High Income Earner Update: the Other Holding in Macilwaine

• Publication year: 2019
• Author: John B. Chason, CFLS

High Income Earner Update: The Other Holding in Macilwaine

John B. Chason, CFLS

John B. Chason is a Certified Family Law Specialist by the State Bar of California, and a Fellow of the American Academy of Matrimonial Lawyers. Mr. Chason has been rated AV Preeminent by Martindale Hubbell, and was named by Super Lawyers magazine as one of the top family law attorneys in Southern California every year since 2015. His practice is in Beverly Hills, California.

When Marriage of Macilwaine¹ was published near the end of last year, the family law community gathered around to hear the key holding in the case: stock options are to be counted as income for child support purposes when sellable, regardless of whether the party holding the options chooses to sell them. Practitioners should take note that the case also marks the third decision in three years to address the calculation of child support when one parent is an extraordinarily high income earner. Macilwaine gives us some much-needed guidance on how to reconcile the apparent discrepancy between the last two holdings regarding the relevance of the support recipient's historic expenses.

Your Potential Client Might be an Extraordinarily High Income Earner

Suppose you are meeting with your potential new client, Mary. She's a recording artist, you've heard she is very popular. Mary is meeting with you to discuss custody and support for her two children she had with her longtime boyfriend Andrew. After going over the custody and visitation plan that will work for her during her upcoming world tour, you open up your preferred guideline support calculation software and ask Mary about her income. Mary says, "About a million." As you divide a million dollars by 12 months to determine her monthly income, Mary corrects you, "A million dollars per month--not per year."

Mary is what we call an "extraordinarily high income earner." For over 30 years, case law has recognized that some parents have such extraordinarily high income that the mathematical formula we use to calculate child support would lead to support amounts far in excess of what the recipient could possibly spend on his or her child. When you tell Mary that her guideline child support payment will be approximately $90,000 per month, you can expect her to ask, "How is Andrew going to spend $90,000 on our children every month?" While Mary's question is a sound one, is it relevant to the inquiry?

Deviation from Guideline Support under Family Code Section 4057(b)

Courts are required to use the guideline formula to set child support except for in special circumstances provided for in the Family Code.² Fortunately for Mary, one of those special circumstances is when one parent has an extraordinarily high income, and the mechanical application of the support formula would result in an improper shifting of wealth between unmarried or divorcing parties. After all, whatever Andrew doesn't spend on their children, he is likely to spend on himself or save for a time when the children have reached the age of majority.

This concept has been codified in Family Code section 4057, which provides that a court may deviate from guideline child support if it finds, among other factors, "The parent being ordered to pay child support has an extraordinarily high income and the amount determined under the formula would exceed the needs of the children."³ Unless Mary and Andrew can agree on the needs of their children, we must look to case law for how we establish those needs.

Determining the Needs of Children of Wealthy Parents

Case law makes clear that a child's "needs" in this context are relative to the wealth of the child's parents, as opposed to the child's bare necessities.⁴ However, there is no particular method for establishing the child's needs. Practitioners and trial courts have struggled with the relevance of the historic expenses of each party in determining the child's needs and the appropriate amount of support when the guideline is not used.

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Several early cases on this topic focused on the relevance of the high earner's expenses in determining the needs of a child. Both White v. Marciano⁵ and Johnson v. Superior Court⁶ approved of limitations on discovery into the lifestyle of the high earner. In those cases, the payors had indicated that they could pay any reasonable amount of child support. As the court explained in Johnson, "lifestyle should be evaluated based on the financial resources available to the payor parent, not whether he or she lives in a manner consistent with extravagance or frugality."⁷ Under these rulings, if the support recipient has basic financial...