention appellate court rulings that also suggest this - but I understand the point that 'who can afford an appeal' and that these matters are best resolved by providing clear direction to trial courts to they don't make mistakes in the first place (assuming this is indeed true under existing appellate decisions). LOL, eh? Have you filed for Reconsideration?

It is also a question I've not thought about before, having never faced the issue in my practice. I will have to give you what may be a shallow response, although I plan to look into it and possibly improve this blog soon.

One solution would be the changes you propose, or perhaps there needs to be some clarification in Family Code section 4058 that "net benefits" should be charged to the recipient rather than simply "receipts." This could then ignore the attorney fee deduction language component, if legislators were troubled by that remedy, but might open a larger can of worms without language that applied it to disability benefits only. But I don't know if it is the best answer, since letting people deduct attorney fees from income is a broad and difficult task and could create interpretational problems and factual controversies.

Perhaps legislators might liker the vagueness of adding "net" to "receipts," since trial courts could then evaluate it on a case by case basis. I note that Family Code section 4058(a)(1) has "actually received" language, except that it is within wording that relates to spousal support income from a third party. If the "actually received" language was applied to the overall subparagraph (section 4058(a)(1)), this would resolve the problem. I would have to review the legislative history of section 4058 to offer more.

Family Code section 4058(a)(2) gives trial courts discretion to deduct an arguably similar class of write-offs or deductions from gross income (i.e., "expenditures from the operation of a business") for self-employed people. Family Code section 4059 speaks in terms of "net disposable income" and an amendment there might be of use - but, 4058 is the biggie for trial courts dealing with child support issues.

As to recommendations about what family law organizations might be available to champion a legislative change, unfortunately other than AARP and your local California assembly person, I have no intelligent recommendations today. But I will endeavor to look into it. I am hoping in time that legislators will in time read my blogs!

BTW, there may be further facts to your situation that influenced the outcome, since it does seem hard to comprehend. For instance, do you have new-mate income that the court considered in some fashion? Are family members paying for any of your living or residence expenses and was this attributed to you? Was other income imputed? I am assuming that you are tax exempt on this disability income stream, and might the court put you in the support calculator in the nontaxed income column?

A final note - if the time is not up, you might appeal this ruling. Appellate decisions that create unfair results (i.e., refusing to charge you with the net) are an alternate but expensive route to change inequities in our system when they exist, since they are courts telling the legislature - "if you want a different result, you change it."

Thurman W. Arnold, CFLS

Continue reading "IS LEGISLATION NEEDED To Redefine "GROSS INCOME" Under Family Code Section 4085?" »

December 13, 2010
  2011 REVISIONS to the California Family Code: Serving POST-JUDGMENT OSC's and MOTIONS
Posted By Thurman Arnold, CFLS

Effective January 1, 2011, you may serve post-judgment motions to modify custody, visitation, or child support orders by regular mail and file with the Court a declaration of mailing.

This is revised Family Code section 215. Until now applications to change these orders needed to be personally served upon the other party. This created hardship and added expense for many people, since it can be difficult to locate the whereabouts of the other parent in some families months or years after a Judgment for Paternity, Nullity, or Dissolution of Marriage or Domestic Partnership. This often necessitated service by publication if there was no good address - publication in a newspaper can approximate $400, and service is not deemed effective for at least a month after the fourth week of being published. Moreover, an order permitting Service by Publication also needed to be obtained, which itself costs money and time. To this extent the revision is a good thing.

The bad news is that this provision may encourage fraud, which might result in hearings where only one party really knew to be present. Litigants may claim that the papers were mailed when they weren't. Perhaps the person who signs the declaration (grandma) doesn't walk the letter to the mailbox. Perhaps a girlfriend claims she sent the notice but doesn't - how could it be proved? What happens when someone doesn't get the mail on the receiving end, whether because of the letter is lost, by inadvertence, or for having moved? So long as the moving papers contain the required Proof of Service they are presumptively valid and orders will issue even when the responding party fails to show up for the hearing.

Hence, the burden of attacking a modification taken by default shifts to the answering party. For instance if an order is issued by reason of their mistake, inadvertence, or surprise it remains valid until and unless a successful challenge is filed and upheld. These motions are expensive, and judges tend to disfavor them. Here your remedies are (a) filing a motion to quash service, which you won't be able to prove (how does one establish the pleadings weren't mailed?) and/or (b) filing a set aside motion pursuant to Code of Civil Procedure section 473, which generally must occur no later than six months from the date an order is entered. Likewise, while there is no time limit for setting aside orders obtained by extrinsic fraud (i.e., perjury), this is hard to prove. Third, the other party must bear all the initial expense, which can be considerable since these motions are technical and require the help of an attorney. Fourth, anyone responding to a motion is already at a disadvantage. The moving party has whatever time they needed to draft their paperwork, but once this is "served" the respondent must answer within about 15 days of the date of mailing (I will Blog the exact timing separately). Fifth, it is hard to un-ring a bell once a Court has heard from one party.

FC 215 streamlines litigation where people are responsible. It applies only to cases involving minor children. I imagine the public policy includes not feeling too protective of parents who have gone 'walk about.' The greatest likelihood for abuse is with child support modifications.

One thing is for sure: You must keep updated address information on file with the Court for any case involving kids until they turn 18, or 19 if they are still in high school and live with the first parent. If you move and fail to notify the court, and a modification occurs in your absence, you may not be relieved of your carelessness once you finally learn of the new orders!

Thurman W. Arnold, CFLS

Continue reading "2011 REVISIONS to the California Family Code: Serving POST-JUDGMENT OSC's and MOTIONS" »

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November 21, 2010
Posted By Thurman Arnold

Q. Just thought you might want to point out that there is a different code section about setting aside judgments (2122) as opposed to orders (3691). It's important because the statute of limitations is 1 year for judgments and 6 mos. for orders. Thanks for your excellent articles,

Bruce J.
Northern California Attorney

A. I appreciate you for pointing out that some clarification would be helpful (seriously) - most people won't drop me a note - and sometimes I am slow to respond. ; (

Anyway, I am grateful to hear from you.

As you note, there are different statutes of limitations that serve to potentially cut off or extinguish your right to challenge settlement agreements, judgments, or court orders depending on which of these you are challenging and the grounds for the set aside request (i.e., fraud, duress, mistake, etc.) You need to carefully research and understand these rules as they apply to your situation. Mixing up the statutory time periods may result in the denial of your motion, and even subject you to attorney fees for the costs incurred by the other party. I wrote about a recent case in April, 2010, where this occurred entitled Marriage of Zimmerman.

With respect orders for support, for instance, Family Code section 3691 generally sets a six month window on the time to file a set aside of child or spousal support orders.

For settlement agreements and stipulated judgments, Family Code section 2122 sets forth the time limits for filing set aside motions. These time-frames differ depending upon the grounds you allege for the set aside, but generally range from one to two years. Note that grounds for set-aside not only include alleged misconduct of the other party but also your own circumstances that contributed to a mistake or other situation that would tend to make a set aside the fair and just remedy. I recommend that you attempt to justify your motion on every legitimate ground, even if it appears to be time-barred, unless the claims are so unlikely as to appear frivolous.

Look at these statutes carefully. Events that trigger the time to commence running can be tricky and fact specific. This is an area where you need to find competent local counsel, because if you draft the motion yourself you may not recognize that what you thought you needed to say actually undermined or destroyed your claim.

