CASE HIGHLIGHTS: In Re Smith & Ostler

In re Marriage of Smith & Ostler (1990) 223 Cal.App.3d 33
How Should Bonuses be Handled?

FACTS:

• 40 % increase in husbands salary and bonuses during the last three years of marriage
  
• Long term marriage (21 years)
• 2 minor children, 9 and 14
  
• Husband received an annual bonus
  

HUSBANDS SALARY & BONUS INCOME:

1985
Fixed annual salary: $140,004
Bonus (attributable to 1984 services) 75,000
TOTAL 1985 INCOME: $215,000 ($17,917 per month)

Request for Dissolution filed: March, 1986
1988
Fixed annual salary: $165,000
Bonus (attributable to 1987 services) 135,000
TOTAL INCOME: $300,000 ($25,000 per month)

Bank stock and stock options
which generate dividends: $18,50000 per year
Annual car allowance: 11,280 and

Various other benefits such as partially subsidized health insurance, life insurance, pension contributions, an expense account for business meals, and the availability of executive credit.

LOWER COURT SUPPORT ORDER (UPHELD):

• $5,859 per month + 25% of annual bonus for next 3 years. (15% of annual bonus toward spousal, 10% of annual total bonuses toward child support)
• Based on husband's stipulation, he was ordered to pay wife's school tuition, schoolbooks, and laboratory fees for the next three school years, with certain conditions about enrollment and reporting, and to maintain insurance on his life for the benefit of the children.

Furthermore, the court ordered:

• Three year "step down" in support orders to $1.
  

The court ordered an automatic step-down-all spousal support, both fixed and bonus percentage, was to be automatically reduced to $1 per year in three years-effective June 1, 1991, unless prior to that time, Vicki files a motion and shows good cause why the support order should be modified by demonstrating that she has made her best efforts to become self- supporting. Jurisdiction was reserved beyond June 1, 1991, to modify spousal support on a showing of changed circumstances. Smith & Ostler at p. 41

LOWER COURT REASONING: BONUSES are NOT a given

On the question of Clyde's future bonus income, the [lower] court stated, "No future bonus is guaranteed. It would therefore not be appropriate to base a support order on Husband's bonus income and then require him to file motions to modify at such times as the bonus is reduced. It would be more fair to all parties to base the support order on Husband's income from [223 Cal.App.3d 42] salary and dividends, and to allocate a portion of the future bonus income to the children and to Wife by way of a percentage interest so that future litigation will not be necessary as the bonus income changes."[text added] Smith & Ostler at p. 41-42

LOWER COURT STATED

"Vicki and the two minor children need $5,859 per month, excluding her education expense and including income taxes, to meet their reasonable needs. "The support award ... will enable Wife and the two minor children to enjoy substantially the same standard of living enjoyed by the family during the seven most recent years prior to the separation of the parties on January 1, 1986, which standard of living appears to have been supported on an average net income, including his annual bonus, of $6,000 per month, during a time when the family was comprised of six people ...." Smith & Ostler at p. 42

LOWER COURT FOUND:

• Husband's gross salary is $13,750 per month, plus dividend income of $1,542 per month.
• Husband has mandatory deductions of $4,606 per month
• HUSBAND'S NET MONTHLY INCOME, excluding bonuses, of $10,686 per month
• Wife had no income from earnings or assets
  
• Lower court found husband had the ability to pay $5,900 per month for support, combined spousal and child support.