court's Family Code section 4320 analysis was flawed because it mistakenly treated
Husband's income as taxable at the time of separation.2
As a threshold matter, we conclude substantial evidence supports the trial court's
finding of changed circumstances sufficient to justify reduction of the additional spousal
support paid by Wife. But the court erred when, in fashioning the specific modification,
it failed to consider the parties' reasonable expectations as expressed in their dissolution
agreement that Wife's earnings would continue to increase. We therefore reverse and
remand for modification of Wife's spousal support obligations consistent with the
principles expressed in this opinion.
2 Further references are to Family code section 4320 unless otherwise indicated. 2
FACTUAL AND PROCEDURAL BACKGROUND
A. Dissolution of the Marriage and the Relevant Agreements
Husband and Wife were married for 18-and-a-half years and have two children
together. Both worked outside the home during their marriage. They separated in 2012
and in 2014, dissolved their marriage according to the terms of two agreements, a
Marriage Settlement Agreement (MSA) incorporated into the court's judgment in March
2014, and an August 2014 Post Judgment Stipulation (PJS) (collectively, the
Agreements) that reflected newly available details regarding Husband's benefits and
compensation.
In the MSA, the parties agreed Wife would pay Husband $850 per month as base
spousal support from July 2013 through the end of 2020.3 According to the MSA, "[t]his
spousal support award meets Husband's reasonable needs. These needs are consistent
with the standard of living established during the marriage." On top of the $850, Wife
would also pay as additional spousal support 10 percent of any earnings in a calendar
year in excess of $180,000. The parties further agreed the parties could petition the court
to modify the spousal support:
"Upon application of either party to modify or terminate support, the court may consider the annual incomes of each party during marriage and at date of separation. At date of separation, Husband had gross monthly income of $12,932.81 (primarily non-taxable income per his income and expense declaration filed on October 30,
3 The MSA provides that spousal support obligations terminate "upon the first to occur of the following: [¶] (1) Wife's death; [¶] (2) Husband's death; [¶] (3) Husband's remarriage; [¶] (4) Husband living with an unrelated adult of either sex in other than a bonafide rental relationship; [¶] (5) January 1, 2021; [¶] or, (6) Further court order." 3
2012), and Wife had gross monthly income of $10,300 plus bonus potential (per her income and expense declaration filed on November 29, 2012). After separation and after the filing of the dissolution, Husband changed employers wherein his monthly income decreased to $7,500, and Wife changed employers wherein her monthly income increased to $15,000, plus bonus potential."
Wife also agreed to provide Husband with written notice each time she changed
employment.
The PJS maintained the general structure and termination terms of spousal support
obligations but modified the specific payment amounts. For July to November 2013,
Wife's support was reduced to $760 per month; for December 2013, $754; for January to
March 2014, $755 per month; and from April 2014 through the end of 2020, $551 per
month.
B. Procedural Overview
In December 2016, Wife filed a Request for Order (RFO) to modify her spousal
support obligations. She had found a new job with a higher salary and contended that in
light of these changed circumstances, her obligations under the Agreements exceeded the
marital standard of living and would result in a windfall to Husband. Whereas in 2012
Wife's earnings included a $180,000 base salary and a potential bonus capped at 20
percent of her salary, in 2016 Wife earned $265,000 with a possible bonus of up to 40
percent of her salary. At the initial hearing the court issued an oral decision denying
Wife's petition. But on the following day, it filed a minute order indicating it would
reconsider its prior decision on its own motion. Several months later the court issued its
Findings and Order After Hearing.
4
The court found that while Husband's expectation at the time of the agreements
was to receive 10 percent of Wife's bonus of $9,900, i.e. $990, if Wife received all of her
potential new bonus, Wife's additional payment would climb to $19,100. Primarily
because of the significant disparity between $990 and $19,100, the court found sufficient
evidence for changed circumstances. After analyzing the spousal support factors outlined
in section 4320, the court maintained the base spousal support as dictated by the
Agreements, and it maintained additional spousal support at 10 percent of Wife's earnings
above $180,000. But the court added a new restriction, capping additional spousal
support at $990 per year irrespective of Wife's actual earnings.
Husband filed Objections and Requests for Findings and Rulings relating to the
court's Findings and Order After Hearing. The court declined to address the objections,
and to the extent Husband sought a statement of decision consistent with Code of Civil
Procedure section 632 or Rule 3.1590 of the California Rules of Court, the court denied
the request as untimely.