T.W. Arnold


November 11, 2010
  Is It Possible to Get My Ex's TAX RETURNS Without Any MOTION to MODIFY Pending Between Us?
Posted By Thurman Arnold

Q. We were divorced three years ago and I haven't taken my ex-husband back to Court. I think he is earning a lot more now. Is there anything I can do to find out what his situation is short of actually filing a modification motion?

Absolutely. There is a little known trick for obtaining useful information, possibly with a minimum of trouble, once each year. This is the Request for a completed Income and Expense Declaration (Form FL-150) pursuant to Family Code section 3664.

When there is no motion or OSC pending for a modification, termination, or set aside of earlier support orders you are limited in terms of your discovery rights in California - assuming the proceedings were completed in the sense that nothing is pending or presently calendared (if there is no final judgment in a divorce, partnership dissolution, or paternity action then you are entitled to continue to utilize discovery and what I say here doesn't apply). You cannot, for instance, schedule a deposition or send out interrogatories or even subpoena records, at least not properly. I have seen lawyers send subpoenas when nothing was pending and if I had done nothing they probably would have gotten the information requested since the receiving party doesn't know the status of the case, but when I objected they backed off and canceled the subpoenas at once because it was abuse of process to do what they were attempting.

But in your case you only have the option provided for by FC section 3664. This entitles you to send out on an approved FL-396 Request for Production of An Income and Expense Declaration After Judgment a request no more than once each year (Family Code section 3663) for the other party to produce for you an updated Income and Expense Declaration.

Importantly, the responding party is required to attach to it their last year's federal and state personal income tax returns. (Family Code section 3665).

If they do not respond to you within 35 days, or if there information is incomplete as to wages, you may serve Judicial Council Form Request FL-397 upon their employer per Family Code section 3664(b) and (c). Unfortunately, compliance by the employer is voluntary and so this provision lacks teeth. Yet if you later do file a motion and can show a history of noncompliance by the employer and/or the other party you are more likely to recover attorney fees or sanctions as well as prove that the other party is being evasive or possibly dishonest and this may help you not only to carry your burden of proof and obtain a modification but it may impact how strongly the court acts towards your ex. In the case of family businesses where there is a lack of cooperation it helps the Court to see that you are being stymied.

Section 3664 is also a very useful tool for parties who are trying to modify or terminate support payments that they have been ordered to make. If you are a payor former spouse or domestic partner and want to terminate the other party's support rights, you would begin by sending them the Request. Again, if they fail to cooperate and comply it makes them look like they are hiding something.

Finally, Family Code section 3667 entitles you to recover certain sanctions where the Income and Expense declaration wasn't provided you, was incomplete, or lacked the required tax return attachments. While you cannot recover attorney fees if you don't actually have an attorney (and this section doesn't provide for them anyway), you can recover deposition and related costs, like for subpoenaed records (which can be significant charges), even where you are a self-represented party.

Good luck!

Thurman W. Arnold III,

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September 16, 2010
  My Wife is Living With a Male Renter - Does This Affect My SUPPORT OBLIGATION?
Posted By Thurman Arnold

Q. If my wife is living with a male renter, and I suspect they are boyfriend-girlfriend, does this affect the amount of spousal and child support that I have to pay?

A. The supported party's cohabitation with a person of the opposite sex gives rise to a rebuttable presumption affecting the burden of proof of decreased need for spousal support. FC § 4323(a)(1). It has no impact on child support obligations, however.

FC § 4323 states:

(a)(1) Except as otherwise agreed to by the parties in writing, there is a rebuttable presumption, affecting the burden of proof, of decreased need for spousal support if the supported party is cohabiting with a person of the opposite sex. Upon a determination that circumstances have changed, the court may modify or terminate the spousal support as provided for in Chapter 6 (commencing with Section 3650) of Part 1.

(2) Holding oneself out to be the husband or wife of the person with whom one is cohabiting is not necessary to constitute cohabitation as the term is used in this subdivision.

(b) The income of a supporting spouse's subsequent spouse or nonmarital partner shall not be considered when determining or modifying spousal support.

(c) Nothing in this section precludes later modification or termination of spousal support on proof of change of circumstances.

As stated in Marriage of Schroeder (1987) 192 Cal.App.3d 1154, 238 Cal.Rptr. 12,

"the policy underlying section 4323 is a legislative acknowledgment that cohabitation may reduce the needs of the supported spouse. The arrangement between Wife and Lara elevates form over substance. By receiving reimbursement by way of 'gifts,' Wife's cash needs for support purposes appear unchanged despite cohabitation. While cohabitants are at liberty to deal with each other as they see fit, their 'contract must be fair and reasonable with respect to the rights of [the] supporting spouse.' The trial court here failed to recognize that the allocation of expenses between Wife and Lara undermines the statute and acts to Husband's detriment.

The record strongly indicates Wife's needs have decreased as a result of cohabitation. We remand to the trial court for a factual determination of the extent of her reduced need, with due consideration for the value of the benefits received by her, as well as the value of the benefits conferred upon Lara."

Schroeder involved a post judgment modification of a permanent support order by the payor, not an initial pendente lite request by the supported spouse. The evidence was the former wife had been living with a man of the opposite sex for 18 months, that he didn't pay rent, that he was regularly employed, that he did not contribute to utilities, but that he did contribute to joint vacations. The appellate court found those facts to strongly suggest a cohabitation. Even then, the issue on remand was not a termination of the support obligation but a determination of the value of the benefits incurred by the former wife which might reduce her needs.

Cohabitation has been loosely defined as not necessarily holding oneself out to be Husband and Wife, but is more than a simple roommate or "boarding arrangement." There must be a showing of a sexual, romantic or at least a "homemaker-companion" relationship. Marriage of Regnery (1989) 214 CA3d 1367, 263 CR 243.

Marriage of Geraci (2006) 144 Cal.App.4th 1278 reversed a trial court failure to consider the effect of an admitted cohabitation lasting several years with the following comments:

The court's judgment also does not take into consideration the evidence Jane had been cohabiting since the parties separated in 2000, despite John's requests for findings on the issue. Section 4323 states "there is a rebuttal presumption, affecting the burden of proof, of decreased need for spousal support if the supported party is cohabiting with a person of the opposite sex. . . . "Cohabitation may reduce the need for spousal support because 'sharing a household gives rise to economies of scale. [Citation.] Also, more importantly, the cohabitant's income may be available to the obligee spouse.' (In re Marriage of Schroeder (1987) 192 Cal.App.3d 1154, 1159 [238 Cal.Rptr. 12].)"[32] "[T]he Legislature created the presumption . . . based on thinking that cohabitation . . . creates a change of circumstance so tied in with the payment of spousal support as to be significant enough by itself to require a re-examination of whether such need for support continues in such a way that it still should be charged to the prior spouse." [Italics added].

* * *

At trial, however, Jane testified she had no intention of marrying him. Jane's father, by contrast, testified he hoped they would soon marry. The evidence showed her boyfriend supplied Jane with housing, with a leased car and a credit card in her name for her use. Jane testified she was supposed to pay him back for all her expenditures, including the equivalent of $1,000 a month for rent, whenever she became financially able to do so. She testified she then owed her boyfriend more than $30,000 in back rent, credit card and other debt. According to Jane's evidence, she contributed to the household by providing domestic services.

The foregoing is substantial and material evidence Jane was cohabiting within the meaning of section 4323 and might have a lesser need for spousal support than the court awarded had it considered this circumstance. However, there is nothing in the record to indicate the court fairly considered Jane's cohabitation when determining the type and amount of spousal support to award her.

