Lowering Child Support By Investing In A New Spouse
I'm about to tell you something that will make no sense: getting remarried after a divorce may result in a situation where you can lower your child support obligation after the court takes into consideration your new spouse's income. Before you call me crazy, please give me a chance to explain . . . .
When a Family court calculates child support in California it has broad discretion in detemining what constitutes a parties' "income." Trial courts have been upheld in imputing income to parties in a variety of situations. For example, trial courts have been upheld after imputing income to a party based on a reasonable return on his or her investments. However, there is one type of income that the California Family Code expressly prohibits judges from considering, and that is a parties' "new mate income," except in very limited circumstances.
Family Code Section 4057.5(a) provides:
The income of the obligor parent's subsequent
spouse or nonmarital partner shall not be considered when determining
or modifying child support, except in an extraordinary case where
excluding that income would lead to extreme and severe hardship to
any child subject to the child support award, in which case the court
shall also consider whether including that income would lead to
extreme and severe hardship to any child supported by the obligor or
by the obligor's subsequent spouse or nonmarital partner. (Emphasis added.)
In a recent published opinion, entitled, "In Re Marriage of Knowles," the Court of Appeal added to this rule, by holding that the trial court violated the Family Code when it considered half of the community income attributable to the subsequent spouse when it modified the father's child support obligation.
In this case, Elizabeth and Thomas Knowles divorced and in 1995 Thomas was ordered to pay a paltry $506 per month in support of their son - Carter. On January 6, 2005, Elizabeth filed a motion to increase Thomas' child support obligation. During the proceedings, Elizabeth asked the Court to consider as income, certain capital gains that Thomas and his new spouse (Sara) enjoyed as a result of investments they made after their marriage. The capital gains that Thomas and Sara enjoyed were more than 3.1 million. Much of these gains were invested in a brokerage account and a real estate development.
Although the brokerage account and the real estate development investments were community property of Thomas and Sara, the trial court considered the full amount in determining the reasonable return on those investments. In other words, the trial court did not reduce the value of the investments by 50 percent as a result of Sara's half ownership.
In reversing the trial court, the Court of Appeal recited the basic concept of community property law: "Income generated from community property is community income, and an equal, undivided interest in that income is attributable to each spouse." Thus, according the Court of Appeal, the trial court erred by including Sara's half of the community income when calculating Thomas' child support obligation.
In light of this decision, we can see how an obligor of child support may benefit when he invests his money with his new spouse. There are also situations where the inclusion of a new spouse's income in the calucation of child support reduces the obligation. This happens when the parties file jointly and the tax consequences reduces the child support obligor's net disposable income available for support.
However, I would not suggest you run off to get re-married based on this article. There are, after all, some things that money cannot buy, like peace of mind and a stable relationship.
Written by: Donald P. Schweitzer
