Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BD398253 Michael A. Kronstadt and Michael Linfield, Judges.
Benedon & Serlin, Gerald M. Serlin, Amy J. Cooper for Appellant.
Glassman, Browning, Saltsman & Jacobs, Jane D. Saltsman, Suzanne Goulet for Respondent.
BOREN, P.J.
John and Adela Ohanesian divorced after 14 years of marriage. A court trial began in 2006, and ended with a dissolution judgment in 2008. We affirm the court’s rulings with respect to the date of separation, and the characterization and apportionment of property. However, the court’s award of spousal support was an abuse of discretion: the court failed to acknowledge the parties’ opulent, upper class marital lifestyle, or John’s stable annual income of $410,000, or that Adela was unlikely to become self-supporting as a real estate salesperson because the job and real estate markets were collapsing by the time that judgment was entered. The court’s support order of $5,000 per month-with step-downs to zero in four years, after a marriage of long duration-did not accomplish substantial justice.
FACTS
Marital History and Lifestyle
Adela and John were married in 1989. At the time of the wedding Adela was 40 years old and John was 34. They have two daughters: Adona (born in 1989) and Ava (born in 1994). The family lived in a gated community on Mulholland Drive called The Summit, in the Beverly Hills Post Office area. In 2006, the 10, 000-square-foot family residence was valued at $4.8 million by Adela’s appraiser, at $5.75 million by John’s appraiser, and John testified that it is worth at least $6 million. The residence is on a one-acre double lot with a tennis court, swimming pool and extensive landscaping, and has a rental value of $25,000 to $27,000 per month.
Apart from the family residence, the parties own a 4, 000-square-foot home with a swimming pool in The Summit, appraised at $2.9 million. They also own a vacation home in the desert at Bermuda Dunes appraised at $630,000, and a time share in Laguna Beach. Their household staff included multiple housekeepers, a gardener, and a nanny. The parties drive four luxury vehicles (two Mercedes, a BMW, and a Range Rover) and have a Jeep Cherokee for their nanny’s use.
The parties’ children attend private schools, have private tutors, and the family vacationed domestically and abroad, staying in expensive hotels. For example, a 10-day family trip to Hawaii in 2003 cost $22,056 for accommodations alone. John charged $193,830 for family expenses in 2003, including groceries, clothing, restaurants, fuel, education, health care and lodging, but excluding property expenses for mortgages, taxes and so on. John kept a checking account that in February 2003 had a balance of $1.38 million.
John’s Income
Since 1990, John has been president of Bosley Medical Institute (Bosley). He had no stock ownership in Bosley; however, the original owner, Dr. Bosley, agreed in 1998 to pay John 25 percent of the proceeds from any sale of the business. In 2001, Bosley was sold to Aderans Holding Company, Ltd., for about $43 million.
Aderans retained John’s services as president of Bosley. John received a signing bonus of $6 million. His employment agreement provides a salary of $360,000 starting on August 1, 2001. In addition to his base pay, John receives incentive bonuses of $50,000 each year, giving him an income of $410,000 per year since 2002. John’s income was sweetened by “strategic achievement bonuses” if he met certain targets. John met the targets and earned achievement bonuses of $3.4 million for the period ending December 31, 2001; $3.8 million for 2002; and $4.3 million for 2003. John received over $17.5 million in bonuses between August 2001 and January 2004, plus a salary of over $1 million during that period.
With dividends and interest, John’s gross monthly cash flow is $38,417.
Aderans is a privately held company. John purchased 65 shares of Aderans stock in August 2001 for $1,597,375. He still has the shares he purchased in 2001; however, in 2002, there was a stock split of 4, 800 for one, so John’s original 65 shares are now 312, 000 shares. In addition, the company offered John a stock option agreement for 142 shares at $33,000 per share, for a total exercise price of $4,686,000. The option was effective on August 1, 2001, but was not exercisable for three years: it has not yet been exercised.
In consideration for all of the benefits offered to him under the employment and stock option agreements, John signed a release of all claims against Bosley and Aderans. Adela signed a spousal consent to the release.