In Marriage of Bower (2002) 96 Cal.App.4th 893,117 Cal.Rptr.2d 520 there were two permanent support modification hearings filed by the payor husband, one held in 1997 and the second in 2000. At the 1997 hearing the evidence was that the Wife was sharing expenses and living full time at a residence with a man described as a 'roommate.' The Bower court noted that the Husband had been wise in not appealing that order. However, by the time of the second application over three years later in 2000, there was evidence that she was sharing at least one bank account with her "roommate," and she even stipulated she was cohabiting.

Under those circumstances, together with evidence of an increased income from her employment, it was not an abuse of discretion to reduce the Wife's spousal support and then terminate it at the end of one year.

Bower and those cases cited herein regarding cohabitation are dealing with modifications of Permanent Spousal Support orders. They all are based upon the "two can live more cheaply than one" theory or upon actual expenses of the supported party being regularly paid for by the cohabitant beyond loans and gifts. There is no reported case that upholds a trial court refusal to provide spousal support at the temporary hearing stage. However, I suspect most courts will apply the presumption there as well.

The philosophy underlying the cohabitation statute is that parties who share a household and live in a meretricious relationship should not benefit by continuing to receive spousal support without consideration of the reduced need this sharing produces.

Finding cohabitation just allows for the aid of a statutory presumption to assist in the presentation of factual evidence. The effect is the same without the presumption even for mere roommates, as those contributions to the obligee's living expenses may also support a factual finding sufficient to modify spousal support since rent is income.

Nonetheless, cohabitation is offensive to some judges and they be willing to terminate the spousal support obligation instead of merely reducing it.

Note that once you prove a cohabitation the burden of proof shifts to the supported party to show that they still need support. That is their problem, not yours. Nonetheless, if you can show a substantial reduction or the end of any need for alimony you would be well advised to present that evidence.

Finally, you are not entitled to know the income of the other party as new-mate income cannot be considered by the Courts.

For domestic partnerships, even though the statute speaks in terms of opposite sex couples it is highly unlikely that a trial court would not reduce or terminate partner support with a same-sex couple where male former partner is cohabiting with a male and so on. Since 2005 the California Family Code is to be interpreted as applying equally to same sex couples who are in a legally recognized relationship.

If a gay man (as opposed to bi-sexual male) is now living with a female should the opposite sex presumption be applied? The answer would seem to turn on whether the relationship is romantic and/or intimate and not on the identity of genders. Similarly, if a former wife is now living with a female roommate and it can be established that relationship is intimate, then the same reasoning as in the above cases will likely apply. We await appellate court pronouncements on these interesting questions.

[Note, four years later, in July, 2014, Family Code section 4323 was amended to strike the "person of the opposite sex" language and replacing with the phrase "nonmarital partners." - TWA]

Thurman W. Arnold III
September 16, 2010

Continue reading "My Wife is Living With a Male Renter - Does This Affect My SUPPORT OBLIGATION?" »

September 13, 2010
  When Is It Possible to Keep the FAMILY RESIDENCE From Being Sold?
Posted By Thurman Arnold

Q. My wife cares for our children, but now she insists on keeping the residence that I moved out of 3 months ago. Is it true that it will be ordered sold or that she has to buy me out in our divorce?

Not necessarily. If she has an experienced attorney, she may seek a "deferred sale of home" order. These are formerly known as "Duke" orders and once (when I was a puppy attorney) were quite common - today they are rare. However, upon a proper showing a trial judge may issue them.

A "deferred sale of home order" means an order that temporarily delays the sale and awards the temporary exclusive use and possession of the family home to the custodial parent of a minor child or child for whom support is authorized under FC sections 3900 and 3901 or under FC §3910. It is authorized whether or not the custodial parent has sole or joint custody. Such an order is made to minimize the adverse impact of dissolution of marriage or legal separation on the welfare of the child. [FC §3800(b)].

If one of the parties requests a deferred sale of home order, the judge must first determine whether it is economically feasible to maintain [FC §3801(a)]:

  • The payments of any note secured by a deed of trust, property taxes, and insurance for the home during the period the sale of the home is deferred; and
  • The condition of the home comparable to that at the time of trial.

In making this determination, the court must consider all of the following [FC §3801(b)]:

  • The resident parent's income;
  • The availability of spousal support, child support, or both spousal and child support; and
  • Any other sources of funds available to make those payments.

The legislative intent behind these determinations include [FC §3801(c)]:

  • Avoiding the likelihood of possible defaults on the payments of notes and resulting foreclosures,
  • Avoiding inadequate insurance coverage,
  • Preventing deterioration of the condition of the family home, and
  • Preventing any other circumstance that would jeopardize both parents' equity in the home.

A judge asked to consider the issue will consider the following in determining whether a deferred sale is necessary to minimize the adverse impact of dissolution or legal separation on the child. [FC §3802(a)]. Factors considered in exercising discretion include all of the following [FC §3802(b)]:

  • The length of time the child has resided in the home;
  • The child's placement or grade in school;
  • The accessibility and convenience of the home to the child's school and other services or facilities used by and available to the child, including child care;
  • Whether the home has been adapted or modified to accommodate any physical disabilities of a child or a resident parent in a manner that a change in residence may adversely affect the ability of the resident parent to meet the needs of the child;
  • The emotional detriment to the child associated with a change in residence;
  • The extent to which the location of the home permits the resident parent to continue employment;
  • The financial ability of each parent to obtain suitable housing;
  • The tax consequences to the parents;
  • The economic detriment to the nonresident parent of a deferred sale of home order; and
  • Any other factors the court deems just and equitable.
T.W. Arnold

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May 26, 2010
Posted By Thurman Arnold

Q. My lawyer mentioned something called "family support" as a way to possibly get more money from my ex-husband for child and spousal support. What exactly is family support and does it work?

A. Family Support is mentioned in two California Family Statutes - section 92 and section 4066.

In theory family support allows parties, by agreement, to characterize both child support and spousal support together. The spousal and child support components are unallocated, and the total sum is a combined number.

The purpose of family support is to create a deductibility for child support for federal and state income tax purposes that otherwise does not exist. One hundred percent of family support is potentially deductible by the payee and must be picked up as taxable income by the recipient. However, as mentioned at the bottom of this blog, there is some uncertainty whether the IRS will in fact allow this deduction.

While this may seem to be a bad deal for the supported spouse, this is not at all true in certain circumstances. If the supported spouse has no other taxable income, depending upon what the family support number is that person may pay little or no taxes on the combined sum while the payor obtains the benefits of total deductibility. If there are little adverse tax consequences to the party receiving family support but the party paying is substantially better off net after taxes, then family support is something divorcing spouses might want to horse-trade. Since the payor is receiving a benefit, they may well be willing to pay to the supported spouse a higher combined family support award than they would if it was broken down into deductible spousal support and non-deductible child support.

In this way, more money becomes available for both families - and particularly for children - and less money goes to the government.

One caveat - family support is clearly deductible for purposes of the California State Taxes. However, at least one federal tax court decision has invalidated a family support order in terms of its deductibility (Wells v. Commissioner). In that case mistakes were made in the drafting of the family support provision in that it was not stated that support would terminate upon the death of the payee (a requirement for deductible spousal support) and, more important, the cessation of payments was contingent upon events which were associated with the parties' children (i.e., turning 18 or graduating high school) - another major no-no for securing deductible alimony. I have separately blogged deductibility of spousal support.

