Truth and Consequences: Shirking Spousal Support Obligations

While most Family Law courts recognize a prevailing precedent that no one may be compelled to work after the usual retirement age of 65 in order to pay the same level of spousal support as when they were employed, courts are concurrently wary of individuals who deliberately shirk their support obligations by refusing to work, retiring early, or restructuring the ownership of their assets to avoid their support obligations.

But what happens when a spouse gets creative, and literally hands over his business to his current spouse, effectively transforming the business to be his wife’s separate property? Is this the same as a spouse “shirking” their financial responsibilities to support their former spouse? In one simple word, yes.

It’s Still Your Income
In a recent California Court of Appeal case, In re Marriage of Kevin J. and Cathy Berman, a husband was found to have transferred his investigation and security firm to his current wife in bad faith in order to avoid his support obligation to his former wife. As a consequence of the husband’s actions, the court ruled that income from his “former” business could continue to be imputed to him for purposes of spousal support. The husband argued that his spousal support obligation to his former wife should be terminated after he retired at age 65 and transferred ownership of his business to be left “in capable hands” with his current wife; however, the court found otherwise.

The court stated that it would impute income to the husband “not as salary and wages, but as income produced from an asset” that the husband would continue to have if he had not transferred the business to his current wife without any consideration. Though the husband argued that the business would not do as well without him, the court found that because he had said in his own pleadings that he was handing the business over to “capable hands” the court had reason to believe that the business would continue to generate income as an asset. The court also found that the husband, though no longer an owner, was reaping the benefits of his former business by virtue of being married to the new owner of the business—his current wife.

Bad Faith Matters
The court’s order did not force the husband out of retirement, but rather, held him to the consequences of his bad faith actions. Thus, following the exposure of the truth of his bad faith transaction to his current wife, the husband was faced with the consequence that he would now receive imputed income as if the transfer of the business to his current wife had never occurred.

While parties sometimes like to get creative in an effort to avoid their support obligations, the truth will likely come out in court, and the person obligated to pay spousal support will face consequences. Here, the husband wanted to have his cake and eat it too; he wanted to benefit from his former business now run by his current wife and be rid of his support obligations to his current wife. However, the husband’s plan backfired when the court saw through his bad-faith tactics and ordered a fitting consequence for the husband’s bad faith plan.