The Separation
On February 6, 2003, John moved out of the family residence, and into the smaller house he and Adela own in The Summit, a move that was prompted when Adela’s lawyer threatened to get a restraining order against him. John was “stunned” because he thought the marriage was going relatively well. John took only some clothing, tools and golf clubs with him, leaving the rest of his belongings in the family residence because Adela was screaming at him as he tried to pack. During 2003, John came to the family residence several times weekly to have dinner with the children. Within two months after moving out, John changed his mailing address with the post office. Adela did not tell anyone, including their children, that the marriage was over. John testified that his sexual relationship with Adela ended on January 30, 2003, though Adela maintains that they remained intimate that year. The parties never lived together again after February 6, 2003, but John continued to pay all family expenses. During 2003, John brought his laundry to the family residence weekly, to be done by the housekeeper.
After John moved out of the family residence in February 2003, he continued to socialize with Adela from time to time. Initially, they did not date other people. Together, they took trips with the children: to Hawaii during spring break 2003, to Italy in August 2003, and to their vacation home in Bermuda Dunes. John wanted to take the girls himself on these trips, but Adela insisted on accompanying them because John supposedly did not know how to keep the children safe. They stayed in separate rooms (per John) or the same room (per Adela). John paid for the trips.
Apart from traveling with the children, John and Adela attended various functions together, such as a fundraiser in spring 2003. They also presided as honorary co-chairs at a fundraiser at the Ahmanson Theatre on November 8, 2003. John and Adela attended a holiday party at the family residence in December 2003, and Adela attended the December 2003 holiday party held by John’s company. John allowed Adela to attend the company party in an effort to resolve their custody dispute.
In June 2003, the couple attended a graduation party for their daughter, and a photo from the party was sent to friends, family and business associates as a year-end holiday card. John arranged for the preparation of the holiday cards. John gave Adela a $4,000 gold Rolex watch on their wedding anniversary in August 2003. In turn, Adela purchased a Cartier watch for John’s birthday in October 2003, which their daughters presented to him. After John had knee surgery, Adela drove him home from the hospital, and she took him to the hospital when he had chest pains in 2003. The couple filed joint tax returns for 2003 and 2004, and they continued to share a credit card and ATM card.
Between April and September 2003, the parties had sessions with a counselor named Sheila Honig. In John’s view, the purpose was to resolve his dispute with Adela over child custody: he wanted a 50-50 arrangement and Adela refused. John walked out on the final session on September 22, 2003, and never returned because he felt it was “unproductive.” John invited Adela to file for divorce, to provoke a judicial resolution of the custody dispute.
John previously filed a petition for dissolution in 1999. They separated for five months then reconciled.
Adela met with her attorney John Landau on October 9, 2003, to discuss the preparation of divorce papers, including an order to show cause and an income and expense declaration. In an October 15 letter to John’s attorney, Landau stated: “I understand that the marital difficulties have reached a point where a dissolution of marriage could be the best alternative. My client is reluctant to file a marital dissolution proceeding due to the possible harm that could result to our client’s interest in Aderans.” A second letter from Landau on October 21 indicates that “Adela wanted to avoid a filing due to her concerns about how John’s employer may react.”
On November 24, 2003, Adela attended a meeting with John and his therapist since 1999, James Lough. According to Dr. Lough, the purpose was to “mediate some sort of calm and agreement between [John] and his wife regarding his custody of his daughters”; it was “absolutely not” a marital counseling or family therapy session, and reconciliation was never discussed by John or Adela. Dr. Lough described Adela as “angry, accusatory and persecutory” during the meeting.
Adela filed a petition for dissolution on November 17, 2003, after 14 years of marriage. The petition alleges that the date of separation is November 10, 2003. Adela maintained that she and John reconciled “many times” after she filed for divorce. She stated at one point that “the marriage was finally over” in January 2004, when John was served with the petition for dissolution. Adela later testified that the marriage was over in “late 2004, ” when she learned that John was dating. John considered the marriage to be over when he moved out on February 6, 2003.
At trial, Adela’s attorney told the court that Adela was advocating December 31, 2003, as the date of separation.
Adela’s Job Prospects
Adela formerly worked in commercial/industrial real estate sales, specializing in garment manufacturers. She has not had a full-time job for at least 10 years, and has not held a compensated part-time position for at least five years. During the marriage, Adela wrote and published a book about Marilyn Monroe, for which she received about $30,000. In the summer of 2003, John gave Adela $150,000, so she could get started in the business of selling antiques. The antique business “didn’t really pan out” for Adela because she did not have enough money to acquire merchandise and open a store, but she remains interested in it. She believes that it would take $200,000 to $300,000 to start a retail antique shop.