DISCUSSION
A. Governing Law and Applicable Legal Standards
On appeal, an order modifying spousal support obligations is reviewed for abuse
of discretion. We start with the presumption the trial court's decision was correct; the
appealing party must affirmatively show error. (In re Marriage of Khera & Sameer
(2012) 206 Cal.App.4th 1467, 1484.) " ' " 'So long as the court exercised its discretion
along legal lines, its decision will not be reversed on appeal if there is substantial
5
evidence to support it.' " ' " (In re Marriage of Minkin (2017) 11 Cal.App.5th 939, 957
(Minkin), quoting In re Marriage of Dietz (2009) 176 Cal.App.4th 387, 398 (Dietz).)
To modify spousal support, a trial court must first find " ' "a material change of
circumstances since the last order." ' " (Minkin, supra, 11 Cal.App.5th at p. 956; Dietz,
supra, 176 Cal.App.4th at p. 396; see also In re Marriage of Smith (1990) 225
Cal.App.3d 469, 480 (Smith) ["Absent a change of circumstances, a motion for
modification is nothing more than an impermissible collateral attack on a prior final
order."].) In its changed-circumstances analysis, the court considers all factors affecting
the supported spouse's needs and the supporting spouse's ability to pay. (In re Marriage
of West (2007) 152 Cal.App.4th 240, 246.) An "increase in the supporting spouse's
ability to pay" may constitute a change in circumstances. (In re Marriage of McCann
(1996) 41 Cal.App.4th 978, 982, citing In re Marriage of Hoffmeister (1984) 161
Cal.App.3d 1163, 1173.) When support is governed by a marital settlement agreement or
stipulated judgment, the trial court's changed-circumstances determination must " ' "give
effect to the intent and reasonable expectations of the parties as expressed in the
agreement." ' " (Minkin, supra, 11 Cal.App.5th at p. 957.)
Likewise, the " 'trial court's discretion to modify the spousal support order is
constrained by the terms of the marital settlement agreement.' " (Dietz, supra, 176
Cal.App.4th at p. 398.) Marital settlement agreements incorporated into a dissolution
judgment are interpreted under the same rules governing contract interpretation generally.
(In re Marriage of Hibbard (2013) 212 Cal.App.4th 1007, 1012; In re Marriage of Iberti
(1997) 55 Cal.App.4th 1434, 1439.) " ' "The fundamental goal of contractual
6
interpretation is to give effect to the mutual intention of the parties. [Citation.] If
contractual language is clear and explicit, it governs." ' " (Hibbard, at p. 1013.)
B. Substantial Evidence Supports the Trial Court's Finding of Changed Circumstances.
Husband argues the Agreements themselves reflect the parties' reasonable
expectations upon entering the agreements that an increase in Wife's salary would not
constitute changed circumstances. Specifically, he points to the fact the parties did not
cap the spousal support but did include a termination date in 2020, years before spousal
support obligations would ordinarily terminate after dissolution of a lengthy marriage.4
Alternatively, Husband argues there is insufficient evidence of changed circumstances.
He contends the 2012 marital standard of living "was roughly $475,000," based on Wife's
2012 taxable income of $189,000 and Husband's income of $156,516, $151,899 of which
was nontaxable. Husband further points out that at the time of Wife's petition, he was
earning $125,000, while Wife's base salary was $265,000, which is short of the marital
standard of living even without accounting for inflation.
The court found changed circumstances as a result of Wife's "dramatic[]" increase
in earnings. The court noted several relevant facts regarding the relative earnings
4 Husband additionally argues the "trial court found the agreement was reasonably susceptible to Wife's interpretation and admitted extrinsic evidence that supported her view." This argument is misplaced. The court did not consider the ambiguity of any of the Agreement's terms, and it did not need to do so. Likewise, the court did not improperly admit extrinsic evidence or find the agreement reasonably susceptible to any interpretation offered by Wife. Instead, as expressly directed by the Agreements it "consider[ed] the annual incomes of each party during marriage and at date of separation." 7
increase. When she entered into the Agreements, Wife had "earned more than
$180,000.00 only twice: $189,900 in 2012, and $189,717 in 2013." Under the terms of
Wife's employment at that time, "[t]he maximum additional spousal support, had such
bonuses been earned, could not have exceeded $3,600.00 per year." Wife's "new
remuneration ($265,000.00) is $85,000.00 greater than her salary at the date of
separation; additional bonuses of up to 40 percent of her new base salary could add
another $106,000.00." As additional spousal support, Wife would thus be required to pay
"between $8,500.00 (10% of $85,000.00) and $19,100.00 (10% of $191,000.00)."
