Overtime, Bonuses, Stock Options – Do They Count As Income For Purposes of Support Orders?

Does your job allow for a significant amount of overtime? Or do you work overtime on a consistent basis? Is your ex-spouse trying to include the overtime pay as a part of your income for the purpose of determining an order of support? Per California Family Code, the determination of “income” is very broad. ​

California Family Code section 4064 states that “(t)he court may adjust the child support order as appropriate to accommodate seasonal or fluctuating income of either parent.” So, there is a legal basis for considering the “seasonal” or “fluctuating” income, which would include this overtime pay.
 
But how may the court consider this income? Do they use this income as a part of your base pay? Or do they use it in another fashion?
 
The classic case of “bonus” pay was discussed in In re Marriage of Smith & Ostler (1990) 223 CA3d 33. Husband, the supporting party in the case, had received an annual bonus, stock and stock options that generated dividends, had a car allowance and other various other benefits. Wife, the supported party, argued all of this additional pay should be considered income. The trial court found that because no future bonuses are guaranteed, it would not be appropriate to base a support order on Husband’s bonus income and then require him to file motions to modify at such times as the bonus is reduced. So, the trial court used its discretion and ordered that it would be more fair to all parties to base the support order on Husband’s income from salary and dividends, and to allocate a portion of the future bonus income to the children and to Wife by way of a percentage interest so that future litigation will not be necessary as the bonus income changes. Based on the above, overtime or bonus pay may be excluded from your base pay, but you may still have to pay a percentage of the overtime or bonus income.
 
However, what if you are the supporting party and have consistently worked overtime during your marriage? Would it be a good idea to stop working overtime in order to avoid paying more support?
 
This is a difficult answer. For instance, in County of Placer v. Andrade (1997) 55 Cal. App. 4th 1393, the Appellate Court held that overtime can be included in “annual gross income”, so in your case pay. This presents a little different ruling than Smith & Ostler, above. If there is no substantial evidence that a supporting spouse was unlikely to recover the bonus and overtime pay in the future, then bonus and overtime pay were not excludable from supporting party’s support obligations. So, if you do consistently work overtime, the court can consider predictable overtime and bonuses in your annual gross income. If you stop working overtime in order to avoid paying extra support or even just because you no longer want to work overtime, you run the risk that the court will still base your income on consistent overtime hours.
 
Now you are wondering … Does this mean that a court can make an order that would make it impossible for you to ever stop working overtime? Essentially, are you going to become a slave to the court?
 
Not necessarily. The California Supreme Court held in In re Marriage of Simpson (1992) 4 Cal. 4th 225 that the court may base support on Husband’s earning capacity, which may not be equal to his actual income. In Simpson, Husband worked long hours on a consistent basis throughout the marriage, but then stopped working these long after a temporary order of support was ordered. The California Supreme Court found (1) that the court penalized the Husband for working long hours and (2) that the court had substantial evidence that Husband was deliberately attempting to shirk family responsibilities.
 
So, the California Supreme Court stated that the trial court committed an error by determining a husband’s earning capacity without explicitly basing the determination on the income the husband could earn without substantial continuous overtime. The trial court’s record failed to establish that the trial court properly determined the husband’s earning capacity in accordance with the standard of an objectively reasonable work regimen. So, when the trial court determined Husband’s earning capacity, was this income based on working a reasonable number of hours?
 
The question then is what is a reasonable work regimen? The court explained in In re Marriage of Simpson (1992) 4 Cal. 4th 225 determining a reasonable work regimen is dependent upon all relevant circumstances, including “the choice of jobs available within a particular occupation, working hours, and working conditions. Established employment norms, such as the standard 40-hour workweek, are not controlling but are pertinent to this determination. A regimen requiring excessive hours or continuous, substantial overtime, however, generally should be considered extraordinary.”
 
Therefore, if you are paying support and have consistently worked some overtime, you should consult with an attorney prior to cutting your hours. You may still be held to your previous earning capacity, depending on whether or not the overtime was a reasonable work regimen.