Marital Standard of Living (MSOL): Practical Application, Scenarios & Variations - 1st Edition - JS Held
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Marital Standard of Living (MSOL):
Practical Application, Scenarios & Variations
1st Edition
516.621.2900 • info@jsheld.com • jsheld.com
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
Introduction
This article focuses on the income approach to determining the marital standard of living (MSOL),
with particular emphasis on Marriage of Cheriton (2001) 92 Cal.App.4th 269 and Marriage of
Ackerman (2006) 146 Cal.App.4th 191.
As a preface for this article, I want to highlight some language pertaining to MSOL from California
family law cases and the Family Code as follows:
• FC, § 4330, subd. (a) – “In a judgment of dissolution of marriage or legal separation
of the parties, the court may order a party to pay for the support of the other party
an amount, for a period of time, that the court determines is just and reasonable,
based on the standard of living established during the marriage… ” [emphasis added
here and hereafter]
• Marriage of Nelson (2006) 139 Cal.App.4th 1546 – “Section 4330 does not make
‘marital standard of living’ the absolute measure of reasonable need. ‘Marital
standard of living’ is merely a threshold or reference point against which all of
the statutory factors may be weighed. It is neither a floor nor a ceiling for a
spousal support award. The Legislature intended ‘marital standard of living’
to be a general description of the station in life that the parties had achieved
by the date of separation.”
• FC, § 4320, subd. (a) – “The extent to which the earning capacity of each party
is sufficient to maintain the standard of living established during the marriage.”
• FC, § 4320, subd. (c) – “The ability of the supporting party to pay spousal support,
taking into account the supporting party’s earning capacity, earned and unearned
income, assets, and standard of living.”
• FC, § 4320, subd. (d) – “The needs of each party based on the standard of living
established during the marriage.”
Family Code section 4320, subdivisions (a) and (c) are of particular interest to me for this article
because they discuss the MSOL vis-à-vis the supporting party and not only the supported party
(out-spouse). In my experience the MSOL is often associated with only the out-spouse. This is
important to keep in mind as it is often impossible for both parties to maintain their standard of
living after the date of separation, primarily due to the inability for both spouses to continue to
live in the same size residence as when they were married. However, in rare circumstances when
there is substantial income, both parties can maintain a residence as they enjoyed during the
marriage
2020 1
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
Determining MSOL
As a family law forensic accountant, I think of two main methods of determining the MSOL:
1. The expense method
2. The income approach
The expense method attempts to capture the actual expenses for a party and/or all or part
of the expenses for the children. The income approach also attempts to allocate expenses
to parties and/or children, but the income approach looks primarily at the sources of income
to determine reasonable consumption. The expense method does not consider the income,
it relies on actual or estimated expenses of one or both parties.
MARRIAGE OF WEINSTEIN (1991) 4 CAL.APP.4TH 555
This was a predecessor case to Cheriton and Ackerman. The parties lived beyond their means
in Weinstein, so the court looked to income as the only available measure of a reasonable
standard of living. At trial, wife was seeking $14,000 per month in permanent spousal support,
but the court awarded her $8,500 per month. “Appellant [wife] contends the award must be
reversed because the trial court employed an erroneous definition of marital standard of living,
failed to award sufficient support to satisfy the need it determined to exist…”1 “Appellant’s
(Wife) main contention is that the trial court erred in defining the marital standard of living by
reference to the parties’ income during marriage rather than their actual expenditures…”2
The wife did not prevail in Weinstein.
MARRIAGE OF CHERITON (2001) 92 CAL.APP.4TH 269
In this case, the parties lived below their means. The parties saved what they did not spend.
Husband was a computer science professor at Stanford University. However, Cheriton had the
unusual circumstances that there was a post-nuptial agreement by which husband received a
$45 million windfall as his separate property after the sale of a side business to Cisco Systems,
Inc. The Cheriton case stated a court can order support above MSOL, particularly true where
parties lived below their means (savings). A mathematical formula of MSOL based on income
and expenses, less husband’s share of the household consumption was affirmed. In Figure
1 (below) is a schedule representing my mathematical interpretation of the Cheriton court’s
determination of MSOL and the imputed income and support components that enabled the
Cheriton out-spouse wife to maintain her MSOL.
