RECURRING GIFTS From Parents May Be "INCOME" For Purposes of Determining Need for ATTORNEY FEES!

Family Gifts to the Other Party Can Be a Source for Your Own Attorney Fees

As I have been trumpeting now for months, the appellate courts are actively attempting to control and limit family law litigants, their lawyers, trial courts, and the rest of the professionals involved in these cases and to curb the excesses of high conflict divorce and custody disputes. Following on the heals of the momentous decision in Irmo Davenport, another court has responded to an excessive attorney fee claim by a family court disputant. In Davenport it is a party who was sanctioned for the aggressive tactics of her attorney; now in the Kevin Q. opinion, it is the lawyer herself who is undone because it appears she will never be paid for hundreds of thousands of dollars in fees run up in the course of her representation.

I raised the question in my Davenport blog whether we can expect Family Code section 271 to be amended to impose sanctions against attorneys themselves for litigious conduct (there is a split of appellate authority on whether 271 includes attorneys). While neither the attorney nor the client in Kevin Q. was sanctioned (and apparently the conduct of the litigation did not rise to sanctionable levels), they were nonetheless denied any contribution to their fees from the other side. An attorney who handles cases "on the come" who finds herself not getting paid is pretty much equivalent a form of sanction. Kevin Q. blew up in the face of the mother's attorney (although I applaud family lawyers who care enough to carry a case for a time, in appropriate settings). For those attorneys who tend to over-litigate cases, basic behaviorist principles of reward and punishment are likely to impact their decision-making. This is a message that I believe the appellate justices intend.

Kevin Q. v. Lauren W. (2011) 195 Cal.App.4th 633

The Fourth Appellate District has taken the next predictable step for litigants who hope to force the other side to contribute to exorbitant attorney fees incurred in certain high conflict family law cases. In so doing the law as it relates to the "relative circumstances" of the parties has been expanded to require that trial courts treat recurrent monetary infusions made by family members as "income" for purposes of interpreting the larger picture as it relates to attorney fee requests. Previously that argument only existed within the realm of support obligations.

This is the first case that deals with what happens to attorney fees claims, in a situation family lawyers know is common where grandparents may be effectively encouraging (and often funding) a rancorous custody battle between their child and a now estranged former partner. Often in family court litigation there are not merely two individuals at war - their relatives have also been sucked into the trance. Many wealthier Americans are able to fund their child's litigation attorneys, or pay that child's household bills so that their need to find work is reduced. The parents of these children may feel forced to underwrite this status quo, effectively spending the family inheritance now. This may be the real subtext to the case.

Kevin Q. is a natural evolution of a doctrine which was recently stated in Marriage of Alter (2009) 171 Cal.App.4th 718. In Alter the trial court found gifts from the former husband's mother to be disguised as loans and imputed income to him for these gifts in deciding his ability to pay child and spousal support.

In Kevin Q. and Lauren W., published on May 13, 2011, the two parties incurred over $400,000 in lawyer's fees combined fighting over the paternity of a boy born outside of marriage. That these are warring high-conflict parents is made clear from the fact that this is their second published appeal (see Kevin Q. v. Lauren W. (2009) 175 Cal.App.4th 1119). Mother won the first appeal; Kevin prevailed here. Both sets of litigants have had the same attorneys throughout the proceedings. Kevin Q. is himself an attorney who practices family law in Orange County. As it turned out in the earlier case, Kevin is not the child's biological father but he alleged he was the child's psychological parent - the appellate ruling was that Kevin was not the boy's "legal" father. Unfortunately for the child, it sounds as though the man declared to be the legal father went "walkabout." I cannot tell whether Kevin continued to maintain any relationship with the child after he lost his paternity claim ('once a psychological parent, always a psychological parent?'). Perhaps the parties or their attorneys will weigh in this Blog so I can have the facts corrected.

The first decision is dated June 19, 2009. In December, 2009, Lauren moved the court to order that Kevin pay her outstanding attorney fees, including those from the earlier appeal. Kevin had contributed a total of $20,000 up to that point. Her attorney was Debra Opri of Opri & Associates; Kevin was represented by Marjorie G. Fuller and Marc S. Tovstein. Hence, all the litigation after the first decision appears to be over recovering attorney fees relating to it (but this is unclear). Fees upon fees?

In this round Attorney Opri filed a declaration stating that there was $55,754 due from the earlier work and that another $178,581 and costs of $6,589 was incurred thereafter. Hence, Lauren's total unpaid fees amounted to $227,746. Opri's hourly billing rate was $575 and her law clerk's was $225/hour. Of these fees, Attorney Opri had only received the $20,000 from Kevin plus $28,280, which included a payment of $15,600 from Lauren's father. Lauren urged that Opri had been effectively working for free. She owes her father "tens of thousands" and he was tapped out.

