Opinion
D058271 Super. Ct. No. DN133986
01-12-2012
In re the Marriage of MAUREEN and JEFFREY MILLER. MAUREEN MILLER, Respondent, v. JEFFREY MILLER, Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
APPEAL from orders of the Superior Court of San Diego County, Jeannie Lowe, Commissioner. Reversed and remanded, with directions.
In this marital dissolution action, we are presented with the following: Does a spouse who seeks to reduce or eliminate spousal support to the other spouse as a sanction for alleged interference with custodial and visitation rights need to produce evidence relating to the Family Code section 4320 factors that govern ordinary applications to modify support? We conclude that in making an initial determination whether such a sanction is warranted, courts must look to the conduct of the allegedly offending spouse, not the factors listed in section 4320. If the court determines that sanctions are warranted, it is only then that those factors are potentially relevant to determining the amount spousal support should be reduced or whether it should be eliminated entirely.
All further undesignated statutory references are to the Family Code.
INTRODUCTION
Jeffrey Miller appeals from an order denying his request to reduce or terminate spousal support to his former wife Maureen Miller as a sanction for interference with his custodial and visitation rights. The court declined to rule on his request based on its finding he had not presented evidence addressing the section 4320 factors applicable to ordinary applications to modify support. He also appeals from an order made at the same hearing determining that a one-time repayment of loan principal to him of $50,000 from his business was income for the purposes of calculating child support.
We conclude the court erred in finding it could not rule on Jeffrey's motion to reduce or terminate spousal support based upon Maureen's alleged interference with his custodial and visitation rights without him producing evidence of the factors enunciated in section 4320. Because it was Maureen's alleged conduct that triggered the request for sanctions, not the parties' respective financial status, it was not necessary for Jeffrey to produce such evidence before making an initial determination if sanctions were warranted. Those factors are relevant, if at all, only to a determination as to the amount support should be reduced, or whether it should eliminated entirely. We also conclude the court erred in considering a one-time repayment of loan principal from his business was income. Accordingly, we reverse these orders and remand this matter for further proceedings consistent with this opinion.
For purposes of clarity, we refer to the parties by their first names. We intend no disrespect.
FACTUAL AND PROCEDURAL BACKGROUND
A. Background
Jeffrey and Maureen were married in 1987 and separated in 2004. They have three children together: a son (son), born in 1990; a daughter (older daughter), born in 1992; and a daughter (younger daughter), born in 1995. Pursuant to the parties' stipulated judgment for dissolution of marriage, Jeffrey was ordered to pay spousal support in the sum of $3,500 per month and child support in the amount of $4,000 per month.
B. Maureen's Actions During the Litigation
On April 3, 2007, the trial court ordered that Maureen have no contact with the parties' minor children, due to her efforts to alienate the children from Jeffrey. On April 22, 2008, the court ordered that she could have only nine hours of weekly, supervised visitation with the parties' minor children.
In its order from which Jeffrey appeals, the court detailed the history of Maureen's conduct during the dissolution proceedings. According to the court, between 2007 and 2009, Maureen "thwarted efforts by each professional appointed by the court who did not side with her position." Maureen filed a complaint against the children's therapist, Dr. Lori Love, successfully removing Dr. Love from the case. Maureen "refused to cooperate" with the court's Evidence Code section 730 expert, Dr. Stephen Doyne and joined others in filing a civil suit against him. "Mother's actions in the parenting litigation since 2007, can best be described as 'all out warfare' in which she has been relentless in her willingness to pursue her goals until she is victorious in having custody returned to her." To achieve her goal, Maureen "repeatedly made false accusations of [Jeffrey's] physical abuse of the children to support her position." She also repeatedly refused to comply with the terms of both unsupervised and supervised contact with the children.
Maureen also provided financial assistance to the older daughter to allow her to run away from Jeffrey's house and never told him her whereabouts. When ordered to do so by the court, Maureen refused.
C. Maureen's Order To Show Cause (OSC)
On June 17, 2009, Maureen filed an OSC requesting modification of the April 22, 2008 custody and visitation order and increased child and spousal support. A month later, on July 16, 2009, Maureen filed an OSC "requesting the removal of the court's Evidence Code [section] 730 expert, Dr. Stephen Doyne, and a prohibition on his participating in the proceedings."
On August 3, 2009, prior to any hearing on the OSC, Maureen appeared ex parte and obtained a modification of the court's April 22, 2008 custody order. At this ex parte hearing, Maureen told the trial court that Dr. Doyne had recommended that she have unsupervised visitation with the parties' children, although she failed to tell the court that Dr. Doyne had rescinded that recommendation and instead recommended that supervised visitation between her and the children should continue.