Although Adela is still licensed to sell real estate, she does not wish to return to commercial/industrial sales work because it is physically taxing and aggravates pinched nerves in her back and neck and her arthritis problems that cause numbness in her fingers. She no longer has a book of businesses or clients, and the downtown Los Angeles area has changed from garment manufacturing to retail clothing sales. Since September 2003, Adela has “put [her] license with a real estate company.” Other than the antique business, reworking her book, and looking at real property, Adela has not tried to get a paying job.
At trial in 2006, career counselor and vocational evaluator Susan Miller assessed Adela’s job prospects. Miller felt that Adela’s “highest potential earning capacity would be in returning to industrial real estate sales and leasing.” Because Adela has not worked in real estate for a number of years, her absence from the field would somewhat diminish her prospects. Miller estimated that Adela could earn $41,000 to $55,000 per year in commissions selling real estate, after affiliating with a broker. If Adela was unable to succeed in real estate, then Miller felt that she could go into “fundraising, ” a salaried position in which she could make use of her writing and sales skills. Miller estimated that Adela could earn $35,000 to $38,000 per year as an assistant in the field of fundraising. Adela has never had a paying job in the field of fundraising.
In estimating Adela’s earning capacity, Miller used data from 2005 to arrive at projected earnings for 2006, and to determine what positions were available in Adela’s potential fields of endeavor. In particular, Miller looked at projected earnings for real estate agents in Beverly Hills, though Adela formerly worked in downtown Los Angeles. Miller noted that one firm specializing in the sale of industrial properties was seeking a licensed agent. Miller found 10 openings in Los Angeles County at nonprofit organizations such as a mental health association or private school. She did not analyze whether Adela had the clerical skills to work in these venues. She did not believe that Adela’s age (57) would be a detrimental factor in securing a job. Miller discounted Adela’s medical condition-numbness in her hand-feeling that it might be a problem only if Adela had to spend considerable time working on a computer.
THE COURT’S JUDGMENT
Trial began in September 2006, and continued periodically until the court entered a dissolution judgment on March 14, 2008. The court ruled on bifurcated issues such as the date of separation, the fair market value of the family’s property, characterization of property, and spousal and child support. John was awarded sole legal and physical custody of the couple’s 13-year-old daughter Ava. Adela had visitation on alternating weekends.
By the time judgment was entered, daughter Adona was 18 years old and a freshman in college.
DISCUSSION
1. Appeal and Review
Appeal is properly taken from the dissolution judgment, and it encompasses interim orders and rulings. (Code Civ. Proc., §§ 904.1, subd. (a)(1), 906.) The June 10, 2008, notice of appeal is timely, after Adela’s motion for a new trial was denied by operation of law on May 13, 2008. (Code Civ. Proc., § 660; rule 8.108(a)-(b)(1)(B), Cal. Rules of Court.) We determine whether the record contains substantial evidence supporting the judgment; i.e., relevant evidence that reasonable persons would accept as adequate to support the conclusion reached. (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 652; Lammers v. Superior Court (Lammers) (2000) 83 Cal.App.4th 1309, 1317, fn. 4.) We view the evidence in the light most favorable to the prevailing party, giving him “the benefit of every reasonable inference, and resolving all conflicts in [his] favor....” (In re Marriage of Mix (1975) 14 Cal.3d 604, 614; In re Marriage of Bonds (2000) 24 Cal.4th 1, 31.)
The motion for new trial was formally denied on May 30, 2008.
2. Date of Separation
At trial, the parties disputed the date of separation. John pointed to February 6, 2003, the day that he moved from the family residence. Adela argued that the operative date is December 31, 2003. The court determined that John had a subjective intent to end the marriage on September 22, 2003, and his actions were consistent with that subjective intent so as to demonstrate a final breakdown in the marital relationship.
The date of separation is significant because spousal earnings “while living separate and apart from the other spouse, ” are separate property, not a community asset. (Fam. Code, § 771, subd. (a); In re Marriage of Manfer (2006) 144 Cal.App.4th 925, 929.) “The determination of a separation date, therefore, results in the loss of an economic interest in property by one or the other of the spouses.” (In re Marriage of Peters (1997) 52 Cal.App.4th 1487, 1491.) The statutes do not set forth a method for determining the date of separation. This Court wrote a seminal opinion defining what constitutes a marital separation: “The question is whether the parties’ conduct evidences a complete and final break in the marital relationship.” (In re Marriage of Baragry (1977) 73 Cal.App.3d 444, 448.)
