Opinion
NOT TO BE PUBLISHED
APPEAL from orders of the Superior Court of San Diego County No. DN142188, Joseph P. Brannigan, Judge. Reversed with directions.
HUFFMAN, J.
Appellant Jesse Allen (Father) appeals from temporary prejudgment orders awarding child and spousal support, and denying modification of them, in the dissolution action between Father and his former wife, Victoria Allen (Mother). (In re Marriage of Skelly (1976) 18 Cal.3d 365, 368-369 [such collateral orders are appealable].) Father contends the family court erred in ordering spousal and child support at a level roughly equivalent to his monthly salary, when the court computed his support obligations by incorrectly establishing the amount of his monthly income as including annual employment bonuses that were averaged over only an eight-month period, instead of a yearly basis. (Fam. Code, §§ 4058, subd. (a), 4060; all further statutory references are to the Family Code unless noted.) Father alternatively contends the court misinterpreted the evidence and abused its discretion, when it denied his motion to modify those same support orders, for the period from September 2008 forward.
Because the parties have the same surname, and for convenience, we will call them Mother and Father.
In our preliminary review of the record on appeal, we determined there were potential problems with appealability of these related orders, and requested that the parties supply further documentation of the timeliness of Father's notice of appeal, filed March 30, 2009. That document referred to both of these support-related minute orders and represented that no formal Findings and Order After Hearing (FOAH) had yet been signed by the court for either hearing. The appealability issue was deferred for further consideration by this merits panel.
As will later be discussed, the September 4, 2008 orders included the granting of a request for a statement of decision. That document was eventually signed and filed as a component of the FOAH on May 8, 2009 (later than the notice of appeal). Liberally construing the notice of appeal, we are satisfied that the September 4, 2008 orders are properly before this court, since the statement of decision finalizing them represents the trial court's determination on the merits of the issues raised at that hearing. (Cal. Rules of Court, rules 8.100(a)(2), 8.104(d)(2), (3), (e); MHC Financing Ltd. Partnership Two v. City of Santee (2005) 125 Cal.App.4th 1372, 1392 (MHC) [a memorandum of decision amounts to an appealable order or judgment when it constitutes a decision on the merits].) Moreover, we exercise our discretion to consider the related March 5, 2009 order, denying Father's request to modify the September 4, 2008 order, to be properly subject to review, although it was not finalized until December 7, 2009 (and thus theoretically was prematurely appealed; Rule 8.104(e)).
All further rule references are to the California Rules of Court unless otherwise noted.
Mother has not filed a respondent's brief. We do not consider this to be a concession, and reach the merits of Father's appeal. (In re Marriage of Riddle (2005) 125 Cal.App.4th 1075, 1078, fn. 1 (Riddle).) We determine the appeal based on the record provided and Father's opening brief. (Rule 8.220(a)(2).)
On review, the record shows the family court's finding that Father's monthly income should be calculated by including anticipated yearly bonuses, while utilizing only a partial year basis for the representative sample, is not supported by the evidence. Even though these bonuses were likely to be repeated, the trial court exaggerated their effect upon Father's net monthly income, by incorrectly compressing the period of time deemed to be a representative sample of his income (thus crediting a year's worth of bonuses only to an eight-month period). (Riddle, supra, 125 Cal.App.4th at pp. 1081-1084; In re Marriage of Mosley (2008) 165 Cal.App.4th 1375, 1386-1388 (Mosley).)
Accordingly, the discretionary determinations made by the trial court in this respect were unreasonable and not supported by the evidence. We reverse the child and spousal support orders with directions to recalculate the support obligations in accordance with the principles set forth in this opinion and other applicable authorities. (M.S. v. O.S. (2009) 176 Cal.App.4th 548, 553-557.)
BACKGROUND
A. Facts: Order to Show Cause Regarding Support, Income and Bonuses
In June 2008, Father filed a petition to dissolve his 13-year marriage to Mother. In May 2008, Mother requested that the court make orders setting child support for their three children, pursuant to guidelines, and a spousal support award. (§§ 4055, 4320.) These were the first contested hearings in the case, and included other substantive issues as well as child and spousal support. However, the only issues raised on appeal concern support.
