In re Marriage of Harper

Filed 11/28/05 In re Marriage of Harper CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

In re Marriage of KIMBERLY and LAURENCE HARPER.
KIMBERLY HARPER, Respondent, v. LAURENCE HARPER, Appellant.	G034860 (Super. Ct. No. 98D004357) O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, Richard G. Vogl, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed and remanded with directions.

Law Office of Kari M. Myron and Kari M. Myron for Appellant.

Prescott & Prescott, Tonya E. Prescott and Valerie E. Prescott for Respondent.

Appellant Laurence Harper (Laurence) appeals from an order modifying his child and spousal support payments to his ex-wife, Kimberly Harper (Kimberly). We find substantial evidence supports the court’s determination that the parties shared an unrealized expectation Kimberly would become self-sufficient, which constitutes a change in circumstance justifying modification. But the court abused its discretion by relying solely on Laurence’s monthly expenses, instead of his ability to pay, to calculate the new support amount. We therefore reverse and remand for a proper calculation.

FACTS

Laurence and Kimberly divorced in May 1999 after 20 years of marriage. The dissolution judgment incorporated the parties’ marital settlement agreement, which required Laurence to pay $2,000 per month in child support for the couple’s three children, and $750 per month in spousal support. The judgment provided the spousal support payment could not be modified until April 30, 2004, and thereafter would be “reduced to the jurisdiction of the court” until either party died, Kimberly remarried, or “further order of the court.”[1]

After the dissolution, Laurence remarried and sold his business for $500,000 and an employment contract with an annual salary of $100,000. The buyer allegedly breached its obligations to Laurence, resulting in litigation, and he was fired in August 2003. Nonetheless, Laurence reported total income of over $200,000 in 2001, over $160,000 in 2002, and over $115,000 in 2003. In the meantime, Laurence had started a new business. The new business was not immediately profitable, and in 2004 paid Laurence a salary of only $1,367 per month. Laurence also benefited from $4,620 per month in investment income and $2,400 per month in new spouse income, giving him total monthly funds of $8,387. He also received annual tax refunds approximately equal to the annual amount of his new spouse’s income, thereby replenishing on an annual basis the monthly expenditure of his new spouse’s income.

Kimberly moved for an order modifying spousal and child support on May 5, 2004. By that time, only one of the couple’s children was still a minor. The court heard testimony from each party during the hearing, and granted the motion. It increased the child support award to $1,900 per month until the youngest child married, died, became emancipated, turned 18 and graduated high school, or turned 19. It also increased the spousal support award to $2,000 per month until July 1, 2006, and then to $3,000 per month until further court order or until Kimberly died or remarried.[2]

In its written ruling, the court found the initial support award was based on the underlying assumption that Kimberly, a flight attendant, would be self-sufficient by 2004. It determined that recent downturns in the airlines industry kept Kimberly from continuing to receive regular salary increases. It further found the prior spousal support award of $750 per month was never sufficient to meet Kimberly’s needs, which she showed prior to dissolution to be $5,200 per month.

As for Laurence’s ability to pay increased support, the court generally found his representations about his income and expenses not credible. On the other hand, it found no evidence he actually drew any greater salary than the $1,367 per month he reported. Thus, it looked beyond Laurence’s salary for other sources from which he might pay support. The court found Laurence’s earning capacity was not an appropriate measure, because no untapped employment opportunities existed. It further found Laurence’s assets, including “the great equity which may exist in his hilltop home, or his Mercedes, or his entrepreneurial enterprise do not lend themselves to creating a monthly sum upon which the court might rely.”

The court then considered Laurence’s lavish standard of living, as shown by his $11,550 in monthly expenses. These expenses included $3,000 for his adult daughter’s college tuition, which he paid with proceeds from a home equity loan. The remaining $8,550 in monthly expenses was approximately met with his $8,387 in monthly funds from his salary, investment income, and new spouse income.[3] But the court disregarded Laurence’s entreaty that his expenses were partly funded with debt, finding that “where a parent consistently expends great sums each month for their own support, the court should consider the ‘standard of living’ in setting child support.” Thus, in calculating the new child support award, it found Laurence had $11,500 per month in “other nontaxable income.” The court did not specifically reference Laurence’s monthly expenses in determining the modified spousal support award, but made no other attempt to determine whether Laurence had an ability to pay the modified amount.

