In my recent discussions of post-judgment spousal support, I have mentioned the concept of “marital standard of living,” but have not yet explained the overall importance and functioning of this concept within dissolution proceedings.
Allow me, then, to do so now.
The California Family Law Code clearly and repeatedly designates “marital standard of living” as the benchmark to be used by the Court in determining a payment amount for post-judgment spousal support. Appellate guidance echoes what is said in the statutory text and attempts further clarification, attaching words such as “high” or “moderate” to the phrase “marital standard of living.”
Questions, however, still remain. What precisely is meant by “marital standard of living” (MSOL) and how exactly will the Court use the MSOL to determine both the amount and duration of spousal support?
Clearly, when making an order for spousal support, the Court cannot simply employ the non-quantitative, ‘soft’ language of case law: “Pay the amount of support necessary to have a medium to high standard of living!” Instead, both for clarity’s sake and for enforcement purposes, the Trial Court is required to convert statutory language into actual
dollar-and-cent amounts. The Court, in other words, must introduce quantitative standards that are otherwise lacking and in so doing, must order spousal support in a manner that is both predictable and tailor-made to the facts of the case at hand.
The process of turning ideas about support into numbers is merely an effectuation of the statutory scheme and does not involve using a formula that processes inputs and spits out results. The Courts, after all, have categorically rejected such formulaic calculation in favor of a mandated balancing of the 14 factors given in Family Code (FC) Section 4320. But after engaging with these 14 factors and sorting out the exceptional situations, one is inevitably left with a handful of common, familial patterns (e.g., kids or no kids; kids still living at home or kids long gone; one income earner or two; comparable incomes or unequal incomes; etc.)
I maintain that by working with these patterns in a uniform manner, one can indeed develop a method, consistent with case guidance, to quantify the MSOL and thereby determine a dollar amount for spousal support.
Case law clearly states that MSOL is measured by the expenditures of the parties during a marriage, including any funds ‘expended’ for savings. However, because of the likely dearth of accurate data, and the prohibitive cost of data reconstruction by an expert, it is often virtually impossible to obtain an exact understanding of marital expenditures. Thus, the Court is frequently in the position of finding the MSOL based only on summary information or testimony.
Still, it is possible to estimate and interpolate significant economic conclusions from readily available sources. From the over 14,000 settlement conferences I have conducted so far, I clearly see that marital expenditures are normally closely correlated with spouses’ reported taxable incomes [less closely with small businesses, but that can be corrected]. Furthermore, the use of spouses’ incomes as an indicator of marital expenditures is permitted in the case law.
Reported taxable incomes, though, are not the only data we can use in this analysis. A substantial number of families have many other non-tax return cash flows that can affect MSOL. Examples of non-tax return cash flows include familial support from parents; non-cash employment benefits such as option grants, ESPP opportunities, vehicles and pension fund contributions; repeatedly refinancing and borrowing against growing equity in the marital residence; and even, increasing marital consumer debt. Also, it is logical to attribute economic value to non-spendable benefit additions such as growing retirement accounts, because such third-party savings reduce the necessity of familial savings for retirement and thereby, free up further funds for spending. Thus, using tax-reported incomes and adjusting for non-tax return items gives a fair impression of annual expenditures for a family.
Now, though, we must ask another important question: in this effort to discern economic data, which years of the marriage should we focus on?
Local rules indicate only the last year prior to date of separation (DoS), but such a short period is probably just as inaccurate of a yardstick as focusing on the entire period of marriage. Common knowledge and economic fact both tell us that the MSOL typically increases with increased earnings of the family unit, since most families spend (including savings) what they earn. So while any number of years could be used for our purposes, too many years would tend to dilute the rising tide of both parties’ expectations at the end of the marriage, while too few years would tend to promote inaccuracy by giving us a snapshot of only one possibly non-representative marital period (e.g., a non-representative, high-earning year.)
In my experience, this situation can best be managed by focusing on the last three to five years of marital economic data. These years are usually enough to capture the typical MSOL of the marriage and reach an opinion on normal, representative expenditures. With this time framework, we are spared the myopia of seeing too little information and we avoid the dilemma of seeing too much. Also, by using variable weightings of the data, it easy to imbue the evidence from this period with determined and differentiated flavors.
