No evidence that child’s needs had diminished . . .
In reversal, Second District holds that trial court erred in reducing child support obligation of high earner where his salary reduction did not materially impair his ability to pay current child support amount (his other wealth made up for it); trial court imputed too low a rate of return on his many millions in assets
In re Marriage of Usher
(December 2, 2016)
California Court of Appeal 2 Civil B263721 (Div 4) 6 Cal.App.5 th 347, 210 Cal.Rptr.3d 875, 2016 FA 1768, per Manella, J (Willhite, Acting PJ and Collins, J, concurring). Los Angeles County: Ouderkirk, Temp J, reversed. For appellant: Marjorie Fuller, (714) 449-9100. For respondent: Honey Kessler Amado, CALS, (310) 550-8214. CFLP §§E.22.7.3, E.22.8.12, E.74.5.
Kinka and Frederique Usher were married in 2006; their child, Roman, was born in February of that year. During the marriage, Kinka, a “successful director and producer,” earned $4.25 million a year; he also had “ ‘substantial assets’ ” in cash, investment funds, and real and personal property. The couple separated in 2008 and began disso proceedings.
In October 2009, the trial court entered the parties’ stipulated disso judgment, which provided, among other things, that Kinka would pay child support of $12,500 per month, would permit Frederique and Roman to live in his Pacific Palisades home until June 2010, and would pay an additional $5,000 a month for child support after they moved out. He was also to pay spousal support of $15,329 per month for two years (October 2009-September 2011), after which Frederique waived any further right to spousal support. The judgment stated that Kinka was a high earner under Fam C §4057(b)(3), that the child support amount deviated from guideline, that Roman’s needs would be “ ‘adequately met’ ” by the chosen amount, and that the parties had arrived at the amount with the help of attorneys and accountants. In June 2010, Frederique and Roman moved into another house in the same Pacific Palisades area, which rented for $7,500 a month, and Kinka’s child support payments increased to $17,500 a month.
In June 2014, Kinka filed a request to reduce his child support payments to $5,184 a month, plus a percentage of any income he earned above $841,272 annually. He claimed to be earning substantially less, $70,106 monthly instead of $350,000, and that he had arrived at the reduced amount he was seeking by DissoMaster, using his current salary, minus insurance and property taxes, and a 30% timeshare, with no income for Frederique. In opposition, Frederique contended that Kinka’s salary reduction was not a material change of circumstances because he had “numerous alternative sources of income and assets from which to pay” child support. Before the hearing, Kinka conceded that the trial court should impute some income from his other assets and contended that a rate of return of 1% would be reasonable in the current financial climate. His CPA stated that Kinka was against tying up his assets for long periods and was pursuing a very conservative investment strategy. In opposition, Frederique claimed that Kinka’s investments should yield a 4.5% return.
In dueling declarations, the CPAs for both parties opined regarding Kinka’s income, his investment income and rate of return, and the amount of income to be imputed to Frederique. Her CPA noted that Kinka’s I&E declaration stated that he had $67 million in assets, $37.5 million of which were liquid and close to $30 million in real and personal property. The accountant opined that Kinka’s assets should generate income at a rate of 4.5%, even if conservatively invested in treasury notes, triple A bonds, and bond funds. At that rate, the expert said, the investments, coupled with Kinka’s salary, should yield $260,826 a month. The DissoMaster calculation at that amount, along with a 20% timeshare, would generate a monthly child support payment of $17,244. Kinka’s CPA maintained that Frederique’s CPA failed to deduct the costs of necessarily cashing in some of the assets, should have been found to yield a return of 1%, and opined that the conservative investment suggested would tie up his client’s funds for too long a period. The CPA also averred that the same rate of return should be attributed to Frederique’s investments and income of $1K per month should be imputed to her. If all of that was done, the DissoMaster calculation would produce a child support payment of $6,926 for Kinka.
At the hearing, the CPAs for both parties testified regarding Kinka’s income, investments and investment strategy, the expected rate of return on the investments, and the amount of income to be imputed to Frederique. When the hearing concluded, the trial court found that the reduction in Kinka’s salary constituted a material change of circumstances, imputed a 4.5% rate of return on his non-income producing assets, including an anticipated property sale, and a 1% return on his other investments, which reflected an average for the last five years. The lower court calculated Kinka’s monthly income at $140,000 and Frederique’s imputed income at $3,343 per month, deducted property taxes on Kinka’s Montecito home of $6,000 a month, and came up with a child support order of $9,842 per month. The trial court also ordered Kinka to pay Ostler and Smith child support on any earned income of more than $1,681,692 per year, plus Roman’s private school tuition, medical insurance premiums, medical expenses not covered by insurance, and 85% off his costs for extracurricular activities.
Frederique appealed, and the Second District reversed.
It says here . . .
The justices reviewed the general rules for child support modifications, noting that they usually focus on whether there has been a reduction or increase in the payor’s ability to pay and/or a reduction or increase in the recipient’s needs. However, where the modification involves a child support payment that was arrived at in a stipulated judgment, the trial court must also consider the parties’ intent and reasonable expectations before it makes a reduction. Here, the panel noted, the stipulated judgment stated that the agreed upon child support payment was necessary to meet Roman’s needs and to support him in accordance with Kinka’s lifestyle. Thus, the parties’ agreement was evidence that a child support reduction would cause Roman’s needs to be unmet. Moreover, Kinka had failed to show that Roman’s financial needs had diminished.
