Practical Solutions for Obtaining Ostler/Smith Orders Following Marriage of Hall

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Family Law News

Vol. 24, No. 4

By Joseph P. Crawford and Stacey Jones
I) Introduction

In 1990 the California Court of Appeal in Marriage of Ostler and Smith1 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.

II) The Problem: It Is Impossible To Order an Ostler/Smith Order For One Parent's Income And Remain Consistent With The Child Support Guideline Formula

The California Court of Appeal decided Ostler and Smith under the then existing discretionary child support guidelines, not the mandatory formula now codified in Family Code section 4055, et seq. Only recently has a case addressed the Ostler/Smith issue in conjunction with the current mandatory child support guideline. In June 2000, the Court of Appeal in Marriage of Hall2 held that flat percentage orders of "bonus" income could never be consistent with the child support guidelines. The Hall court observed that the child support formula set forth in Family Code section 4055 does not allow for inconsistent considerations of the parties' income:

[The child support guideline does not] admit one parent's income to be a fluctuating variable while the other parent's income is assumed to be static. The formula is always predicated on knowing what both parent's income is in nominal static dollars at the time the order is made. The formula is incompatible with simple flat percentage figures, if only because the percentage of the combined parental income allocated to support varies with nominal dollar amount of the total net disposable income per month.... In a word, the order made by the trial judge here, in which the order fluctuates as a percentage of only one parent's income, is a result that differs from the formula guidelines on its face.3

Family law attorneys and judges are left in a quandary following the Hall decision. Do the current child support statutes permit Ostler/Smith orders? It appears from Hall that the Court of Appeal has taken away a critical tool for dealing with fluctuating income and is forcing family law litigants down a path of endless support modification hearings. A closer analysis, however, of Hall, Marriage of Kerr4 and Marriage of Cheriton5 shows that Hall need not be the end of Ostler/Smith orders.

III) The Hall Decision Is Not the End of Percentage Orders as Additional Child Support

Despite the holding of Hall, the Court of Appeal has approved percentage awards for future variable income. The Hall court, itself, stated that it "is not to say, of course, that the family court cannot make an order which accounts for the 'seasonal or fluctuating income of either parent.' It can. (See § 4064.) But such an order cannot be called the 'guideline' amount pursuant to section 4055."6 Thus, the Hall court did not say that Ostler/Smith orders are impermissible; rather, it held only that courts must follow the procedure set forth in the Family Code for deviating from the guidelines before makings such an order.

IV) How to Obtain an Ostler/Smith Order

Some method of dealing with future, but difficult-to-predict, income is needed for establishing child support orders. The Court of Appeal has reversed trial courts that have ignored such income in determining child support. ( See, e.g., County of Placer v. Andrade7 and Cheriton. ) 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.8

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."9 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 determine the 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.) (See Table 1.) For example, if the father in Table 1 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. As Table 1 illustrates, 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.

    Table 1 presents four (4) different scenarios with the following shared basic assumptions:
    • Father has a 20% timeshare for 1 child.
    • Mother has two exemptions and files as head of household, and Father files as a single person.
    • Father (Scenarios 1, 2 and 4) or Mother (Scenario 3) receives a bonus each year. For illustration purposes, we have assumed different bonus amounts as a percentage of base income and calculated the new guideline child support amount off of the adjusted income ("ADJUSTED SUPPORT").

    Scenario 1 shows Father making $100,000 in base salary and a variable bonus and Mother making $55,000.

    Scenario 2 shows Father making $100,000 in base salary and a variable bonus and Mother making $90,000.

    Scenario 3 shows Father making $100,000 in base salary and Mother making $55,000 in base salary and a variable bonus.

    Finally, Scenario 4 shows Father making $50,000 in base salary and a variable bonus and Mother making $35,000 (a more middle income bracket family).

    The four scenarios were chosen to illustrate how the calculation of additional child support as a percentage of bonus income is remarkably close to what the actual guideline child support figures would be if you had a "crystal ball" to predict precisely what the payor's total compensation would be in the future.