2020 2
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
David and Iris Cheriton
Marital Lifestyle - Per IRMO Cheriton (2001)
MONTHLY
1. “Average family income” from tax returns $ 11,000
2. Less: taxes (inferred) (3,600)
3. Marital standard of living for the parties and their children 7,400
4. Less: Adjustment for Husband’s “absence from the household” (1,400)
5. Wife and children marital standard of living $ 6,000
The Trial Court’s Order
6. Spousal support $ 2,000
7. Imputed income 2,700
8. Less: taxes (inferred) (992)
9. Child support 2,292
10. Iris Cheriton’s marital standard of living $ 6,000
Figure 1
It is important to note that the court included 100% of the children as part of wife’s marital
standard of living. If there were no children, there would theoretically be no need to make an
adjustment for husband’s “absence from the household” on line four in the table above, and
the determination of MSOL would be more straightforward. In the Cheriton case, the husband
remained in the family residence after separation while the wife and four children were living
in a cramped living space, with the four children sharing two bedrooms and the wife sleeping
on a couch. Husband was able to maintain his standard of living in the family residence with
the assistance of the $45 million he received as his separate property post-separation.
MARRIAGE OF ACKERMAN (2006) 146 CAL.APP.4TH 19
In this case, the parties lived beyond their means, as in the Weinstein case. Mr. Ackerman was
a Newport Beach, Orange County plastic surgeon. Below, in Figure 2, is my schedule interpreting
the Ackerman court’s determination of MSOL and the income and support components that
enabled the Ackerman out-spouse wife to maintain her MSOL:
2020 3
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
Boris and Ann Ackerman
Marital Lifestyle - Per IRMO Ackerman (2006)
MONTHLY
Stimulated “monthly controllable cash flow” as of September 2001 date
1. $ 61,000
of separation (including two children under the age of four at DOS)
2. Less: taxes (inferred) (25,000)
3. 2001 joint tax return “net income” 36,000
4. Allocation to outspouse wife 50%
5. Net income available for lifestyle $ 18,000
6. The court rounded up 2,000
7. Marital standard of living for each party $ 20,000
The Trial Court’s Order
Spousal support beginning 1/15/04 (with step-down contingent on Ann
8. $ 7,500
passing CA Bar exam, ect) - assumed taxable spousal support
9. Imputed income 3,000
assumed
10. “Reasonable intrest from the assets awarded” de minimis
11. Child support ($10,070 until 8/31/04, then 9,080 commencing 9/1/04) 10,070
12. Ann Ackerman’s marital standard of living $ 20,570
Figure 2
Ackerman differs from Cheriton in that the children’s portion of the income/consumption is
allocated 50% to each party (see line 4 in the table above). As this article segues to variations
that exclude children’s expenses, I pose a few questions/hypotheticals below:
• If we hypothetically assume that the Ackerman’s children turned 18 two years
after the court’s order above, does that mean that wife would be left with only
$10,500 [$7,500 spousal support + $3,000 imputed income]? If there was a
support modification, would a court give wife increased spousal support from
funds that were previously spent on the children? If husband no longer has his
2020 4
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
child support obligation, his net spendable income would be approximately
$30,000 vs. wife’s approximate $10,000. That is quite a large disparity between
the parties.
• If the Ackermans never had children and their total combined income was the
same as in the Ackerman case, wife’s net spendable income would be significantly
higher than the scenario above where I posit Mrs. Ackerman’s net spendable income
after her child support terminates.
• I believe it is safe to assume that if the parents were not spending/investing money
on their children, the parties would have spent that money on themselves and/or
saved the funds. So, can an argument be made that children’s expenses could be
converted to savings as a component of wife’s MSOL once the children turn 18?
Excluding Children’s Expenses in a Cheriton or
Ackerman Framework
California family law forensic accountants will often exclude children’s expenses in Cheriton/
Ackerman analyses, even though such exclusions are not present in the Cheriton and Ackerman
cases. I have seen three resources/methods for excluding children’s expenses which are:
1. With the income/cash flow, number of children, and all other inputs included in a
DissoMaster™, make the custody percentage zero. This will result in a total child
support amount that can be used to estimate children’s expenses.
