It is well-established under California family law that stock options granted as part of a parent’s employment compensation constitute “income” under Family Code Section 4058(a) and must be used to calculate support. Until In re Marriage of Macilwaine, 26 Cal. App. 5th 514 (2018), though, it was unclear when stock options become income for support purposes. According to Patricia Macilwaine, her ex-husband John Macilwaine’s stock options became income once they vested and restrictions on John’s ability to sell the stock were removed. According to John, however, stock options were not income until the time of exercise (when he had the option to buy the stock) and sale.
The California Court of Appeal, First Appellate District, Division Two agreed with Patricia. The Court held that Family Code Section 4058(a)(1) includes all compensation conferred upon and available to a supporting parent as income. The statute does not exclude as income amounts a parent voluntarily defers or refuses to accept. Accordingly, once there are no legal restrictions on the stock-holding parent’s ability to exercise stock options and sell the shares, the options must be counted as income under Section 4058(a)(1). The trial court did not have discretion to exclude from income compensation available to John in the form of stock options.
In addition, the Court found that John’s investment preferences cannot affect what is considered “income” for the purposes of guideline child support, stating: “The purpose of child support… is not to maximize returns on a parent’s long-term investments; it is to provide for the children’s immediate needs based upon the resources that are currently available.” It was error for the trial court to defer to John’s investment priorities versus his ability to actually pay support. Furthermore, by focusing on the lifestyle John currently provides to his children and his historical spending on them as opposed to the standard of living attainable with his income and wealth, the trial court used the wrong legal standard in determining the children’s needs per Family Code Section 4057(b)(3). In short, the children’s current standard of living does not determine their needs under Section 4057(b)(3). Instead, children are entitled to the standard of living that is attainable by the parent’s income.
Reuben Raucher & Blum Certified Family Law Specialist Stephanie I. Blum is quoted in The Wrap regarding the anticipated divorce of Amazon CEO Jeff Bezos and MacKenzie Bezos.
Reuben Raucher & Blum attorney Stephanie I. Blum has been selected to the Super Lawyers annual list of Top Women Lawyers in Southern California. She is featured in the September 2018 Women’s Edition of Los Angeles Magazine.
Reuben Raucher & Blum Certified Family Law Specialist Stephanie I. Blum weighs in on E! News about the latest developments in the Angelina Jolie and Brad Pitt divorce as well the Jennifer Garner and Ben Affleck divorce.
In In re Marriage of Clarke & Akel (2018) 2018 Cal.App. LEXIS 57, the First Appellate District, Division Five, confronted a potential conflict between Family Code Section 1615 and Evidence Code Section 622. Family Code Section 1615(c)(2) states that a premarital agreement is unenforceable as to a party who was not represented by counsel and who did not have at least seven calendar days between the date he or she was first presented with the agreement and the date it was signed. Evidence Code Section 622 provides that the facts recited in a written instrument are “…conclusively presumed to be true as between the parties thereto.”
In In re Marriage of Clarke & Akel, the Court of Appeal held that the seven-day review period mandated by the Family Code cannot be circumvented by inserting language into a premarital agreement acknowledging that both parties had seven days to review the agreement, when in fact they did not. In this case, the husband, Matthew, drafted a premarital agreement which he emailed to his soon-to-be wife, Claudia. Matthew then retained an attorney to represent Claudia in the negotiation and execution of the premarital agreement. He did not retain an attorney for himself. The couple’s wedding date was set for March 7, 2008. On March 5, 2008, the attorney revised the agreement and sent a version to both Matthew and Claudia. This agreement claimed that each party had more than seven days to review the premarital agreement before executing it. The couple signed the final version of the agreement on March 6, 2008.