Jeffrey filed a responsive declaration to Maureen's OSC seeking "downward modification of spousal support as a sanction based on [Maureen's] interference with [his] custodial rights and relationship with their children." In December 2009, Jeffrey also filed supplemental points and authorities asserting that the court had the power to reduce or terminate spousal support as a sanction against Maureen for her interference with his visitation rights. Jeffrey also requested modification of the August 3, 2009 ex parte custody order and re-imposition of the April 22, 2008 order requiring supervised visitation for Maureen with the children.
On September 18, 2009, the court ordered Jeffrey and the older daughter to commence immediately a program of reunification therapy. The trial court also allowed the older daughter to stay at Maureen's home pending the outcome of the OSC. Maureen assured the court that she would support the older daughter's reunification with Jeff.
Maureen requested an evidentiary hearing for the custody and visitation issues, and live testimony and/or argument was first received by the court on October 2, 2009. Additional live testimony was received on November 3, 2009, December 14 and 29, 2009, and January 8 and 19, 2010. The trial court orally announced its decision on the child custody and visitation issues on February 1, 2010, and confirmed those orders in a written findings and order after hearing filed February 4, 2010.
Later, the court observed that the custody litigation "should have been, at most, a two day trial" but "turned into eight days of testimony primarily due to [Maureen's] oppositional behaviors." The trial court described Maureen's "oppositional behaviors," dilatory tactics and misconduct in detail, and added that Maureen was "extraordinarily evasive during her testimony, often refusing to directly answer counsel or the court's questions and frequently had to be admonished by the court."
D. February 4, 2010 Findings By the Court
On February 4, 2010, the trial court made the following findings: "[Jeffrey's] relationship with the parties' two minor children [] has deteriorated since [Maureen] began having unsupervised visitation with the children in May, 2009." [Maureen] continues to demonstrate no acknowledgment of her role in, or responsibility for, the deterioration of [the minor children's] relationship with[Jeffrey]." "[Maureen] enabled [the older daughter] to run away from [Jeffrey's] home on July 24, 2009 by providing her financial support and choosing not to return [the older daughter] to [Jeffrey's] home or even notify [Jeffrey] of [her] whereabouts." "[The older daughter] has had no meaningful contact with [Jeffrey] since she ran away from his home on July 24, 2009. If left in [Maureen's] care, [the younger daughter] will not have a relationship with [Jeffrey] in just a few months." "[Maureen] has no ability to restore the relationship between [Jeffrey] and [the older daughter]."
E. March 25, 2010 Hearing
On March 25, 2010, the court heard oral argument on, among other items, support, and attorney fees. During that hearing, counsel for Jeffrey argued that based upon Maureen's frustration of and interference with his custody and visitation rights, the court had the power to reduce spousal support. Counsel noted that in his responsive declaration to Maureen's OSC, Jeffrey had requested such a reduction in spousal support.
E. June 22, 2010 Findings and Order
On June 22, 2010, the court prepared and filed an order addressing child support, attorney fees, sanctions and other issues. The order, however, neglected to address Jeffrey's request that Maureen's spousal support be modified downward as a sanction. Thereafter, Jeffrey filed a motion for reconsideration, notifying the court that it had failed to rule on his request for spousal support modification. The court acknowledged that it not ruled on that request and filed an "Addendum to Order After Hearing." The trial court acknowledged that in his responsive declaration Jeffrey "did request a downward modification of spousal support as a sanction based upon [Maureen's] interference with [Jeffrey's] custodial rights and relationship with their children." However, the court concluded that it "did not have sufficient evidence to rule on the issue" because Jeffrey "did not present any evidence of the [section 4320] factors or the marital standard of living, (on which the Judgment setting spousal support is silent,) as is required when seeking a post judgment modification of spousal support."
F. The Trial Court's Child Support Calculation and Findings
The June 22, 2010 order made several findings relevant to the child support issues Jeffrey has raised by this appeal. The court noted that "[Jeffrey] is a scientist, CEO, and 60% shareholder of a company known as InVivoScribe Technologies, Inc. (IVS)." The court also stated that prior to assuming its corporate status, it was operated as IVS Technologies, LLC. When IVS was formed, 100 percent of the assets of the old company were transferred to IVS. "Upon the formation of IVS in 2008, [Jeffrey] issued a shareholder loan to InVivoScribe Technologies, Inc., in the sum of $900,000." "The court finds [Jeffrey's] shareholder loan to the business was a necessary business expenditure required by IVS to guarantee the continued operation of the business as a viable entity in the future." "[Jeffrey] received a $50,000 repayment of a shareholder loan which he used to pay [son's] tuition at Georgetown and his own attorney fees . . . ." "There is no evidence [Jeffrey] is deliberately reinvesting in IVS for purposes of avoiding his child support obligation."