2. Another tool for estimating children’s expenses is the study “Estimating Personal
Consumption with and Without Savings in Wrongful Death Cases” written by
Martine Ajwa, Gerald Martin, and Ted Vavoulis.3
3. Finally, the annual “Expenditures on Children by Families” by the United States
Department of Agriculture is another useful resource for estimating children’s
consumption of a family’s income.4
The results of the above methods of estimating and excluding children’s expenses are
compared to the Cheriton and Ackerman cases in the hypothetical scenario that follows in
Figure 3.
2020 5
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
Maritial Lifestyle and Support Scenarios - Income Approach Scenarios
CHILDREN CHILDREN CHILDREN
EXPENSES PER EXPENSES PER EXPENSES PER
ASSUMES TWO CHILDREN AND 50% CUSTODY AJWA, ET AL USDA DISSOMASTER ACKERMAN CHERITON
Total Income (300,000 wages;
1. 312,000 312,000 312,000 312,000 312,000
$12,000 non-taxable income)
2. Total taxes (85,056) (85,056) (85,056) (85,056) (85,056)
3. Total Lifestyle 226,944 226,944 226,944 226,944 226,944
4. Monthly 18,912 18,912 18,912 18,912 18,912
Less: Amount for Husband’s
5. “absence from household” (30% — — — — (5,674)
assuming 4 person household)
6. Less: Expenses for two children (6,581) (7,376) (4,433) — —
7. Marital lifestyle $ 12,331 $ 11,536 $ 14,479 $ 18,912 $ 13,238
8. 50% 50% 50% 50% 100%
9. Wife’s marital lifestyle $ 6,165 $ 5,768 $ 7,240 $ 9,456 $ 13,238
Possible Support Scenarios
Child support (guideline - 50%
10. custody, 2 kids) $ 3,328 $ 3,328 $ 3,328 $ 3,328 $ 3,328
11. Spousal support (assume 100% 6,165 5,768 7,240 6,128 9,910
tax-free for simplicity)
12. Total support (MSOL) $ 9,493 $ 9,096 $ 10,568 $ 9,456 $ 13,238
Figure 3
Adjustment for Housing Expenses
Another common variation on a Cheriton/Ackerman analysis is an adjustment for housing. Like the
adjustment for children, an adjustment for housing is not explicit in the original Cheriton/Ackerman
cases. The concept of the housing adjustment is to allocate the housing expenses typically to the out-
2020 6
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
spouse. Again, a housing adjustment makes less practical sense in a situation where there are not
enough funds to pay for two households of similar expense, which is the case for an overwhelming
majority of families. Below (Figure 4) is an example with an adjustment for housing expenses
compared to a hypothetical Cheriton:
Cheriton - Common Variation with Adjustment for Entire Housing Expenses
ASSUMES TWO CHILDREN AND 50% CUSTODY VARIATION CHERITON
1. Net disposable income (after tax) 18,912 18,912
Less: Amount for Husband’s “absence from household”
2. (30% for family with 2 kids) — (5,674)
3. Less: Average monthly housing costs (6,000) —
4. Marital lifestyle excluding children $ 12,912
5. Allocation to Wife 50%
6. Marital lifestyle before housing addback $ 6,456
7. Addback: housing expense 6,000
8. Wife’s marital lifestyle $ 12,456 $ 13,238
Possible Support Scenarios
9. Child support (guideline - 50% custody, 2 kids) $ 3,328 $ 3,328
10. Spousal support (assume 100% tax-free for simplicity) 12,456 9,910
11. Total support (MSOL) $ 15,784 $ 13,238
-16.1%
Figure 4
Isolate the Estimated Expenses for Only
One Spouse
Instead of an adjustment for children, sometimes an adjustment will be made to estimate only the
out-spouse’s consumption, sometimes in combination with a housing expense adjustment.