Looking in his other pockets . . .
When the panel looked more closely at Kinka’s evidence, they found none that showed that his salary reduction made him unable to pay the existing child support order. The order represented only “a small fraction” of Kinka’s assets, $34 million of which were liquid assets, the justices noted; if he continued to pay the existing order until Roman turned 18, he would have paid less than $2 million for Roman’s support, an amount that would put only a small dent in his net worth. A reduction in income, standing alone, is not a sufficient change of circumstances to support a child support reduction where the payor is still able to meet his obligation from other assets, the panel concluded. Summing up, the justices held that the lower court abused its discretion by reducing the existing child support order without substantial evidence that a material change in circumstances affected Kinka’s ability to pay, his standard of living, or the amount the parties had agreed was necessary to maintain Roman in a lifestyle similar to his.
He can’t take it with him . . .
The justices then turned to Frederique’s contention that the rate of return imputed by the trial court on Kinka’s assets was inadequate. They noted that Kinka had not produced any evidence as to what rate of return he was actually getting. The only evidence in the record was from Frederique’s expert, who had charted the rate of return for Kinka’s 2013 investment accounts and come up with a figure of 2.46%. The panel acknowledged that Kinka’s CPA told the trial court that a 1% return was what was “ ‘achievable in the current investment world,’ ” but without evidence to back up that opinion, that figure “was apparently ‘drawn from thin air.’ ” Even with such evidence, the justices declared, “it would have been an abuse of discretion to limit child support based on that figure.” They noted that in In re Marriage of Berger (2009) 170 Cal.App.4 th 1070, 88 Cal.Rptr.3d 766, 2009 CFLR 11133, 2009 FA 1376, the court found that a parent was precluded from denying his children the benefits of his current standard of living by arranging his business affairs to produce a minimal income. Similarly, in In re Marriage of Dacumos (1999) 76 Cal.App.4 th 150, 90 Cal.Rptr.2d 159, 2000 CFLR 8385, 1999 FA 926, the court held that a father could not shirk his child support obligation by “ ‘under-utilizing income-producing assets.’ ” Here, Kinka and his CPA testified that Kinka did not like to keep his assets tied up for long periods of time and thus, did not want to follow the conservative investment strategy suggested by Frederique’s CPA. Be that as it may, the justices said, Kinka had sufficient additional liquid funds that he could have put in cash or money market funds that would yield more than a measly one percent. When the trial court imputed that unreasonably low rate to some of Kinka’s investments, it resulted in a child support order that deprived Roman of funds to support the lifestyle that Kinka had agreed was appropriate and which he could easily afford to provide. Accordingly, the panel reversed the order granting Kinka a child support reduction.
In this case, some of the backstory can be found in the footnotes. In one footnote, we learn that Frederique was not exactly destitute, although her assets were far less than Kinka’s. They totaled around $1.227 million, and included cash, investments, and an $800,000 apartment in Paris. In another footnote we are told that she used the child support payments to fund, among other things, Roman’s travel expenses, which averaged $3,300 a month, for his trips to Europe during summer vacations and to Kinka’s home in Capri. Frederique also claimed that she’d been footing the bills for Roman’s private school tuition and extracurricular activities, despite his obligation to do so. Kinka didn’t dispute that, but faulted Frederique for continuing to employ a nanny.
This case teaches us that a drop in the payor’s salary, standing alone, is not a material change of circumstances if he or she has other assets with which to make up the difference, even if they are currently not producing income or are underutilized as income producing. As authority for this, the panel frequently cites In re Marriage of de Guigne (2002) 97 Cal.App.4 th 1353, 119 Cal.Rptr.2d 430, 2002 CFLR 9015, 2002 FA 1046. During marriage, Christian and Vaughn de Guigne lived on the Hillsborough estate that he inherited. He paid their expenses with income from his securities and trusts, as well as his sale of over $5 million in assets. After they separated and began disso proceedings, Christian argued that only his annual trust and securities income should be considered by the trial court, which should order guideline support. The trial court, however, found that ordering guideline child support for their daughters would mean a drastic and unacceptable reduction in the children’s standard of living, which would not be in their best interests. The lower court noted Christian’s habit during the marriage of dipping into capital to finance the family’s opulent lifestyle was a special circumstance that justified deviating from the guideline and required consideration of all his assets in awarding support. Christian appealed the resulting child and spousal support orders and the First District modified the judgment and affirmed as modified. Relying on In re Marriage of Destein (2001) 91 Cal.App.4 th 1385, 111 Cal.Rptr.2d 487, 2001 CFLR 8825, 2001 FA 1015, the panel found that the trial court was not required to ignore assets that were a potential source of income, nor was it error to recognize that ignoring such assets would permit Christian to continue living in luxury while his daughters would be forced to live in reduced circumstances. Thus, the justices concluded, the lower court had not erred in considering the disparity in those conditions as a special circumstance that justified deviating from the guideline.