How are debts allocated in a divorce

Below is a helpful chart about how debts or liabilities are handled in a divorce. Imagine the following:

Scenario 1: John and Emily got married on January 1, 2022. Prior to their marriage, John had incurred a debt of $10,000. According to Fam C §2621, the debt incurred before marriage must be confirmed to the spouse who incurred it, without offset. Therefore, John would be solely responsible for repaying the $10,000 debt.

Scenario 2: Sarah and Michael decided to separate on June 1, 2023, after being married for three years. During their marriage, they accumulated several debts, including credit card debt and a car loan. According to Fam C §§2550–2552 and 2601–2604, debts incurred after marriage but before separation must be allocated as part of the overall division of the community estate. In this case, the debts would be divided equally between Sarah and Michael during the divorce proceedings, subject to any specified exceptions.

Scenario 3: Mark and Lisa have been separated since January 1, 2023, and their divorce judgment was entered on April 1, 2023. After their separation, Mark incurred a debt of $5,000 for medical expenses. As per Fam C §2623, the assignment of a debt incurred after the date of separation but before entry of judgment depends on the purpose for which the debt was incurred. In this scenario, since the debt was for Mark's medical expenses, it would likely be allocated to Mark alone to repay.

Scenario 4: After separating on July 1, 2023, Tom and Sarah are in the process of getting a divorce. During this period, they jointly decide to sell their house. In order to make necessary repairs and renovations to increase the property's value before selling, they take out a home improvement loan of $20,000. Since this debt was incurred for the purpose of jointly enhancing the value of their community property, it could be allocated jointly as part of the overall division of the community estate under Fam C §2623. In this case, Tom and Sarah would share the responsibility for repaying the $20,000 home improvement loan.

What is NOT income available for support

When determining support obligations in family law cases, courts carefully assess various sources of income. However, certain funds and benefits are generally not considered as income available for support. Understanding these exceptions is crucial in accurately calculating support obligations. Let's explore some common examples of what courts do not consider as income for support purposes.

1. Speculative Bonus Income: Predicted receipt of large bonuses that may never materialize is generally not included as income for support calculations. Courts have emphasized the need for actual, reliable income rather than speculative amounts (Marriage of Mosley, 2008; County of Placer v Andrade, 1997).

2. Student Loan Proceeds: Student loan proceeds that were not used for books and tuition are typically not considered income. However, the obligation to repay the loan differentiates it from other sources of income (Marriage of Rocha, 1998).

3. Life Insurance Death Benefits: While life insurance death benefits themselves are not considered income, any income earned on those benefits falls within the scope of gross income (Marriage of Scheppers, 2001).

4. Cash Advances in Lieu of an Inheritance: Cash advances received instead of an inheritance are generally not considered income for support calculations (Marriage of Williamson, 2014).

5. Derivative Social Security Benefits: Derivative Social Security benefits may not be considered income for support purposes. However, they may be credited toward a child support obligation in specific cases (Marriage of Daugherty, 2014).

6. Marketable Stock Received in Business Sale: Unliquidated but marketable stock received in connection with the sale of a business is typically not considered income. However, the court has discretion to attribute a rate of return to non-income-producing assets (Marriage of Perlstein, 2006).

7. Irregular, One-Time, and Noncash Gifts: Irregular monetary payments, one-time gifts, and noncash gifts are often excluded from income calculations for support purposes (County of San Diego v P.B., 2020; Anna M. v Jeffrey E., 2017; Marriage of Schulze, 1997).

Understanding the Marital Standard of Living and its Impact on Long-Term Spousal Support

Determining the appropriate amount of long-term spousal support can be a complex process. California law requires the court to consider the marital standard of living when making decisions regarding support obligations. Let's explore the key points about the marital standard of living and its role in spousal support determinations.

1. Marital Standard of Living: A Benchmark for Support

When awarding long-term spousal support, the court must consider the standard of living established during the marriage. The marital standard of living serves as a reference point, alongside other factors outlined in California Family Code §4320, to reach a fair and reasonable support outcome.

2. Flexibility in Support Amounts

The court has the discretion to set spousal support at an amount greater than, equal to, or less than what is required to maintain the marital standard of living. This flexibility allows for a comprehensive evaluation of the unique circumstances of each case. The court considers factors such as the length of the marriage, financial resources of each spouse, earning capacity, and the needs of the supported spouse.

3. Length of Marriage and Marital Standard of Living

The weight given to the marital standard of living varies depending on the length of the marriage. In shorter marriages where the standard was primarily determined by the supporting spouse's separate property assets, the consideration of the marital standard of living may carry less significance compared to a long-term marriage where the couple built a shared standard of living.

4. Actual Expenditures vs. Income

The determination of the marital standard of living is generally based on the actual expenditures made during the marriage. However, in some cases, focusing solely on expenditures may not be appropriate, especially if the parties lived beyond their means. In such situations, the court may consider the parties' income or other relevant factors to establish a reasonable standard.