However, the court also found that "[i]n calculating child support commencing in 2010, the court has included in [Jeffrey's] average monthly income the distribution to him of $50,000. In 2010, [Jeffrey] receives monthly W-2 income of $34,267, interest income of $2,347 and other income from IVS received in January 2010, averaging $4,167 per month, total gross monthly income $40,781."
Based upon the foregoing findings, the court ordered Jeffrey to pay Maureen guideline child support in the amount of $3,736 per month. Further, the court ordered Jeff to pay Maureen 9.45 percent of "any distribution of IVS profits and/or shareholder loan repayments he receives in excess of $50,000 each year."
DISCUSSION
I. REQUEST TO REDUCE/TERMINATE SPOUSAL SUPPORT
A. Waiver/Forfeiture
Maureen asserts that Jeffrey has waived or forfeited his claim that the court erred in denying his request that spousal support be reduced or eliminated as a sanction based upon her conduct because (1) he failed to object to the court's finding he did not submit evidence of section 4320 factors; (2) he failed to provide a copy of his section 271 motion for sanctions; (3) other "vital" pleadings are missing from the record; (4) he did not include any of her lodgments or pleadings in response to his motion for reconsideration; (5) most or his citations to the record are to the court's orders; and (6) no effort was made to present her side of the case. These contentions are unavailing.
An appellant meets his or her burden of overcoming the presumption of correctness for a trial court's action by providing an adequate record of the trial court's action sufficient to demonstrate error. (Kemp Bros. Const., Inc. v. Titan Elec. Corp. (2007) 146 Cal.App.4th 1474, 1477.) Moreover, there is no need to include in the record on appeal items that are irrelevant to the issues raised. Indeed, doing so risks the imposition of sanctions. (Cal. Rules of Court, rule 8.276(a)(2); Garcia v. Lucido (1961) 191 Cal.App.2d 303, 308, disapproved on other grounds in Nichols v. Hast (1965) 62 Cal.2d 598, 601.) If the record contains only a partial designation of the trial court documents and oral proceedings, there is a general presumption that the abbreviated record "includes all matters material to deciding the issues raised." (Cal. Rules of Court, rule 8.163; Hillman v. Leland E. Burns, Inc. (1989) 209 Cal.App.3d 860, 864.)
Our review of the record indicates that Jeffrey has provided an adequate record of the proceedings relevant to his claims on appeal. This includes Maureen's OSC and his response, including his motion requesting that support be reduced or eliminated based upon her actions. Although his responsive declaration requesting such relief does not appear in the record on appeal, the court below had that document before it as the court noted in its addendum to order after hearing. Moreover, that declaration is not necessary to our resolution of this appeal, as the dissent argues, because we are not addressing whether that declaration was sufficient to warrant the imposition of sanctions against Maureen. Rather, we are only addressing, as we discuss in more detail, post, whether the court erred as a matter of law in concluding it could not rule on the issue of whether Maureen's conduct warranted the imposition of sanctions without Jeffrey first presenting evidence relevant to the section 4320 factors. That section, which addresses, among other things, the parties' respective financial conditions and ability to earn, is only potentially relevant to the issue of how much spousal support should be reduced, an issue not before us on this appeal.
He has also included the relevant court proceedings, including the reporter's transcript and the court's orders addressing the issues raised. Further, if Maureen believed there were additional items relevant to the issues to be decided, she had the right to file a counter-designation of additional documents. (Cal. Rules of Court, rule 8.122(a)(2).)
Nor was it necessary for Jeffrey to designate his pleadings related to his section 271 sanctions motion. Section 271 allows monetary sanctions against a party or attorney who "frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the costs of litigation by encouraging cooperation between the parties and attorneys." (§ 271, subd. (a).) In that motion, Jeffrey did not seek to reduce or eliminate spousal support, but rather sought monetary sanctions. The court awarded him $50,000, and neither party has appealed that order.
