Opinion
D072518
07-27-2018
In re the Marriage of IHOR A. and DEBORAH J. LYS. IHOR A. LYS, Appellant, v. DEBORAH J. LYS, Respondent.
Law Office of Nancy J. Bickford and Andrew J. Botros for Appellant. Law Offices of Anthony J. Boucek and Anthony J. Boucek for Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. D535855) APPEAL from an order of the Superior Court of San Diego County, Susan D. Huguenor, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed. Law Office of Nancy J. Bickford and Andrew J. Botros for Appellant. Law Offices of Anthony J. Boucek and Anthony J. Boucek for Respondent.
INTRODUCTION
Ihor A. Lys appeals a postjudgment order modifying child support on a single issue: whether the court abused its discretion in declining to reduce Ihor's income available for child support by $171,000 for fees he spends annually for an investment portfolio manager to manage his multi-million dollar investment portfolio. We conclude the court did not abuse its discretion because Ihor did not present sufficient evidence the investment fee was a business expense within the meaning of Family Code section 4058, subdivision (a)(2) and, even if it were such an expense, the court was not precluded from imputing investment income to Ihor without the fee under section 4058, subdivision (b). We, therefore, affirm the order.
Because the parties share a surname, we use first names for clarity. We intend no disrespect. (In re Marriage of Olsen (1994) 24 Cal.App.4th 1702, 1704, fn. 1.)
All further statutory references are to the Family Code unless otherwise stated.
BACKGROUND
We limit our summary of the facts to those relevant to the issue on appeal.
A
Ihor and Deborah were married in 2003 pursuant to a pre-marital agreement. They have two minor children. After eight years of marriage, Ihor and Deborah separated and a judgment of dissolution of marriage was entered in 2012. The parties agreed to a marital settlement agreement, which, among other things, provided Ihor would pay child support of $4,617 per month plus a guideline bonus percentage if Ihor received more than $10,000 per month in consulting income.
Deborah filed a request for order in July 2014 requesting modification of various items in the marital settlement agreement, including a modification of child support. The parties stipulated Ihor would temporarily pay $10,000 per month effective September 1, 2014, for the two minor children and the court had jurisdiction to modify child support retroactively to July 2014 and to prospectively modify child support based upon the evidence and argument presented at the hearing.
B
Ihor, who is trained in electrical engineering and robotics, is an expert in light-emitting diode (LED) technology and has more than 50 patents. He holds a Ph.D. in electrical engineering from Carnegie Melon University.
During the marriage, Ihor sold his separate property share in Color Kinetics, a company he cofounded, to Phillips Solid State Lighting Solutions (Phillips) for approximately $25 million and netted about $20 million after taxes. After the sale in 2007, Ihor worked for Phillips as its chief scientist through 2009, earning $136,015 in wages per year plus bonuses and stock options. He has not been regularly employed since 2009. He received $36,000 per month for four years (2011 through 2015) through Lys Ventures, LLC (Lys Ventures) for providing consulting services to Cree Lighting, which required 10 to 20 hours per week.
Ihor has between $13 million and $20 million in assets. This includes a home he purchased free and clear for $3.25 million. He believes the home is worth less after a landslide caused by work done at a neighboring property. As part of a settlement in litigation with the neighbor, he obtained a deed to the neighboring property, which he did not include in his assets. Ihor believes he may be able to sell the neighboring property for approximately $2 million.
Ihor pays his monthly living expenses from his wealth by taking withdrawals of income and principal from his large investment portfolio. He is not actively seeking full-time employment.
Ihor holds various unpaid board positions and is a shareholder in some companies for which he does not currently receive compensation. Through Lys Ventures, he is working on developing an LED-based industrial lamp for growing vegetables. He is involved in other business interests and projects, including Cerebellum (a hedge fund management company in which he invests), Ecosense (manufacturer of LED lighting), and Electrofur (producer of glowing faux-fur clothing and accessories).
C
After a hearing, held over multiple days, the court retroactively modified the child support to $12,089 per month from July 1, 2014, through December 31, 2015, and modified prospective ongoing child support to $9,566 starting January 1, 2016.
A vocational expert determined Ihor had the capacity to earn $180,000 to $200,000 per year as an employee ($15,000 to $16,666 per month). The court imputed income of $16,666 per month noting Ihor is an "extremely well-educated competent person. He has a Ph.D. and he has 50 patents. He has an incredible history both in terms of his inventions and his ability to generate income. So I find it clearly that he has an ability and opportunity to earn."
For the retroactive period, the court adopted with some exceptions the report of a neutral economist, Anna Addleman, a certified public accountant (CPA), with some exceptions. The court averaged Ihor's available income for 2013 and 2014, but did not accept a weighted approach proposed by Addleman. The court concluded his monthly average income from all sources except Lys Ventures was $70,966 ($8,304.42 income available plus $62,661.38 in capital gains). The court considered income Ihor received through Lys Ventures in 2014, which averaged $2,716 and imputed income of $13,950 for an averaged earned income of $16,666, consistent with the evaluation of the vocational expert.
For the prospective child support order, the court adopted the findings of Ihor's economist, Tony Yip, CPA regarding Ihor's average monthly income. The court used the following monthly averages: taxable income of $2,272, nontaxable income of $2,669, and capital gains of $43,597. The court exercised its discretion to not include monthly average investment fees concluding "Ihor has control over where he invests his money and what costs related to these investments are."