In order for family support to be deductable for IRS purposes (IRC section 71), it needs to not be disguised child support. This means its payment or continuing existence cannot be tied to any child related event - it will be disallowed if the Judgment or other support instrument links it cessation or modification to the children becoming majors, or dying, for instance. With careful drafting, you can achieve something that likely will past IRS muster but you'd be well advised to not write these provisions yourself unless you are an experienced family law/tax attorney!

Hence, before agreeing to family support (particularly if you are the payor, since if you are the payee you may find you actually had no tax liability after all and so the recipient may not be hurt while the payor is) you need to ask your lawyer or a tax accountant for their opinion on the current deductibility of family support, and you need to be sure the agreement is carefully drafted - including a provision that allows the parties some remedy if, for instance, the recipient fails to report the family support as income or if the deduction comes to be disallowed.

Since family support is a dicey proposition, it probably should not be considered until the IRS has given clearer directions that protect you.

What more information about taxable spousal support?

Thurman W. Arnold

Continue reading "What is FAMILY SUPPORT?" »

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May 20, 2010
Posted By Thurman Arnold

Q. My husband and I have separated, and pretty much agreed to work everything out without going to Court. But I would like some information about how any support we agree upon is taxed.

Child support is not taxable to the recipient, nor is it deductible by the payor, unless a court order or agreement specifies that child and spouse support will be paid together as Family Support.

Spousal support, or "alimony" as it is known in some states, is taxable to the recipient and deductible to the payor as long as certain Internal Revenue Code requirements are met. It is important that you obtain a professional explanation and review of these requirements in terms of what you write up in the settlement agreement (the agreement should be filed with the Court), because in some situations people have the highly unpleasant surprise of believing their support agreement passes muster only to find years later that it violated one of the provisions of the IRC - if that happens, the paying spouse may be forced to recapture the deductions in such a way that they are denied by the IRS, which now means not only that the payor owes monies for increased taxes, but they also owe substantial penalties.

To be deductible spousal support must meet the requirements of IRC section 71. These were established by the Domestic Relations Tax Reform Act of 1984, also known as DRTRA (pronounced "durtra"). The general requirements are that the spousal support obligation must be set forth in a written instrument (i.e., a Marital Termination Agreement), the payments must terminate at death, the payments must be in cash (and not as a swap of property, although it is possible to structure a property settlement in periodic payments of spousal support if done properly), and the parties must reside in separate households.

A common mistake includes "front-loading" or concentrating spousal support in the period immediately after divorce. Spousal support awards that decrease by no more than $10,000 per consecutive years are usually safe, but if you are contemplating a progressive decrease in spousal support over some years, you must have this agreement examined by a qualified professional in order to assure you are protected - this could be an accountant.

A common inadvertent mistake is to terminate spousal support on a date coinciding with a child's age of majority (turning 18). The IRS views this as an attempt to classify or hide what is really child support as deductible spousal support, and when this occurs the IRS may declare these payments that you believed were alimony for tax purposes all to have been child support - regardless of your true intentions - and so disallow the deductions from the time of the agreement forward. This will mean that the receiving spousal who has declared them as income may then be entitled to file an amended return to recover the taxes he or she paid. (Incidentally, the way this problem is often brought to the IRS's attention is where the recipient spouse doesn't declare the income, but you declare the deduction). There should be at least a six month differential between the timing of the termination of spousal support and a child's 18th birthday.

These issues can create a real shock, and totally undermine parties' expectations. Please have your settlement agreement reviewed by a competent attorney, and seek advice beyond the scope of this Blog in order to safeguard your interests!

For more information about tax issues in divorce, click here!

And give us a FB like on the way out?

Thurman W. Arnold III

Continue reading "What are the TAX CONSEQUENCES of CHILD SUPPORT and SPOUSAL SUPPORT?" »

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April 25, 2010
  Are SOCIAL SECURITY benefits income for purposes of SUPPORT calculations?
Posted By Thurman Arnold
Q. Are my social security benefits includible as income to me for purposes of my spousal support and child support application?

Pursuant to California Family Code section 4058 gross income for purposes of child support "means income from whatever source derived". Subsection (1) specifically identifies social security benefits as included.

While FC section 4058 is a child support statute, there is no companion definition of income for temporary spousal support and as a result section 4058 is generally applied to that context as well.

The question often arises whether Social Security is inputted into the support calculation as a taxable or nontaxable benefit - federal taxes are imposed on some of Social Security benefits, depending upon on combined income (the sum of adjusted gross income plus nontaxable interest plus one-half of Social Security benefits). The bottom line is that ask the Court to include it within "other taxable income" to avoid paying both taxes on the income and higher child or spousal support!

Have more questions about how divorce impacts Social Security?

Thurman W. Arnold III

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April 06, 2010
  DCSS INTERCEPTED my TAX REFUND with my new Husband.
Posted By Thurman Arnold

Q. The district attorney's office intercepted our tax refund to pay past due child support. If we divorce do I get any of this money back?

K. Santa Clarita, CA

A. You might.

This tax refund was community property and although the government in this case had the right to take what was owed from the community, the community has a right to be reimbursed from the spouse who owed the debt if and only if the debtor spouse had separate income available at the time to pay the debt (as it arose) but which was not applied to satisfy the debt. Family Code Section 915(b).

Continue reading "DCSS INTERCEPTED my TAX REFUND with my new Husband." »

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March 25, 2010
  What is GUIDELINE SUPPORT in California?
Posted By Thurman Arnold

Q. How is child support calculated in California? I have heard about "Guideline Support" but am wondering what this means?

Robyn, "please don't mention my city", CA

In 1993 California adopted a Statewide Uniform Guideline to come into compliance with a federal mandate. (Family Code section 4050). This followed wide variability of orders and a prior failed attempt to ensure predictability. Its effect was to greatly increase the monies available to children and to begin to end gender bias in assessing support. Family Code section 4052 requires California court Commissioners to adhere to the uniform guidelines and to "depart from the guideline only in special circumstances...."

Family Code section 4053 lists principles to be followed by the Court in implementing the guidelines. This is a statute worth reviewing, and using to remind family court judges of what our State child support policy is. These include the directives that:

(1) A parent's first and principal obligation is to support their minor children "according to the parent's circumstances and station in life."

(2) Both parents are mutually responsible.

(3) The guideline must take into account each parent's actual income and the level of responsibility for the children.

(4) "Each parent should pay for the support of the children or according to his or her ability."

(5) The interests of children are the State's top priority.

(6) Children should share in the standard of living of both parents. Child support may therefore be appropriately used to increase the standard of living of the custodial household to improve the lives of the children.

(7) Disparities of living standards in both homes, particularly where both parents have high levels of responsibility for raising the children, should be minimized through the use of guideline child support orders.

(8) A parent having primary physical responsibility for the children (a term that is nowhere defined in the Family Code) is presumed to be contributing a significant portion of their available financial resources to the support of these children.

(9) The guideline is intended to encourage settlement between parents by creating predictability.

(10) The guideline is presumptively correct in all cases, and only in special circumstance should child support orders be less than guideline.

(11) Child support orders must reflect the greater standard of living and costs of living in California as opposed to other states.

what is guideline child support in California? California Family Code section 4055 sets forth the formula for assessing guideline support. Don't even bother to look at it, you will need to be a mathematician or logics teacher to understand or explain it. While gross income numbers (or imputed income) are used, the guideline tax effects this income so that net income is generally what is determinative - however, this complicates doing the math. The percentage of parent's income allocated to children is called the "K" factor, and this number moves depending upon how many children there are. It assumes, for instance, that 26% of the joint income of most families is spent on families with one child, and 60% where there are three children. Fortunately these calculations are done for us through computer programs. The most common are the Dissomaster and Xspouse. The Riverside County family court in Indio utilizes the Xspouse. The Xspouse is a spin off from the people who devised the Dissomaster, after they had a parting of the ways.