The parties separated and Claudia sought to enforce the premarital agreement, which had given her lifetime tenancy at the couple’s marital home. Matthew argued that he did not enter the premarital agreement “voluntarily” under the terms of Family Code Section 1615 because he did not have at least seven days to review the agreement. The burden is on the party seeking enforcement to prove that the agreement was voluntary. Claudia argued that because the agreement stated that each party had at least seven days to review the agreement, Evidence Code Section 662 mandated that the text be taken as true. The court did not agree. According to Section 1615, a premarital agreement is involuntary, and thus invalid, when an unrepresented party has had fewer than seven days to review the agreement. Section 662 applies only to valid contracts. Therefore, Claudia did not prove that the agreement was entered into voluntarily. The court stated that the policy behind the seven day rule was to protect parties who enter into premarital agreements without legal representation, and this policy would be violated if the rule could followed by including boilerplate language that did not reflect the true facts.
The California Court of Appeal recently published a case regarding a spouse’s fiduciary duty in the marriage partnership. In In re Marriage of Kamgar (2017) 18 Cal.App.5th 136, the Fourth Appellate District, Division Three affirmed the trial court’s award to the wife after finding her husband breached his fiduciary duty to her.
In Kamgar, the wife gave her husband permission to deposit $2.5 million in community funds into an account to be used for options trading. He did not disclose that he risked an additional $8,188,605 million more than the initial $2.5 million to which his wife had agreed. The trial court found that the wife did not authorize this additional investment. The husband did not diversify his investments, instead keeping all of the money in Apple options. In total, $10,618,605 in community funds was at issue, of which $3,805,000 was withdrawn and $6,404,113 was lost in trading activities.
The trial court awarded the wife $1,952,056.50. The court reached this number by attributing a $6,404,113 loss to the community and subtracting the $2.5 million that the wife had authorized for trading. This equals $3,904,113 in unauthorized losses. Half of $3,904,113 is $1,952,056.50, the amount the husband was ordered to pay. The Appeals Court affirmed. It did not accept the husband’s argument that the trial court’s decision imposed on him an “overly rigorous duty of disclosure” when it found that he breached his duty to his wife. Instead, the court held that a party’s disclosure obligations as a fiduciary in a marriage partnership depend on the couple’s partnership agreement. It upheld the trial court’s conclusion that the husband and wife’s agreement concerning options trading was limited to investing $2.5 million in community funds.
In In re Marriage of Berman (2017) 15 Cal.App.5th 914, the Second Appellate District, Division Eight found that the trial court did not abuse its discretion in holding that support obligations cannot be terminated after a bad faith business transfer.
In In re Marriage of Berman, the husband requested termination of spousal support after he retired at age 65 and transferred his business to his new wife as her separate property for no consideration. The only evidence that the transfer was in good faith was the husband’s own declarations, stating that he had decided to retire and that he was no longer involved in operating the business. He declared that his new wife had learned the trade and ran the business full time. The husband filed a request for an order terminating further spousal support to his ex-wife. He argued that the business would not continue to generate income as it did when he worked there, and that the court should not impute income from the business to him. But the trial court did not agree. It found that the transfer was not in good faith and that income should be imputed to the husband not as salary and wages, but as income produced from an asset. The trial court reduced spousal support slightly to reflect the husband’s loss of $50,000 in salary upon retirement.
On appeal, the husband first argued that the trial court’s order violated Reynolds, which held that “no one may be compelled to work after the usual retirement age of 65 in order to pay the same level of spousal support as when he was employed.” In re Marriage of Reynolds (1998) 63 Cal.App.4th 1373, 1378. The Court of Appeal did not accept this argument. It found that the husband’s declarations were not sufficient evidence to establish how much of the business’s income was attributable to the husband’s labor as opposed to other sources. The court clarified that it was not holding that “a supporting party may not transfer a business to a relative (even a spouse), just that the supporting party may still be held to his or her obligations if there is a finding, supported by substantial evidence, that the transfer was in bad faith and the supporting party still has access to the business income.” Berman, supra, 15 Cal.App.5th at 923-924.