Marriage of Nigro CA4/3 ( 2015 )

Filed 6/11/15 Marriage of Nigro CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
In re Marriage of ELIZABETH A. and
THOMAS R. NIGRO.
ELIZABETH A. NIGRO,
G049869
Respondent,
(Super. Ct. No. 01D003588)
v.
OPINION
THOMAS R. NIGRO,
Appellant.
Appeal from postjudgment orders of the Superior Court of Orange County,
Barry S. Michaelson, Temporary Judge (Pursuant to Cal. Const., art. VI, § 21). Affirmed
in part and reversed in part.
Law Offices of Thomas R. Nigro and Thomas R. Nigro, in pro. per; and
William F. Bernard for Appellant.
Law Office of Elizabeth Nigro and Elizabeth A. Nigro, in pro. per. for
Respondent.
Elizabeth and Thomas Nigro1 divorced in 2005, but they returned to family
court seven years later due to their difficulties agreeing on the best course of action for
their then 15-year-old daughter Alexandra (Alex). We affirmed the family court’s
decision to modify the parents’ joint legal custody order and temporarily modify their
physical custody arrangement. (In re Marriage of Nigro (May 3, 2013, G046170)
[nonpub. opn.] (Nigro I).) We also affirmed the family court’s decision to sanction
Elizabeth under Family Code section 271,2 because of her sabotage of an earlier court-
ordered diagnostic test to assess the appropriate treatment of Alex’s Attention Deficit
Hyper-Activity Disorder (ADHD) and because Elizabeth’s other misconduct frustrated
the policy of the law to promote settlement and resolution of issues. (Nigro I, supra,
G046170.) We also affirmed the family court’s denial of Elizabeth’s motion for need-
based attorney fees under section 2030. We agreed with the family court’s conclusion
Elizabeth elected to represent herself during the trial, and her attorney friend Merrit
McKeon’s performance of additional legal services was not reasonably necessary, and
therefore, not recoverable under section 2030. (Ibid.)
Before we filed our opinion in Nigro I, Elizabeth sought need-based
attorney fees and costs incurred by McKeon in preparing and handling that appeal. In our
opinion In re Marriage of Nigro (Nov. 22, 2013, G047511) [nonpub. opn.] (Nigro II), we
affirmed the family court’s order denying Elizabeth’s motion for need-based attorney
fees for the appeal and future litigation.
For this appeal the parties have changed the focus of their dispute to the
issue of appropriate child support for now 17-year-old Alex. Thomas filed the underlying
appeal after the court increased his child support obligation by approximately $100 per
1 “As is customary in family law proceedings, we refer to the parties by their
first names for purposes of clarity and not out of disrespect. [Citations.]” (Rubenstein v.
Rubenstein (2000) 81 Cal.App.4th 1131, 1136, fn. 1.)
2 All further statutory references are to the Family Code.
2
month and ruled he must repay Elizabeth for money spent to support the special dance
program at Alex’s high school. On appeal, Thomas maintains the court improperly
imputed income and he cannot be forced to pay for educational costs because public
education should be free.
We affirm the court’s determination to impute income, but conclude one
step in the court’s calculations was based on an assumption not supported by the
evidence. Specifically, we found no evidence in the record to support the court’s
determination to impute an additional seven percent net disposable income to Thomas.
Therefore, we must reverse the child support modification order and remand the matter
for the court to hold a hearing, consider additional evidence, hear expert opinions, or
appoint a forensic accountant on the issue of whether imputing seven percent was too
much, too little, or just right. We affirm the court’s order that Thomas contribute to
Alex’s special dance program.
I
A detailed summary of the facts is contained in Nigro I and Nigro II, which
we incorporate by reference. (Nigro I, supra, G046170; Nigro II, supra, G047511.)
Suffice it to say, Elizabeth and Thomas, both attorneys, separated in 2002 after nearly 14
years of marriage when their only daughter, Alex, was four years old. A stipulated
judgment filed in 2005 awarded the parents joint legal custody of their daughter, with
primary physical custody given to Elizabeth.
Although it appears from the record that Elizabeth and Thomas continued
to have disputes following the divorce, their relationship took a bad turn in 2009 after
Elizabeth filed an ex parte application for an order to show cause (OSC) to eliminate
Thomas’s mid-week visitation. Thomas opposed the OSC and accused Elizabeth of over-
medicating Alex without having a proper diagnosis. Thomas also filed an OSC
requesting a full custody evaluation to determine Alex’s best interests and a medical
evaluation regarding Alex’s need for medication. For the next two years, these issues
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were heavily litigated, and as discussed in Nigro I and Nigro II, ultimately resulted in a
change of custody order and over $8,000 in sanctions against Elizabeth.
A. Three Child Support Modification Motions
The child support dispute (the subject of this appeal) dates back to March
29, 2011, when Thomas filed a motion to modify his monthly $900 child support
obligation, as mandated by the parties’ stipulated judgment. Thomas claimed his
monthly income from self-employment was a negative $5,011. He asserted Elizabeth’s
law practice was doing well, but he took a substantial loss in 2010. Thomas declared his
net income in 2008 was $126,288, and in 2009 it was $146,718. He concluded his
“average earnings over the last three years, not including my 2010 losses, [was] $91,000
per year or $7,583 per month.”