Child support always takes precedence over spousal support, or personal expenses. Relative timeshare between the parents is a major factor in using the formula - the higher the noncustodial parent's timeshare, the less they pay.

Unfortunately this means in practice that there is much legal wrestling between parents about timeshare that has nothing to do with the children's best interests but often everything to do with economic warfare.

For much more information about child support rules in California, click here!

Thurman W. Arnold III

Continue reading "What is GUIDELINE SUPPORT in California?" »

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March 24, 2010
Posted By Thurman Arnold

Q. I remarried in August, 2009, and my new wife is a doctor. She has one child from her prior marriage and I have two. I am still paying my former wife alimony and child support. We largely depend upon my wife's medical income to make ends meet. Now my ex is threatening to take me back to court to increase my support based upon my new wife's income, while my own income is down from when the court last decided it. My new wife is upset at the idea that my ex can learn anything about the medical practice or income. What are our rights?

Peter, Sacramento, CA

If there has been a material decrease in your income since the time of your last order, you may safely file a support modification motion to lower your child support and to lower or possibly terminate your spousal support. Whether that is advisable based upon your numbers has nothing to do with your new mate's income, and should not cause you to hesitate - but again, it does depend on the actual respective numbers between you and Wife 1, which you did not provide me. You also need not worry about W1 filing a motion to increase (you can't stop her, but she will not win based on W2's earnings). Maybe you should give her this link so she will think twice.

New-Mate Income Generally Cannot Be Considered In Setting Child or Spousal Support

California law is quite clear that new mate income cannot generally be considered against you in ordering or modifying child or spousal support. The controlling California Family statute is section 4057.5.

In the normal situation, Family Code section 4057.5 leaves the Court no discretion to consider your new wife's earnings, period. You do not need to report those earnings on your FL-150 (Income and Expense Declaration). This is a statement of California legislative policy effective in 1993 when this section was added to the Family Code. This is true for both spousal and child support.

However, section 4057.5 does contain an exception for the "extraordinary case" which the statute makes clear is intended to address situations where "where excluding that income would lead to extreme and severe hardship to any child subject to the child support award" or where "a parent ... voluntarily or intentionally quits work or reduces income, or who intentionally remains unemployed or underemployed and relies on a subsequent spouse's income." Even if the court were to find a severe hardship on the children of marriage number one, it would be required not to impose a severe hardship on your wife's child by reallocating her income to you for purposes of supporting your two children.

In practice, so far, Courts almost never find facts sufficient overcome this clear statutory prohibition. So far there is no published California appellate decision defining these extraordinary circumstances. No doubt one day someone will so abuse this protection and hide behind it that we will get a reported decision that fleshs out how bad someone needs to behave before the protection is lost. But "extraordinary" means really extraordinary. In the average case, your new Wife has nothing to be concerned about.

With regard to attorneys fee awards, however, there is authority for an argument that new mate income may be considered in granting or denying an attorney fee request, but the odds are against a judge doing that.

Incidentally, this section also applies to income from nonmarital partners as well as new spouses. In one reported case (IRMO Loh), a trial court was reversed for inceasing dad's child support obligation after the mother produced photos of the father's "lifetyle" to show imputed nontaxable income in the form of his new girlfriend's contributions to him, since she paid for all his toys.

The new mate question is a subset of the "imputed income" situations where a father or mother may quit work or reduce hours because they are relying on their new mate to contribute the difference. That is not likely going to be an extraordinary case, but W1 can separately seek to impute income to you on the basis that you have a higher earning capacity than you are exercising. Earning capacity and imputed income is a blog for another day. Also, I will mention here that another argument exists in favor of W1 that has nothing to do with the right to obtain the records or income of W2: Equalizing the lifestyle's of the two households where yours is rich and grandiose and W1 is impoverished (an extreme example) pursuant to FC section 4057(b)(4).

What About Tax Returns?

The tax returns are privileged as they relate to your new wife's medical practice. For instance, if she is a medical corporation (which I recommend be set up), she will almost never be forced to divulge those records. Even as to your joint returns, you may be entitled to redact the information concerning your new spouse or have the Court review them in camera (meaning they are not turned over to the other side). Your former mate is entitled to see your side of the tax returns, however, and they are not insulated from scrutiny simply because you filed joint with the Doctor Wife. If you don't file jointly, your former wife will almost certainly never get her hands on your new wife's Married Filing Separately (MFS) returns. Structuring things this way may or may not be advisable and you should consult a tax accountant.

An interesting twist here is that because you marry a higher, wealthy earner, your taxes actually increase because under federal IRS (and the California FTB), you are responsible for one-half of your new mate's income - and this is true even if you don't file jointly. One case (County of Tulare vs. Campbell) has held that this additional tax you become liable for can form the basis for a reduction in your support because you have less net income available for support after the tax hit is deducted. Hence, based on these tax consequences you may have an additional argument for decreased support - although a Court may try to deny you some discretionary offset to even the score since this feels a bit unfair to the spouse who is primarily supporting the children and so lessen the downward modification.

For more articles about the ins and outs of new mate income, visit us here!

The take-away: So long as you are not playing games, have not intentionally reduced your income by relying upon your new mate's income, and there is no really extraordinary difference in the two households, your new wife's income is just not relevant and so it is protected.

Be safe out there!

Thurman Arnold

Continue reading "I am remarried. How does my NEW MATE'S INCOME affect my SPOUSAL SUPPORT or CHILD SUPPORT OBLIGATION?" »

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March 06, 2010
Posted By Thurman Arnold

Q. My ex girlfriend gave birth to our son three years ago. I was at the hospital and signed a document they handed me that said I was the father. We never married. We lived together for another year, but then split up. For six months, since I got a new girlfriend, the ex has refused to let me see our son. What can I do?

Robert, Lake Tahoe, CA

Establishing Who The Legal Father Is

We always know who the mother of a child is, but it isn't always certain who the father is. The law has developed ways of dealing with this, keeping in mind it is the policy of the state to try to find legal fathers for children so that they, and not the taxpayers, have the burden of supporting that child.

Under the law, when a woman gives birth to a child during a marriage there is a legal presumption that he is the biological father if certain conditions are met. There are a number of statutory ways of establishing parentage since there are a number of different situations where children are conceived and born. Here I only write about situations where there was no marriage.

Establishing you are the father is a precondition to establishing two very important things: Your right to share the custody and visitation of the child and your right to receive child support, or your obligation to pay it.

Family Code section 7611 establishes this presumption where

1) the man "and the child's natural mother are or have been married to each other and the child is born during the marriage, or within 300 days after the marriage is terminated, ... or after a judgment of [legal] separation is entered by a court"; or

2) before the birth, he and the mother attempted to marry each other but where the marriage was for some reason invalid, if the child is born during the attempted marriage or within 300 days after it termination OR if the attempted marriage is invalid without a court order, the child is born within 300 days after the ending of cohabitation; or

3) After the birth, he and the mother marry or attempt to marry each other but the marriage could be declared or is declared invalid, where (a) with the father's consent is named on the birth certificate or (b) he is obligated to support the child under a written voluntary promise or under a court order; or

4) If the man receives the child into his home and openly holds him out as his natural child.