DISCUSSION

We review child or spousal support orders for abuse of discretion. (In re Marriage of Leonard (2004) 119 Cal.App.4th 546, 555 (Leonard) [child support]; In re Marriage of McCann (1996) 41 Cal.App.4th 978, 982 (McCann) [spousal support].) But “the trial court’s discretion is not unfettered” — it is tied to our statutory schemes governing child and spousal support. (Leonard, supra, 119 Cal.App.4th at p. 555.) “[T]he deferential standard concerning child support orders is tempered significantly by this state’s uniform child support guideline (§ 4050 et seq.): ‘The present statutory scheme limits the broad discretion accorded to the trial court under prior law and channels its remaining discretion within the new statutory parameters.’” (Leonard, supra, 119 Cal.App.4th at p. 555.) Similarly, “[s]pousal support is governed by statute. (See §§ 4300-4360.) In ordering spousal support, the trial court must consider and weigh all of the circumstances enumerated in the statute, to the extent they are relevant to the case before it.” (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 302 (Cheriton).)

The Court Did Not Abuse Its Discretion in Finding a Change in Circumstances

To modify child or spousal support, the court must find a “material change of circumstances since the last order.” (McCann, supra, 41 Cal.App.4th at p. 982; accord Leonard, supra, 119 Cal.App.4th at p. 556.) “Change of circumstances means a reduction or increase in the supporting spouse’s ability to pay and/or an increase or decrease in the supported spouse’s needs. [Citations.] It includes all factors affecting need and the ability to pay.” (McCann, supra, 41 Cal.App.4th at p. 982; accord Leonard, supra, 119 Cal.App.4th at p. 556 [“‘the determination [of whether a change in circumstances exists] is made on a case-by-case basis and may properly rest on fluctuations in need or ability to pay’”].) The court abuses its discretion if it “modifies a support order without substantial evidence of a material change in circumstances.” (McCann, supra, 41 Cal.App.4th at p. 983.)

“So long as the supported spouse has made reasonable efforts to become self-supporting, a change of circumstances may be in the form of ‘unrealized expectations’ in the ability of the supported spouse to become self-supporting within a certain period of time.” (In re Marriage of Beust (2004) 23 Cal.App.4th 24, 29 (Beust); accord 11 Witkin, Summary of Cal. Law (9th ed. 1990) Husband & Wife, § 261, p. 294.) The dissolution judgment provided that Laurence would pay spousal support for five years, with the court retaining jurisdiction thereafter. This support schedule implies the parties shared an expectation that Kimberly would become self-sufficient within those five years. (See In re Marriage of Andreen (1978) 76 Cal.App.3d 667, 672-673 [judgment reducing support payment to $1 per month after five years was “undoubtedly” based on the assumption wife would become self-sufficient before then]; cf. In re Marriage of Aninger (1990) 220 Cal.App.3d 230, 240 (Aninger), superseded by statute on another point as indicated in In re Marriage of O’Connor (1997) 59 Cal.App.4th 877, 882-883 [noting that “step down” orders decreasing support over time “rest on the assumption the supported spouse will have an increased ability to provide her own support at the time of each step-down”].)

In addition, the court credited Kimberly’s testimony that she had received annual salary increases before the dissolution, but had not received such increases after the dissolution due to unforeseeable airline industry setbacks. Also, her medical insurance premiums and union dues had increased in the interim. As a result, taking into account the insurance premiums and dues, Kimberly’s 2004 monthly salary was less than her monthly salary in 1999. The court also credited Kimberly’s testimony that she was unable to support herself and her minor son even by working overtime, impliedly finding she was making reasonable efforts to become self-supporting. The “unrealized expectation” Kimberly would become self supporting by 2004 constitutes a material change in circumstances justifying child and spousal support modifications. (See Beust, supra, 23 Cal.App.4th at p. 29.)

Laurence contends Kimberly failed to show the prior spousal support did not meet her needs at the time of the original support order. She bore no such burden.[4] A supported spouse must make such a showing only when the sole basis for seeking modification is the supporting spouse’s increased ability to pay support. (See In re Marriage of Hoffmeister (1987) 191 Cal.App.3d 351, 363 [supported spouse must show needs were not met at time of separation “where the changed circumstances relate solely to the supporting spouse’s ability to pay” italics added]; see also In re Marriage of Hopwood (1989) 214 Cal.App.3d 1604, 1607-1608 [“A supported spouse, seeking an increase in spousal support premised on the fact the former spouse is earning more now than at the time of the underlying order, must ‘establish by credible evidence that [the] . . . standard of living at the time of separation of the parties . . . was higher than that provided by the prior award . . . .” Italics added.) The changed circumstance here is Kimberly’s unexpected inability to support herself and her minor son, not Laurence’s increased ability to pay support.