2020 7
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
In addition to estimating children’s expenses, the aforementioned “Estimating Personal Consumption
with and Without Savings in Wrongful Death Cases” study can also be used to estimate the household
consumption of one adult in families. Such an example is depicted in the table below, again compared
to a hypothetical Cheriton:
Cheriton - Common Variation with Adjustment for Entire Housing Expenses
ASSUMES TWO CHILDREN AND 50% CUSTODY VARIATION CHERITON
1. Net disposable income (after tax) $ 18,912 $ 18,912
Less: Amount for Husband’s “absence from household”
2. (30% for family with 2 kids) N/A (5,674)
3. Less: Average monthly housing costs (6,000) N/A
4. Subtotal $ 12,912
5. Wife’s % of disposable income (per Ajwa, et al) 24.9%
6. Marital lifestyle excluding children $ 3,215
7. Addback: housing expense 6,000
8. Wife’s marital lifestyle $ 9,215 $ 13,238
Possible Support Scenarios
9. Child support (guideline - 50% custody, 2 kids) $ 3,328 $ 3,328
10. Spousal support (assume 100% tax-free for simplicity) 9,215 9,910
11. Total support (MSOL) $ 12,543 $ 13,238
5.5%
Figure 5
Adjustment for CPI Inflation
Family law attorneys and forensic accountants should consider adjusting the MSOL for the increase/
decrease in inflation and/or the consumer price index (CPI). This is especially important when the date
of separation is at least five years earlier than the date of trial. In the table (Figure 6) below on line 9,
the MSOL can be increased by approximately 8.58% using the increase in CPI over the five years that
2020 8
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
elapsed since the date of separation. A very easy-to-use CPI inflation calculator can be found at the
following website: https://www.bls.gov/data/inflation_calculator.htm.
Cheriton - With Increase for CPI
ASSUMES TWO CHILDREN AND 50% CUSTODY VARIATION CHERITON
1. Net disposable income (after tax) $ 18,912 $ 18,912
Less: Amount for Husband’s “absence from household”
2. (30% for family with 2 kids) N/A (5,674)
3. Less: Average monthly housing costs (6,000) N/A
4. Subtotal $ 12,912
5. Wife’s % of disposable income (per Ajwa, et al) 24.9%
6. Marital lifestyle excluding children $ 3,215
7. Addback: housing expense 6,000
8. Wife’s marital lifestyle $ 9,215 $ 13,238
9. CPI increase 2013-2017 8.58% 8.58%
10. Wife’s marital lifestyle $ 10,006 $ 14,374
Possible Support Scenarios
11. Child support (guideline - 50% custody, 2 kids) $ 3,328 $ 3,328
12. Spousal support (assume 100% tax-free for simplicity) 10,006 11,046
13. Total support (MSOL) $ 13,334 $ 14,374
7.8%
Figure 6
2020 9
Copyright © 2020 J.S. Held LLC, All rights reserved.WHITE
PAPER
Conclusion
Analyses are often labeled as being faithful to the principles enunciated in Cheriton and Ackerman,
but they are not. Usually, they are a variation such as discussed earlier herein. Practitioners should
be aware of the intentions and methods of the Cheriton and Ackerman courts and how their orders
resulted in the out-spouse’s MSOL. Practitioners should also be aware of common variations on
Cheriton and Ackerman and some of the tools that are used to effectuate those variations.
Acknowledgments
We thank our colleague Blair Slattery, CPA/ABV who provided insight and expertise that greatly
assisted this research and the Association of Certified Family Law Specialists for granting
authorization to reproduce this article, originally published in Journal of the California Association
of Certified Family Law Specialists (Summer 2020, No. 3).
References
1. Marriage of Weinstein (1991) 4 Cal.App.4th 555, 559.
2. Id. at p. 565
3. Martine Ajwa, Gerald Martin & Ted Vavoulis. Estimating Personal Consumption with and
Without savings in Wrongful Death Cases. (2000). Retrieved from: http://citeseerx.ist.psu.edu/
viewdoc/download?doi= 10.1.1.1013.8376&rep=rep1&type=pdf. Note: may require subscription
to access.
4. United States Department of Agriculture. Expenditures on Children by Families. Retrieved from:
https://www.fns.usda.gov/resource/expenditures-children-families-reports-all-years
This publication is for educational and general information purposes only. It may contain errors and is provided as is. It is not intended as
specific advice, legal or otherwise. Opinions and views are not necessarily those of J.S. Held or its affiliates and it should not be presumed
that J.S. Held subscribes to any particular method, interpretation or analysis merely because it appears in this publication. We disclaim
any representation and/or warranty regarding the accuracy, timeliness, quality, or applicability of any of the contents. You should not
act, or fail to act, in reliance on this publication and we disclaim all liability in respect to such actions or failure to act. We assume no
responsibility for information contained in this publication and disclaim all liability and damages in respect to such information. This
publication is not a substitute for competent legal advice. The content herein may be updated or otherwise modified without notice.
2020 10
Copyright © 2020 J.S. Held LLC, All rights reserved.You can also read
