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In a partial reversal, a California Appellate Court has ruled that (1) a Trial Court had the authority to order child-support payments reduced despite a clause in the parties' Marital Settlement Agreement that made child support "absolutely non-modifiable downward," and (2) Trial Court did not err by considering Father's recurring gifts of money from his mother as income in its child-support calculation. In the case of IN RE MARRIAGE OF ALTER, Mother and Father were married in 1989. They later had two children. During their marriage, Father worked for his family's retail drapery business, which he inherited after his father died in 1996. Mother, who was lawyer, did not work during the marriage.
According to Mother, Father's mother began paying Mother and Father $4,000 per month after grandfather's death. Mother and Father separated in 2001. Soon thereafter, they executed their Marital Settlement Agreement, which, among other things, provided that Mother would have sole legal and physical custody of the parties' children, and that Father would pay monthly child support of $4,000, plus other add-ons. The Agreement also stated that Father's child-support obligations "shall be absolutely non-modifiable downward throughout the term that child support shall remain in effect." Regarding spousal support (which did not terminate on Mother's remarriage), the Agreement required Father to pay $3,000 per month, which could be reduced to no less than $1,000 per month if Mother received part of Father's inheritance, earned more than $75,000 per year, or married a spouse who had annual income or net worth that exceeded a specified amount.
When the Agreement was finalized in July of 2001, Mother and the children moved to Georgia. On December 7, 2004, Father filed a motion to modify the support orders, seeking reduction of child support to guideline amound, reduction of add-ons, and termination of spousal support. In opposition, Mother contended that the Agreement barred downward modification of child support, and that Father had not shown changed circumstances justifying the Trial Court's modification of the support orders.
At the June 2007 trial, Father testified that drapery business had not been uniformly successful since his grandfather's death, that he had not received the anticipated income from commercial building because it was sold by grandmother, and that his income of $7,000 per month was not enough to pay his current support obligations. Father admitted that grandmother gave him $3,000 per month; paid for the children's schools, tutoring, and summer camp; let him use her credit cards to buy children clothes; and footed bills for his frequent trips to Georgia to visit his children. Father also stated that grandmother gave him money when he needed it, paid his attorneys' fees, and volunteered to pay child-support obligations that he was unable to meet. Father claimed that all funds he received from grandmother were loans, and he produced promissory notes back to 2005, all of which he had signed on the same date. Father asserted that grandmother began treating funds as loans after learning terms of the Agreement. Mother, who had reactivated her Georgia law license, testified about her salary as a clerk for a superior court judge in Georgia, grandmother's payments to her and Father after grandfather's death, and dividend income reported on her 2005 tax return, which came from joint accounts with her father to which she did not have access. Mother's Income and Expense Declaration reported dividend income in 2007, of $50 per month, and indicated that other dividends were "paper income."
On July 2, 2007, Trial Court found that Father's income had materially changed, that the Marital Settlement Agreement clause precluding downward child-support modification did not trump Trial Court's authority to modify child support, and that grandmother's monthly payments to Father were income for child-support calculation. Trial Court also found that Mother received dividend income of $10,319 in 2005, $480 per month in 2006, and $100 per month in 2007. Therefore, Trial Court reduced Father's monthly child-support payments, but not the add-ons. In the first amended order issued on July 9, 2007, Trial Court made additional finding that the Marital Settlement Agreement set $1,000 floor for spousal support, and ordered Father's payments reduced to that amount.
After Father filed objections to Trial Court's findings regarding Mother's income, characterization of grandmother's payments, and $1,000 floor for spousal support, Trial Court issued final order on October 29, 2007, that pegged Father's monthly child-support obligation at $2,850 for 2005, $2,839 for 2006, and $3,045 for 2007, and set spousal-support obligation at $1,000 per month beginning January 1, 2007.
Claiming that Trial Court erred by lowering child support despite the Agreement's clause, Mother appealed. Father cross-appealed, contending, among other things, that Trial Court should not have considered grandmother's payments in calculating child support.
Now, California Appellate Court has affirmed parts of the Trial Court's rulings and has reversed other parts. With respect to Mother's appeal, the Appellate Court has ruled that: (1) per California Family Code Section 3651, Trial Court may modify child-support orders regardless of parties' agreement; (2) the MARRIAGE OF PUCKETT (1943) 21 Cal.2d 453, MARRIAGE OF NEWHALL I (1958) 157 Cal.App.2d 786, and MARRIAGE OF NEWHALL II (1964) 227 Cal.App.2d 800, case on which Mother relied, are inapplicable because they deal with an issue superseded by current law; and (3) Mother's argument regarding public policy support for setting child-support floor are unpersuasive. With respect to Father's cross-appeal, the Appellate Court has ruled that: (1) Trial Court did not err by considering grandmother's payments as gifts and including them in Father's income; (2) neither California Family Code Section 4058 nor common-law definitions of "income" preclude considering gifts as income; (3) the cases of MARRIAGE OF LOH (2001) 93 Cal.App.4th 325, and MARRIAGE OF SCHLAFLY (2007) 149 Cal.App.4th 747, are not controlling here because they dealt with non-cash benefits; (4) federal tax law regarding gifts as income is not controlling because its purpose differs from that of child-support law; (4) out-of-state cases that consider regular gifts of cash as income are persuasive; and (5) Trial Court has discretion to consider regular gifts of cash as income in child-support calculation. The Appellate Court further finds that Trial Court's findings regarding Mother's dividend income did not prejudice Father, and that Trial Court did not err by refusing to modify add-ons. The Appellate Court concludes that Trial Court misinterpreted the Marital Settlement Agreement as setting a $1,000 floor on spousal support because $1,000 floor applied only if Mother received inheritance, her income increased, or she married spouse whose earnings exceeded specified amount. Therefore, the Appellate Court reverses spousal-support order and remands the case back to the Trial Court to reconsider that part of its final order.