Nonetheless, substantial evidence showed the prior spousal support of $750 per month never met Kimberly’s needs. A starting point for this analysis is the marital standard of living. (In re Marriage of Smith (1990) 225 Cal.App.3d 469, 484.) Before dissolution, the parties enjoyed a high standard of living, as shown by their succession of large custom homes in prestigious neighborhoods, luxury cars, custom-built furniture and imported home decorations, and ability to retain a live-in maid. Upon dissolution, Kimberly and her children moved into a modest apartment, and she and her minor son later moved into subsidized housing. Moreover, Kimberly reported monthly expenses of $5,200 per month when the judgment was entered, although her monthly income was only $2,800. As a result, she had to borrow against her pension plan to meet her expenses after dissolution. Thus, substantial evidence showed the prior spousal support of $750 per month was inadequate to meet Kimberly’s needs even at that time.

The Court Abused Its Discretion in Calculating the Support Amounts

Even if a material change in circumstance justifies a modification to the amount of child or spousal support, the supporting parent or spouse must be able to pay the increased amount. (§ 4320, subd. (c) [to modify spousal support, the court must consider “[t]he ability of the supporting party to pay spousal support”]; § 4053, subd. (d) [“Each parent should pay for the support of the children according to his or her ability”].) The relevant statutes allow the court to take a panoramic view of the supporting spouse’s income, earning capacity, and assets in determining the ability to pay support. (§ 4320, subd. (c) [when setting spousal support, the court must “tak[e] into account the supporting party’s earning capacity, earned and unearned income, assets, and standard of living”; § 4058, subd. (a) [when setting child support, court must determine the parents’ “annual gross income,” which includes “income from whatever source derived”].) But the court’s broad mandate to search for income has limits.

Most notably here, the court cannot look to the proceeds of the supporting parent or spouse’s loans in determining the ability to pay. In In re Marriage of Rocha (1998) 68 Cal.App.4th 514 (Rocha), the court held student loan proceeds exceeding books and tuition are not income because the “items listed as sources of income in section 4058 all represent a form of income where there is no expectation of repayment or reimbursement.” (Id. at p. 517.) Similarly, in In re Marriage of Henry (2005) 126 Cal.App.4th 111 (Henry), we held the court abused its discretion by relying on the supporting parent’s increased equity in her personal residence to pay increased child support, because the guideline’s definition of income “does not reach so far as to . . . forc[e] the parent to . . . refinance the home in order to make court-ordered support payments.” (Id. at p. 119.) These cases concerned child support, but their reasoning applies equally to spousal support. We cannot lightly order a supporting spouse to keep borrowing money to pay support commensurate with his or her debt-fueled lifestyle.

The court thus erred by basing the amount of the support award on Laurence’s monthly expenses, which were partly funded with borrowed money. The evidence established four monthly sources of funds to pay those expenses: Laurence’s salary, investment income, new spouses income, and home equity loan proceeds. The court properly disclaimed any reliance on Laurence’s new spouse’s monthly income, finding his annual tax refunds exceeded that amount. (In re Marriage of Loh (2001) 93 Cal.App.4th 325, 332 (Loh) [child support]; In re Marriage of Romero (2002) 99 Cal.App.4th 1436, 1444-1445 [spousal support].) But by relying on Laurence’s expenses, the court essentially transformed the proceeds from Laurence’s home equity loan into “income.” That, it could not do. (Rocha, supra, 68 Cal.App.4th at p. 517; Henry, supra, 126 Cal.App.4th at p. 119.)

The court wrongly attempted to justify its reliance on Laurence’s lifestyle with the general proposition that children should share their parents’ standard of living.[5] But the cases applying this proposition fail to support the court’s methodology. Rather, the cases refer to the supporting parent’s standard of living in determining the child’s needs, or in rebutting the objection that the supported spouse may also benefit from increased child support — evidence of the supporting spouse’s lifestyle did not replace evidence of sufficient income, earning capacity, or assets from which to pay support. (See, e.g., In re Marriage of De Guigne (2002) 97 Cal.App.4th 1353, 1362-1363 [court imputed income to father from his $25 million to $40 million estate; “standard of living” used to show children’s needs]; see also Straub v. Straub (1963) 213 Cal.App.2d 792, 798 [inheritance showed father’s ability to pay support; “standard of living” used to rebut father’s argument that child should withdraw from private school].)[6] Kimberly cites no case in which the court relied only on the supporting spouse’s standard of living — no matter how it was funded — in calculating child or spousal support.