Before this motion was heard, Elizabeth filed a motion on December 11,
2011, seeking Thomas’s financial assistance in paying for health insurance and Alex’s
extra-curricular activities. Elizabeth noted the judgment provided for a $900 per month
child support payment and, at the time, Elizabeth had agreed to pay for medical
insurance. She maintained Alex had been a dancer for over 10 years and Thomas orally
agreed to pay for half of her dance-related expenses, including tuition, costumes, and
various fees charged by the dance studio, Dance Dynamics. In July 2010, Alex was
accepted onto a competition team at Dance Dynamics and Elizabeth was required to sign
a contract agreeing to commit to a full year of competition-related fees and training.
Despite his oral promise, in September 2010, Thomas refused to reimburse Elizabeth for
any dance expenses and sent her a letter stating he would no longer pay his share.
Elizabeth stated she would not have contractually committed to this $6,000 expense if she
had known Thomas would not pay his half.
In addition, Elizabeth explained Thomas was refusing to pay for his share
of child care expenses, including after school transportation. Elizabeth stated she had
4
been paying for Alex’s health insurance since 2002 but the costs had increased and she
was paying $460 per month.
And finally, Elizabeth reminded the family court that Thomas agreed on
April 11, 2011, to a court order that Alex would attend the charter school, Orange County
High School of the Arts.3 She admitted the court order did not state Thomas should share
in the parent contribution recommended by the school to support the dance program.
Elizabeth stated that while the contribution is not mandatory, given that Alex’s parents
earn over $250,000 per year, it would be “inappropriate and embarrassing” for them not
to make the school’s requested parent contribution. She added the court’s expert
psychologist recommended Alex should attend OCSA based on her special needs and that
she should be supported in following her passion for dance. Elizabeth concluded Alex is
a superior dancer and she was accepted into the very competitive commercial dance
conservatory and Alex wished to pursue a career in the performing arts. Elizabeth
believed dancing was Alex’s “safe haven” given the level of conflict between her parents.
She stated Thomas’s portion of the dance program’s parent annual funding agreement
would total $1,424.
The record and the parties do not explain why these motions were not
considered in the same year they were filed (in 2011). Our record shows that
approximately two years later, on March 28, 2013, Elizabeth filed a motion to modify
child support based on an increase of her time with Alex to 100 percent. In her
supporting declaration, Elizabeth explained Alex had a “terrible argument” with Thomas,
and Alex determined she no longer wanted to spend time with him. Elizabeth stated
Thomas and his new wife purchased a mansion in Coto de Caza and a new car for Alex.
However, Thomas told Alex she could only drive the car when she was at his home and
3 The parties initially use the acronym OCHSA for the school, but in later
briefing refer to it as the Orange County School of the Arts, or OCSA. For the sake of
clarity and consistency, we will refer to the school as OCSA.
5
he threatened to take it away. Elizabeth declared she purchased a car for Alex to drive.
Elizabeth concluded, “[Thomas was] attempting to deprive [Alex] of the lifestyle to
which she is entitled by minimizing his income from his law practice, relying on his new
wife’s income to do so.”
On May 6, 2013, Commissioner Barry S. Michaelson set a hearing on the
above three child support motions. He ordered the production of several financial
documents and set a discovery cut-off date. The court held a hearing, which stretched
over a three-day period (2.5 hours on September 19, 3 hours on October 7, and 1.2 hours
on October 15).
B. The November 22, 2013, Tentative Decision
The court stated Elizabeth and Thomas were licensed attorneys and
appeared as self-represented litigants. The court excused the Orange County Department
of Child Support Services (OCDCSS) attorney because both parents agreed the attorney
was not needed. The court noted a statement of decision was not requested but the
court’s tentative decision would become the statement of decision unless a party
objected.
The court stated the following facts were uncontroverted: (1) the
November 22, 2005, judgment required Thomas to pay $900 a month in child support;
(2) Elizabeth currently earns $17,574 gross per month and pays $326 for health insurance
costs; (3) In 2011, Elizabeth paid $911 per month for health insurance including coverage
for Thomas; and (4) Elizabeth’s monthly income for 2011 was $11,000 and for 2012 was
$16,440.
The court stated Father’s income was contested for the years 2010 through
2013. “[Thomas’s] costs to operate his law office averaged approximately $90,000 per
year. [Elizabeth] contends that [Thomas’s] net disposable income was unreasonably
reduced because he continued to maintain the full law office even when his costs to
operate it were too high. [Thomas] contends it is necessary for both appearances and to
6
accomplish the required work in his contingent fee law practice to maintain this level of
infrastructure. He claimed annual net disposable income for 2010 of $0; for 2011,
$115,000; for 2012, $118,813; [and for the first eight months of] 2013, $95,537.”
Citing In re Marriage of Berger (2009) 170 Cal.App.4th 1070, 1078
(Berger), the court discussed when income can be imputed to a party. The court
concluded “in the case before this court, [Thomas] has chosen to reduce the amount of
money available for payment of child support as an investment in the infrastructure and
continuation of his current law firm which consists of himself alone. His assertions that
[Elizabeth] is more efficient in her law firm as a sole practitioner because she is able to
accomplish skills he does not maintain does not answer the question at the core of this
case. If there was sufficient annual net disposable income for support of the minor child
then it must be considered. The court concluded that [Thomas] could not unilaterally and
voluntarily arrange his business affairs in such a way as to effectively preclude his child
from sharing in the benefits of his current standard of living. The parent does not have
the right to divest himself of his earning ability at the expense of the minor child.