In Baragry, the physician husband moved out of the family residence in 1971, and took an apartment with his girlfriend; however, he “maintained the façade of a marital relationship.” (73 Cal.App.3d at p. 448.) He frequented the family residence for meals and laundry, took trips with his wife and children, and attended social occasions with his wife such as parties with friends, dinners for professionals, and outings with other doctors. The couple filed joint income tax returns, and the husband continued to pay all household bills until he petitioned for dissolution in 1975. (Id. at p. 447.) The opinion expresses indifference to the lack of a spousal sexual relationship and the husband’s cohabitation with a girlfriend, writing that the wife continued to furnish “normal wifely contributions to a marriage that husband was willing to accept” and he “was reaping the advantages of those services and may be presumed to owe part of his professional success during that four-year period to wife’s social and domestic efforts on his behalf.... During the period that spouses preserve the appearance of marriage, they both reap its benefits, and their earnings remain community property.” (Id. at p. 449.)
Other courts have enlarged the definition of “living separate and apart, ” adding to the Baragry objective examination of the parties’ conduct an element of subjective intent. “Simply stated, the date of separation occurs when either of the parties does not intend to resume the marriage and his or her actions bespeak the finality of the marital relationship.” (In re Marriage of Hardin (1995) 38 Cal.App.4th 448, 451. Accord, In re Marriage of Norviel (2002) 102 Cal.App.4th 1152, 1160 [“[S]eparation cannot occur until intent and conduct are present simultaneously”].) Separation does not occur as long as the parties continue to share bank accounts, credit cards and tax returns, see each other frequently in the home, take vacations together, go out together socially, and contribute financially to the community, even if cohabitation ended years earlier. (In re Marriage of von der Nuell (1994) 23 Cal.App.4th 730, 736-737.)
The trial court found that John was the more credible witness, whereas Adela’s “lack of credibility [was] significant in assessing her testimony as to disputed matters.” Adela filed her petition for dissolution on November 17, 2003, leading to a rebuttable presumption that the marriage ended on that date. (In re Marriage of Baragry, supra, 73 Cal.App.3d at p. 449.) Substantial evidence supports the finding that both parties intended to end the marriage by September 22, 2003, when John walked out of a final marital counseling session, and invited Adela to file a petition for divorce. In October 2003, Adela’s attorney wrote letters to John’s attorney recognizing that dissolution was “the best alternative, ” and noting that Adela was delaying the filing of the petition to place John in a better position with his employer, and because Adela was concerned about her interest in John’s income.
John’s advocacy of the February 6, 2003, date is untenable because of his objective conduct after that date. The trial court “placed considerable weight” on John’s and Adela’s participation in 15 sessions of joint counseling with Sheila Honig, ending September 22, 2003. Because the sessions spanned a six month period, this counseling “was inconsistent with a complete and final break in the parties’ relationship.” Most of John’s other conduct-such as buying gifts for Adela and traveling to Italy and Hawaii-was done to keep the peace, to satisfy his daughters’ requests, and to spend time with his children, not to enhance his marital relationship.
Adela’s advocacy of December 31, 2003, is untenable because early in October 2003, she met with her attorney regarding the preparation of an income and expense declaration and an order to show cause, indicating her intent to proceed with a divorce. Adela was aware that John would receive a big bonus at the end of 2003, as he had for the two preceding years. The trial court found that Adela’s conduct in November and December 2003 (attending events with John) was undertaken to protect her financial interest in John’s bonus, not with the intent to resume or continue her marital relationship. We cannot retry the court’s assessment of Adela’s credibility and ulterior motivations.
The trial court’s determination is consistent with Baragry and other case law. Although John moved out of the family residence on February 6, 2003, the trial court did not use that as the date of separation. There was, after that date, “the façade of a marital relationship” in front of family, colleagues and friends, as in Baragry. John and Adela participated in counseling, but when that ended (because John found it “unproductive”), so did the parties’ intent to continue the marriage: John invited Adela to file for divorce, and soon afterward, Adela met with her attorney. The attorney’s letter acknowledged the breakdown of the marital relationship: there was no hint of possible reconciliation, only concern about John’s employer and John’s bonus. We cannot disturb the trial court’s finding that the date of separation is September 22, 2003.
