ANALYTICAL APPLICATION OF THE STATUTORY SCHEME FOR DETERMINATION OF POST DISSOLUTION SPOUSAL SUPPORT

Application of FC 4320 a, c, d, e, k,

This is the work of James Cox. http://www.privatejudge.org/divorce.php

The rationale for post-judgment spousal support reflects the different purpose it serves from that of temporary spousal support. The latter is a short terms means of assuring economic viability of two marital units by dividing cash flows during marital breakup, whereas post-judgment support is a long term division of the benefits and burdens of the marital efforts to achieve the marital expectations.

The dominant guide in post-judgment spousal support is Family Code (FC) Section 4320.   It sets out a mandatory schema of 14 factors (including ‘any other factor’) that the court must apply to determine post-judgment support. The application of these factors has been interpreted and fleshed out by decisions, as has the way in which the court exercises its discretion in determining the amount and duration of support.   While written decisions provide guidance, they do not set forth clear-cut quantitative standards.

Further, the realm of spousal support determinations often confronts the old saw ‘bad facts make bad law,’ resulting in a number of exceptions or confounding fact patterns that must be sought out and addressed before one can move on to the more normal situation. I think there are case law exceptions or modifications of the more normal regimen for the following atypical fact patterns:

• Depressed incomes (lifestyles) for career advancement (school) during marriage.
• Effort during marriage, including overwork, for early retirement or to get ahead.
• Disability of spouse. When does the obligation for support pass from a former spouse back to society in general? (Wilson) [Duration possibilities: up to about 15 years of marriage, support lasts as long as the marriage. After 15 years, likely forever. This is a reflection of the reasonable expectations of the parties: the longer married, the longer the partner’s support is expected to last.] [Amount possibilities: Calculate economic resources of each parties (cash flows as well as balance sheet, including marital standard metrics) and then look to unique, direct costs of the disability, measured either by actual out-of-pockets or by comparable care costs, such as costs associated with skilled nursing or convalescent care. These are perhaps viewed as community obligation (paid by each party’s resources) in proportion or pro-rata.]
• Development, or lack thereof, of employment related skill sets.
• Opportunity to develop desired/desirable career for dependent spouse [the longer the marriage, the greater the obligation to provide retraining and education for career, not just job.]
• Offset for comparative residences comparable to Marital Residence (discounted for living apart.)
• Non-cash savings (stock/options or defined benefit pension acquisition) that do not show on tax returns (defined contribution pension deferral will show on income tax returns) – wealth – asset base.
• Inflation over time for standard of living – c.f. cost of housing in valley in last two years.
• Geographical COLA for standard of living – the same number of dollars in Kansas go a lot further than in Cupertino.
• Duration of support: length of marriage; coverture, natural phase points (social security, career progression, majority of kids), age of parties, Gavron notice and compliance with legal obligations under FC § 4330, plan or prior agreement of parties.

While recognizing these kinds of confounding fact patterns, the statutory material does little to assist the court in translating guiding principles into dollars and cents orders. In fact, the guidance expressed in no less than four places in the spousal support chapters–namely, that the support paid and received should be measured by the “marital standard of living”–actually generates more confusion than relief, especially when coupled with the appellate guidance given in soft, non-quantified expressions such as ‘high or moderate standard of living’ etc.

Thus the first step of analysis is to test for unusual and fact dependent situations, such as disability, extreme familial support, or atypical career development. Even after culling out the less-frequent or more difficult questions, post-judgment support is like most discretionary areas: the logical plan allows the courts discretion not to squeeze all pegs into a single hole.

But in many of the cases that I have seen, the factual pattern of the marriage falls within a handful of familiar patterns. Given this situation, it is possible to develop a method to quantify the Marital Standard of Living, consistent with the case guidance, so that practitioners and parties can develop common expectations, which are highly promotive of settlement. In fact, one reason the proposed solutions are so effective is that they are a logical expression of the underlying, shared beliefs of the parties.

The process of turning ideas about support into numbers is merely an effectuation of the statutory scheme. Clearly, a formula that takes inputs and spits out proposed numbers has been

categorically rejected by the Courts, in favor of the mandated balancing of factors in the Family Code. But once the exceptional situations are sorted out, the more common patterns can be approached in a uniform manner to achieve consistency and clarity in result.

