California’s First District Court of Appeals recently took on a divorce case involving former spouses who agreed to tie child and spousal support obligations to one spouse’s income. That’s not out of the ordinary, but the husband’s attempt to avoid those obligations altogether by pointing to his failing business left the Court scratching its head. That’s because the business losses were absorbed by the man’s father.
Husband and Wife separated in 2011 after roughly 16 years of marriage in which they had at least two children. They entered into a marriage settlement agreement a year later, under which Husband pledged to pay Wife more than $5,000 per month in spousal and child support. The agreement indicated that Wife wasn’t able to work because of a serious medical condition, and the payments were intended to help her meet expenses. The payment amount was based on the assumption that Husband, who owned a construction business called PHS, would make $39,000 per quarter. It also required Husband to make additional payments each quarter, totaling 26.5 percent of any income in excess of the $39,000 mark. If his income wound up being less than $156,000 annually, Husband was entitled to recover overpayments during the year by reducing payments in the next year.
Husband paid himself an annual salary of $156,000, according to the Court. The only problem is that the business wasn’t profitable in 2012 and 2013, and Husband had to get $733,000 in loans from his father to keep the company afloat. Husband’s father also paid his mortgage, utilities, and insurance premiums at various times. The loans didn’t include a specific payment date, but Husband’s father told a trial court that he’d hoped to get the money back before he died. An accountant hired by the parties to determine Husband’s income ultimately concluded that the business’s net income was –$53,000 in 2012 and -$44,000 the following year.
A trial court denied Husband’s request to reduce his support payments to zero for 2012 and 2013. Although the business’ losses could be reduced from Husband’s income for support purposes, the trial court said those losses were essentially wiped out by the loans from Husband’s father. “As long as Husband continues to reap the benefit of Father’s largesse in continuing his business, in paying his bills and in supporting his lifestyle, with no subjective or objective belief that the funds will be repaid those funds cannot be excluded from consideration when it comes to Husband’s duty to support his children and his spouse,” the trial court concluded.
Affirming the decision on appeal, the First District said the trial court’s decision was reasonable and based on substantial evidence. It focused in particular on the seemingly open-ended support that Husband was getting from his father. “[S]o long as Husband continues to draw a salary and PHS’s losses have no actual effect on Husband’s income, Husband must satisfy his family support obligations to his ex-wife and children,” the Court said.
If you’re considering divorce or are grappling with spousal support and other issues in California, contact San Jose spousal support lawyer John S. Yohanan. With more than 30 years of experience, Mr. Yohanan is an accomplished family law attorney who has helped a number of clients resolve a wide variety of marital disputes. Call our office at (408) 297-0700 or contact us online to schedule a consultation.
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