We disagree with Husband that the Agreements demonstrate a reasonable
expectation that an increase in Wife's earnings could never amount to a change in
circumstances. Certainly, the trial court is required to take the Agreements into account
in determining whether there are changed circumstances. (Minkin, supra, 11 Cal.App.5th
at p. 957.) And the Agreements do reflect the parties' reasonable expectation that Wife's
earnings would continue to increase, which we discuss below. But nothing in the
Agreements compels a leap from that expectation to an understanding that an earnings
increase could never constitute changed circumstances.
The real question is what magnitude of earnings increase would be necessary to
create changed circumstances. On this point we are forced to conclude substantial
evidence supports the trial court's finding that Wife's dramatic one-year leap in earnings
constitutes a material change in circumstances such that it could consider modification of
spousal support. Not only did Wife's bonus potential go from $36,000 to $106,000 in one
year, but also by November 2016 records indicate she had already earned $96,152 in
8
bonus income above her $265,000 annual base salary. Thus, we can set aside the
speculation regarding potential bonuses and distill the key facts for an appropriate apples-
to-apples analysis as follows. In the year prior to filing her RFO, Wife's total earnings
climbed from $242,252.00 in 2015 to $361,403.84 in 2016, a 49 percent increase.5
Wife's earnings in the five years prior to the Agreements increased at an average rate of
12 percent with a standard deviation of 8.7 percent. Through a broader lens, Wife's
earnings in the 10 years prior to the Agreements increased at an average rate of 11
percent with a standard deviation of 9.4 percent.6 In that context, an increase of 49
percent in one year amounts to substantial evidence of changed circumstances.
C. The Court Erred When It Failed to Consider the Parties' Reasonable Expectation That Wife's Earnings Would Increase.
Although its ability to modify a spousal support order is constrained by the terms
of the marital settlement agreement (Dietz, supra, 176 Cal.App.4th at p. 398), the trial
court has significant discretion when weighing the various section 4320 factors. (See,
e.g., Minkin, supra, 11 Cal.App.5th at p. 957.) For the same reasons substantial evidence
supported the court's changed-circumstances finding, particularly Wife's dramatic
earnings increase, substantial evidence likewise supports the court's conclusion that some
reduction of Wife's spousal support obligations was appropriate. However, by revising
the parties' agreement to cap additional spousal support payment at "10% of Wife's
5 Because the record does not indicate Wife's earnings for December 2016, it is possible she earned more.
6 For convenience, these values are rounded to two significant figures. 9
income above $180,000.00 per year, up to $189,900" (i.e., the amount of Wife's earnings
in 2012), the order fails to account for the parties' reasonable expectation that Wife's
earnings would continue to increase. The order thus exceeds the constraints imposed by
the terms of the marital settlement agreement. (See Dietz, supra, 176 Cal.App.4th at
p. 398; In re Marriage of Khera & Sameer (2012) 206 Cal.App.4th 1467, 1476.)
The Agreements reflect the parties' reasonable expectation that Wife's earnings
would continue to increase, primarily through the way the parties agreed to calculate
spousal support. The MSA divides spousal support into two tiers, base "spousal support"
and "additional spousal support." The tiers are distinguished in two ways. First, whereas
the base spousal support is set at a specific monthly figure, the additional spousal support
is determined as a percentage of the amount by which Wife's annual earnings exceed
$180,000. Second, before discussing additional spousal support, the MSA asserts the
base "spousal support award meets Husband's reasonable needs. These needs are
consistent with "the standard of living established during the marriage." These
distinctions thus evidence the expectation that while base support would be linked to
Husband's reasonable needs and the marital standard of living, the additional spousal
support provision—one bargained-for term among many in the expansive dissolution
agreements—would allow Husband to receive a percentage of Wife's likely earnings
increase, irrespective of the marital standard of living or Husband's reasonable needs.
The PJS maintains the MSA's distinction between the tiers of support.