Logically, the first step is to ascertain the ‘Marital Standard of Living’ (MSL). Though described in case law by jurists who employ non-quantified, social science language, the MSL cannot be ordered in these terms (“Pay the amount necessary to have a medium to high standard of living!”).   Instead, both for clarity and for enforcement purposes, the Trial Court is required to convert the social science terminology of case law into actual dollar amounts, a process which could easily be even more subject to interpretive bias based on the background of the judge, and concomitantly less predictable and less tailored to the case before the Court.

Under case guidance, it is clear that MSL is measured by the expenditures of the parties during the marriage (including funds ‘expended’ for savings). However, it is almost impossible to know exactly what was spent, both because of the likely dearth of accurate data, and because of the cost-prohibitive nature of having expert accountant or economist reconstruction of marital expenditures. Thus, the parties are limited, providing the Court with only summary information or testimony upon which to find the MSL.

But it is possible to both estimate and interpolate significant economic conclusions from readily available sources. In the almost 13,000 settlement conferences I have conducted, it is clear that expenditures are normally closely correlated with reported taxable incomes [less closely with small businesses, but that can be corrected.] Further, use of incomes as an indicator of marital expenditures is permitted in the case law.

But incomes are not the final data in this analysis, as a substantial number of families have many other non-tax return cash flows that can affect MSL. The most common significant metrics of expenditures, after taxable incomes, are items such as familial support from parents; non-cash employment benefits (e.g., option grants, ESPP opportunities, vehicles and pension fund contributions); repeated refinancing and borrowing against growing equity in the marital residence; and even increasing marital consumer debt.   The logic of according economic value to non-spendable benefit additions (such as growing retirement accounts) is that such third-party savings reduce the necessity of familial savings for retirement, thus freeing up further funds for spending.

Thus, tax-reported incomes adjusted for non-tax return items give a fair impression of expenditures for the family.   Given this measuring stick, the next question is: which years should be measured? Local rules indicate the last year prior to the date of separation (DoS), but such a short period is probably just as inaccurate as the entire period of marriage.   Both common knowledge and economic fact show that the MSL typically increases with experience and increasing earnings of the family unit, for most families tend to spend (including savings) what they earn. So while any number of years could be used, too many years would tend to dilute the rising tide that creates the parties’ expectations at the end of the marriage, while too

few years might suffer from all the inaccuracies of a snap-shot view of any particular segment of a life. It has been my experience that the last three to five years of economic data are usually enough to capture the MSL flavor of the marriage, without myopically seeing too little information to reach an opinion on normal or representative expenditures. And by using variable weightings of the years, one can easily imbue the results with determined flavors.

Even in this ‘normal’ pattern, there are several potential confounding factors, including variable earnings, cost of living inflation, and even a family’s ability to adjust to sudden changes in funding. Because of this normal volatility, I mechanically reduce Adjusted Marital Family Incomes by subtracting (or adding) 25% of any annual variation from the average that exceeds 10% difference.   This simply ‘smoothes’ or dampens the picture of MSL provided by the data by knocking off the peaks and valleys of variable cash flows, while still maintaining the essence of the MSL reflected in the numbers.

Once the Smoothed and Adjusted Marital Family Income is determined for the family, the numbers need to be parsed so as to reflect major household allocations:   was the money spent for the purposes of the children, or for purposes of the adults? Given that our state guideline child support calculations are based in part on three USDA studies of family economics, I simply extract the approximate child support percentages from the statute and use these as a basis for allocating a portion of the Smoothed Adjusted Marital Family Income to the children,. The remaining amount now constitutes the adult portion.   This amount is for two, so it is divided in half to determine the amount allocable to each party during the marriage. Note that the cost of children is not artificially terminated at majority, but should be considered so long as the parents are contributing to education or support for their children, whatever their ages or circumstances might be, including school, religious pilgrimages, or simple economic necessity.

The next two steps are logical, though not common. The first is to adjust for inflation over time by using the CPI, especially if the date of judgment is more than two years post separation. The second is to adhere to the common sense understanding, supported by the SF Federal Reserve, that “two can live more cheaply than one” and accordingly, add back an inflator to reflect the additional cost on the MSL when each party spends money alone instead of together. Note, however, that if the recipient has kids living in the household, the inflator loses its strength until they depart.