Finally, Jeffrey did not forfeit the right to appeal his request for a reduction/termination of support because he did not "object" to the court's order finding he did not supply sufficient evidence of the section 4320 factors. This finding was made by the court on its own after Jeffrey brought a motion for reconsideration because the court had failed to rule on his request. Neither party made any argument that the section 4320 factors needed to be considered. Indeed, it is precisely Jeffrey's position on appeal that those factors were irrelevant to his request. As we shall discuss, post, Jeffrey is correct.
B. Merits
1. Principles governing applications to modify spousal support
In ordinary cases seeking to modify support, the party seeking modification must show a "material change of circumstances." (In re Marriage of West (2007) 152 Cal.App.4th 240, 246.) Generally speaking, a "[c]hange of circumstances means a reduction or increase in the supporting spouse's ability to pay and/or an increase or decrease in the supported spouse's needs." (In re Marriage of McCann (1996) 41 Cal.App.4th 978, 982.) A change of circumstances includes all factors affecting need and ability to pay. (In re Marriage of Dietz (2009) 176 Cal.App.4th 387, 396.)
Further, "[i]n exercising discretion whether to modify a spousal support order, 'the court considers the same criteria set forth in section 4320 as it considered when making the initial order . . . .' " (In re Marriage of Bower (2002) 96 Cal.App.4th 893, 899.)
The statutory criteria to be considered as set forth in section 4320 are largely devoted to the respective financial status and earning capacities of the parties:
"In ordering spousal support under this part, the court shall consider all of the following circumstances: [¶] (a) The extent to which the earning capacity of each party is sufficient to maintain the standard
of living established during the marriage, taking into account all of the following: [¶] (1) The marketable skills of the supported party; the job market for those skills; the time and expenses required for the supported party to acquire the appropriate education or training to develop those skills; and the possible need for retraining or education to acquire other, more marketable skills or employment. (2) The extent to which the supported party's present or future earning capacity is impaired by periods of unemployment that were incurred during the marriage to permit the supported party to devote time to domestic duties. [¶] (b) The extent to which the supported party contributed to the attainment of an education, training, a career position, or a license by the supporting party. [¶] (c) The ability of the supporting party to pay spousal support, taking into account the supporting party's earning capacity, earned and unearned income, assets, and standard of living. [¶] (d) The needs of each party based on the standard of living established during the marriage. [¶] (e) The obligations and assets, including the separate property, of each party. [¶] (f) The duration of the marriage. [¶] (g) The ability of the supported party to engage in gainful employment without unduly interfering with the interests of dependent children in the custody of the party. [¶] (h) The age and health of the parties. [¶] (i) Documented evidence of any history of domestic violence, as defined in Section 6211, between the parties, including, but not limited to, consideration of emotional distress resulting from domestic violence perpetrated against the supported party by the supporting party, and consideration of any history of violence against the supporting party by the supported party. [¶] (j) The immediate and specific tax consequences to each party. [¶] (k) The balance of the hardships to each party. (l) The goal that the supported party shall be self-supporting within a reasonable period of time. Except in the case of a marriage of long duration as described in Section 4336, a 'reasonable period of time' for purposes of this section generally shall be one-half the length of the marriage. However, nothing in this section is intended to limit the court's discretion to order support for a greater or lesser length of time, based on any of the other factors listed in this section, Section 4336, and the circumstances of the parties. [¶] (m) The criminal conviction of an abusive spouse shall be considered in making a reduction or elimination of a spousal support award in accordance with Section 4325. [¶] (n) Any other factors the court determines are just and equitable."
2. Reduction/termination of support as "sanction" for interference with custody/visitation
Courts have also recognized that there is a nonstatutory remedy for a reduction/termination of spousal support as a sanction for the supported spouse's interference with custodial rights. In Moffat v. Moffat (1980) 27 Cal.3d 645 (Moffat), during postjudgment proceedings, mother claimed father was abusing their daughters, and sought to terminate his visitation rights. (Id. at p. 649.) Notwithstanding the trial court's determination that none of mother's allegations were true, "Mrs. Moffat nevertheless thwarted [Mr. Moffat's] attempts to exercise visitation rights by refusing him access to the children." (Ibid.)
In that case, the California Supreme Court observed, " . . . Mrs. Moffat has systematically endeavored to circumvent the visitation order through an unrelenting variety of legal proceedings. These include a petition to give up her children and to have them declared wards of the juvenile court, a proceeding in which she reasserted the molestation accusation previously found to be untrue . . . ." (Moffat, supra, 27 Cal.3d at p. 649.) "To this day Mrs. Moffat has obdurately refused to comply with the visitation order and has thus denied the children their right to know and to be with their father." (Id. at p. 650.)