At the time of the September 2008 hearing, the parties' three children were 11, 8, and 6 years old. Father has a 33 percent timeshare of custody, with the rest for Mother. Father also has two young children with his current partner. He files taxes as married, with four tax exemptions. Mother is not employed outside the home, although her income and expense declaration reported negative income from her part-time business teaching music.
For many years, Father has been employed as an executive in the banking and mortgage businesses. In 2007, he left Citibank and received a severance package, including the sale of restricted stock that was figured into his gross income for 2008 ($12,429, stock proceeds). He then became employed by Countrywide, which was later purchased by Bank of America. At the time of the hearing in September 2008, he held the position of national head of the reverse mortgage business unit. In 2008, his gross annual income was composed of a $17,500 monthly salary, plus the $12,429 stock proceeds, plus two anticipated retention and performance bonuses that were apparently customary in the industry.
Father's total income in 2007 amounted to approximately $702,096, which included salary from both Citibank and Countrywide. It also included severance pay and restricted and other stock awards that had already been divided 50-50 between Mother and Father.
Father presented evidence about the Bank of America retention bonuses that would normally be paid to him early in the years 2008-2010, in the gross amount of $60,000 each. He believed that these retention bonuses would continue to be forthcoming, although generally, the mortgage industry was undergoing significant nationwide difficulties. Father's evidence showed that the performance bonus for which he was eligible was based upon the profitability of the reverse mortgage business unit. In March 2008, that bonus amounted to $184,800, based on the previous year's business.
The performance bonus paid to him the next year, 2009, amounted to $71,250.
B. Rulings; September 4, 2008 Minute Order; FOAH, Including Statement of Decision
At the hearing, the parties discussed the different approaches that may be used for calculating the effect of yearly bonuses upon a monthly income. Father argued that in light of his receipt of both a monthly salary and bonus income, the court should appropriately base the support order upon his monthly salary of $17,500, and then follow one of several approaches on the issue of the bonuses. Specifically, a trust account could be used for deposit of the bonuses, or the court could utilize the "Dissomaster" software for making a bonus calculation (allocating percentages or otherwise treating it as additional annualized income).
Mother took the position that it was appropriate to use a "year-to-date" measure for his income, which amounted to eight months as of the time of hearing. She argued that for years, Father had been going into debt during non-bonus months, and then repaying the debt when bonuses were received. These bonuses were expected, so it would be appropriate to average them into his overall income for the past eight months. It was not disputed at the hearing that Father had paid to Mother a portion of the February 2008 retention bonus he already received ($13,000 of the $60,000 gross, which yielded a total of $36,000 after taxes).
The trial court issued the following support order, as reflected in the minute order and reporter's transcript. The court acknowledged that the bonus income in 2008 had kicked Father's income way up. Mother received an imputed income at the minimum wage level, which was a negative amount, considering her expenses. Then, using the "year-to-date" measure for Father's income (eight months), the court found that Father had a yearly income of $416,230, which it computed out to be a monthly income of $52,028. Based on that finding, the court ordered that Father pay Mother $7,623 child support per month (allocated in separate amounts as to each of the three children). Both that award, and spousal support of $9,427 monthly, were to commence June 1, 2008. The court specified that Father should receive credit for any payments he had made from June 1, 2008 forward. This total monthly support obligation came to $17,050 (approximately the same amount as his $17,500 monthly salary).
In the minute order, the family court granted the motion by Father for a statement of decision, ordering his counsel to prepare and submit it. The parties submitted conflicting proposed statements of decision and objections, and the court put the matter over to be heard with the scheduled hearing on Father's modification request, as we next outline.
C. March 2009 Order to Show Cause Regarding Modification; Minute Order and FOAH
In October 2008, Father filed his application to modify the previous awards of child support and spousal support, for the period from September 2008 forward. His monthly income remained at $17,500, and all the bonus income from 2008 had already been disposed of by September 2008, and had already been charged to him. He therefore argued it had not been appropriate for the court at the previous hearing to average the same bonuses by using a partial year period, for purposes of obtaining a monthly income figure. Father anticipated that he would receive similarly timed yearly bonuses in early 2009, but conditions in the industry were leading to smaller amounts of bonuses.