Family Code sections 7570 to 7577 govern the establishment of paternity by voluntary declaration. This is called a VDOP. It is really for establishing paternity between a child and unmarried persons.

Since 1995, hospitals in California have been required to have on hand this declaration and informational documents about establishing paternity by this method. Hospitals are required by law to "provide [these documents] to the natural mother and [to] attempt to provide, at the place of birth, to the man identified by the natural mother as the natural father...." Family Code section 7571(a). Family Code section 7572 sets forth what the informational materials of the legal effects of signing the VDOP, including the rights that a father may be assuming and those that he is giving up (like limitations on his ability to dispute parentage later). Hospitals are then required to submit these documents to the California State Department of Child Support Services [DCSS].

Family Code section 7573 provides that, with certain qualifications, once this VDOP has been submitted to DCSS, the VDOP "shall establish paternity of the child and shall have the same force and effect as a judgment for paternity issued by a court.... The voluntary declaration of paternity shall be recognized as a basis for the establishment of an order for child custody, visitation, or child support."

VDOPs Can Be Rescinded Under Limited Conditions

The VDOP may only be rescinded (reversed) by either parent by filing a recission form with DCSS within 60 days of its date of execution unless a court has already entered orders for support or custody based upon it. Family Code section 7575.

Nonetheless, if a challenge is made within certain time frames to the VDOP after the recission period is passed, Family Code section 7575(b)(1) may permit the Court to set the judgment it has created aside "if the court finds that the conclusions of all the experts based upon the results of genetic tests ... are that the man ... is not the father," UNLESS the court finds that denial of an action to set aside the VDOP is not in the best interest of the child. Take a look at subsection (b)(1) to get a sense of what those considerations include.

Family Code effectively sets a 2 year statute of limitations for filing a motion with a court to set aside the VDOP; otherwise it cannot be set aside. Genetic testing must prove the supposed father is in fact not the bio dad.

In your case the VDOP cannot be set aside since it was signed more than 2 years ago. Based upon it, you are the legal father. If you need the court's assistance to enjoy visitation rights with your son, you need to file and serve a Paternity action, attach the VDOP (which you can get from DCSS), and file a separation OSC or motion to have custody and visitation rights determined. The case then becomes much like any other custody dispute.

If you want to read more about paternity, visit us here!

Thurman Arnold

Continue reading "What does a VOLUNTARY DECLARATION OF PATERNITY (VDOP) do in California?" »

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February 16, 2010
Posted By Thurman Arnold

There are numerous types of situations that may involve custody determinations between parents and even nonparents (although nonparents typically need to be joined into the action since they are not automatically parties to their own child's divorce, for instance). These commonly include divorce proceedings, legal separations, paternity actions, and domestic violence applications. Guardianships involve custody but they are not covered here.

California Courts have jurisdiction to issue initial temporary custody awards, permanent custody awards, and to modify existing orders after a final custody award has been entered.

Whenever custody is on the table, visitation is as well. Typically child support is also at issue, although in order for a court to consider any request the moving party (the party who filed first) sets "the menu" for what the court can consider and make decisions about. The responding party does not set the menu, and must file their own separate application for orders to bring in new matters. It is imperative that a moving party (the party making requests) check the correct boxes on the FL-310 and the Notice of Motion or OSC cover sheet. The reason for this is to ensure the other party receives 'due process,' meaning that they have fair notice of what the hearing is about and a fair opportunity to respond and to provide all relevant information in opposition.

Otherwise, if only the custody boxes are checked then any given court may refuse to discuss finances. Different judges do it differently, but it is important for you to do it right.

As a practical matter, in order to file for custody orders some underlying action must be filed. This could include a DCSS or other governmental application although you cannot control when and if that is filed.

Once the underlying action is filed, or together with it, a parent seeking orders may file an Order to Show Cause or Notice of Motion. If you represent yourself, you can obtain complete forms packets from your local court clerk. That application must be accompanied by the FL-310 which tells the Court what it is you want and why you want it.

While you can handwrite the evidence you want to give the court on the FL-310, this is not a good idea. Better to set your information forth on the attachments sheets. Even better to type it out and attach it.

If you are seeking child support (or spousal support) orders, you must also submit a current Income and Expense Declaration which is California Judicial Council form
which is Form FL-150. It is important that answer all the questions on that form and provide back up so you don't get scolded by a judge or have to return to court another day.

These papers must all be served on the opposing party, in person if this is the first filing and they have not yet responded in the action (notice of ex parte applications can be given orally, but there must be a proper personal services thereafter). Be sure that you serve all the papers you want the court to consider. Do not expect that you can show up in court with new matters and evidence and just hand them to the judge. Procedural due process requires the other side get everything in time to respond. In addition, many judges will just refuse to consider untimely pleadings or defectively served documents - although, if for reasons beyond you control this happens to you (something new happened) - request a continuance at your first hearing so the other party gets their time to respond.

I address the actual issues regarding temporary custody and ex parte applications, permanent custody, and modification of custody in another blog. I will link back when those articles are done.

What more information about child custody and visitation rights and disputes in California?

T.W. Arnold


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January 25, 2010
  FORM 8332 is required to release DEPENDENCY EXEMPTIONS to Father awarded deduction!
Posted By Thurman Arnold

Please Note: There have been some important changes to IRS policies for how to claim the dependency exemption since this Blog was first written over two years ago - please click here for the latest information.

TWA - March, 2012

The Tax Court rules that a noncustodial father is not entitled to claim the dependency exemption because the custodial-parent (mother) failed to complete Form 8332, releasing the exemption and dissolution judgment, which father attached to return, was not a sufficient alternative because it did not contain substantially same information as the form 8332 does.

This is a really common situation, where a parent wrongfully claims a child or children on their tax return despite the fact the other parent is entitled to it that year according to the terms of a Judgment or Order. It holds that despite the language of a Judgment, without Form 8332 signed and attached to the return, the IRS will not recognize the dependency deduction.

You still have your claims against the other parent for the financial damage this costs you in terms of the increase taxes, however, but now you have avoidable attorney fees or must waste your own valuable time enforcing your rights in taking her back to court.

Click here to download IRS Form 8332

Thomas v. Commissioner (1/19/10) TCM 2010-11, No. 17922-08 (Vasquez) 2010 WL 174107 illustrates the perils of not handling how you will get your spouse to cooperate long before April 15th.

When Arizona resident (F) was divorced from M in 6/94, their disso judgment awarded custody of their 3-year-old daughter (C) to M; F was awarded 30 days of visitation in summer, plus reasonable visitation in C's state of residence. F was also ordered to pay child support of $400/mo through AZ T/CT.

Disso judgment further provided that M would claim dependency exemption and child tax credit for tax year 1995 and succeeding odd-numbered years, while F would claim exemption and credit in even-numbered years if he was current in his child-support payments. M was required to execute necessary forms to permit F to claim exemption and credit, but only if F's child-support payments were not in arrears.

In 2006, F was not delinquent in his child-support payments for C, who lived with M in Ohio. On his 2006 federal income tax return, prepared by CPA, F claimed dependency exemption and child care credit, but CPA subsequently notified him that his return was rejected from electronic filing because someone else claimed dependency exemption. CPA then filed F's paper return, to which F attached copy of disso judgment, but not IRS Form 8332 exemption release. IRS sent deficiency notice to F, claiming that he was not entitled to claim either dependency exemption or child tax credit. F then petitioned U.S. Tax Court for relief, but TAX COURT RULES FOR IRS.