3. Spousal Support Order
Adela requested spousal support. The court awarded Adela monthly support of $5,000 beginning September 2006, with a step-down provision reducing support to $4,000 in 2008, $3,000 in 2009, $2,500 in 2010, and zero on January 1, 2011. The court indicated that it considered all relevant factors affecting the support award, pointing to: (1) Adela’s ability “to do more to pursue employment”; (2) John’s ability to pay support based on his current salary; (3) Adela’s earning capacity of $25,000 in 2006 and $55,000 by 2010; (4) the impairment of Adela’s employment due her child raising duties during marriage; (5) the needs, obligations and assets of each party; (6) the parties’ “upper middle class lifestyle”; (7) the 14-year duration of the marriage; (8) the age and health of the parties; (9) the parties’ income and expense declarations; (10) John’s salary of approximately $300,000 per year for five of the last seven years of marriage, plus Adela’s expected income, is sufficient to sustain the marital lifestyle; and (11) the balance of hardship to the parties and the legislative goal that supported parties should become self-supporting
a. Amount of Monthly Support
Before ordering spousal support, the trial court is required by law to consider all relevant factors. The court must fairly weigh all relevant factors, “with the goal of accomplishing substantial justice for the parties....” (In re Marriage of Kerr (1999) 77 Cal.App.4th 87, 93; Fam. Code, § 4330, subd. (a).) The court cannot be arbitrary, and must exercise its discretion along legal lines, considering the parties’ “reasonable needs and their financial abilities, ” and cannot base a support award on mere hopes or speculative expectations. (In re Marriage of Prietsch & Calhoun (1987) 190 Cal.App.3d 645, 655-656.) Failure to recognize and apply each applicable statutory factor is an abuse of discretion. (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 304.)
The factors are: (a) whether the parties’ earning capacity is sufficient to maintain the marital standard of living, given (1) their skills, the job market for those skills, the time and expense required for education or training to develop more marketable skills, and (2) periods of unemployment when the supported spouse devoted time to domestic duties; (b) the supported party’s contributions to the education and career of the supporting party; (c) the supporting party’s ability to pay given earning capacity, assets, and standard of living; (d) the needs of each party based on the marital standard of living; (e) the obligations and assets of each party, including separate property; (f) the duration of the marriage; (g) the supported party’s ability to work without interfering with child rearing duties; (h) the age and health of the parties; (i) history of domestic violence; (j) tax consequences; (k) the balance of hardships; (l) the goal of self-support, which generally means support lasting one-half the length of the marriage unless the marriage is longer than 10 years; (m) criminal convictions for spousal abuse; and (n) any other factors that are just and equitable. (Fam. Code, § 4320.)
The marital standard of living is the “reference point against which the other statutory factors are to be weighed.” (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 303; In re Marriage of Kerr, supra, 77 Cal.App.4th at pp. 93-94.) It is “inequitable” after a long marriage to supply the husband with a continued standard of living much higher than the wife’s. (In re Marriage of Beust (1994) 23 Cal.App.4th 24, 30.) A marriage of long duration is one that lasts 10 years or more. (Fam. Code, § 4336, subd. (b).) The supporting party’s ability to pay is a key factor (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 304), as is the supported spouse’s need. (In re Marriage of Beust, supra, 23 Cal.App.4th at p. 30.) Ignoring a spouse’s ability to pay is unacceptable if there is “enormous financial disparity between the parties” and their job prospects are markedly different. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 305.)
An “opulent” marital standard of living was described in In re Marriage of Baker (1992) 3 Cal.App.4th 491, 495. The husband “routinely” earned over $100,000 annually in the insurance business; the couple lived in a 3, 800-square-foot house on one acre in Lafayette that previously sold for $775,000; they had use of German luxury cars and vacationed abroad and in Hawaii; they had part ownership of a yacht; and the wife had $50,000 in jewelry, including Rolex watches. (Id. at p. 495.) The marriage lasted less than 10 years. (Id. at p. 494.)