Father therefore contended that his base monthly salary of $17,500 was the appropriate figure for calculating his support obligation, and that the court was essentially double-counting the previously received bonus income, so the result was an above-guideline support order. Father was running a negative cash flow every month (over $8,000), and he had to play catch-up when bonuses were received. He again requested that the court utilize his base monthly salary of $17,500 in its calculations, and then allocate a percentage of further bonuses as support, or annualize them, for the period from September 2008 forward. His total income for 2008 was $466,428 (less than the amount estimated at the earlier hearing). His income was trending downward in 2009.
In opposition, Mother argued that Father had failed to show any change of circumstances that would warrant any recalculation of the support orders.
At the hearing in March 2009, the court stated that the issues before it included support and also the unfulfilled request for the statement of decision. The court deferred ruling on the statement of decision issues until review of all the documents had been completed.
The minute order of March 5, 2009 required Father's counsel to prepare the FOAH. He did so and it was signed and filed December 7, 2009, and submitted by letter brief to this court.
In rejecting Father's arguments that the bonuses should be divided as received, the court ruled that the bonuses were part of Father's income and should be subject to the overall monthly support order: "The Court declines to order that [Father] pay [Mother] a percentage of his bonus. [¶] If and when [Father] receives bonuses, they are his." The court expressly gave Father credit for the $13,000 already paid to Mother out of the previous $60,000 bonus (2008). No material change in circumstances was found and the previous orders remained in effect.
Once the statement of decision was completed, months after the original September 4, 2008 hearing, it outlined the court's reasoning as follows: "Father's income is derived in part from bonuses that he receives from his employment. While his base salary is $17,500 per month, Father has received a considerable amount of income in the form of bonuses. The court deems it reasonable to consider these bonuses as part of his total income. Father's income over the course of... an approximate eight month period beginning in January of 2008 is $416,230. The Court finds the income for this period to be representative. His average monthly salary is therefore $52,028." (Italics added.)
On March 30, 2009, Father appealed the support orders.
DISCUSSION
I
APPEALABILITY ISSUE
The orders awarding or denying support are directly appealable as collateral orders directing the payment of money. (In re Marriage of Skelly, supra, 18 Cal.3d 365, 368-369; Lester v. Lennane (2000) 84 Cal.App.4th 536, 564.) It is appropriate for appellate courts to construe notices of appeal liberally. (Rules 8.100(a)(2), 8.104(e).)
In the course of preparing the record, this court requested supporting documentation from the parties to verify the timeliness of Father's notice of appeal, which was filed on March 30, 2009, and represented that no FOAH had yet been signed by the court for either of the two challenged orders.
With respect to the September 4, 2008 minute order, it does not expressly direct preparation of a written order or FOAH, but it does grant Father's request for a statement of decision. (Rule 8.104(d)(2) [where minutes include a direction that a written order be prepared, entry date for appeals purposes is the date the signed order is filed]; see In re Marriage of Drake (1997) 53 Cal.App.4th 1139, 1170 [where minute orders, including child support orders, directed preparation of written orders, only the written orders were effective].) At the March 5, 2009 hearing, the issues before the court included not only the requested modification of child and spousal support, but also the dispute over the contents of the requested statement of decision.
In response to our inquiry, Father's counsel has explained that the particular sequence of these hearings, combined with the parties' disagreement about the contents of the statement of decision, and the unavoidable press of business of the family court, all contributed to these delays in preparing the FOAH and the statement of decision. The parties presented competing versions, and the trial court ultimately prepared its own, filed May 8, 2009. That comprehensive written decision resolved all the issues brought before the court in September 2008, including the support issues. (MHC, supra, 125 Cal.App.4th at p. 1392; Solano County Employees' Ass'n v. County of Solano (1982) 136 Cal.App.3d 256, 258, fn. 1; Eisenberg et al., Cal. Practice Guide: Civil Appeal and Writs (The Rutter Group 2009) ¶ 2:258, pp. 2-212 to 2-213.)
