Fluctuating or Seasonal Income

To arrive at “monthly net disposable income,” the annual net disposable income figure (above) is normally divided by 12. [Fam.C. § 4060; Marriage of Riddle (2005) 125 CA4th 1075, 1081, 23 CR3d 273, 277, fn. 3

Discretionary adjustment to reflect actual or prospective earnings: If the monthly net figure yielded by the above calculation does not accurately reflect the parties’ actual or prospective earnings at the time of the support determination, the court “may adjust the amount appropriately.” In effect, the assumption underlying the net monthly disposable income calculation is that past income is a good measure of the obligor’s future earnings. But § 4060 allows an adjustment, in the court’s discretion, where that is shown not to be the case. [Marriage of Mosley (2008) 165 CA4th 1375, 1385, 82 CR3d 497, 504; County of Placer v. Andrade (1997) 55 CA4th 1393, 1396, 64 CR2d 739, 741]

Averaging fluctuating earnings requires representative time sample: Section 4060 (together with § 4064) is particularly important in fluctuating-income cases (commissioned sales employment, royalty-based occupations, etc.). Plugging the obligor’s most immediate past monthly earnings into the “income” component will not accurately represent his or her actual or prospective earnings … because the figure does not reflect the inherent “ups and downs” and “bogs and dips” in the earnings cycle. Rather, exercising its sound discretion, the court must determine a fair and representative time sample from which to calculate anaverage monthly income that is a reasonable predictor of the obligor’s likely immediate prospective earnings. [Marriage of Riddle (2005) 125 CA4th 1075, 1080–1084, 23 CR3d 273, 277–279—error to calculate pendente lite child (and spousal) support based only on latest 2 months of commissioned salesperson’s earnings]
Case-by-case determination when the court has to determine fluctuating or seasonal income: The aim of the time sampling is to approximate accurately immediate prospective earnings from which support must be paid. Thus, the sample must not be taken from too long or too short a period of time. But since Fam.C. § 4060 (together with § 4064) is framed in discretionary terms, there is no “bright-line rule” for precise parameters of an appropriate time sample. [Marriage of Riddle, supra, 125 CA4th at 1083–1084, 23 CR3d at 278–279]
12–month benchmark: The applicable statutes place heavy emphasis on 12 months or “annual” income as a “benchmark” for the calculation (see Fam.C. §§ 4055(a), 4060 and 4059) and thus “appear to create a presumption that the most recent 12 months is certainly an appropriate period in most cases.” [Marriage of Riddle, supra, 125 CA4th at 1083
Adjustments to benchmark: But, depending on the earnings-generating source, the 12–month “benchmark” may need to be adjusted when the court is dealing with fluctuating or seasonal income.
  • A longer period could conceivably be used if it were more representative of a party’s income; e.g., a two or three-year average might be necessary to obtain a representative picture of an author’s royalty income(highest generally with the book’s initial release). [Marriage of Riddle, supra, 125 CA4th at 1084–1085, 23 CR3d at 279–280]
  • By contrast, a longer period may well be unrealistic for a commissioned salesperson in an industry that bobs and dips with the economy as a whole—going back too far only yields figures reflecting the pastoverall economy, not a figure contemplated by the guideline representing the party’s income in theimmediate future. [Marriage of Riddle, supra, 125 CA4th at 1084, 23 CR3d at 280]
  • On the other hand, too short a time sample could also distort the party’s likely immediate prospective earnings—as where a large one-time bonus had been paid (unrealistically exaggerating income) or the period was unusually “lean” (unrealistically understating income). “It is a manifest abuse of discretion to take so small a sliver of time to figure income that the determination essentially becomes arbitrary.” [Marriage of Riddle, supra, 125 CA4th at 1083–1084, 23 CR3d at 279–280—immediate past 2 months too short a time sample to predict annual income of commissioned salesperson working in financial markets because it unrealistically inflated his monthly income]
Adjustment where past overtime and bonus income not likely to recur: Past bonuses and overtime earnings ordinarily must be included in the “annual gross income” computation. The court cannot ignore predictablebonuses and overtime simply because they occur sporadically (rather, an average should be included in the calculation; County of Placer v. Andrade (1997) 55 CA4th 1393, 1396, 64 CR2d 739, 741; M.S. v. O.S. (2009) 176 CA4th 548, 554, 97 CR3d 812, 816;
On the other hand, pursuant to § 4060, excluding past bonuses and overtime from the gross income calculation is permissible if the court determines the parent is unlikely to receive them in the future—e.g., because admissible evidence shows a change in employment conditions or that the parent is no longer willing to accept voluntary overtime (but in the latter case, the court still has discretion to consider the parent’s overtime earning capacity; ¶ 6:450 ff.). [County of Placer v. Andrade, supra, 55 CA4th at 1396–1397, 64 CR2d at 741—disregarding parent’s overtime and bonus pay for past 2 1/2 years reversible error where no evidence they were not likely to be paid in future; compare Marriage of Mosley (2008) 165 CA4th 1375, 1385–1387, 82 CR3d 497, 504–505—error to impute discretionary bonus to obligor parent that may never materialize]
"The employee parent has the burden of demonstrating past bonus . . . income is not likely to be continued. Courts are very skeptical of such claims made by the employee party alone. Counsel should therefore obtain declarations from the employer (to the effect . . . bonus pay will be curtailed and why)."
Concerning a voluntary cessation of (or reduction in) overtime, the employee party’s declaration should state the specific reasons (e.g., physical or emotional health, desire to spend more time with the children, etc.).
Finally, when future overtime is in issue, the best approach may be to get the parties to stipulate to paying a percentage of the overtime for child support if and when received or agree that a less-than-guideline amount of the overtime earnings will be paid (stipulated support below the guideline level is permissible, subject to Fam.C. § 4065, This approach encourages the employee parent to continue working overtime, thus increasing the total money available for support of each of the parties and their children; whereas the rigid guideline approach (including past overtime in gross income calculation so long as the employee parent continues to work it) gives the employee parent an incentive to terminate voluntary overtime, redounding to everyone’s economic detriment.

If you are having issues with fluctuating or seasonal income, please contact our office for a consultation. We have offices in Riverside, Temecula and Anaheim and offer a free consultation.