Tax Ct finds that (1) per IRC §152(e), F, as non-custodial parent, was not entitled to claim dependency exemption unless

(a) C received more than half of her support from M and F,

(b) M and F were divorced, separated, or living separate and apart for last 6 mos. of 2006,

(c) C was in custody of either M or F more than half of 2006, and

(d) M, as custodial parent, released dependency exemption and F attached Form 8332 release or a document conforming to its substance to his return; (2) F could meet conditions (a), (b), and (c), but not (d); (3) disso judgment did not qualify as conforming document because it lacked Social Security numbers for M and F, M's signature was not dated, and release of exemption was conditioned on F's being current with child-support payments; (4) F could not claim dependency exemption; and (5) F's being unable to claim dependency exemption meant that he was also ineligible to claim child tax credit. Tax Ct concludes that although it is sympathetic to F's predicament, it is bound by statutes and regs as written.

For more articles discussing the mechanics of 8332 Dependency Deductions, click here.

Author: Thurman W. Arnold III, C.F.L.S.

Continue reading "FORM 8332 is required to release DEPENDENCY EXEMPTIONS to Father awarded deduction!" »

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January 24, 2010
Posted By Thurman Arnold

Q. Can child support orders be made retroactive in a court proceeding?

A. Except when the county has paid benefits, or possibly where a third party has provided necessaries like food, shelter, or clothing for the benefit of a child living with you under certain circumstances, the earliest a support order can be made effective is the date any initial pleading is filed in a court proceeding. FC Section 4009.

However, if you were not served with the papers within 90 days of that initial filing, support can only be ordered retroactive to the date a motion seeking support was filed.

Most judges will order support retroactive to the first or the fifteenth day of the month. This means that if you file for support on April 2nd, your order may only go back to April 15 but if you filed March 27th, your order would become effective on April 1. You should time your filing to maximize retroactivity.

To the extent your partner has contributed monies to your support voluntarily before the order becomes effective, they will usually receive a credit off-set against the support award for the time period in question (i.e., if support commences April 1, they will not likely receive credits for payments made prior to that time). These payments do not need to be paid to you directly for the credit to apply, as where a mortgage or rent payment is made.

Author: TW Arnold

Continue reading "Can CHILD SUPPORT ORDERS be made RETROACTIVE?" »

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January 24, 2010
  How long does a CHILD SUPPORT OBLIGATION continue?
Posted By Thurman Arnold

Q. How long does child support last?

A. At a minimum, by statute, the duty to support a child that is imposed by FC section 3900 continues as to an unmarried child until the age of 18 years or, if the child remains a full-time high school student and is not yet self-supporting, until age 19 or upon high school graduation, whichever first occurs. FC section 3901.

You will notice that California, unlike some states, does not provide for child support during college. Nonetheless, parents are free to agree, and in such cases courts can order, child support extending beyond age 19. This is something worth considering in any relatively healthy dissolution situation, and is often addressed in collaborative divorce. College expenses are otherwise not part of a child support award.

If an adult child of any age whatever is or becomes incapacitated from earning a living and is without sufficient means, the support duty continues equally as between the parents as long as that condition persists. FC section 3910. This means that the county may provide services to the adult child if the parents don't, and later seek reimbursement from the parents.

T.W. Arnold III

Continue reading "How long does a CHILD SUPPORT OBLIGATION continue?" »

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December 30, 2009
  My New Wife Works. Can this NEW MATE INCOME Be Used to Increase my CHILD SUPPORT?
Posted By Thurman Arnold

Q. I have two children from a previous marriage. I remarried two years ago, and my new spouse earns $8,500 month. While my hours have been reduced during this recession and my monthly gross averages $3,500. The ex is threatening to take me back to Court to increase child support based upon my new mate's income. Can she do this?

Jason - Santa Barbara, CA

Hey Jason - I used to live in your town!

Of course ex-spouses can always take the other back to court, but that doesn't mean they will win. We call these support modification proceedings. In order to obtain a new order, she must prove there has been some material change of circumstances with regard to her needs, the children's' needs, or your ability to pay a greater sum in support.

The key California statute on when and how new mate income can be considered is Family Code section 4057.5. The basic rule is that courts cannot consider new mate or nonmarital partner income in the context of making child support or support spousal orders. This means as a general proposition that your new wife's income of $8,500/month is not to be inputted into the support guideline formulas.

There are two exceptions where new mate income may need to be disclosed and where it can be considered in setting child support: 1) Where there are "extraordinary circumstances" that would cause the exclusion of this income to create an extreme or severe hardship to a supported child. However, if this hardship is shown, the court must first consider the effect of inclusion of new mate income on any other children including the new mate's children, and so that their interests trump the hardship to the child for which support orders are being sought. 2) By marrying somebody with high earnings, a spouse will pick up additional taxes based upon the other's income. Since as far as the IRS and California Franchise Tax Board (FTB) is concerned, you are liable under community property laws for one-half of your new mate's income, regardless whether you file jointly, the added tax consequences upon this additional income can actually be the basis for a downward decrease in child support (County of Tulare v. Campbell) since there is less after tax income available to you from which to pay support.

There are very few reported California appellate decision on new mate income or which explain how FC section 4057.5 is to be applied. In Marriage of Loh (93 Cal.App.4th 325) a mother/former spouse convinced a trial court, based upon photos of the father's extravagant lifestyle (homes, cars, etc.) which were funded by his girlfriend's income and assets, to impute income to him for purposes of basing a child support award. The appellate court reversed, stating "Evidence of lifestyle, particularly a lifestyle subsidized by a new 'nonmarital partner', is not a cheap substitute for proper discovery of income reported on tax returns."

In a very recent appellate decision (Marriage of Knowles (Oct. 2009) 178 Cal.App.4th 35) a trial court was reversed after it accepted the former wife's argument that the community property income and assets of both he and his new wife should be used to determine his income available for support. The trial court's mistake was include the half that belonged to the new wife, although it could have included just the half that belong to him. There was no evidence of extreme hardship that justified considering the new mate's half.

We've waited a long time for another case dealing with consideration of new-mate income under Fam C section 4057.5. One of the few cases that has, In re Marriage of Wood (1995) 37 Cal.App.4th 1059 is cited here, but it came down in 1995. Neither the statute nor the cases provide any definitive answer regarding what actually constitutes either an "extraordinary case" or an "extreme and severe hardship," although Wood seems to say that new-mate income can be considered where one of the parents is voluntarily unemployed or underemployed.

Rather than arguing for NMI (new mate income), a party seeking to have income assigned to a person who has remarried or is living with a nonmarital partner may find more success by arguing that income should be imputed to that spouse on the basis that they have an earning capacity which is not being realized. For instance, if because your new spouse had sufficient income you chose to quit work or take a lower paying job it might appear you are shirking your support responsibilities. Rather than charging you with NMI, a trial court could find that you had the ability to earn X dollars a month and so charge you for this phantom income by making that the basis for a support award. Then, the community property (including your new mate's share) could be tapped to satisfy this obligation.

Incidentally, a California prenup can be an effective way to limit this exposure.

Author: Thurman Arnold

Continue reading "My New Wife Works. Can this NEW MATE INCOME Be Used to Increase my CHILD SUPPORT? " »

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December 28, 2009
  How is TEMPORARY SPOUSAL SUPPORT Determined in California?
Posted By Thurman Arnold

Q. How is temporary spousal support calculated in California?

Temporary "Pendente Lite" Spousal Support Awards in CA Divorce

In order to be entitled to spousal support, parties must be married or be registered domestic partners. Spousal support (which is not usually referred to as "alimony" in California) is available in dissolution proceedings, actions for legal separation, and in connection with domestic violence applications.