Therefore, when a parent voluntarily chooses not to maximize his income the court must
retain discretion to impute income. If it does not do so then one parent by a unilateral
decision could eliminate his or her own responsibility to contribute to the support of the
child causing the entire burden of supporting the child to fall upon the other employed
parent.”
In addition, the court rejected Thomas’s argument he was unable to earn
any income in 2010. Thomas had claimed he did not earn money because he was
required to care for his parents, learn family law to represent himself, and spend time in a
case involving his new wife. The court did not explain the basis for its ruling other than
to note Thomas’s wife was represented by Steven Young.
The court accepted Thomas’s argument that his total net disposable income
for the years 2010 to 2013 was $329,350, averaging $82,338 per year. “If $90,000 costs
7
are added to $82,338 net, they total $172,338. The costs are 52.2 [percent] of the gross
income. The amount of $82,338 divided by 12 equals a monthly income amount of
$6,866. Is this the potential for [Thomas]?”
The court summarized the data submitted on Thomas’s income and expense
declarations and profit and loss statements. It calculated Thomas’s gross profits averaged
$25,208 per month based on reported income from 2011 to 2013. It stated the profit and
loss statements showed expenses of approximately 40 to 70 percent. The court concluded
an appropriate expense percentage would be 45 percent “which results in an average of
$25,208 x .55 [percent net disposable income] = $13,864 per month.” The court ruled
this figure would be used in all the calculations “because it has been relatively consistent
throughout the time involved in this matter.”
Turning to the dispute over the respective timeshare of each parent, the
court noted the original judgment dated 2005 contemplated Thomas would have a 35
percent timeshare. The court recognized that in 2010 and 2011 Alex was involved in
many extra-curricular dance class and competitions with Dance Dynamics in addition to
the commercial dance conservatory program at OCSA. The court noted Father objected
to Alex’s attendance at OCSA “because of the strain.” The court concluded Alex had
“succeeded while attending the school.” Due to Alex’s busy schedule, the court
determined the timeshare question depended on who could be “credited with the primary
physical responsibility of [Alex] while she [was] involved in these various extracurricular
activities such as the dance competitions.” The court noted Alex was residing more often
with Elizabeth because she lived closer to OCSA, and “the school was previously
recommended by Dr. David Mann for Alex.”
The court began by accepting the timeshares to which the parties had
stipulated, as follows: (1) for a one-month period from February 21 to March 21, 2012,
Alex was with Elizabeth 5 [percent]; (2) during the summer of 2012 the parents shared
physical custody 50:50; and (3) Alex was with Elizabeth full time the week before school
8
in August 2012. The court denied Thomas’s request for an additional 10 percent
timeshare because it was necessary for him to take time from work to assist Alex with her
dancing career. The court also concluded both parents were not entitled to additional
timeshares for reducing their work schedules to assist their daughter. And it denied
additional parenting time for transporting Alex to her various activities. The court
estimated a 13 percent timeshare with Thomas for the school year (from August 2012 to
June 2013) because Alex’s school and dance schedule meant she was spending more time
with Elizabeth.
The court attached DissoMaster printouts that set for the child support
orders for period of time between 2011 and 2013. Specifically, the court calculated
Thomas’s timeshare and support obligation for the various different time periods at issue
as follows: (1) 35 percent and $651 per month from April 1, through August 30, 2011;
(2) 24 percent and $984 per month from September 1, 2011, through February 20, 2012;
(3) 95 percent and zero support (and Thomas to receive $1,752 from Elizabeth) from
February 21 through March 21, 2012; (4) Zero percent and $350 for the week of March
22, through March 31, 2012; (5) 13 percent and $1,000 per month April 1, 2012, through
June 30, 2013; and (6) 20 percent and $1,018 per month starting July 1, 2013, and going
“forward.”
Thus, to briefly summarize, the original 2005 judgment ordered $900 child
support with Thomas having a timeshare of 35 percent, and the 2015 judgment raised
ongoing support (as of July 1, 2013), to be $1,018 with Thomas having a lower timeshare
of 20 percent. We wish to make clear, Thomas’s appeal concerns the $118 increase in
child support, not the reduced timeshare.
In addition, the court also ordered the costs of the OCSA dance program to
be shared by the parents “because it appears to be in the best interest for Alex to attend
the [s]chool and the parties are able to afford [it].” The court did not rule on Elizabeth’s
request for assistance paying for costs incurred by Alex’s dance carreer at Dance
9
Dynamics. The court addressed these issues and provided a more detailed ruling
regarding the amount to be reimbursed to Elizabeth in its final judgment, discussed anon.
Thomas’s appeal challenges this discretionary add-on.
C. Thomas’s Request for a Statement of Decision
On December 20, 2013, Thomas requested a statement of decision
explaining the factual and legal basis for the court’s determination on several issues,
including imputed income, timeshare calculations, and the sharing of public school costs.
He also filed objections to the tentative decision. Elizabeth filed responses. On January
24, 2014, the court entered a minute order stating the tentative decision evaluated all the
issues requested by Thomas for a statement of decision, and it denied Thomas’s
objections. The court clarified the commencement date of the order would be April 1,
2011. It ordered the tentative statement would serve as the statement of decision.
Thomas filed objections to the statement of decision.
