(Santa Clara County Super. Ct. No. FL124489) Trial Court: Santa Clara County Superior Court Superior Court No.: FL124489 Trial Judge: The Honorable Neal A. Cabrinha
The opinion of the court was delivered by: Grover, J.*fn8
CERTIFIED FOR PUBLICATION
In this marital dissolution action, appellant Martin Bodo and respondent Alli Bodo dispute the amount of child support that Martin*fn1 should pay for their four children. In October 2006, as part of a judicially supervised settlement, the parties stipulated that income of $33,333 per month ($400,000 per year) would be attributed to Martin for the purpose of calculating child support, resulting in a monthly payment of $7,000.
Two years later, Martin moved to modify child support, arguing that his income was substantially reduced and that he was forced to liquidate assets and borrow to pay support. After an evidentiary hearing, the court found that child support under the parties' agreement could not be adjusted downward "absent a substantial change in circumstances," and that while a substantial change in visitation warranted an adjustment, there was no substantial change in Martin's income. The court reduced child support from $7,000 per month to $6,178 per month based on Martin's increased visitation and made orders regarding arrearages.
On appeal, Martin argues the court abused its discretion when it concluded it was bound by the parties' 2006 agreement, which requires proof of a "substantial" change in circumstances to modify support. He contends that modification of an "above guideline" support order requires proof of a "material" change in circumstances, not a "substantial" change, and that the court applied the wrong legal standard. He also argues that the financial effects of a change in timeshare should have been considered in evaluating whether his financial circumstances had changed. We find no abuse of discretion and will affirm the order modifying support.
FACTS AND PROCEDURAL HISTORY
Martin and Alli were married in 1996 and separated in 2005. They have four children, ages 13, 12, 10, and 8 at the time of the motion to modify child support.
Martin has a bachelor's degree in nuclear physics and a master's degree in business administration. He is a self-employed entrepreneur; he has created and operated businesses that manufacture electronic devices, hard drives, and computer recording devices. He has 15 issued or pending patents. He is president of Computer Performance, Inc. (CPI), a business he founded in 1987 that builds computerized recording equipment and data storage products. Martin owns 99 percent of the company's stock; his mother owns the other one percent. Between 1995 and 2000, Martin also pursued several real estate transactions in partnership with Jamal Keikha, who has worked for Martin since 1988.
Alli completed two years of college and was working toward a bookkeeping certificate at the time of the motion. She did not work outside the home during the nine-year marriage. In 2009, Alli and a partner opened a bath and body products store in San Francisco, which has yet to realize a profit.
In 1998, the parties purchased a four-bedroom house on one acre in Los Altos Hills (hereafter the House). They paid cash for the House and remodeled it to include six bedrooms and an office. They also owned the commercial building where CPI is located (hereafter the Building). CPI leased the Building from Martin, resulting in rental income. The parties owned both properties "free and clear" of any mortgage debt.
Martin filed for dissolution in January 2005 and marital status was terminated in August 2005. Alli and the children moved from the House into a rental home. Although the record contains little information about child custody issues, it appears that custody and visitation were vigorously litigated.*fn2
I. Settlement of Property and Support Issues
Many contested issues were resolved at a judicially supervised settlement conference before a family law commissioner in October 2006. The parties' agreement was reduced to writing and signed by both parties and counsel. Among other things, they agreed that Martin would receive the House, the Building, CPI, and all CPI stock in exchange for an equalizing payment of $2.375 million. The parties had already divided their bank accounts, personal property, vehicles, and airplanes. The parties agreed that jurisdiction to award spousal support would be terminated and that they would pay their own attorney fees.
Martin agreed to pay child support of $7,000 per month starting in November 2006, plus all private school tuition for the children through high school. The parties arrived at the child support figure by attributing monthly income of $33,333 to Martin and $1,170 to Alli, with a timeshare of 20 percent to Martin and 80 percent to Alli. They attached an Xspouse*fn3 calculation to their settlement agreement, setting forth the facts used to calculate the amount of support. The agreement provided that "Borrowing to pay the equalization payment does not constitute a change of circumstances for the calculation of child support, nor does payment of any debt or interest on such debt. It is contemplated that [Martin] will need to borrow to pay the equalizing payment stated in this agreement." The agreement was incorporated into a judgment entered on January 12, 2007.
