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In re Marriage of Knowles

October 6, 2009

IN RE THE MARRIAGE OF ELIZABETH AND THOMAS L. KNOWLES.
ELIZABETH ANASTASI, APPELLANT,
v.
THOMAS L. KNOWLES, APPELLANT.



APPEAL from a judgment of the Superior Court of Butte County, Robert A. Glusman, Judge. Reversed with directions. (Super. Ct. No. FL001965).

The opinion of the court was delivered by: Nicholson , Acting P. J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

Family Code section 4057.5, subdivision (a)(1) prohibits consideration of the income of a subsequent spouse when modifying child support. Here, the father and his subsequent spouse owned substantial community assets, which generated income. In modifying a child support order, the trial court considered, as the father‟s income, all of the community income of the father and his subsequent spouse. In the published portion of this opinion, we conclude that the trial court violated Family Code section 4057.5, subdivision (a)(1) by considering the half of the community income attributable to the subsequent spouse when it modified the father‟s child support obligation.

Accordingly, we reverse the trial court‟s modification of the father‟s child support obligation and remand for further proceedings.

In the unpublished portion of this opinion, we reject the remainder of the father‟s contentions on appeal, as well as the mother‟s contention raised in her appeal.

BACKGROUND

This is a brief summary of the proceedings. More specific descriptions of the proceedings are provided as they become relevant to the discussion of the issues raised by the parties. For brevity and clarity, we refer to the parties and others by their first names.

Thomas and Elizabeth are the parents of one minor child, Carter. They share custody of the child equally.

On January 6, 2005, Elizabeth filed a motion to increase Thomas‟s child support obligation. She stated that, since 1995, child support paid by Thomas has been $506 per month.

After prolonged proceedings, the trial court issued a statement of decision and judgment on November 7, 2007. The statement of decision and judgment modified child support from Thomas to Elizabeth to $1,557 per month. The court made the order retroactive to January 6, 2005, the date of Elizabeth‟s original motion to modify child support. The court also ordered Thomas to pay $20,000 in attorney fees for Elizabeth.

In addition to the support modification and the award of attorney fees, the statement of decision and judgment provided for an order to show cause why Thomas‟s current wife, Sara, who is an attorney and originally represented Thomas in his opposition to Elizabeth‟s motion to modify child support, should not be ordered to pay sanctions based on her actions while she represented Thomas. The court determined that it would report Sara‟s misconduct to the California State Bar.

On December 12, 2007, the court ordered Sara to pay Elizabeth $2,000 in sanctions.*fn2

Both Thomas and Elizabeth appeal.*fn3

THOMAS‟S APPEAL

I. Community Property Income

Thomas contends the trial court erred by using all of the community property income of his subsequent marriage to Sara for the purpose of computing child support. He asserts that the trial court was limited to using the community income attributable to him only and that it was error also to use the community income attributable to Sara. Based on Family code section 4057.5, subdivision (a)(1), we agree.

A. Background

Neither party presents a particularly coherent account of Thomas‟s wealth and income because each picks and chooses what evidence to present. The trial court, however, made findings in this regard, and the parties did not contest those factual findings, even if they now contest the legal effect of those findings. Accordingly, we base our summary of Thomas‟s wealth and income on the court‟s statement of decision. (See Rael v. Davis (2008) 166 Cal.App.4th 1608, 1617 [we accept facts in statement of decision].)

Thomas had worked full-time as the ranch manager for Knowles Ranch. He was an equal partner with his father and mother and took a partnership draw in lieu of a salary. In December 2005, however, he stopped working for the partnership, partly because he had been successful in some real estate investments. Thomas abandoned all earned income to begin a commercial charter aircraft business, which is not a profitable venture. Based on Thomas‟s former work as a ranch manager, the trial court imputed an income ability on Thomas‟s part of $50,000 per year, or $4,166 per month.

As a result of investments made after their marriage, Thomas and Sara enjoyed capital gains in 2004 and 2005 of more than $3.1 million. Much of these gains were invested in a brokerage account at A.G. Edwards and a real estate development in Chico called Meriam Park. The money in the A.G. Edwards account was held in Sara‟s name alone. According to the court, Thomas and Sara "testified that this was for "convenience‟ rather than to hide [Thomas‟s] wealth during this litigation."

In addition to Thomas‟s imputed earned income of $4,166 per month, the trial court also determined that a reasonable return on Thomas‟s investments would be $18,450 per month, which includes $10,950 from the brokerage account and $7,500 from the real estate development. The trial court used these figures as Thomas‟s monthly income in calculating his child support obligation.

Although the brokerage account and real estate development investment are community property of Thomas and Sara, the trial court considered the full amount in determining a reasonable return on those investments. In other words, the trial court did not reduce the value of the investments by 50 percent as a result of Sara‟s half ownership. The trial court stated: "[Thomas] has taken the position that his income should be reduced by 50 percent because it is all "community income.‟ While the latter point is no doubt true, all earnings of married people are community, absent a binding agreement to the contrary. There is an exception to the rule that the income of a party is available for child support when that income is earned by the [subsequent] spouse. However, no statutory or case law has been presented or identified that stands for the proposition that capital gains, or other passive community ...


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