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California Family Law Report

 

 

Case of the Month (from CFLR Monthly)

January 2015
[Archive]

No question that this guy did “a lot of stupid stuff” . . .

 

Fourth District affirms trial court that, in child support mod, imputed income at prior level to father who lost his job because of his own misconduct and his refusal to accept employer’s conditions for keeping his job

 

In re Marriage of McHugh

(October 30, 2014; ordered partially published November 26, 2014)

California Court of Appeal 4 Civil G048551 (Div 3) __Cal.App.4 th __, __Cal.Rptr.3d__, 2014 FA 1668, per Aronson, J (Moore, Acting PJ and Thompson, J, concurring). Orange County: Neary, Temp J, affirmed. For appellant: Steven Madoni, (949) 723-76000 and John Dodd, CALS, (714) 731-5572. For respondent: Keith Dolnick, (949) 222-0426. For Orange County DCSS: Deputy Attorneys General Linda Gonzalez, (916) 322-5581 and Ricardo Enriquez, (916) 324-5468. CFLP §E.38.9.5.

 

Charles and Connie McHugh were married in 1992; their only child was born in 1996. The couple separated in September 2009 and Charles filed for divorce. Connie promptly filed an OSC, seeking temporary child and spousal support. At the time, Charles was a successful salesman for a packaging distribution company (Amcor), earning $24,159 per month, and Connie was a stay-at-home mom. Based on Charles’s income, the trial court ordered him to pay temporary child support of $2,227 per month and spousal support of $4, 773 a month.

 

Early in 2010, Charles filed an OSC, asking for a child and spousal support reduction, based on his “drastic income reduction” when a major client failed to renew its contract with Amcor. He also contended that the trial court should require Connie, a licensed attorney, to get a job. In March 2011, the trial court reduced Charles’s child support obligation to $1,275 a month and spousal support to $2,840 a month.

 

In August 2011, both Connie and Charles filed motions regarding the March order. Charles sought a further support reduction and Connie asked for a set-aside and support increase. Charles claimed that his financial woes had multiplied because Amcor had fired him and his new job didn’t pay as much. Connie contended that Charles had previously misrepresented his income and that the trial court should reinstate its prior support order. At a November hearing on Connie’s set-aside motion, Amcor’s VP of Workplace Relations and Employment Counsel Thomas Sarnecki, testified that Charles had been one of Amcor’s top salesmen and had earned between $137,000 and $597,000 per year between 2003 and 2009. Sarnecki stated that in 2009, Charles told Amcor that he faced a bitter disso and asked the company to help him reduce his income to minimize his earnings during that proceeding. Sarnecki said he told Charles that he could be reassigned to a lower-paying job, but refused to go along with Charles’s “ ‘more aggressive approach[es],’ such as diverting some of his compensation.” Charles then continued with his current job, but his sales dropped significantly. When questioned, Charles explained that Amcor’s bids were not sufficiently competitive and the economic downturn hampered sales. Sarnecki stated that he accepted Charles’s explanation because he’d always rendered “faithful service”. However, when one of Charles’s customers had questions about products it had purchased, for which Amcor could find no record, Sarnecki began an investigation. That investigation, he told the court, showed that Charles had been diverting some of his accounts to his father’s packaging business and had used another salesman to close his transactions in exchange for a share of his commission. In a meeting with Sarnecki and other Amcor executives, Charles admitted doing “a lot of ‘stupid stuff’ ” in order to reduce his income for disso purposes, showed remorse, and stated that he “wanted to ‘come clean’ so he could keep his job.” Amcor, Sarnecki testified, offered to let Charles keep his job if he would make a full disclosure of his misconduct, make restitution for the business he had diverted, and agree to a “ ‘last chance’ employment agreement.” However, Sarnecki stated, when Charles would not accept the conditions, Amcor fired him and sued him, his father, and his father’s company to recover the diverted business income. In his testimony, Charles stated that he’d confessed to misconduct, even though it wasn’t true, in the mistaken belief that it would save his job. In December 2011, the trial court denied Connie’s set-aside motion, finding insufficient evidence of Charles’s actual income (as opposed to the misrepresented amount).

 

In 2012, the trial court considered Charles’s motion for child and spousal support reductions and Connie’s request for support increases. The lower court determined that Charles’s misconduct in attempting to lower his income and his failure to cooperate with Amcor’s conditions for retaining his job constituted an unwillingness to work. The trial court concluded that imputing monthly income to Charles at the level he earned at Amcor would in his child’s best interests. It also imputed monthly income of $8,333 to Connie. The court then ordered Charles to pay $2,047 a month for child support and an unspecified amount of spousal support.

 

Charles appealed, but, in a partially-published opinion, the Fourth District affirmed.

