"Bonus" Income and Ostler & Smith
Awards:
Best Practices For How to Ensure Fair Support Awards
An issue that frequently comes up in divorce proceedings is how to account
for seasonal fluctuations in income or commission and bonuses when calculating
proper spousal and child support awards.
Spousal support is taxable for the payee and deductible for the payor,
so this issue can be a considerable amount. The problem is that true “bonus”
income is discretionary and cannot be counted “unless the check clears”, i.e.,
when the party actually receives the bonus income.
Here is the issue: support calculations are made by looking at the
parties’ past earnings history as the most reliable measure of future income
streams. This treats the payer’s monthly
support obligations as though these future earnings have already been receiving
in the coming year. If it doesn’t or the
bonus increases, this can be a several financial hardship on the payor.
Judges do not like “waiting and seeing” what the bonus is going to be and
they won’t retain any kind of retroactive jurisdiction to go back and do the
calculations.
As
most people view their bonus as a means to catch up with their own taxes and
personal expenses, it often causes antagonism and resentment towards the other
party who seeks support based on the bonus numbers from the last calendar
year. It is of utmost important that all participants, the parties and the
judge, have a clear understanding and willingness to adopt or impose a fair
mechanism by which to calculate such support.
Bonuses are considered “income” for the purposes of child
support awards under Family Code section 4058 that provides that “annual gross
income…means income from whatever source derived.” Family Code section 4064
expressly authorizes courts to adjust child support order to reflect seasonal
or bonus income. Smith-Ostler Award: The cases of Marriage of Ostler
& Smith (1990) 223 Cal.App.3d 33, Marriage of Mosley (2008) 165
Cal.App.4th 1375, is the only real, published authority on the subject.
The judge in this
case sought to create a formula that would be fair to all parties, which would
allocate future bonus to the parties based on that formula. Two of the couple’s four children were still
at home, so the judge decided to charge ten percent (10%) for each minor child
and fifteen percent (15%0 for the wife as spousal support, for a total of 35%
of the gross bonus income. This approach
was upheld on appeal.
Morinelli & Lieberman Law Group can advise you as to your obligations under Smith-Ostler and help you either get support or limit the amount you pay.
