Friday, January 30, 2009
Court of Appeal Rules Deferred Salary ‘Income’ for Support Purposes
By STEVEN M. ELLIS, Staff Writer
An Orange County man who left a lucrative career and then deferred a salary to keep his struggling startup business afloat while living off accumulated wealth could not plead lack of income when it came to setting family support, the Fourth District Court of Appeal ruled.
Concluding income could not be imputed from the man’s earnings before leaving a six-figure job in the financial industry absent evidence of an opportunity to resume work, Div. Three nonetheless held a trial court should have both calculated income based on the deferred salary and found “special circumstances” warranting departure from support guidelines.
Marc Berger and his wife, Rachel Berger, divorced in 2004 after almost 13 years of marriage, and three years after Marc Berger left his job as a partner at accounting and business consultancy firm PricewaterhouseCoopers to operate a startup business, X-Scapes, offering landscaping to developers of new homes on a financed basis.
The pair had two daughters, and Berger had previously earned as much as $600,000 per year, but accepted a reduced salary of $200,000 per year from the new business, which he agreed to defer in 2004 in light of the company’s financial difficulties.
However, after he and his ex-wife split $2 million in proceeds from the sale of the family residence after their divorce, Berger continued to live a wealthy lifestyle, admitting monthly expenses in excess of $21,000.
Berger’s former wife sought support based on his salary before leaving the finance industry, but Orange Superior Court Commissioner David S. Weinberg rejected the request, concluding she failed to show an actual opportunity for Berger to earn his former salary.
Weinberg also determined that Berger’s income was limited to a negligible sum he received for insurance, but Justice William W. Bedsworth wrote on appeal that Berger’s choice to forego receipt of his salary “changes nothing for purposes of including it in his ‘income.’ ”
“[W]hile divorced parents have the same right to pursue happiness as all other citizens, they cannot do so by abrogating their obligation to support their families. And they certainly cannot do so by voluntarily deferring salary, living extravagantly off their sizeable assets, and pleading poverty at the support hearing.”
Bedsworth agreed with the trial court that Berger’s income could not be imputed at a rate equivalent to his previous earnings, but opined that Berger’s voluntary agreement to defer a salary provided evidence of present earning capacity.
“The fact [Berger] is choosing to plow that salary back into the company cannot be spun into a basis for ignoring those earnings,” he remarked.
The justice explained that Berger had effectively chosen to invest his salary each month back into the company while supporting his own lifestyle with other assets, and said the decision was “indistinguishable” from one in which Berger actually did receive the salary, utilized it for his living expenses and then used other assets to invest in the company.
“For purposes of calculating support, it cannot make a difference whether [Berger] is paying his bills from his salary and leaving his savings untouched, or paying them from his savings and ‘banking’ his salary,” Bedsworth wrote.
The justice then opined that, even if that Berger’s deferred salary had not been “income,” Weinberg should have characterize Berger’s decision to defer salary and live off his assets as “special circumstances” warranting departure from support award guidelines.
“It would be ironic indeed if we allowed the fact that [Berger] does not need a job to support himself in the short-term—as a less wealthy man would—to be spun into the justification for granting him a break from the obligation to support his family,” he wrote.
“Whatever the merits of [Berger’s] decision to continue devoting his efforts to X-Scapes—merits which we do not judge—the wealth which gives him the freedom to make that decision cannot be used as a basis to avoid support.”
Justices Richard M. Aronson and Raymond J. Ikola joined Bedsworth in his opinion.
The case is In re Marriage of Berger, 09 S.O.S. 615.
Copyright 2009, Metropolitan News Company