Even though Baker was decided 19 years ago, the marital lifestyle enjoyed by the Ohanesians during their marriage was “opulent” by the standards announced in Baker. The Ohanesians’ family residence, at 10, 000 square feet, is 2.5 times larger than the Baker residence; the Baker residence was slightly smaller than the Ohanesians’ second home in The Summit. Both homes in The Summit have swimming pools, and the family residence has a tennis court, amenities not mentioned in Baker. The two Beverly Hills-adjacent homes were worth (in 2006) close to $9 million, in John’s view. The Ohanesians drove four luxury cars, took costly vacations in the most exclusive hotels, and own a home in Bermuda Dunes. John’s annual income since January 2002 of $410,000 (including a bonus) is over four times what Mr. Baker made, and there is no indication that Mr. Baker received an additional $17.5 million from his employer in three and half years, as John did.
The trial court in this case incorrectly characterized the Ohanesians’ marital lifestyle as “upper middle class.” (See In re Marriage of Rosen (2002) 105 Cal.App.4th 808, 824-825 [husband’s annual income of $162,000 and the couple’s ownership of a home in Dana Point and two cars, and their ability to travel was “upper-middle class”].) The correct classification for the Ohanesians’ lifestyle is “upper class, ” or “wealthy, ” or “opulent.” This classification reframes the question of whether Adela can maintain the opulent marital lifestyle on her own, with little or no support from John.
In 2008, the Library of Congress Congressional Research Service, using a median household income of $50,233 from the U.S. Census Bureau, placed the dividing line between middle class and upper class at an annual income of $250,000. (http://www.policyarchive.org/handle/10207/bitstreams/19549.pdf.)
Adela’s beginning monthly support of $5,000 is 13 percent of John’s gross monthly cash flow, and was stepped down to zero over four years. (See In re Marriage of Rosan (1972) 24 Cal.App.3d 885, 894-895 [where husband earned $2,000 per month, spousal support of $400 (20 percent of husband’s income) was an abuse of discretion where both were accustomed to a “high standard of living” during a 17-year marriage].) The trial court erred by using a yearly income of $300,000 for John when the undisputed evidence shows that he has been earning $360,000 since August 1, 2001, plus an annual bonus of $50,000, totaling $410,000. (See In re Marriage of Mosley (2008) 165 Cal.App.4th 1375, 1387 [bonuses actually received by supporting spouse must be counted as part of his annual income for purposes of spousal support obligation].) There is no indication that John, who has been president of Bosley for 20 years, is apt to earn less than $410,000 at any time in the foreseeable future. At the time of judgment in 2008, Adela was nearly 59 years old; John was 52. For most of the 14-year marriage-her prime earning years-Adela relinquished her career to raise the couple’s children and maintain multiple houses, while John steadily increased his business prospects and his income.
Adela is starting from zero, after a long hiatus from selling real estate, in a market that peaked in Los Angeles in September 2006, when the trial started in this case. By the time that judgment was entered in March 2008, the residential real estate market was in freefall. Similarly, the commercial real estate market in Southern California peaked at the beginning of 2007, then quickly nosedived. It is common knowledge that the economic crash has been marked by high rates of unemployment, and California has been particularly affected. Despite dire market conditions, the trial court imputed an income of $55,000 to Adela in 2010.
Source is the Standard & Poor’s Case-Shiller home price index for Los Angeles. See http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----
Source for commercial property is: http://web.mit.edu/cre/research/credl/rca.html.
Given the great disparity between John’s stable income and Adela’s ability to earn a living-and their markedly different prospects-it was clear at the time of judgment that John could continue to enjoy an opulent lifestyle, while Adela would have to struggle to sell real estate in a depressed economy. The trial court ignored deteriorating market conditions, even though the controlling statute requires consideration of whether a supported party’s earning capacity is sufficient to maintain the marital standard of living, given the job market for the person’s skills. (Fam. Code, § 4320.) The court also ignored Adela’s unrefuted testimony that the demand for garment manufacturing properties-her specialty-had completely changed if not actually evaporated while she was out of the real estate business during marriage.
Based on the record, “the goal of accomplishing substantial justice for the parties” was not achieved in this case. (In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 93.)The trial court characterized the marital lifestyle as middle class, when the correct classification is upper class. The court then gave little or no consideration to the collapsing job and real estate market when it issued a meager support award that is inadequate to sustain an upper class lifestyle. We return the matter to the trial court to rethink the fairness of its original award.
