Support can be determined objectively in marital dissolutions

Determining the amount of support in a marital dissolution action is relatively simple and straightforward when the parties have stable and predictable incomes. It is more challenging when their incomes fluctuate from year to year. In Marriage of Pletcher, 2021 DJDAR 9517 (Sept. 10, 2021), the 4th District Court of Appeal reaffirmed the principle enunciated in Marriage of Riddle, 125 Cal. App. 4th 1075 (2005), that in making support orders, the court must calculate future income based on a representative sample of past income. In Riddle, the immediately preceding calendar year was a representative sample of past income; however, that was not the case in Pletcher.

Mitchell Pletcher operated an investment management business, and his income fluctuated considerably from year to year depending on the performance of the stock market. In setting pendente lite support, the trial court forecasted Mitchell's future income based on the most recent year of historical income, which happened to be Mitchell's best year ever by a wide margin.

The appellate court considered it unlikely that Mitchell would repeat such a year, and noted that in the recent past Mitchell had made as little as one-third of the amount the court based its calculations on. Given the virtual certainty of fluctuations going forward, and the unlikelihood that Mitchell would equal or exceed his best year ever, the appellate court concluded that the trial judge had abused his discretion in calculating Mitchell's prospective income based on an unrepresentative sample.

One of the challenges of basing support orders on a party's prospective income is that it necessarily involves speculation. Judges rightly decline to base support orders on speculation about what the future might hold in other contexts, but they do it routinely when it comes to support. While the appellate court used words such as "calculate" and "forecast," these words are euphemisms for "speculate."

The phrase that is routinely invoked by stock brokers, money managers and financial institutions is that "past performance is no guarantee of future results." This salutary principle is intended as a warning to investors that they should not do what trial judges do routinely; namely, assume that there is some representative sample in the past -- the immediately preceding calendar year, an average of the last three years or five years or 10 years -- that will allow the judge to predict the amount of income available for support going forward.

Marriage of Mosley, 165 Cal. App. 4th 1375, 1386 (2008), succinctly summarizes the issue that confronts a trial judge whenever a support payor's income is not stable from year to year: "The theory is that the Court is trying to predict likely income in the immediate future, as distinct from extraordinarily high or low income in the past. We must be wary of 'the logical fallacy of extrapolation, in which some series of events in the past is necessarily assumed to continue in exactly the same way into the future.'"

The appellate court suggested two approaches to this problem: A judge could expand the representative time period to capture the volatility in a support payor's income. In Pletcher, Wife's expert used one year while Husband's expert used an average of the preceding 10 years. When the experts adopt extreme positions, the trial court could rely on its own determination of what constitutes a representative time period.

Alternatively, a judge could add an Ostler-Smith component to the support order. Originally intended to deal with discretionary bonuses that might or might not actually be received, the case lends itself to basing a support order on a conservative estimate of the income available for support going forward, provided that an additional percentage would be payable out of income received in excess of the estimated amount. Marriage of Ostler & Smith, 223 Cal. App. 3d 33 (1990). This virtually guarantees that the amount of support will be tied to the amount of income available for support. In contrast, even if the trial court makes its own determination of what constitutes a representative time period for purposes of calculating income that fluctuates from year to year, it is impossible to get it exactly right.

The second approach suggested by the appellate court is routinely used in mediated cases. Many divorcing spouses agree to base support on a realistic estimate of the support payor's income going forward with the proviso that in or about February of the succeeding year, the exact amount of income available for support in the preceding year will be known, and the payor will pay additional support as a percentage of the excess income. Annual recomputation accomplishes multiple goals:

First, the amount of support is tied to the amount of income. It does not depend upon speculation.

Second, while the parties must agree on a formula in their judgment -- for example, guideline spousal support discounted by 15% -- the amount of additional support can be easily determined by a family law professional when all of the relative data is entered into the Dissomaster, and the program computes the amount of support. The parties need not go to court, or even retain lawyers.

Third, annual recomputation takes into account other variables; not just fluctuations in the payor's income. For example, the supported party may have income that was not originally considered, or one or both parties may have deductions for mortgage interest or contributions to a retirement plan, or the actual custodial percentages could be materially different from the percentages set forth in the judgment.

Fourth, there is no subjectivity. Lawyers are not arguing, and a judge is not exercising discretion. While the parties might have legitimate differences of opinion with respect to some of the data -- for example, whether an expense paid by the payor's business is a legitimate business expense or a perquisite -- such issues are unlikely to have a material effect on the amount of support, and can almost always be resolved with a mediated compromise.

For couples who want to get it right in the first place, and to avoid hiring lawyers and letting a judge decide whenever there are material changes in the income available for support or other pertinent circumstances, annual recomputation is a strategy that should receive serious consideration. 