The record shows that the statement of decision procedure used here was the functional equivalent of preparing a FOAH, so that we should exercise our discretion to treat the document containing the statement of decision as an appealable order or judgment. (MHC, supra, 125 Cal.App.4th at p. 1392.) The combined statement of decision and FOAH document was signed and filed May 8, 2009, and constitutes the court's final determination on the merits regarding the September 4, 2008 hearing. Even if the notice of appeal is deemed to be premature, it is still timely. (Rule 8.104(e).)
With respect to the March 5, 2009 modification order, the notice of appeal was arguably premature, because those minutes directed Father's counsel to prepare an order after hearing. (Rule 8.104(d)(2), (e).) The FOAH for that modification request was not signed and filed until December 7, 2009. Under the authorities listed above, the better exercise of our discretion is to find that the appeal was timely taken from not only the May 2009 formal order and statement of decision (from the September 2008 hearing), but also from the related modification minute order of March 2009, formalized in December 2009. (See also In re Marriage of Oropallo (1998) 68 Cal.App.4th 997, 1002, discussing related reconsideration authority of Code Civ. Proc., § 1008, subd. (a) [where a modification request dealt with the same issues as the original order, "we are free to review both orders and render an opinion based on the correct rule of law."].) The same substantive legal issues underlie both sets of orders, as we next discuss.
II
ANALYSIS
A. Rules of Review; Statutory Standards
Both spousal and child support awards are reviewed for abuse of discretion. (In re Marriage of de Guigne (2002) 97 Cal.App.4th 1353, 1366.) In either case, the appellate court reviews the record to determine if the court's factual determinations are supported by substantial evidence: "Our review is limited to determining whether the court's factual determinations are supported by substantial evidence and whether the court acted reasonably in exercising its discretion. [Citation.] We do not substitute our judgment for that of the trial court, but confine ourselves to determining whether any judge could have reasonably made the challenged order. [Citation.]" (Id. at p. 1360; see Mosley, supra, 165 Cal.App.4th at pp. 1388-1391.)
The issues on appeal concern the calculation of Father's income for purposes of both child and spousal support, and because those issues are common to both awards, we need not specifically outline the different criteria utilized for each type of support. (§§ 4055 et seq., 4320.) We also note that Father has not challenged the trial court's denial of his application for a hardship deduction. (§ 4059, subd. (g).)
The trial court must exercise "an informed and considered discretion" with respect to child support obligations, and must not " 'ignore or contravene the purposes of the law regarding... child support. [Citations.]' " (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 283; County of Stanislaus v. Gibbs (1997) 59 Cal.App.4th 1417, 1425.) On appeal of a child support award, the family court's interpretation of statutory definitions of income will be reviewed de novo. (In re Marriage of Pearlstein (2006) 137 Cal.App.4th 1361, 1371-1372.)
In M.S. v. O.S., supra, 176 Cal.App.4th 548, 553-554, this court acknowledged California's strong public policy in favor of adequate child support, which is enforced through adherence to the statutory guidelines, including the statutory definitions that are utilized in determining the amount of parental income: " 'The mandatory formula for calculating child support takes into account both parents' "net monthly disposable income" [citation], which is determined based upon the parents' "annual gross income"....' [Citation.] '[I]ncome is broadly defined for purposes of child support. [Citations.] Subject to certain statutory exceptions... [annual] gross income "means income from whatever source derived...." [§ 4058, subd. (a).]' " (Ibid.) These definitions include bonuses. (Id. at pp. 553-554.)
B. Treatment of Bonuses
In determining the guideline amount of a child support award, the trial court first considers the annual gross income of each parent. (§ 4058, subd. (a).) Section 4060 requires that in computing a parent's monthly net disposable income, the annual net disposable income must be divided by 12. If such a figure "does not accurately reflect the actual or prospective earnings of the parties at the time the determination of support is made, the court may adjust the amount appropriately." (§ 4060.) Section 4064 also allows the family court to "adjust the child support order as appropriate to accommodate seasonal or fluctuating income of either parent."