5. Impact of Education, Savings, and Investments

The marital standard of living can be affected by deliberate choices made during the marriage. For example, if one spouse pursued a professional education that is expected to yield higher earnings in the future, the court may consider the impact of the spouse's absence from the workforce. Similarly, if the parties chose to live modestly and prioritize savings or investments, the marital standard of living may reflect that lifestyle.

6. Support Entitlement and Postseparation Income

Spousal support based on the marital standard of living aims to provide financial support consistent with the preseparation lifestyle, rather than equalizing postseparation income. The supported spouse is entitled to a support award that aligns with the couple's preseparation standard of living, while the postseparation standard of living of the supporting spouse is not a determining factor.

7. Factual Findings by the Court

The court is required to make specific factual findings regarding the marital standard of living, regardless of whether it is explicitly requested. This ensures that the court's decision regarding spousal support is well-grounded and supported by a thorough understanding of the parties' preseparation lifestyle.

Understanding the marital standard of living and its role in long-term spousal support can help individuals navigate the complexities of divorce proceedings. Seeking guidance from a family law attorney is crucial to ensure that your rights and interests are protected throughout the process.

Truing Up Support Obligations: Best Practices and Remedies for Variable Income and Bonus Tables

In family law cases where support obligations are based on variable income, such as bonuses or commissions, it's important to establish a process for "truing up" those obligations. Truing up refers to periodically reassessing and adjusting support payments to accurately reflect the actual income of the supporting party. This post will explore best practices for truing up support obligations and the potential remedies for failure to do so.

1. Establish Clear Truing Up Mechanisms:

To ensure a fair and transparent process, parties should consider the following practices when establishing truing up mechanisms:

• Define Truing Up Periods: Determine the frequency of truing up, such as annually or biannually, to account for changes in variable income.

• Specify Calculation Method: Clearly outline how the truing up calculations will be performed. This may involve using bonus tables or percentage-based adjustments, as determined by applicable guidelines or court orders.

• Require Timely Disclosure: Establish a requirement for the supporting party to promptly disclose their variable income, including bonuses, commissions, or other sources, to the supported party.

• Document the Process: Maintain detailed records of income fluctuations, calculations, and any adjustments made during the truing up process.

2. Collaborative Approach:

Truing up is most effective when both parties adopt a collaborative mindset. Consider the following practices:

• Open Communication: Encourage ongoing and transparent communication between the parties to share information about changes in income or financial circumstances.

• Exchange Documentation: Require the supporting party to provide supporting documentation, such as pay stubs, bonus statements, or tax returns, to substantiate their variable income.

• Mediation or Negotiation: If disagreements arise during the truing up process, consider involving a mediator or engaging in negotiations to reach a fair resolution.

3. Remedies for Failure to True Up:

In situations where a party fails to fulfill their truing up obligations, potential remedies can include:

• Court Enforcement: Seek court intervention to enforce compliance with truing up obligations, possibly through enforcement orders or contempt proceedings.

• Modification of Support Orders: Request a modification of the support order based on the supporting party's failure to true up, seeking adjustments to reflect the actual income.

• Arbitration or Mediation: If both parties agree, consider alternative dispute resolution methods, such as arbitration or mediation, to resolve disputes regarding truing up.

Truing up support obligations based on variable income is crucial to maintaining fairness and accuracy in family law cases. Establishing clear mechanisms, fostering collaboration, and pursuing appropriate remedies for non-compliance are key elements in ensuring the ongoing accuracy of support payments.

Understanding Ostler/Smith Orders

Understanding Ostler/Smith Orders and the Treatment of Variable Income in California Family Law

In California family law, the calculation of child and spousal support payments is primarily based on the income of both parties. While this is straightforward when both parties have regular, predictable incomes, it becomes more complicated when a party's income is variable or includes periodic bonuses. This is where Ostler/Smith orders and tools like the DissoMaster come into play.

The Role of Ostler/Smith Orders

Ostler/Smith orders, named after the California case Marriage of Ostler & Smith, provide a method for handling variable income such as bonuses, commissions, or overtime in the calculation of support payments.

Under this type of order, the court sets a base child or spousal support amount, usually calculated based on the payer's regular salary. In addition to this base amount, the order includes a provision for a certain percentage of any additional, variable income to be paid as support. This additional payment is often referred to as an "Ostler/Smith percentage" or "Smith/Ostler percentage."

The specific percentage can vary, and is typically determined based on the statewide guideline provisions that address periodic payments such as bonuses. This ensures that the support payments are equitable and reflect the payer's actual income, even if that income fluctuates or includes sporadic bonuses.

The Role of the DissoMaster

The DissoMaster is a software program commonly used in California to calculate guideline child and spousal support. It takes into account a variety of factors, including each party's income, the number of children, tax deductions, and health insurance premiums, among others.

When it comes to variable income, the DissoMaster can be used to create "bonus charts." These charts can help parties visualize the impact of different bonus amounts on the total support payment, including the base amount and the Ostler/Smith percentage. This can be particularly useful in cases where the payer's bonus income is substantial or highly variable.

Conclusion

Ostler/Smith orders and tools like the DissoMaster are essential components of the family law landscape in California, particularly for cases involving variable income. They ensure that support payments are equitable and accurately reflect the financial circumstances of both parties.