How is Bonus Income Treated with Regard to Spousal and Child Support in California?
If you are a spouse in a divorce proceeding, how can you make sure you are paid a fair and equitable share of bonus income? How can the spouse paying support avoid overpaying? The main issue is that bonus income is discretionary and rarely known until it is paid. If a spouse’s income history for the last calendar year, plus bonus, is tallied and divided by 12, the result is the amount spousal support due. This is a flawed calculation, as bonuses vary and may also not be given every year. However, the spousal agreement remains in place, causing a financial inequity.
To try and avoid a Catch 22 situation, both parties and the family court judge must clearly and openly discuss financial circumstances and all possible variables. The judge, who holds the discretion to design a fair and equitable method to determine what cash is on hand to pay support, is then able to design a relatively balanced approach for payments.
There are cases where this is not done and the spouse paying support ends up in a difficult financial position attempting to juggle payments and their own personal obligations. It is difficult to accurately calculate phantom income and thus it is vitally important to retain an experienced divorce attorney who understands how the system needs to work with such unpredictable numbers and percentages. Both parties are entitled to equity in a divorce settlement.
The California Family Code sections dealing with income earmarked for child support awards are laid out in section 4058 and 4058(1). Section 4064 empowers the courts, based on both parties earnings, if applicable, to make adjustments to include fluctuating incomes, for those who work on commissions. Even with such limited guidelines in place, there is very little case law dealing with this issue. There are three “go to” cases with the most relevance, with the 1990 case of Marriage of Ostler & Smith being the one most often cited in relation to analyzing and presenting the issue of bonus income as part of child and spousal support orders in California.
Marriage of Ostler & Smith is most noted for the judge’s even-handed approach to base support on the husband’s dividends and salary (not phantom bonuses) and determine a percentage of support for each child and the wife. The conclusion was the husband would pay 35 percent of the gross bonus income. The decision was appealed and upheld. Each case is determined based on its merits and the case law may only provide guidelines even if Ostler & Smith is being argued in court.
Determining spousal and child support when one or both partners derives income from bonuses is a complex matter. Since there are only three reported cases in California dealing with this type of situation, hiring an experienced divorce attorney is the best way to ensure an equitable and fair resolution relating to support.
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