The court entered its final order on February 11, 2014. In addition to the
child support calculations mentioned above, the order contained the following rulings:
(1) No party was given credit for transporting Alex to her activities; (2) the court denied
Elizabeth’s request for reimbursement of one-half of Alex’s extracurricular dance activity
costs at Dance Dynamics; and (3) the parents would pay one-half of OCSA costs, and
because Elizabeth had paid $7,512.50 (representing multiple years), Thomas owed her
$3,756.25. “The net balance of child support and [OCSA] reimbursements owed is the
sum of $2,522.64 payable from [Thomas] to [Elizabeth].”
II
Thomas asserts the family court lacked authority to impute income and
there was insufficient evidence to support its calculations. At the hearing, Thomas
invited the court to use a net income figure of “$9,500 or $10,000” per month. The court
imputed additional income and arrived at the figure of $13,864 disposable net income per
month. Based on this income amount and evidence Thomas’s timeshare with Alex was
10
15 percent less than before, the court increased Thomas’s monthly child support
obligation from $900 to $1,018 per month. Thomas argues it was improper for the court
to consider his “earning capacity” in lieu of actual income because he was gainfully
employed and there was no evidence he was deliberately avoiding his support obligation.
We conclude there was no abuse of discretion. (Berger, supra, 170 Cal.App.4th at
p. 1079 [review order modifying child support based on earning capacity for abuse of
discretion].)
A. The Earning Capacity Doctrine
“We begin with the observation that the statewide uniform guidelines for
determining child support rest upon important principles, including (1) ‘[a] parent’s first
and principal obligation is to support his or her minor children according to the parent’s
circumstances and station in life’; (2) ‘[b]oth parents are mutually responsible for the
support of their children’; (3) ‘[e]ach parent should pay for the support of the children
according to his or her ability’; (4) ‘[t]he guideline seeks to place the interests of children
as the state’s top priority’; (5) ‘[c]hildren should share in the standard of living of both
parents. Child support may therefore appropriately improve the standard of living of the
custodial household to improve the lives of the children’; and (6) ‘[c]hild support orders
in cases in which both parents have high levels of responsibility for the children should
reflect the increased costs of raising the children in two homes and should minimize
significant disparities in the children’s living standards in the two homes.’ (. . . § 4053,
subds. (a), (b) & (d)-(g).)” (In re Marriage of Destein (2001) 91 Cal.App.4th 1385, 1391
(Destein).)
“A crucial component for determining the amount of child support is, of
course, each parent’s income. (. . . §§ 4055, 4059.) ‘Income,’ itself, is broadly defined:
‘The annual gross income of each parent means income from whatever source derived
. . . .’ (. . . § 4058, subd. (a).) Moreover, the court is not limited to the parent’s actual
income. ‘The court may, in its discretion, consider the earning capacity of a parent in
11
lieu of the parent’s income, consistent with the best interests of the children.’ (. . .
§ 4058, subd. (b).)” (Destein, supra, 91 Cal.App.4th at p. 1391.)
“The strong public policy in favor of providing adequate child support has
led to an expansive use of the earning capacity doctrine in setting the level of support
when consistent with the needs of the child. [Citation.] ‘Historically, California courts
limited consideration of a parent’s earning capacity (in lieu of actual income) to the
narrow situation where the record demonstrated the parent was deliberately shirking
family financial responsibilities by intentionally suppressing income or refusing to accept
or seek gainful employment . . . .’ [Citations.] . . . Currently, . . . section 4058 expressly
authorizes the court to attribute income, without regard to deliberate attempts to reduce
income.” (Destein, supra, 91 Cal.App.4th at pp. 1391-1392.) “‘While deliberate
avoidance of family responsibilities is a significant factor in the decision to consider
earning capacity [citation], the statute explicitly authorizes consideration of earning
capacity in all cases,’ consistent with the child’s best interests. [Citations.]” (In re
Marriage of Smith (2001) 90 Cal.App.4th 74, 81, italics added.)
In re Marriage of Padilla (1995) 38 Cal.App.4th 1212, is instructive. In
that case the child’s father, the supporting party, quit his job to start his own business
with the goal of increasing his earnings. There was evidence father’s business was in the
“start-up” phase, he was self-employed, and he currently did not receive any income. His
business was earning $1,500 a month but due to repayment obligations on large business
loans the business had a monthly negative cash flow. The trial court imputed income
after specifically finding no bad faith motive in the father’s actions. The ruling was
affirmed on appeal. “Statutory commands and the inherent responsibility parents owe
their children lead us to conclude the bad faith rule, as applied to child support . . . can no
longer be supported. Once persons become parents, their desires for self-realization, self-
fulfillment, personal job satisfaction, and other commendable goals must be considered in
context of their responsibilities to provide for their children’s reasonable needs. If they
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decide they wish to lead a simpler life, change professions or start a business, they may
do so, but only when they satisfy their primary responsibility: providing for the adequate
and reasonable needs of their children.” (Id. at p. 1220, fn. omitted.)