Any change in the support order will also require a change in the life insurance security for the support order.
b. Step-Down and Termination of Support in Four Years
“State policy disfavors termination of spousal support on a specific future date, even if it is based on the hope that this will induce the supported spouse to become financially independent.” (In re Marriage of Beust, supra, 23 Cal.App.4th at p. 29; In re Marriage of Vomacka (1984) 36 Cal.3d 459, 467.) Orders automatically decreasing support “‘cannot be based on mere supposition as to what the supported party’s future circumstances might be. Evidence in the record must support a reasonable inference that needs will be less with each step-down and that the spouse can realistically be self-supporting at the time nominal payments are set to begin.’” (In re Marriage of Prietsch & Calhoun, supra, 190 Cal.App.3d at p. 656. Accord, In re Marriage of Gavron (1988) 203 Cal.App.3d 705, 712-713 [step-down cannot be based on mere hopes or speculative expectations about supported spouse’s ability to be self-supporting].)
We return to the facts of In re Marriage of Baker, because they are similar to those in the case at bench, although the Bakers did not have a marriage of long duration. In Baker, the wife was licensed to sell real estate, but largely gave up her career after she married. (3 Cal.App.4th at pp. 494-495.) At the time of dissolution, the real estate market “was experiencing ‘an incredibly quick slowdown’ which would in all likelihood continue.” (Id. at p. 495.) Under the circumstances, the trial court properly refused to limit the duration of support or order a step-down: “there was no way to accurately predict [wife’s] future earnings because the real estate market was volatile and subject to economic factors beyond her control. Meanwhile, [husband] continued to enjoy the same life-style enjoyed during the marriage; he had a stable income of long duration; and he had the existing ability to provide such support.” (Id. at p. 498.) As a result, “any order directing [wife] to be self-supporting on a certain date would be based on ‘mere hopes or speculative expectations, ’” and “unknown future developments are better left to modification proceedings which have been provided for that very purpose.” (Ibid.)
While acknowledging the legislative goal of self-support, the controlling statute states that support generally lasts for one-half the length of a marriage that is less than 10 years. A marriage longer than 10 years warrants longer support. (Fam. Code, § 4320, subd. (l).) Here, the trial court awarded four years of support after a 14-year marriage, despite John’s patent ability to pay support. As in the Baker case, Adela faces a drastic economic downturn beyond her control, affecting her ability to sell real estate or find a job sufficient to maintain an upper class lifestyle. The order directing Adela to be self-supporting by January 1, 2011, was unrealistic and speculative, and failed to take into account the opulent marital lifestyle that the parties had during their marriage, which John will continue to enjoy as a highly compensated corporate president.
4. Characterization of Property
a. John’s Strategic Bonus
John received a strategic bonus of $4.3 million for calendar year 2003. The trial court found that John had no absolute right to receive the bonus, but had to work throughout 2003 toward the goals that entitled him to the bonus. Had John left his employment before the end of 2003, he would not have received any bonus. The court prorated John’s bonus to give Adela an interest in the bonus until September 22, 2003, the date of separation, characterizing $1,178,082 of it as John’s separate property.
Adela argues that the entire $4.3 million is community property. She focuses on John’s 1998 agreement with Dr. Bosley, giving John 25 percent of the proceeds from the sale of Bosley, which would amount to $10.75 million. John and Adela expressly relinquished their claim against Bosley and Aderans for the $10.75 million when John entered an employment agreement with Aderans. Adela asserts that in exchange for releasing her claims against Bosley and Aderans, she received a community interest in all the benefits due under John’s new employment contract.
As the trial court observed, John negotiated a far better deal with Aderans than the $10.75 million he would have received for the sale of Bosley: from Aderans, he received a $6 million signing bonus, followed by achievement bonuses of $11.5 million over three years, annual incentive bonuses of $50,000, plus an increase in salary. John could reasonably decide that it was better to accept the potential of earning nearly $18 million through hard work over three years than to receive $10.75 million in one year. Adela did, in fact, receive a community benefit from the bonuses that were earned and paid before separation. The trial court accepted testimony showing that the strategic bonuses had to be earned by reaching certain targets, and were not automatic. The labor that John exerted after separation to earn the last strategic bonus was not community property.
b. John’s Stock Options
When Aderans hired John in 2001, he signed a stock option agreement for 142 shares. Six months later, the company’s stock split 4, 800 to 1, so John now has the option to purchase 681, 600 shares. John testified that the options are “underwater” because the strike price is greater than the current value of the stock. The options vest over three years, starting September 2001; however, none were exercisable until August 31, 2004, after the date of marital separation. Adela contends that the options should be prorated based on the date of vesting; John contends that prorating should be based on the date they are exercisable.
