The most important goal in nearly all dissolution of marriage cases is the Judgment. Whether the Judgment will embody the terms the parties have agreed on and signal an end to the fighting, or just the beginning of the next phase of post-marital stress, resentment, and expense depends in large part on how well counsel for the parties have drafted the terms of that document. When the case has gone to trial, a great deal of that will be dictated by the Court’s orders. However, even where the Judge or Commissioner has made detailed verbal rulings or a written Statement of Decision, the phrasing of the final form of Judgment can prevent disputes from arising over the execution of those terms, with the help of modest negotiations by the parties or requests for clarification made to the presiding bench officer.
Whether Judgment arises out of a trial or negotiated Marital Settlement Agreement (“MSA” – sometimes also referred to and drafted as a “Stipulated Judgment”), post-judgment disputes are most often related to property (including debt payment), support, and child custody (regardless if the controversy is characterized as custody- or visitation-related).
The general rule for division of community assets and debts (“property”) is they should be equally or equitably shared by both parties. Frequently, though, the nature and extent of the marital assets precludes equal splitting of property or assets for allocation. One spouse will receive a weightier portion of the assets, usually determined by “fair market value” at time of trial or settlement. In such circumstances, the receiving spouse will be required to make an equalizing payment (“Equalizer”) to the spouse who is initially less favored.
The motto here, mirrored in other parts of commerce, is “security, security, security!” Keeping an unbalanced initial division from becoming a permanent inequity will depend on how well secured the Equalizer is by the terms of the Judgment. There are many ways of securing future payment of an Equalizer, including a trust deed or other lien on real estate or other valuable property assigned to the debtor spouse. Missed installments or lump sum payments can lead to execution by obtaining orders to sell, take loans, refinance, or turn over other liquid assets, art, antiques, or jewelry.
There is also the personal guarantee of the spouse. This also leads to the role of debt allocation in the puzzle of Judgment drafting. Much similarity exists in risks inherent in personal guarantees to pay an Equalizer and assignment of community debts. Debts assigned to one spouse often have a clause associated with them to “defend, indemnify, and hold harmless” (“Indemnity”) the other spouse from creditors. Unfortunately, the worth of an Indemnity, much like the personal guarantee to satisfy the Equalizer, is only as strong as the monetary vitality of the issuer. When the indemnitor/guarantor spouse’s money and assets run out, their Indemnity or guarantee evaporates at the same time. Thus, these arrangements are only as secure as the income, cash flow, and assets of the guarantor. Without security independent of the person or the other spouse, they often fail their essential purpose. Moreover, as discussed below, where obligations of a financially embarrassed or irresponsible spouse do not involve child or spousal support, they may be dischargeable in bankruptcy. Again, security against real estate, art, antiques, jewelry, or other assets having semi-permanent value, is the byword for dependable and enforceable property division terms in Judgments.
A different set of troubles follow child and spousal support orders. Most people are familiar with wage assignments for payment of support. Once served on the payor parent’s employer, wage assignments automatically enforce the Judgment’s support terms. Occasionally issues will arise if the pay period of the employer and payment timing in the Judgment clash, but these rarely lead to major problems and are relatively easy to cure.
Two common pitfalls in support enforcement arise in contested dissolution cases: 1) Successfully self-employed business people, and 2) payor’s whose wages/salary/earnings include commission, bonus, overtime, or other variable compensation factors have a significant impact on their gross income. One might assume that major hurdles prevent effective execution of support provisions against self-employed business people, however, fairly concise procedures exist that can be written into the Judgment to eliminate some of those impediments.