Alli put the $2.375 million equalizing payment into investment accounts, which produced $100,000 in dividend income in 2007. She later used $1.4 million to buy a house in Sunnyvale.
After Martin sought to reduce child support in October 2007 and Alli sought permission to move with the children to Folsom, California in March 2008, the parties signed a second written agreement in April 2008, in which Alli agreed to stay in Sunnyvale in exchange for Martin's agreement to continue paying $7,000 per month in child support. That agreement was never made an order of the court.
II. Martin's 2008 Request to Modify Child Support
In December 2008, Martin filed an order to show cause requesting modification of child support. He alleged that when child "support was initially set, [his] income was substantially higher (approximately $300,000 per year)" and that his income had dropped to $36,000 the previous year, while his timeshare had increased to about 38 percent. He attached excerpts from his 2007 tax return showing employment income of $21,695 and business losses of $571,084, for a net loss of $556,259.
Alli opposed Martin's request, arguing it was disingenuous to allege that his income was only $2,277 per month. She stated that at the time of the parties' 2006 agreement, although Martin's reported taxable income was $1,369 per month, he stipulated to $33,333 in monthly income for the purpose of setting child support. She also alleged that Martin had stopped paying child support in January 2009. She asked the court to order child support of $6,463 per month based on Martin's previously stipulated income, minimum wage for her, and 30 percent visitation to Martin.
At the evidentiary hearing on his OSC, Martin testified he had been selling assets and borrowing money to pay child support and had no further sources of credit. He asked the court to "use the accurate numbers" to determine child support.
Martin stated that the 2006 agreement was a compromise and a combined settlement of the property and support issues to "take it out of the court system." According to Martin, $375,000 of the equalizing payment "was for the spousal support buyout" and the remaining $2 million was to settle the property issues. Although the parties disputed the value of the marital estate, $2.375 million for the equalizing payment was a compromise figure.*fn4
Martin recalled that Alli had initially demanded $10,000 to $15,000 per month for child support and that $7,000 per month for child support was a "bartered number" that was not based on actual income. The parties first agreed to $7,000 per month, then ran a series of Xspouse calculations to determine the amount of income necessary to support that number, and came up with $33,333 per month ($400,000 per year). According to Martin, the 20 percent figure they used accurately reflected his visitation percentage in 2006 and visitation gradually increased over time.
Martin estimated that in 2006 his income from all sources was closer to $150,000 per year ($12,500 per month). He told the court that he had planned to retain the Building and had hoped that by working full time, plus the rental income, he would net $150,000 per year and could afford $7,000 per month for child support. On cross-examination, Martin testified that he declared income of $16,246 on his tax returns in 2006 and $26,000 in 2007; that he earned about $30,000 per year since 2007; and that his taxable income for 2009 was $26,000 to $27,000. He agreed that, theoretically, he could set his salary at any number he wanted, but if he paid himself an unreasonable number, the company would dissolve.
At the time of the hearing, Martin was working 20 hours per week, the same as in 2006. CPI had determined that the value of his services was $60,000 per year full time. Martin testified that if he could work full time, he could get CPI to be profitable, but he also stated the time he devotes to child care and the dissolution proceedings prevents him from working full time.
Periodically, Martin borrows money from CPI. He borrowed $100,000 in 2006 and $200,000 in 2007; by 2010, he had borrowed almost $400,000. Every loan is documented with a note secured by the House and recorded against the property. Martin did not pay principal or interest on any of the loans in 2006 or 2007. He made a substantial interest payment on December 8, 2008, three days after he filed his OSC to modify support. He borrowed the money for the interest payment from his parents.
Martin testified that he gives Alli his entire paycheck, except for $5, which he uses to pay utilities. His only source of income other than his paycheck is liquidating assets and borrowing. When the court asked Martin to estimate his net worth, he responded that it depended on the how much equity he has in the House. He owes his parents, co-workers and friends about $1 million and a neighbor's home recently sold for $1.6, so he estimated the equity in the house at $500,000. He described the value of CPI as "negligible," since it is not making a profit, and he estimated its "liquidation value" at $200,000. CPI has been losing a few hundred thousand dollars a year.
In 2006, Martin understood that if his financial situation improved, Alli could come back and ask for more child support. He recalled the commissioner telling him that a ...