Cinderella, the ball is over . . .
In partial reversal, Second District holds that trial court erred by ordering husband's pendente lite child and spousal support payments to be made from blocked account containing community property proceeds from sale of the family home without charging them against his share of those proceeds; trial court correctly declined to consider loans/gifts from husband's wealthy parents in calculating support where payments had ceased prior to trial and parent testified that they would not continue
In re Marriage of Williamson
(June 12, 2014)
California Court of Appeal 2 Civil B23067 (Div 6) 226 Cal.App.4 th 1303, 172 Cal.Rptr.3d 699, per Perren, J (Gilbert, PJ and Yegan, J, concurring). Santa Barbara County: Brown, J, and Geck, J, affirmed in part, reversed in part and judgment modified. For appellant: Marjorie Fuller, (714) 449-9100. For respondent: Honey Amado, CALS, (310) 550-8214. CFLP §§E.37.1.20, F.188.8.131.52.
Frederick and Mary Kate Williamson were married in 1989 and later had three children. Between 1990 and 2005, Frederick, whose relatives formerly owned the Los Angeles Times, worked for the paper earning $120,000 a year. However, he also received $12,000 to $13,000 per year from a trust fund set up by his grandmother, along with an annual tax-free gift of $26,000 from his wealthy parents. His parents made similar annual gifts to Mary Kate and the kids and paid the kids' tuition at private school. Per the couple's agreement, Mary Kate was a stay-at-home mom. When the couple wanted to buy their first home in 1991, Frederick's father gave them $395,000 to buy one in Pasadena. A few years later, they sold that home and bought a historically significant " 'fixer' home" situated on the grounds of the Ritz-Carlton/Huntington Hotel in Pasadena, using an advance of a little more than $1.2 million from Frederick's father to fund the purchase and make renovations. The location gave the family access to the hotel sports and spa facilities. In 2000, Frederick received a gift of $900,000 from his parents, which he and Mary Kate used to buy stock, art, and antiques. The couple "enjoyed a lavish, high society lifestyle," drove luxury cars, and belonged to exclusive private clubs, including the Valley Hunt Club. Mary Kate wore designer clothes and jewelry, and the couple traveled extensively, sometimes by private jet. In the winter, they skied at Mammoth, and at other times they relaxed at the family's "luxury beachfront home in Carpinteria," in which Frederick had a small ownership interest. However, his father and uncle paid the expenses of that home.
Frederick and Mary Kate subsequently decided to relocate to Santa Barbara, where they used the equity from the sale of their historic home (and an advance from Frederick's father) to buy a house in Montecito. This house needed extensive renovation, for which Frederick again sought his father's financial help. These requests prompted " 'many heated conversations about whether [Frederick's parents] would continue to lend [the couple] money.' " When expenses mounted, Frederick liquidated $470,000 in inherited stock. However, he also quit his job at the Times "to focus on the renovation." During 2007 and 2008, the couple's monthly expense were between $40,000 and $50,000, funded by "large sums of money from his parents to help pay for the renovation." Mary Kate would later say of those funds " 'Everybody in the family just gets money when they need it.' "
Frederick and Mary Kate separated in 2009, and Frederick filed for divorce. Mary Kate and the kids stayed at the Montecito house, while Frederick rented a small basement apartment. When his father refused to pay the rent for the apartment, Frederick moved in with his parents in Montecito. His father initially paid Mary Kate $8,600 per month for her support, but when the payments stopped, she filed a motion for temporary child and spousal support. The trial court ordered Frederick to pay temporary spousal support of $5,000 per month and child support of $5,000 for their one minor child, Hughes. Meanwhile, Frederick and Mary Kate sold the Montecito house and placed the $1.3 million proceeds in a blocked account. Frederick asked the trial court to order his support payments paid from the blocked account, claiming that his parents were no longer giving him money. He and Mary Kate stipulated that the payments for September and October 2010 would be made from that account and would be deducted from Frederick's share of the parties' community property. The trial court subsequently set temporary spousal support at $13,450 per month and child support at $7,950 per month, retroactive to July 2010, to be paid from the blocked account until those funds were completely depleted, and thereafter, he was to pay child support of $1,987 per month and spousal support of $69 a month. In October 2010, Frederick was hired by the Santa Barbara News Press to be manager of its classified ad department at an annual salary of $45,000, plus $15,000 in commissions. Combined with his trust fund payments and annual tax-free gift, Frederick's salary brought his annual income to $99,000.
Two weeks before the disso trial, Frederick's parents amended their family trust to clarify that they intended any monies advanced to Frederick or his siblings as loans to be subtracted from their inheritance. At the disso trial, Frederick's father testified that he would not be making any further advances or loans to Frederick, other than the annual tax-free gift, and would not make any support payments, except for the annual tax-free gifts to Frederick's children. When the trial concluded, the trial court issued a tentative decision in which it declined to include payments from Frederick's parents in its child support calculation, imputed $3,000 a month income to Mary Kate, set child support for Hughes at $1,235 per month, and awarded sole custody of him to Mary Kate, with a reduction in timeshare after six months, when Frederick would have 12% custody. The trial court noted that the parties had "enjoyed a lavish, upper income lifestyle" based on loans and gifts from Frederick's parents, which would have been beyond their means without that financial support. The trial court ordered Frederick to pay $2,000 a month for spousal support, based on his current income, plus $10,000 for Mary Kate's attorney's fees, subject to posttrial fee motions. Both parties objected to the tentative decision, but the trial court adopted Frederick's version as its statement of decision.
After moving unsuccessfully for a set-aside or a new trial, Mary Kate appealed, and the Second District affirmed in part, reversed in part, and modified the judgment.
Those were the days . . .