When there is substantial doubt or disagreement over the high earning self-employed spouse’s income, part of the litigation will involve discovery proceedings to obtain data and records for the historical performance of the business. Sometimes these efforts are done by the lower-earning spouse’s counsel but, especially where the sophistication and diversity of the business’ finances exceed that of day-to-day commerce, a forensic accounting expert will direct or add suggestions to this phase of discovery. Base pay of a key employee (owner) is usually obvious; the parts needing closer review are business benefits, perquisites, and personal expenses covered by the company. These benefits and perquisites must be factored into the support calculation as they often exceed base-pay in the compensation equation. After the necessary evidence is collected, the accounting expert will prepare reports with estimates, conclusions, opinions, and recommendations as to the valuation of the business (if that is an issue in the property division part of the case) and available cash-flow to the payor spouse.
Whether from trial or negotiation, child and spousal support amounts arise, and mechanisms, such as voluntary or automatic direct payment from the business account to the payee spouse, establishment of support trust accounts, even appointment of receivers (though this imposes a heavy cost on the business and only occurs when non-payment and large arrearages accrue), become part of the Judgment’s support verbiage. Language for automatic audits, or preparation of financial reports, to be served on the payee spouse, can be added to track significant increases in business performance and enhanced income to the owner. Of course, business downturns will perforce give rise to such examinations and amendment, with or without a formal post-Judgment action being filed.
Those payor spouses who work for large, established companies, are frequently referred to as “W-2 Earners.” However, even these seemingly simple members of the workforce can have surprisingly complicated compensation situations. Our economy is replete with employees enjoying hourly wages approaching or exceeding $100, provisions for overtime, weekend and vacation day pay enhancement, performance bonuses, etc. They may also have company-paid vehicles, travel per diem, and other benefits which significantly reduce their living expenses and/or increase available cash from employment.
Luckily, California law provides a tool which simplifies this potentially thorny scene. The first step in the Judgment will be defining “base support”. That is the child and spousal support awards that get paid each month (usually split into 2 installments or allocated according to the pay-period-policy of the payor’s employer). This should either be set at the amount derived from base pay or salary and, if applicable, any consistently received commissions, overtime, and other compensation or benefits. That will be the amount stated in the wage assignment and paid directly by the employer as a payroll deduction.
The next step is structuring the terms (naming and characterizing) variable overtime, weekend-vacation pay enhancement, performance bonuses, etc. This is known as an Osler-Smith order. It is added to base-support when the payor’s compensation changes appreciably due to fluctuations in wage/salary add-ons. The two key elements of an Osler-Smith order are periodicity (quarterly, half-yearly, or annually), and which compensation, benefits, and perquisites will constitute add-on compensation. A recent case emphasized the impact of the 2nd factor. Failure to specify certain stock options and grants in the Osler-Smith order, which the payee spouse argued as implicitly included, lost the payee spouse many thousands of dollars.
Whether the above dispute was the result of careless drafting or trial award or recognized what the parties actually understood and intended is a question that will likely never be answered. Nonetheless, the decision resulted in the payee spouse not receiving a large amount of money to which she claimed entitlement. Regardless, the description of the Osler-Smith add-on should be precisely drawn, and the mechanism for execution specified, along with interest accrual if not satisfied within a predetermined number of days after presentation or agreement.
The last area of major post-Judgment conflict is with child custody and visitation. It must be stressed that nearly all of this conflict, where psychiatric and other circumstantial anomalies are not the cause, can be avoided by properly and concisely worded terms in the Judgment.
The best approach to avoiding custody-related disputes and enforcing the parenting plan (a new age term for custody and visitation orders), is for that part of the Judgment to be as precise, detailed, and all-encompassing as realistically possible. While a fully self-executing custody award may be impossible, the fewer options left without a specific course of action and limited set of alternatives from which to select, the lower will be the amount and frequency of friction between the parents. In the end, experience has shown that, where turbulence has characterized the parties’ parenting history, an all-encompassing “parenting plan” will yield greater peace and prosperity in the lives of their post-dissolution families.
In conclusion, where good faith, trust, and moral balance has been part of the parties’ relationship and can be depended on when future difficulties arise, power and precision of enforcement need not be a major concern. However, where those qualities have not influenced a client’s marital history, multiple levels of security, and well-drafted (nearly omniscient) descriptive executory clauses are a must.