We cannot affirm the judgment on the ground the court generally found Kimberly credible and Laurence not credible. Laurence’s lack of credibility about his finances does not take the place of evidence that his financial situation is anything other than what he claims. By analogy: if Laurence had stated, “no elephants live in my backyard,” his general lack of credibility would not constitute affirmative evidence that an elephant really does live in his backyard. Here, the court made an express finding that “there seems to be no salary [from the business] other than [Laurence’s] representations” of $1,367 per month, and found no other actual sources of funds other than his investment income, new spouse income, home loan proceeds, and tax refunds. Given the court’s express findings as to the sources of Laurence’s funds, we cannot presume any implied finding to the contrary. (See Reid v. Moscovitz (1989) 208 Cal.App.3d 29, 32 [appellate court may not presume an implied finding the trial court expressly rejected].) Thus, we cannot say the court impliedly found Laurence had an undisclosed source of funds, even though it observed that his business claimed as “expenses” various obligations it did not actually pay.[7]

Only after the court excluded other possible sources of “income” — such as Laurence’s earning capacity and assets — did it turn to his lifestyle. The court did so because it wrongly considered its “lifestyle” theory to be an acceptable alternative to the “ability to pay” theory. No such alternative exists.

Simply put, evidence of a supporting parent or spouse’s standard of living cannot substitute for a demonstrated ability to pay, at least where the standard of living is financed with funds that cannot be considered in determining income or an ability to pay. By relying solely on Laurence’s monthly expenses, the court disregarded the sources of the funds used to pay those expenses, effectively charging Laurence’s receipt of $3,000 per month in loan proceeds as income that could be tapped to fulfill his support obligations. In doing so, the court abused its discretion.[8]

We thus reverse, and remand this matter for the court to determine Laurence’s income and ability to pay support pursuant to sections 4320 and 4058, and recalculate the spousal and child support awards. We reject Kimberly’s requests to adjust the child support award, as she did not move for reconsideration or appeal the judgment.

DISPOSITION

The judgment is reversed, and the matter is remanded for the court to re-determine the amount of the child and spousal support awards. In the interests of justice, each party shall bear his or her own costs on appeal.

IKOLA, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

MOORE, J.

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[1] We therefore reject Laurence’s contention the parties’ marital settlement agreement bars Kimberly from requesting a modification. (See Fam. Code, § 4335 [court may retain jurisdiction over spousal support in its order].) All further statutory references are to the Family Code.

[2] Laurence claims the part of the order awarding Kimberly spousal support until July 2006 purports to be unmodifiable. We do not read the award to contravene the general rule automatically terminating spousal support awards upon the supported spouse’s death or remarriage. (§ 4337.)

[3] Laurence’s income and expense statement actually showed monthly expenses totaling $11,150, not $11,550, because he failed to include his approximately $400 per month golf club membership dues. Although he placed his membership on inactive status by the time of trial, he had been paying the full monthly dues when he signed his income and expense statement under penalty of perjury. Thus, the court permissibly found his monthly expenses properly included the golf club dues. Also, as noted ante, Laurence’s use of his new spouse’s income to fund his expenses on a monthly basis was approximately covered by his annual tax refunds.

[4] What Kimberly did bear was the separate burden of showing Laurence’s ability to pay the increased support award.

[5] Once the court properly determines the child support award pursuant to the guidelines, it may deviate from that amount if “[a]pplication of the formula would be unjust or inappropriate due to special circumstances in the particular case.” (§ 4057, subd. (b)(5).) Because the court made no such finding in its modification order, we do not reach whether any special circumstances exist.

[6] (See also Cheriton, supra, 92 Cal.App.4th at pp. 289-292 [court imputed income to father from his stock options]; In re Marriage of Destein (2001) 91 Cal.App.4th 1385, 1393-1397 [court imputed income to father from his real estate holdings]; In re Marriage of Kerr (1999) 77 Cal.App.4th 87, 96-97 [court awarded percentage of father’s stock options as child support]; In re Marriage of Young (1990) 224 Cal.App.3d 147, 153-154 [undisputed evidence of father’s income]; In re Marriage of Catalano (1988) 204 Cal.App.3d 543, 553, abrogated on another ground by In re Marriage of Hinman (1997) 55 Cal.App.4th 988, 999 [“Husband removed the issue of his ability to pay by stipulating that he could afford any reasonable increase”]; Meagher v. Meagher (1961) 190 Cal.App.2d 62, 65 [“the court properly considered appellant’s potential earning power, projected against the background of his past earnings, as well as his assets,” in determining ability to pay].)

[7] If Kimberly discovers admissible evidence showing Laurence actually diverted business funds to his personal use, or had some other undisclosed source of funds, she may offer it on remand.

[8] We resolve two additional issues to provide guidance on remand. First, the court abused its discretion in failing to deduct Laurence’s $900 per month health insurance premiums from his income. (§ 4059, subd. (d).) Second, it did not abuse its discretion in rejecting Laurence’s tax return as conclusive proof of his income. Tax returns are presumed to correctly state income, as Laurence notes, but that presumption can be rebutted. (See Loh, supra, 93 Cal.App.4th at 337-338.) The court impliedly found the presumption rebutted by Laurence’s income and expense statement that, like his tax return, was signed under penalty of perjury.