Determining Spousal Support When There is Severance Pay

Spousal support and Child support is often set based on the payor spouse’s base or guaranteed income. Any additional income such as bonus income or commissions (usually in the form of a percentage of additional income) can be calculated as additional support. The case creating additional support is called Ostler & Smith (1990) 223 Cal.App. 3d 33. An Ostler & Smith percentage is assessed over and above guideline support “for any discretionary bonus actually received.” In Re Marriage of Mosley (2008) 165 Cal.App. 4th 1375. However, what happens when the payor spouse is laid off or terminated, and receives a severance package? How does this factor affect the calculation of spousal support?

In the case, In Re Marriage of Tong & Samson (2011) Cal.App. 4th No. B224899, we discover how the California Appellate Court dealt with this issue. The parties, Richard and Elaine get a divorce. As part of the Judgment of Dissolution, Richard has to pay approximately $9,000 per month in spousal support, plus 35% of all compensation in excess of $25,000 for each month. Richard is then laid off. The lay-off included approximately $310,000 severance payment. Richard asked the Court to have the severance pay spread out over time. While Elaine asked the Court for her 35% as a lump sum payment. The California Appellate Court would not grant Elaine’s request. Why?

The Court found that the trial court incorrectly allocated Richard’s severance pay to a single month in accordance with the parties’ stipulated support order which required Richard to pay Elaine 35% of his monthly compensation in excess of $25,000. This Ostler & Smith order was supposed to apply to Richard’s “variable monthly income from commissions, not to a one-time lump-sum severance pay.” Thus, the Court did not believe that severance pay was compensation for work performed but that it was designed to “compensate” him for 12 months of lost salary and 6 months of lost commissions rather than a single month of compensation. So, Elaine was unable to get her 35% as a lump sum payment.