The receipt of spousal support and a share of the community property in a divorce does not relieve the spouse who is being financially supported from being accountable for his or her financial future. Just when one thinks they are free from scrutiny, they are not.
Supported spouses (in other words, a divorced spouse who receives support payments as part of the divorce settlement) are put under a microscope by both the courts and the spouse supporting them in a proceeding to modify or terminate spousal support. In addition to the analysis of their employment capabilities and receipt of other income, a supported spouse’s investment strategies will be analyzed as a factor to determine whether they have reasonably managed their share of the marital estate and are entitled to an increase or continuation of spousal support.
Duty to Become Self Supporting
When a divorce proceeding is finalized, the party receiving spousal support is given a warning, or almost a disclaimer, to be self-supporting. That warning essentially provides that the state of California’s goal in approving the divorce is for each party to make reasonable, good faith efforts to become self-supporting, and that the failure to make such reasonable, good faith efforts may be one of the factors considered by the court as a basis for modifying or terminating spousal support.
Investment Strategies Matter
A factor that is tied to the reasonable, good faith efforts to become self-supporting is the investment strategy that a supported spouse utilizes to become self-sufficient. Courts have come down hard, and almost punitively, on supported spouses who have made imprudent or negligent investments of their share of community property assets awarded to them in the divorce.
In one particular case, the court found that a wife had made high risk investments from her share of community property, including investments in a restaurant, gold mines, cattle and oil and gas exploration from which she received very little income. The court concluded that the wife failed to exercise reasonable diligence in connection with her investments, and had she exercised such diligence, the original expectations of the court would have been met and she would have been self-sufficient with no need to be supported by her ex-spouse.
The poor investment strategy by the wife in this case, coupled with the court’s disappointment that the wife had made a conscious decision not to retrain or reeducate herself in order to obtain more profitable employment, served as the basis for the court’s decision to terminate her spousal support. The court held that to otherwise continue or increase the wife’s receipt of spousal support would “encourage profligacy and discourage sound investment and prudent management to the detriment of all concerned.” (In re Marriage of McElwee (1988) 197 Cal. App. 3d 902, 909-910.)
Court decisions in other cases have held that if a supported spouse reduces their assets through negligent investments, the court will negatively view the impact of such actions on the supported spouse’s income when making decisions on continuation of support.
In a proceeding to modify or terminate spousal support, case law and the decisions made by the courts demonstrate that the investment strategies of the supported spouse will be analyzed closely to determine if they have “reasonably managed” their share of the marital estate. This analysis will include the age of the supported spouse, the amount of risk that he or she can tolerate, the financial goals of the supported spouse and the strength of the economy. Further, the decision about whether the supported spouse’s investment strategies are adequate or sufficient will vary from case to case, and usually will require expert testimony.
Bottom line, if the supported spouse is found to have been negligent or to have made unwise or imprudent investments with their share of community property, the courts will take those actions into consideration when deciding whether to modify or terminate an award of spousal support.