Thomas’s reliance on In re Marriage of Riddle (2005) 125 Cal.App.4th
1075 (Riddle), is misplaced. That court determined the trial court abused its discretion in
refusing to accommodate a parent’s fluctuating income. In Riddle, the husband, a
financial advisor, was compensated depending on the amount of commission earned in a
given month. (Id. at pp. 1077-1078.) The trial court calculated husband’s pendente lite
support obligation using two calendar months of 2003, and that figure differed
significantly from the one the court would have reached if had it used a time period
anytime in the preceding 12 months. (Id. at pp. 1078-1079.) The court held the
calculation of a party’s prospective earnings must be based on stable, representative
numbers, even where the party’s income fluctuates from month to month. (Id. at
pp. 1081-1082.) “[T]he time period on which income is calculated must be long enough
to be representative, as distinct from extraordinary.” (Id. at p. 1082.) It is an “abuse of
discretion to take so small a sliver of time to figure income that the determination
essentially becomes arbitrary.” (Id. at p. 1083 [two months].) In other words, the Riddle
court held that when income fluctuates the court must look at a representative time period
to assess income.
Thomas does not allege the court failed to look at an appropriate time
period. Indeed, our record shows the court generously took into account a three-year
period (2011 to 2013) to account for Thomas’s fluctuating income and expenses as a sole
practitioner. Moreover, unlike the husband in Riddle who was gainfully employed by a
third party as a commissioned financial advisor, the trial court recognized Thomas was
self-employed and had the sole decision-making authority over his take home income and
necessity for business expenses.
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Thomas asserts the earning capacity doctrine should not apply when the
providing spouse is employed. He is wrong. The court has discretion to impute earnings
to the underemployed. “[W]hen a parent voluntarily chooses not to maximize his
income, ‘the court must retain discretion to impute income’; if it does not, ‘“one parent
by a unilateral decision could eliminate his or her own responsibility to contribute to the
support of the child[ren] . . . .” [Citation.]’ [Citation.]” (Berger, supra, 170 Cal.App.4th
at p. 1083.) “So long as a parent has an earning capacity, that is, the ability and the
opportunity to earn income, the trial court may attribute income. [Citation.]” (Destein,
supra, 91 Cal.App.4th at p. 1392.)
For example, in “In re Marriage of Hinman [(1997)], 55 Cal.App.4th [988,]
999, the court refused to adopt ‘a per se rule prohibiting the imputation of income to
parents who refrain from employment in order to care for preschool-age children.’ In In
re Marriage of Dacumos (1999) 76 Cal.App.4th 150, 153-154 . . ., the supporting party
argued that it was an abuse of discretion to impute income to certain income-producing
rental properties, because ‘“earning capacity” is limited to income derived from
employment and does not include imputed rental income.’ The court rejected this
contention. Noting that income is broadly defined without regard to its source (. . . §
4058, subd. (a)), the court applied the earning capacity doctrine to the ability to earn from
capital as well as labor. (See also County of Kern v. Castle (1999) 75 Cal.App.4th 1442,
1455 [earning capacity applied when father spent entire $240,000 inheritance and failed
to invest it].)” (Destein, supra, 91 Cal.App.4th at pp. 1392-1393 [trial court imputed rate
of return to certain no income producing real estate assets].)
B. Standard of Review
“A trial court’s decision to impute income to a parent for child support
purposes based on the parent’s earning capacity is reviewed under the abuse of discretion
standard. [Citations.] ‘Under this standard, “[t]he appellate court should not substitute
its own judgment for that of the trial court; it should determine only if any judge
14
reasonably could have made such an order. [Citation.]” [Citation.]’ [Citation.]”
(Destein, supra, 91 Cal.App.4th at p. 1393.) “[W]e consider only ‘whether the court’s
factual determinations are supported by substantial evidence and whether the court acted
reasonably in exercising its discretion.’ [Citation.] . . . ‘[W]e do not substitute our own
judgment for that of the trial court, but determine only if any judge reasonably could have
made such an order.’” (Berger, supra, 170 Cal.App.4th at p. 1079.)
Berger, supra, 170 Cal.App.4th 1070 is instructive. There, the former
husband (Marc), left his $600,000 salary job at an accounting firm to devote his full time
to working as president of a landscape business in which he owned an equity interest.
(Id. at p. 1075.) When the landscape business experienced financial difficulties, Marc
agreed to defer his salary, and then sought modification of his child support obligation.
(Ibid.) The trial court determined Mark derived no income from the business and
imputed a meager income of $3,168 based on a theoretical return of 4.5 percent of his
many assets. Based on this calculation, the trial court drastically reduced child support.
(Id. at p. 1078.) On appeal, the court reversed, holding the trial court “abused its
discretion in deciding those circumstances warranted an order that essentially granted
Marc a ‘holiday’ from any significant responsibility to support his family at the present
time.” (Id. at p. 1081.) It reasoned, “By agreeing to defer his salary to preserve his
company’s capital, Marc is, in effect, investing in the company. He’s agreeing to take no
income now, with the expectation that if the company’s fortunes later improve, he will be
compensated with additional equity. And he is funding that choice by relying upon his
other assets to support his living expenses. But Marc could have just as easily chosen to
retain his salary—which after all, he needs to support himself—and his family— and
instead utilize his other assets to fund monthly capital investments into his company.”
(Id. at p. 1082.) The court concluded, “Marc cannot unilaterally, and voluntarily, arrange
his business affairs in such a way as to effectively preclude his children from sharing in
the benefits of his current standard of living.” (Ibid.)