    The following methodology determines the percentage to use for additional child support: Subtract the BASE SUPPORT from each year's ADJUSTED SUPPORT and divide the difference by the monthly bonus. For example, using the 10% bonus for Scenario 1, the resultant percentage amount is 9.000%:
    BASE SALARY: $100,000
    BASE SALARY: $909
    10% ANNUAL BONUS: $10,000
    MONTHLY BONUS: $833.33
    ADJUSTED CHILD SUPPORT: $984
    Adjusted minus Base Support: $984 - 909 = $75
    Divided by Monthly Bonus Amount: $75÷$833.33 = 9.000%

    All four scenarios use this same calculation as to each bonus amount.

    As is evident from the chart, the calculation shows that, between bonus ranges in each of the different scenarios, there is no significant difference in the resultant percentage. For example, in Scenario 1 the additional support to be calculated as a percentage of bonus income ranges from 7.740% (200% bonus) to 9.000% (10% bonus). The difference of less than 1.5% between these two percentage amounts is minimal, and it should not affect the principles underlying the Child Support Guidelines.

    In other words, suppose a case in which Father earns $100,000 a year in base salary and pays child support. Over the last few years, he has received bonus income ranging from 10% to 100% of his base income. By calculating the child support amounts he would be obligated to pay using those salary ranges, you can see that the amount of additional child support as a percentage of bonus income ranges from 8.28% to 9.000%. Therefore, if the court were to pick a percentage within this range, even if the payor were to receive a 200% bonus in a subsequent year (a percentage of 7.74%, or a difference of 1.26% from the 10% bonus), the percentage would still be close to the guideline support amount. The objectives and intent of the guidelines would be met.

    The percentage theorem holds true as well when the incomes of the payor and payee are closer in amount (Scenario 2) and when the payor and the payee are lower on the income scale (Scenario 4). Scenario 3 illustrates the reverse of the payor receiving fluctuating income and shows what would happen if the payee receives fluctuating or variable income. As you can see, child support would need to be decreased by a percentage amount within the range of 4.189% to 5.891% (a difference of less than 2%).

    In sum, Table 1 shows that it is possible to order a percentage award of bonus income as additional child support and still meet the objectives of the child support guidelines. By creating such a table tailored to the facts of a case, it can be demonstrated that the child support order being requested will be remarkably similar to what "guideline" child support award would be if the court could accurately predict future income for the parent with fluctuating income.

  5. Finally, a finding about the children's needs if it appears possible that the future variable income could exceed the "reasonable needs of the child." The possible need for such findings derives from the Kerr case. There, the Court of Appeal reversed the trial court because of the "unique circumstances" in which the value of the stock options at issue rose more than twenty fold between the time of property division and the time of the support hearing. In Kerr, the trial court ordered a percentage of the father's income from Qualcomm stock options be paid to mother as additional child support. Father appealed the order, stating that the child support exceeded the needs of the child. The Court of Appeal, after first stating that stock option income must be included in guideline child support calculations, held that the child support guidelines produced an inappropriate result because of the extraordinarily high income of the father and the absence of any findings about the children's needs.
V) Conclusion

Ostler/Smith orders have been valuable tools for family law attorneys and judges for years. The surprising finding of the Hall case that such orders violate the child support guidelines need not mean the end of such orders. By carefully presenting judicial officers with the findings necessary for what are likely to be de minimis deviations, family law attorneys can continue to utilize such orders in the future.

Joseph P. Crawford is certified as a Family Law Specialist by the State Bar of California, Board of Legal Specialization and practices in San Mateo, California with the Hanson Family Law Group, LLP. Joe is the co-chair of the Family Law Section of the San Mateo County Bar Association and is also admitted to practice in Oregon and Washington.

Stacey Jones is a litigation consultant, specializing in Family Law and General Litigation matters. She previously practiced law with firms in Orlando, Florida and Philadelphia, Pennsylvania, and concentrated on family law and complex commercial and business matters.

1In Re Marriage of Ostler & Smith (1990) 223 Cal.App.3d 33, 272 Cal.Rptr. 360.
2In Re Marriage of Hall (2000) 81 Cal.App.4th 313, 96 Cal.Rptr.2d 772.
3Hall at 317-318.
4In Re Marriage of Kerr (1999) 77 Cal.App.4th 87, 91 Cal.Rptr.2d 374.
5In Re Marriage of Cheriton (2001) 92 Cal. App. 4th 269.
6Hall at footnote 3.
7County of Placer v. Andrade (1997) 55 Cal. 4th 1393.
8Kerr at 381.
9Family Code section 4053(j).