Spousal support orders may be temporary, or they be what is called permanent. Different rules apply to how temporary support is figured than to 'judgment' or long-term support. I address permanent spousal support separately. Know that judgment spousal support is rarely truly 'permanent', except in very lengthy marriages.

Temporary spousal support is designed to preserve the status quo pending a final judgment. Family Code section 3600 provides that during the pendency for dissolution of marriage or legal separation or in any proceeding where there is at issue the support of a minor child, the court may order the husband or wife to pay any amount that is necessary for the support of the husband and wife (subject to limitations contained in FC section 4320 and FC section 4325). Again, parties dissolving domestic partnerships may also be awarded "partner" support and the price of equality in recognizing same-sex marriages and domestic partnerships includes being subject to the same rules concerning support that have long been assumed to be due for opposite gendered couples. I have found with some gay partners that this comes as a real shock.

Temporary Guideline Spousal Support Programs

Temporary spousal support generally has nothing to do with the length of the marriage (except possibly with extremely short periods between the date of marriage and physical separation). A party seeking spousal support isn't deprived on the right to receive support even if they have income - the question is the relative income circumstances of the two parties. The greater the difference, the higher the support.

Most California counties have formulas that determine temporary spousal support, but the two most important are Santa Clara and Alameda counties. Essentially the spousal support formula for Santa Clara County - which is the dominant one - is as follows: From any amount which is not allocated to child support, take 40% from the net income of the payor spouse, less 50% from the net income of the recipient spouse. The resulting number is the temporary spousal support. You do not need to have children to be entitled to receive spousal support.

As a practical matter, courts almost universally use one of two computer programs that generate these numbers: Either the Dissomaster or Xspouse. The Indio courts use the Xspouse and the Santa Clara guidelines.

Into one of these programs are inputted the respective gross incomes of the parties. If there are children of the parties, the custodial timeshare in percentages is inputted (because only a party who has physical custody for more than 50% of the year can claim the tax benefits of HH/MLA or head of household status, the programs require one to be considered to have 51% even in true joint custody arrangements).

Only certain expenses matter for purposes of temporary support in California. What doesn't matter much at the temporary phase are most personal expenses (like credit card bills, rent and other costs of living). This effectively ignores the entire debt structure of the parties at time of separation. Health insurance, union dues, and mandatory contributions to retirement (i.e., typically not IRA contributions), and obligations existing to other minor children living in one party's home, or as to which an actual court order requires they make support payments, are also entered. The support program 'tax effects' these numbers and figures out the net incomes of the parties. Mortgage payments are relevant to the extent of tax write-offs that increase net after tax cash flow. The support programs render a number that tells the Court how much the higher earning spouse must pay for purposes of the court order. Most judges will not deviate from that amount. Expenses that judges ignore for support purposes, and the parties' marital standard of living, can be highly relevant to requests for attorney fees that commonly accompany support applications, however. If you are opposing a support and attorney fee request, be sure to point out what is left for you to pay your own living expenses - especially if a fee order is also issued. Depending upon all the facts, you might gain some sympathy leverage.

What is the Effective Date for Support Commencement?

Since the court determines the support obligation some weeks after a request for support is made (by way of filing a 'Request for Order), family law bench officers usually make the support order retroactive to the date of the filing for the request. Most courts order support payable one-half on the first and fifteenth of the month. For this reason, if you file for support on the 5th day of the month, the court will not make support retroactive to the 1st but will start of the obligation on the 15th day of the month. Get your application filed before the next 1st or 15th.

If applicable, be sure to ask the court to credit the payor spouse voluntary support payments made to, or for the direct benefit of, the other party made since the support request was filed - if this claim for set-off is disputed, specifically ask the court to reserve jurisdiction to time of trial so that your right to a credit or reimbursement gets decided later, or it may be lost or waived.

This might sound like temporary spousal support is easy to fix, and who needs a lawyer? This is not at all the case. The final support numbers depend upon how much income the Court is attributing to each party. Each is required to submit before the hearing an FL-150 Income and Expense Declaration. While the support amounts are uniform and predictable once the income numbers are determined and inputted, there is huge court discretion and variability in fixing the income numbers themselves. You can really hurt yourself financially if you don't understand the twists and turns.

For instance: A husband's (and wife's) income numbers are usually but not always based upon historical earnings, and the California judicial council form (FL-150) requires both to set forth their total gross for the past 12 months and also the past month. The legal assumption is that historical earnings are a reliable guide to future earnings, but this may not be at all true. Especially in today's economy, historical earnings may not be indicative of what the income stream will be going forward. This information needs to be credibly presented to the Court.

In cases where one party is a self-employed spouse, their net pre-tax earnings must be determined after deducting business expenses. This is a common and complex area of dispute, because what is deductible for purposes of Schedule C accompanying a tax return according to the federal government is in no way binding upon California courts for purposes of figuring support. If somebody works from home and charges part of the mortgage expense as a business deduction, that expense may be added back into the income stream as being available for support. You may cheat the government, or have otherwise righteous deductions, but discover that your local family court judge views it differently.

Imputed Income Issues

Another support battleground involves imputed income. What if one party refuses to work, or insists on working at a lower paying job than what they might attain? Perhaps a support recipient believes they will get more money from their spouse if they have no job, but if they tried to get one they could? What if one party claims that they aren't working because no (suitable) jobs are available? Imputing income cuts both ways, and can be an extremely sophisticated legal and evidentiary question. You will be sorely challenged to represent yourself. Likewise, commission and bonus income present their own unique problems. Another day, a few more Blogs! Check our on-board search engine for later dated tips, as these are topics I will cover.

Incidentally, while only temporary alimony is calculated using the guideline formula in this way, child support is always figured in this manner regardless of whether there is a spousal support obligation.

Finally, if you are voluntarily supporting your spouse following a separation, you MUST obtain a court order (or court filed stipulation) for support if you hope to deduct what you have paid on your separate income tax return! But, if you and your spouse agree to file jointly because this is, on balance, more tax favorable to you then know that you cannot claim the support you paid as tax deductible in that return. I have met so many payor spouses who went for years following physical separation without thinking to themselves affirmatively seek a court to render a support order. It is probably obvious that there needs to be an underlying disso or legal separation pending. If your marriage or RDP is over but you hunker down in ambivalent limbo, you will harm yourself in terms of money and future financial security.

Conversely, if you are receiving voluntary support from a separated spouse, in some situations you may net far more money if you let that limbo grind on forever - but there may be countervailing factors as to other aspects of your case that outweigh such potential benefits. The bottom line is that you are likely being quite foolish by failing to at least buy an hour of an experienced family lawyer's time, and I am regularly amazed by how casually many people behave in this regard. Denial may be a river in Egypt, but it can drown you nonetheless!

PLEASE NOTE!: Under the 2018 Tax Cuts and Jobs Act, or TCJA, spousal support that is agreed to or ordered on or after January 1, 2019, is no longer deductible to the payor or taxable to the payee, under federal law. The old rules have not changed for purposes of California taxation. The guideline programs mentioned above are being updated to reflect this fact for support orders originating after January 1. However, the old guideline formulas will continue to apply to support instruments, and court orders, entered into or issued prior to December 31, 2018.

Author: Thurman W. Arnold III

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