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C. Imputing Income to Thomas’s Business
Thomas asserts it was improper to use earning capacity in lieu of actual
income because he was clearly gainfully employed and there was no evidence he was
deliberately avoiding his support obligation. As we explained in greater detail above, the
earning capacity doctrine may be applied to self-employed parents and is not dependent
of evidence of bad faith. As aptly stated by our Supreme Court, “We . . . decline to read
into . . . section 4058, subdivision (b), any limitation on the discretion vested in the trial
court to consider earning capacity in determining the appropriate amount of child support
when doing so would be in the child’s best interests.” (Moss v. Superior Court (1998)
17 Cal.4th 396, 424.)
Before we begin the analysis, it is helpful to review the nature of motions
pending before the court. Thomas filed a motion in March 2011 to reduce his support
obligation based on the allegation he was no longer earning any income and was in debt.
Eight months later, in December 2011, Elizabeth filed a motion seeking reimbursement
of several child-related expenses. Two years later, in March 2013, Elizabeth filed a
motion seeking an increase in child support because Alex was residing with her 100
percent of the time. Elizabeth also suggested the court should impute income to Thomas
because Thomas was living in a mansion and it appeared Thomas was minimizing his
income and living off other assets.
Starting with the first motion, the court determined Thomas failed to meet
his burden of proving his child support obligation should have been reduced due to his
law firm’s financial difficulties. The court stated it found “unpersuasive” Thomas’s
contention the year was unprofitable due to factors beyond his control, i.e., he was
distracted by litigation with Elizabeth, his wife’s lawsuit against Disneyland, and caring
for his parents. On appeal, Thomas does not assert this finding was an abuse of
discretion. Rather, Thomas argues that it appears the court unfairly “penalized” him for
his one unprofitable year by using a “$0 income” figure for one year in calculating
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whether to impute income. We conclude the evidence was relevant and fairly considered
by the court as just one component of the bigger financial picture of the law firm’s
profit/loss ratios.
Specifically, Thomas’s profit and loss statements show expenses exceeded
gross profits by $5,000 per month in 2010 resulting in zero net disposable income. In
later years, Thomas reported expenses that were sometimes as high as 70 percent of gross
profits and could be as low as 40 percent. We conclude all the financial reports were
relevant to the court’s evaluation of the fluctuating profit/loss ratios of the law practice
and to whether Thomas was voluntarily minimizing his net income and, thereby, also
negatively affecting his ability to support Alex. Thus, the court’s recognition there was a
significant negative cash flow for an entire year, and no adjustment of expenses, was not
to penalize Thomas unfairly. It was relevant evidence to address Elizabeth’s claim the
court should impute income to an underemployed spouse.
We turn our attention next to the issue of whether the court abused its
discretion in deciding to impute income. In its ruling, the court stated Thomas’s net
income was entirely dependent on his investment and business decisions and there was
evidence he voluntarily arranged his business affairs to minimize his disposable net
income. The court concluded there was also evidence Thomas had access to additional
income to support Alex and consideration of his earning capacity was, therefore,
consistent with her best interest. We conclude these conclusions were supported by
Thomas’s income and expense declarations and other evidence regarding Thomas’s
lifestyle, i.e., Thomas and his wife resided in an expensive guard-gated private
community, Coto de Caza, in Orange County. The court reasonably relied on reports
showing that from 2011 to 2013, Thomas’s gross yearly income ranged from
approximately $260,000 to $306,000. It calculated an average monthly gross income of
$25,208. The court reasoned that based on Thomas’s station in life, somewhat
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extravagant lifestyle, and gross income, Thomas’s had access to more than his self-
reported $9,000 to $10,000 net disposable income per month.
Because Thomas’s net disposable income from his law practice was solely
dependent on the amount Thomas allocated towards business expenses, the court properly
focused on this factor. It considered that Thomas arranged his business costs to
completely exceed his income for one full year, and in later years, his expenses were
sometimes as high as 70 percent of the gross income. Because the reported expenses
varied month to month (somewhere between 40 to 70 percent), the court calculated an
average for a three-year period: The monthly expenses averaged 52 percent of the gross
income (leaving only 48 percent in profits). The court heard both parties testify at the
hearing regarding the necessity of some of Thomas’s reported expenses, such as
Thomas’s legal secretary costing $90,000 a year, the file clerk, the office space lease and
overhead, and other “infrastructure” costs. We cannot reweigh the evidence or review
the court’s credibility findings. Based on the evidence and testimony regarding the high
level of business expenses, the court reasonably concluded Thomas could have adjusted
his costs to benefit from a larger profit margin than 48 percent. We find no basis to reject
the court’s conclusion of a need to impute income based on the evidence presented.
However, the same cannot be said of the court’s conclusion a more
reasonable profit margin was 55 percent rather than 48 percent. In setting this new
profit/loss ratio, the trial court provided no explanation for essentially decreasing the
monthly average expenses from the current rate of 52 percent to 45 percent (a seven
percent reduction in business costs) in order to achieve the 55 percent profit margin. The
trial court cannot calculate imputed income based on figures taken “from thin air.” (In re
Marriage of Cohn (1998) 65 Cal.App.4th 923, 931.)