 

Beastly burdens . . .
The justices reasoned that per Fam C §4058(b), the trial court had discretion to consider Charles’s earning capacity in making its child support order if doing so was in the child’s best interests. The court need not find that Charles deliberately shirked his child support obligation in order to impute income to him, the panel explained, but shirking could be a factor in its decision if it was shown. The statutes do not define earning capacity, the panel noted, but per case law, it is composed of the ability to work and the opportunity to work. The parent who seeks to impute earning capacity to the other parent has the burden of showing that the other parent has the ability or qualifications to perform a job that pays the amount to be imputed and the opportunity to obtain the job. Here, Connie had the burden of showing ability and opportunity, while Charles had the burden of showing that he lacked the ability and opportunity to get a job that paid what his Amcor job paid or, more pertinently, to keep his Amcor job. In order to do that, he had to show that he was unable to satisfy the conditions Amcor imposed for keeping his job.

 

Coulda, shoulda, woulda . . .
When the panel focused on the first of the conditions, full disclosure of his misconduct, they saw that his answers to Sarnecki had been somewhat vague and lacking in substance in some instances. However, Sarnecki had testified that Charles had admitted that he had diverted business to his father’s company, impermissibly split commissions with another salesman, and generally had done things that were not right. This evidence, the justices said, showed that Charles had the information to make a full disclosure to his misconduct, but had chosen not to do so. Moreover, despite what Charles contended, he, not Connie had the burden of showing that he was unable to make the restitution required by another of Amcor’s conditions. Connie, on the other hand, had met her burden of showing that Charles had the ability and opportunity to keep his Amcor job by presenting evidence that Charles had held that job for almost 17 years and would have been able to keep it if he had complied with the conditions Amcor imposed. Summing up, the panel found that substantial evidence showed that Charles could have kept his Amcor job but chose not to and that imputing income to him would be in his child’s best interests.

 

By his own admission . . .
Charles next contended that the trial court erred by imputing income to him at the level that he used to earn at Amcor without a showing that he was presently able to earn that amount at another job. The justices reasoned that in cases such as In re Marriage of Ilas (1993) 12 Cal.App.4 th 1630, 16 Cal.Rptr.2d 345, 1993 CFLR 5629, 1993 FA 582 and In re Marriage of Padilla (1995) 38 Cal.App. 4 th 1212, 45 Cal.Rptr.2d 555, 1995 CFLR 6887, 1995 FA 721, courts have held that a parent may not voluntarily divest himself or herself of earning capacity at the expense of his or her children’s welfare in order to seek a different lifestyle or profession. Those courts found it appropriate to impute income to the parent at the level he or she maintained before the divestiture. The justices also found guidance in In re Marriage of Eggers (2005) 131 Cal.App.4 th 695, 32 Cal.Rptr.3d 292, 2005 CFLR 10025, 2005 FA 1204, where the trial court imputed income to a father who lost his job when he sent sexually inappropriate emails to a coworker, reasoning that his actions were tantamount to a voluntary termination. In reversing, the appellate court in that case disagreed, finding that the father’s conduct did not amount to a voluntary divesting of earning capacity. However, that panel also said that with the appropriate facts, the trial court had the discretion to impute earning capacity to a payor whose conduct did rise to the level of a voluntary divesting. Here, the justices found, were the appropriate facts for the trial court to make a determination that Charles’s actions amounted to a voluntary divesting of earning capacity, especially in light of his stated intent to reduce his income for child support purposes. Given all that, the panel held that the trial court did not err by imputing income to Charles based on his prior earning level.

 

Non-pub . . .
In the unpublished part of the opinion, the justices found that Connie’s set-aside motion did not preclude her from subsequently seeking a support increase.

 

 

Comment

  

This opinion was first designated not published, but was published in response to requests from the Child Support Directors Association of California and the Orange County Department of Child Support Services. Their requests are understandable, since the opinion extends the reasoning in Eggers . That extension is key here; the real crux of the case is the justices’ determination that Charles’s conduct rose to such a level that the trial court could appropriately find that his termination from Amcor was voluntary and not involuntary, as he claimed. We’ve rarely seen a more obvious case of a payor’s attempting to divest himself of income in order to avoid a hefty support order or clumsier attempts at covering his tracks. We can’t help but think that Charles has spent more in attorney’s fees (in this case as well as the suit filed by Amcor) and restitution and damages than he would have if he had simply bitten the bullet and paid the support. The latest order, based on imputed income, was due to start on August 1, 2012. His child would have been around 16 years old and should be about 18 now. Charles’s child support obligation should end soon, but his financial situation will undoubtedly be unsettled for years to come.

 

 

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