How to Ensure Fluctuating Income from Bonuses or Commissions Is Included in Spousal Support and Child Support Orders in Los Angeles Divorce or Paternity Cases

Bonus Income and Ostler Smith Awards: Navigating Fluctuating Income in Support Proceedings in California Divorce or Paternity Cases

One  of the important issues divorcing couples face is determining appropriate spousal and child support awards (For unmarried couples with children child support is usually an issue too).

In cases where one party receives bonus income or commissions, these proceedings can become  more complicated, as it can be difficult to account for fluctuating earnings. This is where Ostler Smith awards come into play.

Ostler Smith awards are named after the 1990 California case In re Marriage of Ostler & Smith (1990)
223 Cal.App.3d 33.  An Ostler/Smith provision is “an additional award, over and above guideline support, expressed as a fraction or percentage of any discretionary bonus actually received.”

The issue was also addressed in the case In re Marriage of Mosley (2008) 165 Cal.App.4th 1375, 1387. The purpose of the Ostler Smith award is to capture fluctuations in the supporting spouse’s income that are not included in a flat rate amount of support. For example, in both Ostler & Smith and Mosley, the provision required the husband to pay a percentage of any performance bonus he received in his employer’s discretion as additional support beyond a set amount of monthly support. Under Ostler Smith, parties are required to allocate a portion of any future bonus income towards spousal and child support, with a percentage set by the court based on the particular circumstances of the case.

But what exactly constitutes bonus income in this context? Bonus income refers to earnings that are not guaranteed and are based on a variety of factors, including year-end profitability, individual performance, and company success. Because this type of income is not guaranteed, it can be difficult to determine how much of it should be allocated towards support payments.

For supported spouses or unmarried parents, Ostler Smith awards can provide a way to ensure they are paid a fair share of bonus income as additional support. By establishing a percentage allocation for bonus income, parties can avoid disputes and ensure that the supported party receives a just share of the additional earnings. In addition, Ostler Smith awards can help to ensure that the supported party receives a stable and consistent level of support, even when the supporting party’s income fluctuates.

On the other hand, for support obligors, Ostler Smith awards can provide a way to avoid overpaying support and ensure that tax deductions are properly allocated. When bonus income is allocated towards support payments, the portion that represents spousal support is tax deductible, while the portion that represents child support is not. By properly allocating bonus income between spousal and child support, support obligors can ensure that they receive the maximum possible tax deductions while avoiding overpayment of support.

Of course, as with any legal matter, there are important nuances and exceptions to consider when it comes to Ostler Smith awards. It is essential for parties to seek the guidance of competent legal counsel when navigating these issues in support proceedings.

When faced with the question of how to account for fluctuating income or bonuses in support proceedings, Ostler Smith awards can provide a valuable tool for both supported parties and support obligors. By establishing clear guidelines for the allocation of bonus income, parties can avoid disputes and ensure that everyone receives a just and fair amount of support.

ISSUES FROM THE PERSPECTIVE OF THE PAYING SPOUSE

It is crucial for both parties, as well as family court judges who hold significant discretion over such matters, to have a comprehensive understanding and willingness to implement a consistent and equitable mechanism for determining “cash available for support” when income fluctuates. Unfortunately, based on my experience, some supported spouses may not be open to a fair approach that considers the working parties’ entitlement to their own lives. Additionally, inexperienced family law attorneys may overlook certain nuances regarding bonus income orders when negotiating settlements or advocating their clients’ positions in court. Similarly, relatively new family law judges may fail to consider the burdens that disproportionate support orders can impose on payor spouses and registered domestic partners- including potential tax consequences.