In Riddle, supra, 125 Cal.App.4th 1075, the court interpreted sections 4060 and 4064 as requiring any calculation of fluctuating income to utilize a time sample that is "fair and representative." The goal is to have a reasonable predictor of what will be earned in the immediate future. (Id. at pp. 1081-1084.) As further explained by this court in M.S. v. O.S., supra, 176 Cal.App.4th at pages 553-554:
" 'The question is whether the bonuses... are likely to reoccur. Absent a determination that "the monthly net disposable income figure does not accurately reflect [the parent's]... prospective earnings," it [would be] error for the court to exclude... bonuses in its calculation. [¶] The court can disregard past bonus... payments from the calculation only if it determines that [the parent] is unlikely to receive them in the future.' [Citation.] Bonuses are included in income because 'past income is a good measure of the future income from which the parent must pay support.' [Citations.]"
In M.S. v. O.S., supra, 176 Cal.App.4th 548, this court outlined the method for evaluating fluctuating income, including bonuses: " 'The employee parent has the burden of demonstrating past bonus... income is not likely to be continued. Courts are very skeptical of such claims made by the employee party alone. Counsel should therefore obtain declarations from the employer (to the effect... bonus pay will be curtailed and why).' [Citation.]" (Id. at p. 554.) There, this court did not find it persuasive that the parent challenging the support orders relied only on his own declaration, which was not definitive ("I may or may not receive a bonus every year"). (Id. at p. 555.) Also, "[h]e produced no evidence from the tribe [his employer] or otherwise that there is any plight in the... industry that may affect future bonuses, either in frequency or amount." (Id. at p. 556.) We concluded on that point: "Under all the circumstances, we find no abuse of discretion. It appears likely the bonuses will continue, but if they do not, O.S. can petition for modification of the child support order." (Id. at p. 557.)
In Mosley, supra, 165 Cal.App.4th 1375, the appellate court analyzed the circumstances of a supporting parent's fluctuating income, that was derived in part from bonuses. The problem was that the supporting spouse (the father) had lost a well-paying position, because of a downturn in the real estate market. The new employment he obtained in the same general field paid only a portion of his former base salary, with the possibility of a year-end "bonus of up to 150 percent of his base salary, dependent upon both his performance and the success of the housing industry." (Id. at pp. 1381-1382.) The father unsuccessfully moved for modification of his spousal and child support obligations that were based upon his earlier salary, pointing to his changed circumstances. That order denying him relief was reversed.
In Mosley, the record showed that the father's base salary as of the time of the hearing allowed him net take-home monthly pay of around $10,000-$11,000, while his monthly support payments were placed at $10,047. This meant that he had to borrow money to meet his living expenses, after paying support. (Mosley, supra, 165 Cal.App.4th at p. 1381.) However, the trial court found no material change of circumstances, because the father's total income of $448,392 (including a discretionary bonus) was greater than the income he had as of the time of the dissolution judgment. (Id. at p. 1383.) This analysis was ruled to be erroneous, because the support orders "placed him in a position of having to borrow for his living expenses, and thus resulted in a miscarriage of justice." (Id. at pp. 1386-1387.)
As relevant here, the appellate court in Mosley stated that it " ' "exceeded the bounds of reason" ' " for the trial court to keep the support payments the same, when the showing of changed circumstances meant that nearly 100 percent of the father's current take-home pay had to be used to keep up the support levels. (Mosley, supra,165 Cal.App.4th at pp. 1381-1387.) It was error for the trial court to assume that the father would continue to receive the same large bonus in future years, because to the contrary, the evidence showed that only one year of the new employment had taken place (which was an inadequate representative period), and the bonus was entirely discretionary, and the homebuilding industry in which he worked was "in the dumps." (Id. at p. 1385.)
In connection with its directions on remand, the court in Mosley stated that "any bonus actually received must be counted as part of [Father's] annual gross income for the purposes of spousal and child support obligations. Consequently, the court must include in its order a method for requiring [him] to pay support obligations based on any bonus income that he may in fact receive. It may, for example, fashion an additional award, over and above guideline support, expressed as a fraction or percentage of any discretionary bonus actually received." (Mosley, supra, 165 Cal.App.4th at p. 1387.)
C. Application of Rules
Father chiefly claims that the family court erred in setting the amounts of child and spousal support, and in denying modification, through its failure to correctly determine his average net monthly income for the period from September 2008 forward, in light of the evidence presented. Because we agree with that central contention, it will not be necessary for us to discuss his additional arguments regarding a lack of adequate findings, or the denial of modification. (§§ 4055, 4056.)
