In a partial reversal, a California Court of Appeals has ruled that Trial Court was wrong when it failed to include Father’s income tax refunds and voluntary 401K contributions as income available for child support when it made its child support order. Trial Court was further wrong when it denied an award of attorney’s fees to Mother where evidence showed great disparity in the parties’ incomes.
In the case of In re Marriage of Morton, Mother and Father were married in April of 1991. At the time, Father had been working for his father’s oil field service company since high school, while Mother worked as a hair dresser. When Mother became pregnant with their first child in March of 1996, Mother quit working and became a stay-at-home mom. Their son, their first child, was born later that year; their daughter was born in early 1998.
In 1992, Father’s father (Grandfather) changed the form of his oil field business from a sole proprietorship to a partnership, with Grandfather receiving $10,000 per month as his share of the profits and Father and his brother-in-law receiving the right to 45% each of those profits. Over the years, Father, brother-in-law, and Grandfather incorporated the business as Huddleston Crane Services, Inc (H.C.S.), a sub-chapter S corporation in which each of them had a one-third ownership interest. They later incorporated another sub-chapter S corporation, H.C.S. Mechanical, Inc. in which Father and brother-in-law were the only shareholders after early 2006 and which owned the equipment that it leased to H.C.S. Meanwhile, Father and brother-in-law bought out Grandfather’s shares in H.C.S., leaving them as equal shareholders in the corporation. Grandfather died in 2007.
Mother and Father lived in a house on 6 acres of land in Taft, California, which also contained several out buildings, two butler buildings, and stables for their horses. In July of 2012, Father moved out of family home and into a garage on the property and the parties separated. Mother filed for divorce in August of 2012, and sought temporary orders for child custody, visitation, child support, spousal support, property control, and a business evaluation.
In November of 2012, Trial Court ordered Father to pay temporary spousal support of $6,000 per month, which it adjusted to $3,029 per month in a subsequent ruling issued on April 19, 2013. That ruling also denied Mother’s request for a business valuation; Trial Court reasoned that Father’s interest in the two businesses had been gifted to him by Grandfather and was his separate property.
In an order issued in October of 2013, Trial Court ordered Father to pay child support of $981 per month for the parties’ son and $1,634 per month for their daughter and spousal support of $2,774 per month for Mother. Trial Court again declined to order a business valuation, since the businesses were Father’s separate property. In December of 2014, Father sought an order for the sale of family home and for Watts charges regarding Mother’s use of the family home. There were additional evidentiary hearings regarding characterization of Father’s interest in the business, but Trial Court continued to rule that it was his separate property. The parties’ family home was sold in July of 2015.
In March of 2016, Trial Court issued a judgment on reserved issues, dividing some of Mother and Father’s community property and awarding half of Father’s 401K plan and brokerage account funds to Mother, plus half of the sale proceeds from family home, subject to the Watts charges. It also confirmed Father’s 50% interest in the two businesses to Father as his separate property. Mother appealed Trial Court’s characterization of the businesses.
In a judgment on reserved issues filed on June 10, 2016, Trial Court ordered Father to pay $1,634 per month for the parties’ daughter support until she reached the age of 18 and was not a full-time high school student. It ordered him to pay $2,700 per month for spousal support, assessed Watts charges of $25,000 against Mother, and denied her request for attorney’s fees. Mother appealed that judgment too.
Now, acting on consolidated appeals in a partially-published opinion, California Court of Appeals reverses and remands the case back to Trial Court for further proceedings.
On the issue of child support, the Appellate Court has ruled that (1) pursuant to Family Code Section 4059(a), child support payor’s actual amounts attributable to state and federal income tax liability are deducted from gross income in child support calculation; (2) actual amounts of income tax liability are not necessarily the same as current withholding; (3) child support calculation must include payor’s income tax refunds as income available for child support because refunds are funds not actually payable; (4) there is no evidence that Father’s refunds are owned by H.C.S.; (5) Trial Court was wrong when it failed to include income tax refunds in Father’s income when it calculated its child support orders; (6) Father’s voluntary contributions to his 401K plan are also income available for child support which Trial Court erroneously failed to include in its calculation.
With respect to attorney’s fees, the Appellate Court has ruled that: (1) pursuant to a 2010 amendment, Family Code Section 2030 makes it mandatory for Trial Court to issue findings and make an order for attorney’s fees where there is disparity in access to funds to retain counsel and pay for attorney’s fees; (2) findings must be express (in writing or orally on the record); (3) Trial Court here was wrong when it failed to order attorney’s fees for Mother, given the disparity in Father’s and her abilities to pay (Mother not required to use community property assets awarded to her in the divorce case to pay her fees); and (4) Mother may be entitled to appellate fees, as calculated by Trial Court.
In the unpublished parts of the opinion, the Appellate Court has affirms Trial Court’s characterization of Father’s ownership interests in the family business but reverses its spousal support order.
At the end, the Appellate Court has reversed Trial Court’s judgment as it relates to child support, spousal support, and attorney’s fees and has remands those issues back to Trial Court for further proceedings.