In 1990 the California Court of Appeal in Marriage of Ostler and Smith upheld a trial court that, rather than setting a fixed monthly amount of child support
, ordered a base monthly amount of child support plus a flat percentage of the payor's bonus income.
In the years following Ostler and Smith, ordering a percentage of future variable income as additional support became a commonly used tool for family law
attorneys and judges to deal with cash bonuses and other types of compensation including stock options, restricted stock and Employee Stock Ownership Plans.
It is easy to see why --- "Ostler/Smith orders" eliminate the risk that a payor will be ordered to pay child support on income the payor may never receive.
Such orders also insure that the children receive a share of the variable income if it is, in fact, received by the payor. The method also reduces the need to have successive modification proceedings due to fluctuations in a payor's income.
The logical way to deal with bonus or fluctuating income is to do so as the court did
in Ostler/Smith -- to make a base child support level and award a percentage of any “bonus” income as additional child support.
The following paragraphs contain a proposal as to how the court can continue to make these orders.
Attorneys must first overcome the skepticism of many family law judicial officers that a
deviation from the guidelines, however negligible, would be automatically reversed on appeal.
Fortunately, language in Hall suggests that the trial court’s Ostler/Smith order would have been upheld had the trial court followed the statutory procedure for deviating from the guidelines.
Similarly, the Court of Appeal in Kerr held that a percentage award based on the realized income from the exercise of stock options would be permissible.
Next, courts should be guided through the deviation procedure set forth in Family Code
section 4056. This can be accomplished by including attachments to memoranda of points and authorities that set forth the requested written findings for deviation. The following five findings should be made by the court:
1) A calculation as to what the guideline support should be. The court may
use past income history based on pay-stubs, tax returns and etc. to calculate the child support.
The computer-generated printout of the guideline calculation should be part of the court’s findings.
2) A finding that the support differs from the guideline formula because the
guideline amount would be unjust or inappropriate. It is advisable to suggest the following language: “Because of the compensation scheme of the payor, past income history may not be indicative of future income and would therefore be unjust or inappropriate. Accordingly, a deviation from the guidelines pursuant to Family Code section 4064 for ‘seasonal or fluctuating income’ is appropriate.”
3) An explanation of how this “deviation” is consistent with the best interest
of the child. A reference to the principles behind the child support guidelines
is helpful in this regard because, ironically, by deviating from the guideline for the Oster/Smith order, the court is actually upholding the principles set forth in Family Code section 4053. One of the principles is that “the guideline seeks to encourage fair and efficient settlements of conflicts between parents and seeks to minimize the need for litigation.” None of the principles set forth in section 4053 are violated by making an Ostler/Smith order.
4) A calculation showing that the “deviation” is consistent with the guidelines. This can be accomplished by using a child support computer program to determinethe percentage to be paid as additional support. First, calculate a base support using a base salary. Then, calculate what support would be if the base salary was increased $10,000 per year (or $833.33 per month). (By increasing income by $833.33 per month and determining that the actual $10,000/year equals an increase of $833.33 per month in support, the percentage of the bonus income may be measured by subtracting the higher child support figure from the base support figure and moving the decimal point.) For example, if the father increases his income by $10,000 annually, the annual support will change by $900, or 9 percent of $10,000. Thus father would pay nine percent of each bonus dollar to Mother
as additional child support.
The deviation between an Ostler/Smith order (using the guideline to form a basis for the appropriate percentage) and the actual guideline amount is unlikely to be significant so long as the future variable income of the payor can be roughly estimated.