Using all these adjustments, I can calculate a number that reflects the MSL in today’s dollars. But the recipient spouse is not free to just sit back and receive this amount with no obligations. Instead, the legislature has levied, in FC §4330, an independent, though discretionary, obligation on recipient spouses to ‘strive to be self supporting at the MSL’. Thus, they must do what they can to maximize (eventually) their own contribution to MSL, which could include reasonable return on assets (wealth) [Cheriton and Terry], or other sources of support such as rent, pension payments, disability income, social security, or annuities. So given Recipient’s independent obligation, Payor spouse is obligated only to make up any shortfall in the earnings of the Recipient up to the level of the MSL. So while not absolute, the MSL becomes a de facto

‘cap’ or limit on the amount the Payor can expect to pay, absent unusual or intervening facts. [N.B. thus, every additional dollar Recipient earns is a dollar reduction in support up to the MSL, which, once achieved, constitutes zero payment.] And while there is clear permission to go above the MSL, the general rule is that if the Payor obtains or develops extensive wealth or income post separation, the Recipient will not share in such new money once they are at the MSL.

Often times the cost of maintaining two households exceeds the limited dollars available.   In this case, Payor’s contribution to Recipient would drive Payor below the MSL, which is contrary to the intent expressed in the statutory scheme that both parties should be maintained at the MSL. Equitably, when both parties find themselves below the MSL, I believe there is no guidance that sets out any unequal allocation. So, to obtain parity below the MSL, simply add together the parties’ incomes and divide by two.

Current legal strictures:

• MSL, while important, is not the only factor, nor is it overly precise: IRMO Smith (1990) 225 Cal.App.2d 469, 274 Cal.Rptr. 91. At issue is whether prior order met reasonable needs.
• No formulaic computation of post judgment support.
  • No DissoMaster: IRMO Schulze (1997) 60 Cal App. 4^th 519, 70 Cal. Rptr. 2^nd 488
  • Not based on DissoMaster: IRMO Burlini, (1983) 143 Cal.App 3d 65, 191Cal.Rptr. 541
• Usually less than temporary.
• Measure by expenditures usually, but incomes are ok: IRMO Weinstein (1992) 4 Cal.App. 4^th 555, 5 Cal Rptr. 2^nd 558
• Include borrowing in expenditures, but one is not required to borrow in excess to pay: IRMO Smith, IRMO Weinstein
• Include savings, actual vs. potential: IRMO Kennedy (1987) 193 Cal.App.3d 1633, 239 Cal.Rptr. 151; IRMO Winter (1992) 7 Cal.App.4^th 1926, 10 Acl.Rptr.2d 225
• MSL becomes less important further from DoS: IRMO Rising (1999) 76 Cal. App. 4^th 472, 90 Cal.Rptr. 2d 380
• Exclude equity in marital home or replacement: IRMO Kennedy, supra
• Consider allocation of resources and debts: IRMO Duke; IRMO Norton
• Consider reasonable return on assets: Terry; IRMO McElwee (1988) 197 Cal.App.3d 902, 243 Cal. Rptr. 179
• If paying puts one below MSL, ok for recipient also to be below MSL: IRMO Epstein (1979) 24 Cal.3^rd 76, 154 Cal.Rptr.413. But permanent SS should not leave one below MLS while other is in disparately better position: IRMO Ramer (1986) 187 Cal.App.3d 263, 231 Cal. Rptr. 647
• Recipient can be charged with income from all sources: IRMO Clark (1978) 80 Cal App.3^rd 417, 145 Cal.Prpt. 602
• MSL is not the absolute cap when increasing income is the result of marital effort: IRMO Ostler and Smith (1990) 233 Cal. App. 3d 33, 272 Cal. Rptr. 560; cf Hoffmeister II, (1987) 191 Cal.App.3d 351; 236 Cal.Rptr. 543
• Artificially suppressed income during marriage is not the basis for limiting MSL: IRMO Watt (1989) 214 Cal.App. 3d 340, 262 Cal.Rptr. 783

PARAPHRASING THE METHOD USED TO QUANTIFY MSL

Family Gross Income:

To determine the Marital Standard of Living, use Gross Combined Income during the final portion of marriage, smoothed by eliminating peaks and valleys, graded over time to weight the likelihood of the community becoming adapted to that income (sudden rise at the end of the marital period receives lower weight), to obtain a gross (pre-tax) Family Standard of Living (FSL). Case law indicates that the better measure of FSL is expenditures during the marriage, but absent unusual circumstances (drawing down home equity by financing, continuous gifts or consumption of inheritances, increasing and substantial consumer debt), incomes should provide a close approximation of funds available to be spent on the standard of living.