Kevin responded that Lauren's fees were unreasonable. She'd incurred $311,242 in fees for the entire case while his fees totaled $141,384. He complained that $4,200 in charges were for driving time for her attorney to travel from Beverly Hills to Orange County.

The matter was submitted for decision to the trial court, with the issue being identified as whether "attorney fees should be paid to [Lauren], based on need and ability to pay, as set forth in ... [Family Code] sections 2030, 2032, 7605, and 7640." Lauren urged that because the underlying dispute concerned paternity, Family Code section 7605 and section 7640 governed and that these statutes required a different analysis than under sections 2030 and 2032.

The court made the following findings: Kevin's average monthly income was $12,803. He had borrowed $50,000 from his relatives for attorney fees, which he was paying back at the rate of $150/month. He had monthly expenses of $13,320 leaving a deficit of $517.

Lauren had zero income from employment and had not worked since 2006, although she had a master's degree in psychology and is a certified chemical dependency counselor. She received $8,700 per month from "others." Her monthly expenses were $9,197, leaving a shortfall of $497.

Which Statutes Control Attorney Fee Requests in Paternity Actions?

The court concluded that it had to apply Family Code section 2032(b) and so "consider the practicality of the expense of litigation consistent with the parties['] overall financial resources." While it appreciated that Lauren's counsel had expended time and talent to the case without substantial payment in advance, "[o]nly the wealthiest of our citizens can afford to expend more than $500,000 on their family law disputes. The fact that an attorney voluntarily takes on the lower earner does not mean that the law gives him or her carte [blanche] to litigate the case without limitation regardless of the parties['] ability to pay."

The court noted that Family Code section 2032(d) provides a mechanism that offers the parties and their counsel to early on seek to implement a case management plan for the purpose of allocating fees in an amount and to the extent that circumstances allow - Lauren did not avail herself of that opportunity "and forged ahead, incurring attorney's fees far in excess of either party's reasonable ability to pay." (Notably the appellate court did not weigh in on this question). It concluded that "neither party ha[d] a substantially greater ability to pay the other's fees" and therefore denied Lauren's request that Kevin contribute to hers.

On appeal Lauren contended that the trial court failed to limit its inquiry to the language of Family Code sections 7605 and 7640, which she felt would result in a different analysis than that under 2030 and 2032. The chief difference between the wording of the two sets of statutes is that "[u]nder section 2032, '[t]he court may make an award of attorney's fees and costs under Section 2030 . . . where the making of the award, and the amount of the award, are just and reasonable under the relative circumstances of the respective parties.' Section 2032 further provides: 'In determining what is just and reasonable under the relative circumstances, the court shall take into consideration the need for the award to enable each party, to the extent practical, to have sufficient financial resources to present the party's case adequately, taking into consideration, to the extent relevant, the circumstances of the respective parties described in Section 4320. The fact that the party requesting an award of attorney's fees and costs has resources from which the party could pay the party's own attorney's fees and costs is not itself a bar to an order that the other party pay part or all of the fees and costs requested. Financial resources are only one factor for the court to consider in determining how to apportion the overall cost of the litigation equitably between the parties under their relative circumstances.'"

Family code section 4320 is the key California spousal support statute. Of course, this was a paternity action and since the parties were never married no spousal support could have been awarded. Nonetheless, the Fourth Appellate District concluded that the legislature's reference to 4320 in section 2032 meant that the factors set forth in 4320 were relevant here. These included "the earning capacity of each party," "the obligations and assets of the parties," the "age and health of the parties," "the balance of hardships to the parties," and the "goal that the supported party shall be self-supporting within a reasonable period of time." Thus the appellate court concluded that "sections 2030, 2032 and (where relevant) 4320 form a statutory package" where fee awards must comply with all three provisions - at least in marital proceedings.

The Fourth District decided that the trial court did not error by taking into account the standards and circumstances pertinent under a section 2032 comparative analysis. "By dong so, the court was able to perform a more thorough evaluation of the parties' respective abilities to pay."

Loans vs. Gifts From Family Members

Lauren urged on appeal that the trial court erred by treating her father's payments to her as income, asserting these were loans and not gifts and that her father's financial support was not "an infinite obligation, regular or steady...." She argued that the trial court did not find the amount of her fees to be unreasonable.

The appellate court read the trial court decision as including a finding that Lauren's fees were in fact unreasonable. The court had stated that the law does not give either party carte blanche "to litigate the case without limitation." It noted the disparity in the amounts of fees charged by the two sets of attorneys. And the court had observed that Lauren's counsel had "forged ahead, incurring attorney's fees far in excess of either party's reasonable ability to pay."