We find instructive the body of case law examining the evidence required
for a lost profits award. Like the issue of what is an appropriate profit margin for
Thomas, the lost profit inquiry is somewhat speculative. For this reason, courts have held
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lost profit damages requires evidence that “‘“makes reasonably certain their occurrence
and extent.” . . . “In some instances, lost profits may be recovered where plaintiff
introduces evidence of the profits lost by similar businesses operating under similar
conditions. [Citations.]”’ [Citation.]” (Asahi Kasei Pharma Corp. v. Actelion Ltd.
(2013) 222 Cal.App.4th 945, 968-969.) “‘“While lost profits can be established with the
aid of expert testimony, economic and financial data, market surveys and analysis,
business records of similar enterprises and the like, the underlying requirement for each is
‘“a substantial similarity between the facts forming the basis of the profit projections and
the business opportunity that was destroyed.”’” [Citation.]’ [Citation.]” (Id. at p. 969.)
We have carefully reviewed the record and neither party submitted
evidence showing Thomas’s expenses were substantially similar to or different from
other similar law practices. We believe the appropriate profit loss margin for an
established 26-year-old law firm is a complex financial issue requiring a greater degree of
training, skill, and business model expertise that is possessed by most laypersons. We
could only speculate about whether it was reasonable for Thomas to continue paying over
$2,000 a month to rent office space, over $1,000 in automobile expenses, and over
$8,000 a month in personnel expenses, when Thomas’s take-home pay was sometimes
less than the base pay of his legal assistant. On remand, the court may appoint a forensic
accountant or other financial legal expert to evaluate Thomas’s desired business model to
continue earning less than 50 percent of his gross income. An expert would be better
equipped to consider the big picture as well as the more detailed examination of the
expenses paid directly by the business. The profit and loss statements provided to the
court contain broad categories of expenses such as “other office expenses” that may be
approved or reallocated by an expert as income to Thomas for purposes of calculating
child support.
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We recognize there is an expense associated with hiring a forensic expert or
business analyist. The parties will have to decide if it is worth the expense to quibble
over an additional $118 of child support per month as Alex nears her 18th birthday.
D. Discretionary Add-On for Activities
In her 2011 motion, Elizabeth sought reimbursement for half of Alex’s
dance-related expenses ($3,000) charged by her dance studio for participation on the
competition team. Elizabeth also asked for Thomas to pay a portion of health insurance
and child care expenses, including after school transportation. In addition, Elizabeth
requested reimbursement for Thomas’s share of the voluntary parent cash contribution
donated to Alex’s dance conservatory at her charter high school, OSCA. The court
denied all the requests except for the last one. The court determined each parent would
pay one half of the cash donation Elizabeth paid to OCSA. Because Elizabeth had paid
$7,512 over multiple years, the court calculated Thomas must reimburse her $3,756. On
appeal, Thomas objects to this add-on, arguing the court had no authority to impose
payments because the law guarantees Alex receive a free public education.
We begin by noting Thomas devotes five pages of his brief to discussing
general principles of law related to public education. In short, he discusses authority
holding student fees for extracurricular activities cannot be imposed by public school
districts.4 However, OCSA is a charter school. Noticeably missing from the discussion
is whether this is a distinction that makes a difference, i.e., to what extent does public
school law apply to charter schools. When an appellant raises an issue “but fails to
support it with reasoned argument and citations to authority, we treat the point as waived.
4 Thomas repeatedly asserts Alex’s dance classes were part of her “curricular
activities” not extracurricular activities, but he also argues extracurricular activities
should be part of free public education. It is unclear what point he is trying to make. His
case authority holds a public school must offer both types of activities free of charge and
he provides no case authority that the distinction, curricular vs. extracurricular, matters in
charter schools such as OCSA.
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[Citations.]” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784–785.) An
appellant may not simply make an assertion of law on one subject and leave it to the
appellate court to figure out why it applies to the case at hand.
Our record shows Alex’s academic education was entirely free. She did not
have to pay any extra money for her math or history classes. Her parents could have
donated cash to “bridge the gap” between what the state provided the school and what the
school actually must spend for each student’s academic classes, but Elizabeth did not
donate to OCSA “academic support program.” She made a donation to help pay directly
for Alex’s dance conservatory program, i.e., Alex’s dance education at OCSA.
OCSA is a special charter school that offers students the opportunity to
participate in 12 different art conservatory programs, each one entirely funded by cash
donations and not by the state. Alex was accepted into the commercial dance
conservatory (CMD). Elizabeth executed a parent agreement voluntarily agreeing to
donate money to help pay for CMD’s dance instruction and other program costs.
Specifically, Elizabeth presented evidence Alex’s charter school required
the parents each year to execute a “parent funding agreement” regarding their child’s arts
conservatory program. The agreement asked the parents to indicate if they would make a
cash contribution to their “student’s arts conservatory” and provided a suggested amount.
There was a space on the form agreement where Elizabeth could indicate her voluntary
donation (which could be less or more than the suggested amount). For example, parents
could make a larger donation to sponsor a student with financial need. The agreement
also asked parents to consider paying an additional $480 for the “academic support
program–‘bridge the gap.’” This cash contribution was earmarked as being “towards
academics.” The parent was then asked to subtotal the “Arts Conservatory + Academic
Cash Contributions.”
The next section of the agreement provided the parent with several payment
plans (one time, quarterly, or monthly payments), or the option of participating in
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fundraisers to raise money for the amount designated by the parent in the agreement.