The high court nonetheless affirmed the denial of father's request to be relieved of any child support obligations because "the child's need for sustenance must be the primary consideration." (Moffat, supra, 27 Cal.3d at p. 651.) However, the high court went on to observe that father was "not bereft of a remedy" for mother's alienating behavior. (Id. at pp. 651-652.) Citing In re Marriage of Ciganovich (1976) 61 Cal. App. 3d 289, 293, with approval, the court in Moffat stated: "The Ciganovich court identified several appropriate sanctions when the custodial parent acts with an intent to frustrate or destroy visitation rights. These include . . . terminating or reducing spousal support . . . ." (Moffat, supra, 27 Cal.3d at p. 652; see also In re Marriage of Condon (1998) 62 Cal.App.4th 533, 548 [spousal support modification/termination as a remedy to enforce nonmoving parent's custody/visitation rights in the context of an international move-away situation].)
Also relying upon the Ciganovich case, our high court confirmed that in the face of a deliberate sabotage of visitation rights, the trial court has the authority to award a change of custody. (Moffat, supra, 27 Cal.3d at p. 652.) Because such an order is a sanction, there need not be a showing of unfitness on the part of the offending parent or the ordinarily required change of circumstances. (In re Marriage of Ciganovich, supra, 61 Cal.App.3d at pp. 293-294.)
Based upon these cases holding there is a remedy of reduction or termination of support as a sanction for a spouse's frustration of custodial or visitation rights, we conclude that the section 4320 factors ordinarily considered on motions to modify support are not relevant on such a sanction motion to the initial determination if sanctions are warranted. This is so because such a remedy is a sanction for the offending party's behavior, not a determination that support should be modified because of a change in the parties' financial status or other factors. In setting spousal and child support, the court had already considered the section 4320 factors in determining the appropriate level of support.
In addressing a motion for sanctions for frustration of visitation or custody rights, which seeks to reduce or terminate spousal support, courts must initially focus on whether one party's conduct is sufficiently egregious to warrant such a sanction. The court had before it ample evidence of Maureen's behavior during this dissolution proceeding. In fact, as detailed, ante, the court recited numerous instances supporting Jeffrey's request in its order on Maureen's OSC. Thus, the court had no basis for declining to rule on Jeffrey's request solely on the basis that he had not presented evidence relevant to the section 4320 factors.
As discussed, ante, the court imposed monetary sanctions in the amount of $50,000 against Maureen under section 271, subdivision (a), which allows attorney fees as a sanction for a party or attorney's actions that "frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the cost of litigation by encouraging cooperation between the parties and attorneys." Although neither party has appealed that order, section 271 also supports our conclusion that the court erred in determining it could not rule on Jeffrey's motion for sanctions without him first producing evidence of the section 4320 factors.
Because it is in the nature of a sanction, the party seeking such attorney fees under section 271 "is not required to demonstrate any financial need for the award." (§ 271, subd. (a).) "A [section] 271 sanction award is distinct from a [section] 2030/2032 need-based award and, as a penalty, serves an entirely different purpose than a need-based award. The statute makes clear that culpable conduct will support a fees and costs assessment as a sanction without regard to the parties' 'relative circumstances', and, more specifically, without regard to whether the award is 'needed' to equalize litigating strengths." (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2011) [¶] 14:235, p. 14-61 (rev. #1, 2011.)
As with section 271, because Jeffrey was seeking to reduce or eliminate spousal support as a sanction, he was not required to demonstrate the section 4320 factors that address the "relative circumstances" of the parties or a change in circumstances as to need and ability to pay before the court could rule on his request. The relevant inquiry, again, was whether Maureen's conduct justified such relief.
After a court determines that such a sanction is appropriate, it is permissible to consider relevant section 4320 factors in determining the amount support should be reduced or whether it should be eliminated entirely. (See § 271, subd. (a) [In determining amount of sanction award courts must consider "all evidence concerning the parties' incomes, assets, and liabilities" and the amount may not impose "an unreasonable financial burden" against the sanctioned party].) However, in making the initial determination whether the offending spouse should be sanctioned, those factors are irrelevant and Jeffrey was not required to present such evidence in order for the court to make that decision.
Finally, to the extent the section 4320 factors are relevant to such a sanction request, contrary to the court's order, evidence was presented on the section 4320 factors and the marital standard of living. In awarding attorney fees to Maureen, the court stated, "The court has also considered the Family Code [section] 4320 factors in determining an appropriate fee award . . . ." The court also stated that it had reviewed the parties' stipulated judgment of dissolution. In awarding Maureen $3,500 per month in spousal support, that judgment states, "It is agreed that these payments meet the marital standard of living." Therefore, the court did have evidence relevant to the section 4320 factors and the marital standard of living before it when it refused to rule on Jeffrey's request.
