An issue that frequently comes up in divorce proceedings is how to account for seasonal fluctuations in income or commission and bonuses when calculating proper spousal and child support awards. Spousal support is taxable for the payee and deductible for the payor, so this issue can be a considerable amount. The problem is that true “bonus” income is discretionary and cannot be counted “unless the check clears”, i.e., when the party actually receives the bonus income.
A layperson or an inexperienced family law attorney fail to comprehend the nuances regarding bonus income orders. This is one situation where an attorney is required or at least a Limited Scope representation can be executed to protect the party during the negotiation.
Here is the issue: support calculations are made by looking at the parties’ past earnings history as the most reliable measure of future income streams. This treats the payer’s monthly support obligations as though these future earnings have already been receiving in the coming year. If it doesn’t or the bonus increases, this can be a several financial hardship on the payor.
Judges do not like “waiting and seeing” what the bonus is going to be and they won’t retain any kind of retroactive jurisdiction to go back and do the calculations.
As most people view their bonus as a means to catch up with their own taxes and personal expenses, it often causes antagonism and resentment towards the other party who seeks support based on the bonus numbers from the last calendar year. It is of utmost important that all participants, the parties and the judge, have a clear understanding and willingness to adopt or impose a fair mechanism by which to calculate such support.
Bonuses are considered “income” for the purposes of child support awards under Family Code section 4058 that provides that “annual gross income…means income from whatever source derived.” Family Code section 4064 expressly authorizes courts to adjust child support order to reflect seasonal or bonus income. Smith-Ostler Award: The cases of Marriage of Ostler & Smith (1990) 223 Cal.App.3d 33, Marriage of Mosley (2008) 165 Cal.App.4th 1375, is the only real, published authority on the subject.
The judge in this case sought to create a formula that would be fair to all parties, which would allocate future bonus to the parties based on that formula. Two of the couple’s four children were still at home, so the judge decided to charge ten percent (10%) for each minor child and fifteen percent (15%0 for the wife as spousal support, for a total of 35% of the gross bonus income. This approach was upheld on appeal.
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