Fundraising included selling advertising in programs or selling opportunity drawing
tickets. The final section of the agreement requested that the parent(s) initial three items
and then sign their name on the last line. The three listed items are as follows: (1) “I
understand that my student’s arts conservatory program is not funded by the State of
California and that conservatory budgets are based solely on parent commitments of cash
donations and fund-raising activities”; (2) “I understand all cash donations are tax
deductible as provided by law”; and (3) “I understand my commitment is voluntary and
not required for my child to participate in any conservatory or academic programs.”
The first item of the list above highlights the allocation of public funding is
different between charter school and public schools. OCSA, unlike a public school, does
not receive funding from the state to run its arts conservatory programs. In the
agreement, OCSA formulates its budget for the dance teacher salaries and dance classes
based on the amount of money the parents committed to donating in the beginning of
each school year. In summary, the donation is voluntary, but the agreement provides that
once a parent makes the commitment to pay OCSA, the CMD conservatory will be
counting on the money to fund its dance program.
Based on the above evidence, we conclude Thomas’s free public school
argument is a red herring. Alex is not attending a public school and Thomas cannot
assert he is being forced by OCSA to pay money for a public education. Thomas
provides no case authority holding it is illegal for a charter school to seek voluntary
donations to fund its art classes.
The real issue can be simply stated as follows: Did the court abuse its
discretion in ordering Thomas to reimburse Elizabeth for money paid to support Alex’s
dance program. We find no abuse of discretion.
Section 4062 “makes discretionary (‘the court may order’) additional child
support for educational or special needs of a child or for travel expenses for visitation.
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Among the family law bench and bar, these are usually referred to as . . . discretionary
add-ons.” (In re Marriage of Fini (1994) 26 Cal.App.4th 1033, 1039, fn. omitted (Fini).)
Section 4061 provides, “The amounts in [s]ection 4062, [if ordered to be paid,] shall be
considered additional support for the children and shall be computed in accordance with
the following: [¶] (a) If there needs to be an apportionment of expenses pursuant to
[s]ection 4062, the expenses shall be divided one-half to each parent, unless either parent
requests a different apportionment pursuant to subdivision (b)[,] and presents
documentation which demonstrates that a different apportionment would be more
appropriate.” Consistent with its broad authority to mitigate a decline in the children’s
standard of living postdissolution, a court has broad discretion regarding the type of
expenses it may award as discretionary add-ons, including a wide variety of
extracurricular activities and educational expenses. (In re Marriage of Schlafly (2007)
149 Cal.App.4th 747, 760-761.)
Thomas signed a stipulation agreeing it was in Alex’s best interests to
attend OCSA. The court accepted the stipulation and entered an order on April 11, 2011,
stating Alex’s parents agreed she should attend OCSA. Four years later, Thomas now
asserts Elizabeth was untruthful in 2011 about the potential costs associated with
attendance. Given the high level of acrimony between the parties, and years of
contentious litigation, it is difficult to believe Thomas would have voluntarily stipulated
to such an important educational decision for Alex without first determining for himself
the potential financial consequences. He does not contend the information was
unavailable to him, he was precluded from contacting the school, or he was prevented
from attending the school orientation/registration days for the past four years of school.
For these reasons, we find unpersuasive Thomas’s contention the trial court’s
discretionary add-on order must be reversed based on principles of equitable estoppel.
We also reject Thomas’s argument he cannot be forced to share in the costs
of Elizabeth’s voluntary donation made on a whim. The contention misstates the record.
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Whether the CMD program is deemed curricular or extracurricular it does not change the
fact Alex’s dance program was not funded by the state. Although Elizabeth was under no
legal obligation to execute OCSA’s parent funding agreement, we agree with Elizabeth’s
contention she did not make the donation on a “whim.” Elizabeth was not donating
money to her favorite children’s charity. As plainly stated in OCSA’s parent funding
agreement, the donation directly paid for costs associated with Alex’s dance program for
Alex’s direct benefit. As explained by the agreement, CMD’s budget was based solely
on the amount of parent donations and fund raising activities. If not enough parents
donated money there would likely be budgetary cuts made to the program. The family
court stated attending the dance program was in Alex’s best interests, recognizing the
donation helped insure Alex was provided a fully funded dance program.
In its order, the court did not specify whether the discretionary add-on (of
approximately $1,500 per year) was for the “educational or special needs of a child.” It
simply ruled the dance program was in Alex’s best interest and the parents could afford
it. The court also acknowledged, during its timeshare determination, OCSA was
recommended by Alex’s therapist. Thomas overlooks that the court order can be based
on Alex’s special needs rather than on additional educational costs. He does not dispute
that Alex’s attendance at OCSA was in her best interest given her special needs (her
special needs were discussed and litigated extensively in Nigro I), nor does he dispute he
has the ability to pay. We conclude that although the CMD conservatory takes place on a
school campus, its physical location does not preclude the court from exercising its
discretion and concluding the program was necessary to meet Alex’s special needs.
III
The postjudgment order is affirmed in part and reversed in part. The child
support order is reversed and remanded to permit additional evidence and testimony
relevant to an earning capacity calculation. We affirm the order reimbursing Elizabeth
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$3,756 for the OCSA dance conservatory program. Respondent (Elizabeth) shall recover
her costs on this appeal.
O’LEARY, P. J.
WE CONCUR:
BEDSWORTH, J.
FYBEL, J.
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