Bonus Income and Support
Guideline Child Support is Easy For W-2’s
If both you and your spouse are W-2 employees (with no other income like rental income, retirement, dividends, stock options, etc), calculating child and spousal support is as easy as plug and chug.
Family law attorneys use a program called Dissomaster. There may be a few tricks you can learn from consulting a family law attorney, but for the most part, it’s plug and chug.
If you don’t have Dissomaster, you may utilize the California Department of Child Support’s online calculator here.
Overtime and Bonuses
Support calculations become more complicated when there are substantial overtime and bonus payments.
Bonus income IS considered income, and thus, support should be paid from there.
However, when bonuses and/or overtime aren’t guaranteed, it is unfair to award a higher support.
Fluctuating Income
The same issue arises with fluctuating income.
Solution: Bonus Support
The best solution is to have a base support order, AND a bonus support order, if and when the additional income is received by the payor. (or recipient).
This type of “bonus support” is also known as a “Smith-Ostler” or “Ostler-Smith” award, and it comes from the case of In re Marriage of Ostler and Smith.
Smith-Ostler Case
In that case, Clyde Ostler and Vicki Smith were married for 21 years, and had four children together (two were still minors at the time of the divorce). Clyde was a banker, and Vicki was a stay-at-home mom.
At the time of their divorce, Clyde was the EVP and CFO of a major unnamed bank. He received significant bonuses every year, but these weren’t guaranteed.
Trial Court Doesn’t Want to Just Order Support Based on Bonus that was NOT Guaranteed
The trial judge 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 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.”
Trial Court’s Formula
The trial court created a formula that would account for the bpnus once received, so that the parties wouldn’t be forced to re-litigate.
The judge decided to charge ten percent (10%) for each minor child, and fifteen percent (15%) for the wife as spousal support, for a total of 35% of the gross bonus income.
Court of Appeal Affirmed
This approach was upheld on appeal.
Marriage of Mosley
In Re Marriage of Mosley is another case that involved bonus income and judgment of child and spousal support.
There, the trial Court previously ordered the husband to pay fifteen percent (15%) of his gross bonus income in excess of a base amount ($447,100/year) and twenty-one percent (21%) of the excess was characterized and ordered as additional child support.
This was not the order appealed from, so it is undeterminable whether the combined amount of 36% is excessive.
Excessive %?
However, the Mosley Court did in its discussion recognize that Smith-Ostlers can become excessive if they leave the supporting spouse with nothing left for paying their own expenses, especially if a trial court merely assumes that the support obligor will receive an unguaranteed bonus.
Again, there was no discussion of whether it is fair to charge these percentages off of gross verses net income although in Mosley the trial court had evidently ordered the husband to pay the percentages off of gross income, so that presumably the wife would have been charged for the spousal component as deductible alimony.
Payor
If you are payor, and 35% is too much, I would recommend negotiating a cap based on the Mosley discussion. Also, don’t forget about the taxed you need to pay on the bonus and take that into consideration when negotiating a settlement.
Recent Comments