We first observe that it was correct for the family court, at the outset, to consider the bonus income to be part of Father's overall compensation. Under section 4058, subdivision (a)(1), bonuses are included as part of a parent's annual gross income. (M.S. v. O.S., supra, 176 Cal.App.4th 548, 553-557.) "[T]he 'court cannot deduct predictable... bonuses in determining [a parent's] prospective earnings merely because they occur sporadically. The mechanism for calculating [a parent's] net disposable income is a monthly average. (§ 4060.)" (M.S. v. O.S., supra, at p. 554, fn. omitted, citing County of Placer v. Andrade (1997) 55 Cal.App.4th 1393, 1396-1397.) Although Father generally claims that these bonuses might not recur, the burden of proof was upon him to demonstrate that, and that factual issue is not at all clear upon this record. (See M.S. v. O.S., supra, at p. 554 [" 'The employee parent has the burden of demonstrating past bonus... income is not likely to be continued.' "].)
Specifically, Father made only a general showing that the mortgage industry was undergoing significant nationwide difficulties, and he asserted that changes in the bonus program were possible. Little to no objective evidence on that point was provided. Nevertheless, enough information was presented to invoke the family court's duty, as part of its statutory analysis, to evaluate the predictability and continuity of the two types of bonuses that were anticipated to be awarded Father, in connection with determining his net monthly income. (§§ 4058, subd. (a), 4060, 4064.)
The family court's approach deviated from the appropriate standards when it determined that a representative sample of Father's income was a period of only eight months, beginning in January of 2008, during which two large bonuses were paid; however, those were not anticipated to be repeated until the following year. From that figure of $416,230, the court concluded Father's average monthly income was $52,028 for the upcoming months. However, that approach gave excessive weight to the annually received bonus payments, by front-loading them into a nonrepresentative time period, for purposes of calculating the net monthly income. (Riddle, supra, 125 Cal.App.4th at pp. 1079-1083.) The award exceeds the guidelines without proper factual support or justification. (§ 4057, subd. (b).)
Accordingly, the record does not support the court's original order that placed the support obligations at $17,050 per month, because the court did not properly allocate the bonus income over a representative sample of time, to the extent reasonably possible. Moreover, that support obligation is roughly equivalent to the base monthly salary, in a case in which bonuses may occur irregularly, and in which the supporting parent is forced to incur substantial debt on a regular basis to meet support obligations as well as normal living expenses. (Mosley, supra, 165 Cal.App.4th at pp. 1381-1387.) Although we evaluate the orders as of the time they were made, we recognize that it may be unclear whether the same imputation of income to Mother (negative) will remain appropriate on remand. (§ 4320.) In any case, Father has shown legal error and abuse of discretion in the orders as made. (In re Marriage of de Guigne (2002) 97 Cal.App.4th 1353, 1366.)
Here, as in Mosley, supra, 165 Cal.App.4th 1375, the trial court must be directed to rehear the matter and to base the support award upon an accurate determination of Father's net monthly income, as adjusted for the bonus amounts under section 4058, subdivision (a), in light of the court's determination of the likelihood of the bonuses recurring and at what level. The court may, as justified by the evidence, include such anticipated bonuses in Father's gross income, by utilizing a representative time period and by creating a method that requires him to pay support obligations that are commensurate with his net monthly income, including the various income components that he may receive. (§§ 4058, 4060.)
DISPOSITION
Reversed with directions to the family court to vacate the current support awards and to conduct such further proceedings as will include (1) a determination of the likelihood of the bonuses recurring and at what level, (2) as appropriate, including such anticipated bonuses in Father's gross income, utilizing a representative time period, (3) creating a method that requires him to pay support obligations that are commensurate with the resulting monthly net income, and that are in accordance with other relevant circumstances concerning imputation of income to the other party and the best interests of the children. (§§ 4056, 4058, 4060, 4064.) Costs on appeal to be borne by each party respectively.
WE CONCUR: McCONNELL, P. J., AARON, J.