The two seminal cases on imputing income derived from gifts from parties' parents are the Alter case, cited above, and In re Marriage of Schulze (1997) 60 Cal.App.4th 519. In Schulze a noncustodial father challenged an order requiring him to pay spousal and child support. The trial court there ordered him to pay $7,500 immediately and in full for his former wife's attorney fees. The trial court had presumed he could get this money from his parents because they had previously lent him about $8,000 to pay his own fees. This part of the ruling was reversed with the now oft quoted holding that "Charity, once extended, is still not an entitlement." As the Kevin Q. opinion notes "[b]ut that statement related to a loan made by the parents for a particular purpose, as opposed to regular, recurrent monetary gifts intended as support for living expenses." Lauren responded that the trial court ignored the $50,000 loaned by Kevin's parents, but these were not the same as "recurrent payments" made over a lengthy period of time to cover Kevin's living expenses. And, Kevin's attorneys were smart enough to produce evidence that Kevin was paying back those loans.

Alter similarly examined recurrent gifts to an adult child. "There, the appellate court stated that 'where a party receives recurring gifts of money, the trial court has discretion to consider that money has income for purposes' [of determining] child support. The former husband in Alter, who sought reduction of an existing child support order, had received regular monthly payments from his mother for many years. He claimed the payments were loans, produced promissory notes as evidence, and averred his mother's loans to him 'would not continue.' The appellate court found substantial evidence the payments were gifts, noting that no evidence showed the former husband 'ever repaid any of the money.' The Court of Appeal then addressed whether these gifts may be characterized as income under the relevant child support statute. It concluded 'that nothing in the law prohibits considering gifts to be income for purposes of child support so long as the gifts bear a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit.' In reaching this conclusion, Alter found it 'irrelevant that there is no legal obligation on the part of the donor to continue making the gifts or that the flow of cash does not appear on the income tax return.' 'Few, if any, sources of income are certain to continue unchanged year in and year out. People can lose their jobs, interest rates can fall, business conditions can wipe out profits and dividends.' In sum, 'the question of whether gifts should be considered income for purposes of the child support calculation is one that must be left to the discretion of the trial court.' Alter concluded the trial court had not abused its discretion in considering the payments to be income because they were 'periodic and regular,' resulting in money available to the former husband for the support of his children."

Hence, the Kevin Q. court ruled that "the regular, recurrent monetary infusions made by Lauren's father to her over a lengthy period of time, which relieved her of the need to work outside the home, constituted support (and, impliedly, monetary gifts) to her. The court explains: 'While the Court recognizes that [Lauren's] receipts from 'others' are not income as defined in the Family Code, they are however funds on which [Lauren] relies in order to maintain her lifestyle. It is clear to the Court that these funds received are not loans, in that [Lauren] reports debt only in the amount of $26,000, all from institutional lenders. [Lauren] reports that she has not been gainfully employed since August of 2006. She discloses that she has a bachelor's degree in English, a master's degree in psychology and is a certified dependency counselor. [Lauren] does not report receiving or applying for any benefits for disability income from any state or federal agency or private insurance provider. The weight of the evidence therefore supports the proposition that [Lauren] chooses to remain a 'homemaker and mother' and is able to do so as long as other persons contribut[e] to her support. That support, in this Court's mind, is relevant to the issue of [Lauren's] need and ability to pay attorney fees.'" [Emphasis added].

The court did not abuse its discretion by considering those gifts to be support (or income) for purposes of calculating Lauren's ability to pay her attorney fees. The gifts bore "a reasonable relationship to the traditional meaning of income as a recurrent monetary benefit."

The Take Away

Parties to family court litigation who don't work, or have limited access to resources, find themselves in a catch-22: If they look to their families for financial support which they then receive as recurrent gifts, or unpayable loans, this stream of money will increasingly be classified as "recurrent income." Here Lauren's parents regularly supported her, at a pretty high standard of living at $8,700/month. One can't but help feel sorry for her parents for bearing this burden. I suspect that as naturally tends to happen her parents bought into her victimhood and sided with her against the evil empire that Kevin represented. Often high conflict litigation isn't simply a war between two parties: It is a war between two families, which isn't a lawyer's fault - but is still always a shame. (Mirroring conflict between two religious groups; or two political parties; or two races; or two countries; or human beings vs. the rest of the natural world. Does any of this sound familiar? But I digress.)

True loans from parents may remain different from "recurrent income" depending how and how often it is received. Kevin was wise to show some repayment, however meaningless ($150/month towards a $50,000 debt is minimal at best).

We now know that Family Code section 2032 provides the central standard of measuring how attorney fees may successfully be sought from the other side in probably any manner of case that can be filed under the California Family Law Act. It gives trial courts wide discretion to look at all the relative circumstances, no matter whether the case is between married persons, domestic partners, and paternity contestants. Arguably the same result should control when dealing with attorney fee requests in domestic violence cases (Family Code section 6344).