DISCUSSION
I
" 'The standard of review for an order modifying a child support order is well established. "[A] determination regarding a request for modification of a child support order will be affirmed unless the trial court abused its discretion, and it will be reversed only if prejudicial error is found from examining the record below." [Citations.] Thus, "[t]he ultimate determination of whether the individual facts of the case warrant modification of support is within the discretion of the trial court. [Citation.] The reviewing court will resolve any conflicts in the evidence in favor of the trial court's determination." ' " (In re Marriage of Sorge (2012) 202 Cal.App.4th 626, 640 (Sorge).) "However, in reviewing a child support order, courts recognize that ' "determination of a child support obligation is a highly regulated area of the law, and the only discretion a trial court possesses is the discretion provided by statute or rule. [Citations.]" [Citation.]' [Citations.] ' "[T]he trial court has 'a duty to exercise an informed and considered discretion with respect to the [parent's child] support obligation' " ' and its ' "discretion is not so broad that it 'may ignore or contravene the purposes of the law.' " ' " (In re Marriage of Usher (2016) 6 Cal.App.5th 347, 357.) We independently consider questions regarding statutory interpretation. (Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 1247.)
II
Section 4058, subdivision (a), defines annual gross income of a parent as "income from whatever source derived" (with exceptions not applicable here) and provides a non-exhaustive list of income sources such as royalties, bonuses, dividends, interest, annuities (id., subd. (a)(1)) and "[i]ncome from the proprietorship of a business, such as gross receipts from the business reduced by expenditures required for the operation of the business." (Id., subd. (a)(2).)
Ihor agreed to have his portfolio's capital gains, dividends, and interest included in the guideline child support calculation. His sole contention on appeal is that the management of his portfolio should be considered a business and his annual investment fees should have been deducted as a business expense for purposes of determining his annual available income. We disagree.
First, there was no evidence Ihor's investment portfolio income was income "from the proprietorship of a business" or that the fees themselves were "expenditures required for the operation of the business" as required by the plain meaning of section 4058, subdivision (a)(2). (Italics added.) In a declaration submitted in response to the request for order, Ihor broadly stated he incurs "significant and unavoidable costs of doing business" to maintain his portfolio. He stated these fees average over $171,000 per year and he cannot deduct them for tax purposes. However, "[t]he trier of fact is not required to believe even uncontradicted testimony." (Rodney F. v. Karen M. (1998) 61 Cal.App.4th 233, 241.) Although Ihor stated his investment manager provided access to "IPO shares, securities backed loans, commodities contracts [and] the necessary research," he also testified to his own significant involvement in investment decisions and direction of the fund. Ihor presented no evidence regarding how the investment fees were calculated or expended or why they were necessary to produce the investment income. The court noted it could not make a finding regarding the reasonableness of the fees because no evidence was presented either regarding the fees incurred or fees charged by other investment managers.
The financial experts explained Ihor does not deduct investment fees on his taxes because he is subject to the alternative minimum tax.
Second, even if the management of his portfolio could be considered a business and the fees a business expense, the court had discretion to disallow the fees by imputing income consistent with the best interests of the children under section 4058, subdivision (b). As we previously explained, "Although section 4058, subdivision (a)(2) provides that gross receipts from a business are to be reduced by expenditures required for the operation of the business in calculating income under subdivision (a) of that section, subdivision (b) of section 4058 provides a trial court with discretion to determine a parent's annual gross income on a basis different from that parent's actual income. Pursuant to subdivision (b), the court 'may, in its discretion, consider the earning capacity of a parent in lieu of the parent's income, consistent with the best interests of the children.' Thus, although subdivision (a) of section 4058 instructs the trial court to deduct the operating expenditures of a parent's business in determining that parent's actual income, the court is not required to utilize a parent's actual income in setting child support if it determines that the parent's actual income does not reflect that parent's earning capacity." (Sorge, supra, 202 Cal.App.4th at p. 644.)
There was substantial evidence here to support the court's finding that Ihor was actively involved in managing his portfolio. Ihor discusses his portfolio and its aims with the investment manager and provides direction about how investments are managed. He reviews his portfolio regularly. He explained to the court in detail how his portfolio needed to be "reshuffled" following the 2016 election to account for international components of his portfolio and rising interest rates. He has a margin loan against his portfolio as part of his investment strategy. This evidence supports the court's finding Ihor had control over his investments and how investment costs are incurred. The court declined to make a finding as to whether Ihor could manage the portfolio without an advisor because Ihor presented no evidence on this point.
Although the court declined to find Ihor was engaging in efforts to shield his income to avoid child support or that the portfolio was underperforming, the findings it made supported its exercise of discretion to essentially impute investment income to Ihor under section 4058, subdivision (b), by refusing to consider the investment fees. As Ihor acknowledged in his reply brief, the fact the court imputed labor income to Ihor based on his earning capacity did not preclude its ability to impute passive investment income. " 'The only statutory limitation on the court's discretion to apply the earning capacity doctrine to investment assets is the best interests of the child.' " (Sorge, supra, 202 Cal.App.4th at p. 646; see Stewart v. Gomez (1996) 47 Cal.App.4th 1748, 1751, 1753-1754.)
DISPOSITION
The order is affirmed. Deborah shall recover her costs on appeal.
MCCONNELL, P. J. WE CONCUR: HUFFMAN, J. AARON, J.