On June 27, 2011, we granted Jeffrey's request to augment the record to add the judgment of dissolution.
We conclude the court's order denying Jeffrey's motion seeking to reduce or eliminate spousal support as a sanction for Maureen's interference with his custodial and visitation rights must be reversed, and the matter is remanded with directions that the court hold a further hearing to determine if Maureen's conduct warrants a reduction or elimination of support. If the court finds that it does, the court may then consider relevant section 4320 factors, the marital standard of living, and any other factors relevant to the determination of the amount by which support should be reduced, or whether it should be eliminated entirely.
The dissent criticizes our conclusion that consideration of relevant 4320 factors in determining the amount support should be reduced (or whether it should be eliminated entirely) is "permissible," as opposed to "mandatory." However, we use that term to give courts flexibility, and because those factors may have little or no relevance in certain cases. For example, in a particularly egregious case, such as where a spouse's conduct completely thwarts the other spouse's custody and visitation rights, the ultimate sanction of termination of spousal support may be acceptable even without consideration of the section 4320 factors. Indeed, in international "move-away" cases, courts have the power to reduce or eliminate spousal support payments as a punishment should the moving spouse frustrate custody and visitation orders made in California. (See In re Marriage of Condon, supra, 62 Cal.App.4th at p. 548.)
The dissent also takes issue with our reference to section 271, which authorizes an award of attorney fees as a sanction against a party whose conduct "frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the cost of litigation by encouraging cooperation between the parties and attorneys," citing its limitation on the amount of fees awarded not to impose "an unreasonable financial burden on the party against whom the sanction is imposed." (§ 271, subd. (a).) However, the nonstatutory sanction of reducing or eliminating spousal support is based upon a spouse's frustration of child custody and visitation rights, a substantive distinction.
II. CONSIDERATION OF RETURN OF LOAN AS INCOME TO JEFFREY
In making an order for support, the court must first calculate the annual gross income of the parent, defined in section 4058, subdivision (a) as "income from whatever source derived, except as specified in subdivision (c)." Of particular importance to the instant appeal, subdivision (a)(2) of section 4058 provides that annual gross income includes "[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." (Italics added.)
The parent's monthly net disposable income is derived from the calculation of annual gross income under section 4058. (County of Placer v. Andrade (1997) 55 Cal.App.4th 1393, 1395-1396.) Section 4059 defines the term "annual net disposable income." A parent's annual net disposable income is "derived by deducting specified amounts from the 'annual gross income' (§ 4059), which is then divided by 12 to arrive at an average 'monthly net disposable income.' (§ 4060.)" (Andrade, supra, 55 Cal.App.4th at p. 1396, fn. 5.)
In In re Marriage of Pearlstein (2006) 137 Cal.App.4th 1361 (Pearlstein), the husband sold his interest in a business for which he received cash and stock. The Court of Appeal held the market value of unsold shares of stock received by a parent in connection with the sale of his or her business generally is not income includible in a child support calculation. (Id. at p. 1375.) To the extent the parent has sold the stock and spent the proceeds, the trial court has discretion to treat the realized gain as income for child support. (Id. at p. 1376.)
Of relevance to this case, the Court of Appeal held, "Moreover, to the extent that [husband] sold the shares only for the purpose of reinvesting them in income-producing assets, the resulting gain also was not income, but merely the replacement of one capital investment with another." (Pearlstein, supra, 137 Cal.App.4th at pp. 1375-1376.)
Here, as detailed, ante, the court considered Jeffrey's $900,000 shareholder loan a proper business expense that was not income for the purpose of determining support. However, the court then included a one-time repayment of $50,000 in principal from that loan as income for purposes of support. This finding was internally inconsistent and erroneous.
Some courts use the "tax model" when determining income available to pay support under section 4058. (In re Marriage of Loh (2001) 93 Cal.App.4th 325, 332-333.) Under this model, the return of principal on a loan is not taxable "income" because it is not a gain, but merely a return of capital.
Other courts do not rely exclusively on the tax model but look to the aspects of a particular transaction. (Marriage of Alter (2009) 171 Cal.App.4th 718, 734-735 [regular cash gifts to parent included as income even though nontaxable].) However, under this analysis a one-time repayment of principal is also not income because it is not " 'the gain or recurrent benefit that is derived from labor, business, or property [citation] or from any other investment of capital.' " (In re Marriage of Heiner (2006) 136 Cal.App.4th 1514, 1521, italics added.)