Mary Kate contended that the trial court should have included the money that Frederick's parents gave him when it calculated his support obligations because the funds were gifts and not loans. The justices agreed that the monies were probably gifts and not loans, but the trial court's error was "of no consequence." The panel recognized that Frederick's parents had amended their trust to designate the funds as loans, but reasoned that the funds failed to "bear the typical characteristics of a loan." For example, Frederick had never repaid any of the money and was not required to do so, since the funds would be deducted from his inheritance. Therefore, the justices concluded, the money was more correctly characterized as " 'advancement on inheritance' " which constitutes a gift. The next question, the justices said, was whether the gifts could be treated as income under Fam C §4058. The panel found guidance in In re Marriage of Alter (2009) 171 Cal.App.4 th 718, 89 Cal.Rptr.3d 849, 2009 CFLR 11153, 2009 FA 1380, where the court held that regular monthly payments from the husband's mother were gifts that could be considered in calculating child support. They noted that the payments in this case differed from those in Alter because they did not come in on a regular basis, but only when Frederick asked for them, which was not regularly. Moreover, Frederick's father testified that he had stopped advancing money to Frederick and had no plans to resume doing so, since Frederick was currently self-supporting. In addition, he said, he would not be making funds available for support. Therefore, the trial court had not erred by refusing to include the money in its support calculation. The justices were similarly unconvinced that the lower court erred when it declined to impute $7,000 to Frederick as the monthly value of the rent-free housing he enjoyed. They reasoned that Frederick's parents also lived there for part of each month and besides, rent-free housing gave Frederick more available funds for support.
The gravy train doesn't stop here anymore . . .
Mary Kate next argued that she needed $28,782 a month for spousal support in order to maintain the marital standard of living, which she could not do on $2,000 a month. The justices pointed out that the marital standard of living " 'is not "an absolute measure of reasonable need, but merely a 'basis' or reference point for determining need and support." ' " Moreover, the trial court must consider all of the applicable factors listed in Fam C §4320. Regardless of how lavish the marital standard of living was, the panel stated, those days are over. "Simply put: there is no money," the justices stated. The justices declined to consider whether gifts or loans from parents can be considered in calculating spousal support. They simply reiterated that those gifts/loans had ceased, and the trial court correctly based its order on Frederick's ability to pay.
Too good to be true . . .
Mary Kate next asserted that the trial court should not have ordered that the temporary support payments be made from the sale proceeds in the blocked account without specifying that the payments were to be deducted from Frederick's share of the community property, as the original order stated. As it was, she contended, the existing order reduced Frederick's support obligation by half. The justices agreed. They could find no authority for Frederick's contention that his support obligation should have been charged to the community property in equal shares. His temporary support payments, they found, should have been charged against Frederick's share of the community property in their entirety. Moreover, the panel found (and Frederick conceded) that the trial court exceeded its jurisdiction by retroactively modifying his final temporary support order to reduce Frederick's obligation and they modified the judgment accordingly to correct the error.
Miscellaneous matters . . .
The justices then addressed several other issues raised by the parties. They determined that, contrary to Mary Kate's assertion, the trial court's statement of decision was not deficient. It discussed each of the issues that she had raised, and provided a careful analysis of each, the panel found, which was all the lower court was required to do. As for her challenge to the trial court's protective order, the justices did not believe that the lower court erred by issuing an order preventing disclosure of information regarding other trust beneficiaries during discovery. Besides, the panel found, the trust had provided information regarding Frederick's interest in the trust. The justices gave short shrift to Mary Kate's contention that Frederick had breached his fiduciary duty by liquidating a Roth IRA and failing to disclose his interest in the Carpinteria beach house, a 401K, and some stock. They noted that Frederick had shared the IRA funds with Mary Kate and had eventually disclosed all of the previously undisclosed assets. In conclusion, the panel found no fault with the trial court's attorney's fee order, since it also provided Mary Kate with the opportunity to seek further fees by posttrial motion. In addition, the justices determined that Mary Kate had waived her right to appeal the fee issue by failing to file a posttrial motion for fees. Summing up, the justices reversed the trial court's order regarding the payment of temporary support from the blocked account, and modified the judgment to specify that the payments are to be charged against Frederick's share of those funds. All attorney's fees paid from that account, the panel ordered, are to be charged to the community. The panel affirmed the rest of the judgment.
It's always interesting to catch a glimpse of the lifestyles of the rich and well-known-in-certain-circles. These justices are certainly impressed with this "wealthy Los Angeles patrician family" and their many perks and pleasures. That aside, what do we learn from this case? The justices find that the efforts of Frederick's parents to label their financial support as loans cannot mask the fact that he will never have to pay the money back and the funds are more properly characterized as gifts or advancements on inheritance. Nevertheless, the payments are not includible as income for child support calculation purposes because they were not made on a regular basis, ceased before the trial started, and presumably won't start up again. The panel gives Mary Kate one ray of hope, however, saying that she can always move for a modification if Frederick's financial situation improves, and that apparently includes an improvement caused by his parents' resuming making regular gifts or advancements on inheritance at some future time.
The justices decline to decide whether funds received from parents, either as loans or gifts, may be considered in calculating spousal support under Fam C §4320. They say that need and ability to pay are key, along with the factors listed in that statute. That leads us to assume that such funds are not to be considered or at the least are to be considered only as they fit into one of the statutory factors.
If your next case involves assets that the spouse you represent (or the other spouse) holds an interest in along with other people, remember to seek a protective order to protect the privacy of the others and limit the extent of discovery allowed. Also, when the court tells you that it is making a fee order that may be augmented by posttrial motion, file that posttrial motion. Here, Mary Kate's failure to do so meant that she couldn't appeal the issue, but we expect that it also cost her money that Frederick might have been ordered to pay.