Adult Gross Income:

Reduce that by a proportion of the gross allocated to the kids, depending on the style and expenditures of the parents. Roughly, 1 kid = 19%, 2 = 30%, 3 = 38%, 4 = 43%, 5 = 47% allocated to kids, so reduce accordingly the amount available to the adults for their expenditures.

Single Monthly Amount:

Then divide in half to arrive at individual amount, and divide the resulting annual amounts by 12 for monthly gross pretax standard of living for each adult.

Living Separate Inflator:

Add back a premium (20 – 40%) for the loss of cost savings attributable to living together: (e.g., now you need money to heat two houses; no multi car discount on auto insurance; two separate cable subscriptions; two set of sheets, two set of china) [per research from SF Fed Reserve Bank, 2000.]   [cf. The multiplying effect of this inflator is decreased for a parent with kids living at home and receiving child support.]

Cost of Living Inflator:

If the Date of Separation is more than two years ago, the prior year’s dollars need to be brought into today’s dollar values by applying a cost of living adjustment.   This is further exacerbated by the recent sharp increase in housing costs in Santa Clara County, as a reflection of the costs of homes and a resulting increase in rental costs.

Self-Sufficiency:

Deduct grossed-up (pre-tax) amounts received [add back the ratable tax rate on non-taxed payments or imputations to insure comparability with the standard measured in pre-tax dollars] which includes earnings, active investment, attributable income, value of benefits received, and passive income [rental value of paid for home; deferred income contributions, rents, investment returns including cap gains], and earned income. Earning ability applies here: FC 4320 a(1), a(2), g, and 4322 (Terry)

Both Parties Below MSL:

Both parties are entitled to the gross standard MSL. If Payor is above, Payor needs to raise Recipient up to standard, unless it reduces Payor below standard. If Payor goes below MSL, both should be equal as there is no justification to discriminate. So long as Recipient is up to standard from all combined sources, it is immaterial how much more Payor makes.

N.B. This analysis for determining ‘permanent’ spousal support under the statutory scheme should result in both adult members of the community equal to each other or above the Marital Standard of Living, as measured by pre-tax gross incomes. Given this result, pursuant to F.C. 4058, both parties will need to reflect the different economic reality after receipt and payment of support. I suggest that the DissoMaster spousal support calculation be disabled (to prevent confusion), that the Payor enter the amount paid on the “SS paid previous marriage” line of the DissoMaster, and that the Recipient reflect the payment as “Other taxable income”. This methodology will usually result in substantially different guideline child support.

Short Hand Calculation:

• Gross combined marital incomes
• Smoothed for income
• Allocate for kids
• Add back 20-40%
• Divide by 2; calculate monthly standard
• Figure out Recipient’s contribution to standard
• Remainder is Payor’s contribution to the attainment of the marital standard of living, post dissolution.

Vocational evaluation usually makes it possible to project the amount of time Recipient needs to accomplish the goal of FC 4330, which is self-sufficiency at the marital standard.

Duration of Spousal Support:

In considering the duration of Spousal Support, there is both statutory and logical support, absent unusual facts as discussed above, for the notion that the duration of support should be proportional to the length of the marriage.

Thus, in a short term marriage of 1 to 4 years, the expectation is that spousal support will also be short term. In fact, in such a short term marriage, there is no reason that spousal support should be more than rehabilitative in nature, allowing the lower earning partner a short period of time to get back on his/her feet and become self-supporting.

For a marriage in the range of 4-10 years, and without specific atypical factual circumstances such as pregnancy and child rearing responsibilities, the presumptive duration of support from FC 4320 is equal to about ½ the length of the marriage.

For marriages that have lasted longer than ten years, and thereby have strongly supported the expectations of the parties to be able to rely on the support of the community, the duration of spousal support as a multiple of the length of the marriage should also expand, just as it contracts for marriages below 10 years duration. If a twenty year marriage should look to support payable for approximately a year for each year of the marriage (a duration of 20 years) or a multiple of 1.0, and a 10 year marriage would presumptively be one half the length of the marriage – a multiple of .50, then a straight-line increase in the duration of support of 5% per year from 50% at 10 years to 100% at 20 years is logically consistent.

After considering these calculations, the appropriate tailoring would be then to fold those durations around the natural phase points in the couple’s future, such as emancipation of the kids, job/career milestones, date of social security availability, expected physical retirement, etc.

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