In this or any marital segment, we are likely to encounter several potential confounding factors such as variable earnings, cost of living inflation, and even a family’s ability to adjust to sudden changes in funding. Because of this normal volatility, I mechanically reduce the Adjusted Marital Family Incomes by subtracting (or adding) 25% of any annual variation from the average that exceeds a 10% difference. Doing this simply ‘smoothes’ or dampens the picture of MSOL provided by the data by knocking off the peaks and valleys of cash flows, while still maintaining the essence of the MSOL as reflected in the numbers.
Once we have the Smoothed and Adjusted Marital Family Income, we need to parse the numbers to reflect the major fund allocations of a household, namely, funds used for the children and funds used for the adults. Given that our state guideline child support calculations are based in part on three USDA studies of family economics, I simply extract the approximate child support percentages from the statute and use those as the basis for allocating a portion of the Smoothed Adjusted Marital Family Income to the children.
The portion that remains is that of the adults, which means, of course, that we will divide it in half to determine the sum allocable to each party during the marriage. Now is also the time to note that for each parent, the cost of children does not automatically cease once they reach majority. Rather, the cost of children remains a consideration so long as the parents are contributing to the children’s education or support (for example, for school, for religious pilgrimages or for simple economic necessity), no matter what the children’s ages or circumstances might be.
The next two steps are logical, if not common. The first is to adjust for inflation over time by using the CPI, especially if the date of judgment is more than two years post separation. The second involves reckoning with the conventional wisdom that two people together live more cheaply than two persons living separately. Supported by the SF Federal Reserve, this commonplace understanding warrants adding back, for each party, an inflator amount to reflect the additional costs of achieving the MSOL due to the parties now spending their dollars separately. But do keep the following in mind: the strength of this inflator will be diminished if the Recipient of spousal support still has kids living in the household.
By using all of these adjustments, I am able to calculate a number for the MSOL that reflects its value for each adult party in today’s dollars.
Now that we have a quantified value for the MSOL, we still do not have all that we need to determine the final amount, if any, to be paid in spousal support. By itself, the quantified MSOL simply represents the target amount of spousal support that is to be received. We are left, now, with the task of figuring out exactly how much spousal support, if any, the Payor will ultimately be obliged to pay. Addressing this issue begins with a careful look at the circumstances of the Recipient.
The legislature has levied, in FC §4320 and §4330, an independent, though discretionary, obligation on the Recipient spouse to ‘strive to be self supporting at the MSOL’. The Recipient spouse, in other words, must do what he/she can to maximize (eventually) his/her own contribution to the MSOL. So the next step here, as mandated by FC §4320(l), is to assess the Recipient’s own contributions to his/her support.
Items to be considered include all cash flows and incomes from any source, such as disability payments, social security, retirement payments, interest and investment incomes, and similar sources. There is also good authority for the Court to consider imputing a reasonable rate of return on the Recipient’s non-performing or under-performing assets, should circumstances indicate an inappropriate economic utilization. Similarly, all earning from the Recipient’s work should be applied to discharge his/her obligation to be self supporting at the MSOL. If there is no direct evidence of earnings, the Court can also impute income from the reasonable work regimen that the Recipient is able to perform, as testified to by a vocational evaluator.
Once all of the Recipient’s cash flows have been used to fulfill the obligation for self support, the resulting sum is measured against the MSOL. If the total of the Recipient’s own income and imputations is below the MSOL, the Payor will be required to make up the shortfall in the earnings of the Recipient, but only up to the level of the MSOL.
So while not absolute, the MSOL becomes a de facto ‘cap’ or limit on the amount the Payor can expect to pay, absent unusual or intervening facts. Thus, every additional dollar Recipient earns is a dollar reduction in support up to the MSOL, which would mean that the spousal support payment would become zero. And while it is possible for the Court to order spousal support to be paid at a level that is above the MSOL, this kind of payment situation rarely occurs. The general rule is this: if the Payor obtains or develops extensive wealth or income post separation, the Recipient will not share in such new money once he/she is at the MSOL.
Ideally, post judgment, both parties will continue their separate lives at or above the MSOL, though sometimes, this is not possible. Often, the cost of maintaining two households exceeds the limited dollars available. In this situation, the Payor’s contribution to the Recipient drives the Payor below the MSOL, which is contrary to the intent expressed in the statutory scheme whereby both parties are to be maintained at the MSOL. Moreover, to my knowledge, there is no guidance that mandates unequal allocation of the available cash flows. So when both parties will be below the MSOL, fairness dictates that each party share equally in the shortfall of funds. Therefore, to obtain parity below the MSOL, simply add together the parties’ incomes and cash flows and divide by two.
©2011 James Frederic Cox
HAVE GAVEL • WILL TRAVEL 