Appeal from a judgment of the Superior Court of Orange County, David S. Weinberg, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed and remanded with directions. (Super. Ct. No. 03D011005).
The opinion of the court was delivered by: Bedsworth, Acting P. J.
CERTIFIED FOR PUBLICATION
In this case, we are called upon to reiterate that while divorced parents have the same right to pursue happiness as all other citizens, they cannot do so by abrogating their obligation to support their families. And they certainly cannot do so by voluntarily deferring salary, living extravagantly off their sizeable assets, and pleading poverty at the support hearing.
Rachael Berger appeals from the judgment in this action dissolving her marriage to Marc Berger. She contends the court erred in denying her spousal support; awarding her only $1,115 in monthly child support for the couple's two daughters; and denying her request for an award of attorney fees. Rachael*fn1 points out that during the couple's marriage, they enjoyed a high standard of living based upon Marc's earnings in the financial industry. Just before they separated, Marc chose to leave that profession and devote his full-time labor to the start up of a business offering financed landscaping to developers of new homes. In the three years prior to trial, Marc agreed to defer most, and then virtually all, of his income from the business -- which is apparently in dire financial straits -- while continuing to live a wealthy lifestyle. By his own admission, Marc's expenses exceed $21,000 per month.
In essence, Rachael makes two arguments regarding support. First, she asserts the court abused its discretion in refusing to impute income to Marc, based upon his ability to resume earning income at the levels he had before voluntarily departing the world of finance. We are not convinced the evidence in this case was strong enough to compel such a conclusion. But her second argument is compelling. Rachael contends Marc's voluntary decision to continue dedicating his efforts and services to the company under an agreement by which it distributes almost none of his income to him, but instead accrues it on the company books -- a decision which is made possible by Marc's ability to tap into his other substantial assets for his own support in the interim -- should not be viewed as a justification for reducing his obligation to pay support. She maintains the trial court should have either treated Marc as though he were receiving the income to which he is entitled on a current basis, or as "special circumstance" which warrants a departure from the guideline amount of child support.
We agree with this second argument. While it would be improper to impute to Marc the income he had formerly earned in the finance industry in the absence of evidence demonstrating he could still earn such an income if he were to return to that industry today, there is evidence of his present earning capacity outside that industry. It is provided by Marc's agreement with his present employer, and is unaffected by his voluntary agreement to defer those earnings. In essence, Marc's company is providing the proof of his ability to earn in the form of the salary it is accruing for him. The fact he is choosing to plow that salary back into the company cannot be spun into a basis for ignoring those earnings.
In effect, Marc is simply choosing to invest his salary each month back into the company, while supporting his own lifestyle with other assets. For purposes of calculating support, that decision is indistinguishable from one in which Marc actually did receive the salary, utilized it for his living expenses, and then used his other assets to invest in the company. For purposes of calculating support, it cannot make a difference whether Mark is paying his bills from his salary and leaving his savings untouched, or paying them from his savings and "banking" his salary.
Because the court erred in failing to recognize that Marc's income should be measured by the earnings he has chosen to give back to his company -- or at least to characterize his decision to do so as a "special circumstance" which warrants a departure from the guideline support amounts -- we reverse its rulings on the issues of child support and spousal support, and remand the case for further proceedings on those issues.
With respect to the issue of attorney fees, we note that the court's own ruling stated that it would "reserve jurisdiction to make a fee award if appropriate" in the event Marc received some or all of the income he agreed to defer. In light of our determination that Marc must be treated as though he is receiving that income, we conclude the fee issue must be reconsidered as well.
Marc and Rachael were married in 1991, and separated in November of 2002. They have two daughters, born in 1992 and 1994. After the birth of the second daughter, Rachael became a stay-at-home mother. Marc petitioned for divorce in December of 2003.
The parties obtained a judgment terminating their marital status in October of 2004. Pending resolution of the remaining issues in dispute, Marc was ordered to pay Rachael $4,000 per month in spousal support, and $3,500 in child support for both daughters. The family residence was sold in mid-2005, and the proceeds, totaling in excess of $2 million, were divided between the parties.
In 2001, prior to the parties' separation, Marc voluntarily left his employment as a partner at PricewaterhouseCoopers, where he had earned as much as $600,000 per year, to devote his full-time efforts to the job of president and chief executive officer of a landscape business, X-Scapes, in which he also owned an equity interest. The concept behind X-Scapes, which had commenced operations "on a limited basis" earlier in 2001, was that it would offer landscaping, on a financed basis, to developers of new homes, who could, in turn, offer that landscaping as one of the options available to the ultimate home purchasers.
Marc devised the business plan for X-Scapes, which was initially capitalized with $1 million in cash contributed by other investors -- although Marc was credited with an additional $500,000 in "sweat equity" for his efforts in establishing the business. X-Scapes was able to pay Marc a salary of approximately $200,000 in 2002, $175,000 in 2003 and $215,000 in 2004. However, apparently those salaries had been funded by the initial capitalization of, and subsequent capital infusions to, the company, rather than from any profits. In fact, from its inception, X-Scapes has never generated a profit. In 2004, Marc and other X-Scapes principals guaranteed certain loans to the company, and Marc himself loaned it $250,000.
Because of financial difficulties experienced by X-Scapes, Marc and the other officers entered into "a series of amendments to their respective employment agreements . . . call[ing] for salary reductions and deferment of income." Ultimately, in October of 2005, Marc filed an order to show cause for modification of his temporary support obligation, alleging that due to his agreed-upon salary deferral at X-Scapes, he could no longer afford to pay temporary support at the levels set by the court.
In February of 2006, the parties stipulated to a suspension of Marc's temporary support obligation beginning in December of 2005, without prejudice to the court reinstating that support obligation, retroactively, at the time of trial. The parties also stipulated that the daughters would reside primarily with Rachael, but would spend Wednesdays and alternate weekends with Marc.
The trial commenced in April of 2006. In connection with that trial, Marc reported on his income and expense declaration that his income "varies," and his personal expenses were $21,372 per month. However, that expense number included $5,600 for "divorce legal accounting," which is presumably temporary, and a $5,206 payment for the mortgage on a "[l]ot held for construction of primary residence."*fn2
Rachael, who has only a high school education, reported that she was employed as a part-time administrator for a financial firm, and was working 15-20 hours per week for $15 per hour. She reported household expenses of $17,749 per month, including approximately $2,500 in expenses pertaining ...