Furthermore, the parties' earnings history is expressly contemplated in the
Agreements' modification provision: "the court may consider the annual incomes of each
10
party during marriage and at date of separation." (Italics added.) Later in the same
paragraph, the Agreements recite, "[a]fter separation and after the filing of the
dissolution . . . Wife changed employers wherein her monthly income increased to
$15,000 plus bonus potential." (Italics added.) And the Agreements' provision that Wife
provide notice regarding any change in employment anticipates the possibility, or perhaps
likelihood, that she would again change jobs. The inclusion of these details relating to
Wife's new job and her increased earnings reinforces the parties' understanding implicit
in the Agreements that her earnings would continue to increase. As discussed above,
Wife's annual earnings unmistakably show a pattern of significant increases throughout
the marriage, including the five and 10-year periods before execution of the
Agreements.7
In summary, the parties' Agreements reflected their understanding that Wife's
relatively recent earnings history included a pattern of increases, averaging 11–12 percent
per year. Thus, future increases consistent with this pattern would not amount to changed
circumstances sufficient to justify a modification of spousal support. Here, however, the
trial court properly found that the unusual—what it termed "dramatic[]"—increase
7 In the five years prior to the Agreements, Wife's earnings increased at an average rate of 12 percent; in the ten years prior to the Agreements, her earnings increased at an average rate of 11 percent. (Ante, at pp. 9–10.) For the period from the beginning of the marriage through execution of the Agreements, Wife's annual income grew at an average rate of 22 percent with a standard deviation of 37 percent, a dynamic earnings history with several steep increases. If a more robust analysis were necessary, consideration of external factors such as inflation would be helpful, but for our purposes a basic analysis of total earnings amounts is sufficient to demonstrate a pattern of substantial and fairly consistent earnings increases. 11
received by Wife in 2016 was a changed circumstance because it fell outside the normal
pattern of increases reasonably contemplated by the parties at the time of their
Agreements. As a result, modification of the "additional spousal support" component of
the Agreements was appropriate. In fashioning the modification, however, what the trial
court failed to do was incorporate the parties' demonstrated understanding that Wife
would likely receive not insignificant increases in her earnings. It thus erred in simply
capping additional spousal support at pre-2016 levels.8
Because of its history with the parties and firsthand experience, it is for the trial
court to craft a specific modification to spousal support in light of its finding of changed
circumstances. But any restriction on additional spousal support should not deny
Husband what the parties reasonably contemplated at the time they entered into the
Agreements. For our part, we only direct that on remand the court (1) take account of the
8 In light of our conclusion, we find it unnecessary to extensively discuss Husband's additional assertion of a specific factual mistake in the court's order. Indeed, both parties agree the court erred when it considered Husband's 2012 base pay to be taxable when it was in fact nontaxable, which affected the court's evaluation of the parties' standard of living at the time of dissolution, a spousal support factor the court considers under section 4320. Even so, we question the relevance of any such error. The marital standard of living factor does not compel the court to tie spousal support to a specific annual income; it merely requires the court to take into account the "general station in life enjoyed by the parties during their marriage." (Smith, supra, 225 Cal.App.3d at p. 475.) Furthermore, as discussed above, the Agreements demonstrate that base spousal support, which the court declined to modify, is the part of the spousal support award that was intended to address the parties' marital standard of living. In fact, Husband specifically agreed that the base spousal support award met his reasonable needs and was consistent with the marital standard of living. Nonetheless, we assume that to the extent the marital standard of living is relevant to its analysis, the trial court on remand will not repeat any prior error. 12
parties' reasonable expectation that Wife's earnings would continue to increase, and
(2) modify the spousal support obligations accordingly.9
DISPOSITION
The order is reversed and the matter is remanded to the superior court to modify
the spousal support obligations in accordance with this opinion. Appellant is entitled to
costs on appeal.
DATO, J.
WE CONCUR:
McCONNELL, P. J.
BENKE, J.
9 It is a settled matter of procedure that courts of appeal "do not entertain new points raised for the first time in a reply brief absent good cause." (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1542.) On these grounds, Wife asks that we strike the portions of Husband's reply brief arguing that the trial court's section 4320 analysis amounted to prejudicial error. We decline to do so. While Wife is correct that Husband did not use the term 'prejudice' in his opening brief, failure to employ the most appropriate legal terminology is not always the basis for a motion to strike. Here, Husband's opening brief argued the general point that the trial court's section 4320 analysis was flawed and detrimental to him because it mistakenly considered his 2012 income to be taxable. Husband did not raise a new point in his reply; instead, he developed a point he discussed, albeit obliquely, in his opening brief. 13
AI Brief
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Holding. The court held that while substantial evidence supported a finding of changed circumstances due to a dramatic increase in the wife's earnings, the trial court erred by failing to account for the parties' reasonable expectations of future earnings growth when capping additional spousal support.
Issues
Whether substantial evidence supported the trial court's finding of changed circumstances to justify a modification of spousal support.
Whether the trial court erred in its modification of spousal support by failing to consider the parties' reasonable expectations regarding the wife's future earnings.
Disposition. reversed
Quotations verified verbatim against the opinion
“substantial evidence supports the trial court's finding of changed circumstances sufficient to justify reduction of the additional spousal support paid by Wife.”
“the court erred when, in fashioning the specific modification, it failed to consider the parties' reasonable expectations as expressed in their dissolution agreement that Wife's earnings would continue to increase.”