As the court properly found, the $900,000 loan was an investment of capital and a proper business expense. A one time repayment of that capital is not "income." Rather, it is only interest paid to Jeffrey on that loan that could be considered income. The court did include these interest payments as income when computing his child support obligation.
Without citation to authority, Maureen asserts that because the court characterized the $900,000 investment in Jeffrey's business as a proper "business expense," it could not also be considered a loan. However, it is not inconsistent to treat the $900,000 investment as both a shareholder loan and a legitimate business expense. Indeed, the court, in finding the $900,000 investment in Jeffrey's new company a proper business expense, repeatedly referred to it as a "shareholder loan."
Finally, as explained in Pearlstein, supra, 137 Cal.App.4th 1361, the transfer of capital from Jeffrey's old company to his new company was not a gain that is recognized as income. Rather it was "merely the replacement of one capital investment with another." (Id. at pp. 1375-1376.) Thus, a repayment of principal from that loan is a return of capital, not income.
For the foregoing reasons we reverse the court's order finding that the one-time repayment of loan principal to Jeffrey from his business was income for the purposes of calculating child support.
DISPOSITION
The court's order denying Jeffrey's motion seeking to reduce or eliminate spousal support as a sanction for Maureen's interference with his custodial and visitation rights is reversed and the matter is remanded for further proceedings consistent with this opinion. The court's order finding that the one-time repayment of loan principal to Jeffrey from his business was income for the purposes of calculating child support is also reversed. Jeffrey shall recover his costs on appeal.
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NARES, J.
I CONCUR:
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HUFFMAN, J.
MCCONNELL, P. J., Concurring and Dissenting:
I would affirm the judgment insofar as it pertains to the family court's denial of Jeffrey's request to reduce or eliminate Maureen's spousal support as a sanction for interfering with custody and visitation orders. First, the appellant has the burden of providing us with an adequate record on appeal (In re Marriage of Wilcox (2004) 124 Cal.App.4th 492, 498) and Jeffrey did not comply. "Appellate courts have no independent knowledge of cases brought before them for review. A 'record' of the lower court proceedings must therefore be prepared, enabling appellant to demonstrate the claimed error . . . and facilitating the appellate court's review." (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2010) ¶ 4:1, p. 4-1 (rev. # 1, 2011) (Eisenberg).)
The record shows Maureen filed an order to show cause (OSC) on June 17, 2009, for issues of child custody, visitation and child support, and modification of spousal support. The next chronological item in the clerk's transcript is a supplemental memorandum of points and authorities Jeffrey filed December 4, 2009, regarding "issues to be heard on December 14, 2009." The memorandum states, "Respondent's [Jeffrey] Responsive Declaration to Petitioner's Order to Show Cause requested that the existing order for spousal support be modified downward. Parental disputes and conflicts over compliance with custody and visitation orders are to be remedied by resort to the courts." It goes on to say the "Family Code supports several statutory remedies [the remedy at issue here is nonstatutory] as against a custodial parent who interferes with the other parent's visitation rights, including, but not limited to, terminating or reducing spousal support payments to the custodial parent. [Citations] As argued in Respondent's moving papers, there is no justification for Petitioner's request for increased spousal support. There is, however, ample justification for this Court to modify the existing spousal support order downward based upon Petitioner's conduct." (Italics added.)
The record does not include either Jeffrey's declaration or his "moving papers" in response to Maureen's OSC. These documents are critical on the issue of whether the court erred by denying his request for a reduction in spousal support on the ground he presented no evidence of section 4320 factors, because without the documents we cannot ascertain how Jeffrey presented his request. Perhaps he presented the request inartfully, e.g., as a request for modification. "Error is never presumed on appeal. To the contrary, appealed judgments and orders are presumed correct [citation]; and appellant has the burden of overcoming this presumption by affirmatively showing error on an adequate record." (Eisenberg, supra, ¶ 4.2, p. 4-1; Protect Our Water v. County of Merced (2003) 110 Cal.App.4th 362, 364.) I would not have reached the merits of the nonstatutory sanction issue on this inadequate record.
Even after Maureen's respondent's brief pointed out the inadequacy of the record, Jeffrey made no attempt to augment it to include his moving papers or responsive declaration. I would not have addressed the merits without augmenting the record sua sponte or directing Jeffrey to do so. The majority opted against augmentation.