The trial court found that the stock options were granted as incentive for John to continue his employment at Bosley, and not as deferred compensation or as a reward for past services. The basis for this finding was that: (1) Aderans had just hired John, so it was not looking to the past in making a compensation decision; (2) John was required to release all claims regarding his past employment (such as his 25 percent interest in the sale of Bosley) to ensure that he would stay with the company; (3) the strike price of the options were much higher than the current value of the stock, so John would have to remain with the company and help its value rise to benefit financially from the options; and (4) the options were not exercisable for three years, giving John an incentive to remain and work hard for the company’s success.
The trial court has broad discretion to select an equitable method of apportioning interests in stock options granted during marriage, which are exercisable after the date of separation. (In re Marriage of Hug (1984) 154 Cal.App.3d 780, 782.) No single rule or formula applies to every dissolution case involving employee stock options. (In re Marriage of Steinberger (2001) 91 Cal.App.4th 1449, 1459.) The trial court’s use of a particular formula is reviewed for an abuse of discretion. (Ibid.)
Here, the trial court selected the date of exercisability to calculate the community’s interest, because the time lag between vesting and exercise was given as an inducement to John to stay at Bosley and perform successfully, thereby increasing the value of his options. John did not have control over the stocks until they were exercisable, and the shares were not valuable until their price rose by about one-third. Using the date of exercisability, the court awarded the community a 71.38 percent interest in the options. John’s half interest in the community plus his separate interest gave him a total of 64.31 percent as his separate property interest.
The trial court did not abuse its discretion by using the date of exercisability, rather than the date of vesting, to establish the community’s interest in the options. Although most of the options vested before separation, they were not exercisable until nearly one year after separation. After the options vested, John had to continue to apply his best efforts to increase the value of the company’s stock, which was below his exercise price. The community cannot be credited with John’s postseparation efforts.
Where only prospective increases in company stock can result in a profit to option holders, it is “appropriate to place more emphasis on the period following each grant to the date of separation, as the trial court did here, than on the employee’s entire tenure with the company up to the time of separation....” (In re Marriage of Nelson (1986) 177 Cal.App.3d 150, 155, fn. 4.) In this situation, it was proper to use a formula in which the numerator is the number of months from the date the options are granted until the date of separation, while the denominator is the period from the time of each grant until its date of exercisability. (Id. at p. 155.)
c. John’s $850,000 Loan to His Brother
In February 2002, John made a loan of $850,000 to his brother Peter, using community property. Adela was aware of the loan; in fact, she required that Peter take out a life insurance policy for the loan amount, to ensure its repayment. The loan and its insurance requirement are evidenced by a promissory note that bears no interest. The loan was repaid after the parties separated. The trial court found no credible evidence that Adela asked John to charge interest on the loan; further, the parties borrowed $25,000 from Peter Ohanesian and never repaid him, and there was a history of interest-free loans among family members during the marriage. As a result, the court did not charge John imputed interest on the loan.
Adela cites a statutory provision requiring the written consent of a spouse before the other spouse makes a gift of community property or disposes of community property for less than fair value. (Fam. Code, § 1100, subd. (b).) This provision “does not apply to gifts mutually given by both spouses to third parties....” (Ibid.) Substantial evidence supports the trial court’s finding that Adela approved the loan, making it an interest-free mutual gift by both spouses. It was not the first interest-free loan among family members, so there was a precedent for it. In any event, there was consideration for the loan, because Adela and John owed Peter $25,000.
d. John’s Property in Ontario
Before marriage, John purchased real property in Ontario. John testified, without contradiction, that he used only rental income generated by the property and equity in the property to pay for expenses associated with it. The trial court confirmed it as John’s separate property. Adela did not timely request findings that the property was paid for and maintained with community funds, and she presented no evidence that community funds were expended on it.
DISPOSITION
The portion of the judgment relating to spousal support is reversed, and the case is remanded for further proceedings on the issue of spousal support. In all other respects, judgment is affirmed. The parties to bear their own costs on appeal.
We concur: DOI TODD, J., CHAVEZ, J.