Second, I differ with the lead opinion's substantive analysis. Several opinions acknowledge that the termination or reduction of spousal support is available as a nonstatutory remedy for the frustration of visitation. (See, e.g, In re Marriage of Damico (1994) 7 Cal.4th 673, 679; In re Marriage of Anderson (1981) 125 Cal.App.3d 553, 559-560; Moffat v. Moffat (1980) 27 Cal.3d 645, 652; Clarke v. Clarke (1970) 4 Cal.App.3d 583, 589.) None of these opinions discusses the role of financial factors in setting the amount of a nonstatutory sanctions award.
The lead opinion analogizes section 271 to the nonstatutory sanction, and concludes the moving party is not required to show need. Section 271, subdivision (a) authorizes a sanction against a party whose conduct "frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the cost of litigation by encouraging cooperation between the parties and attorneys." The statute provides, "In order to obtain an award under this section, the party requesting an award of attorney's fees and costs is not required to demonstrate any financial need for the award." (§ 271, subd. (a).) "[S]ince the sanctions are imposed to punish and deter uncooperative litigation tactics, no showing of 'financial need' for the award is required." (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2011) ¶ 1:488, p. 1-124.12 (rev. # 1, 2011).) I agree that section 271 is analogous and that the nonstatutory sanction for interfering with visitation is not need-based.
While need is not relevant, section 271 places an ultimate cap on the amount awardable. Subdivision (a) of section 271 also provides: "In making an award pursuant to this section, the court shall take into consideration all evidence concerning the parties' incomes, assets, and liabilities. The court shall not impose a sanction pursuant to this section that imposes an unreasonable financial burden on the party against whom the sanction is imposed." (Italics added.) As a matter of statutory construction, the word "shall" connotes mandatory action. (In re Marriage of Fossum (2011) 192 Cal.App.4th 336, 348.) The section 271 sanction "must be scaled to the payor's ability to pay and must be made in light of both parties' financial circumstances." (In re Marriage of Falcone & Fyke (2008) 164 Cal.App.4th 814, 828; In re Marriage of Fong (2011) 193 Cal.App.4th 278, 291; In re Marriage of Corona (2009) 172 Cal.App.4th 1205, 1226.) "[W]here the award is based primarily on the merits or demerits of a particular litigation approach, the financial circumstances of the parties must be considered nonetheless." (In re Marriage of Hublou (1991) 231 Cal.App.3d 956, 964 [discussing section 271's substantively identical predecessor, former Civ. Code § 4370.5]; accord, In re Marriage of Quay (1993) 18 Cal.App.4th 961, 969.)
Yet, the lead opinion concludes that in a nonstatutory motion for sanctions, the family court is not required to consider financial factors or financial hardship to the sanctioned party. In the same paragraph that cites the mandatory language of section 271, subdivision (a), the lead opinion concludes "it is permissible to consider relevant section 4320 factors in determining the amount support should be reduced or whether it should be eliminated entirely." (Opn., p. 16, first italics added.) At another point, the lead opinion explains that if the court finds sanctions are warranted "the court may then consider relevant section 4320 factors, the marital standard of living, and any other factors relevant to the determination of the amount by which support should be reduced, or whether it should be eliminated entirely." (Opn., p. 17, italics added.) Thus, the lead opinion appears to grant the family court unfettered discretion to issue sanctions based solely on the sanctioned party's conduct, without regard to financial burden.
The lead opinion relies on section 271, subdivision (a) as a guide insofar as lack of need of the moving party is concerned, but not insofar as the financial burden to the sanctioned party is concerned. I see no persuasive reason to differentiate between statutory and nonstatutory sanctions in that regard. In my view, the family court should be required in a nonstatutory sanctions motion to consider evidence concerning the parties' financial circumstances, and not to impose a sanction that imposes an
unreasonable financial burden on the sanctioned party. Otherwise, the sanctioned party may become a burden to taxpayers, and further, any children in the sanctioned party's custody may suffer detriment. While the reduction of spousal support as a sanction is "considered less detrimental to the child's welfare" than a reduction in child support (In re Marriage of Anderson, supra, 125 Cal.App.3d at pp. 559-560), detriment is nonetheless an issue that should not be ignored. To any extent these concerns may not be potentially material to this case, we must consider the precedential value of our opinion.
I note, however, that some of the section 4320 factors may not be relevant in a nonstatutory sanctions motion based on the frustration of visitation rights.
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I concur in the portion of the lead opinion that disapproves of the family court's calculation of child support.
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MCCONNELL, P.J.