IMPUTED INCOME: 1995 COMPREHENSIVE UPDATE
© 1995 National Legal Research Group, Inc.
In recent years, the rising divorce rate has made the general public much more aware of existing laws on support and property questions. This awareness has caused some divorce litigants who sense an unfavorable fact situation to take the best available settlement. Other divorce litigants, however, have attempted to avoid an unfavorable result by purposely manipulating their assets or income.
When assets are conveyed away for an invalid purpose shortly before a domestic action is filed, the court may assume for purposes of the action that the conveyance never took place. When income is manipulated, the court in a domestic case will look to the earning "capacity" or earning "potential" of each party, ignoring any recent changes in their actual reported earnings.
It is worth noting at this point that the imputation of income is for support purposes only. A court cannot impute income and then deem that income to be marital property subject to equitable distribution. Southwick v. Southwick, ___ A.D.2d ___, 612 N.Y.S.2d 704 (1994).
One court identified three reasons for the increasing use of imputed income: (1) there is a growing reluctance to modify support orders; (2) current inability to pay a support order has become less of a consideration, and long-range capacity to earn money has become more of a consideration; (3) any voluntariness in diminished earning capacity has increasingly become an impediment to modification, as such voluntariness smacks of manipulation. State ex rel. LeClere v. Jennings, 523 N.W.2d 306 (Iowa Ct. App. 1994).
The basic rule on imputing income is easily stated. For purposes of all family law issues, including most often spousal and child support, the court will look not to the parties' actual incomes, but rather to their earning capacities. See, e.g., Scott v. Scott, 563 So. 2d 1044 (Ala. Civ. App. 1990) (ability to earn, as opposed to actual earnings, is the proper factor to be used by trial court in determining whether modification is warranted); Jordan v. Jordan, 547 So. 2d 574 (Ala. Civ. App. 1989) (child support award exceeding parent's income is not automatically an abuse of discretion, because the standard to be applied is the ability to earn rather than actual income); McDonald v. McDonald, 556 So. 2d 1009 (La. Ct. App. 1990) (court would look to father's ability to earn rather than income); Hedburg v. Hedburg, 412 N.W.2d 43 (Minn. Ct. App. 1987) (determining obligor's income capacity appropriate in specified circumstances); Beegle v. Rasler, 395 Pa. Super. 174, 576 A.2d 1100 (1990) (generally, earning capacity is determinative factor in setting support obligations); Johnson v. O'Neill, 461 N.W.2d 507 (Minn. Ct. App. 1990) (earning capacity may be used as income measure if obligor has unjustifiably limited earnings).
This policy of looking to an obligor's earning capacity rather than actual income is embodied in numerous statutes. Typical of spousal support statutes is Cal. Civ. Code 4801 (West Supp. 1992), which provides that the court shall look to the earning capacity, obligations, and assets of the spouses. See also Uniform Marriage and Divorce Act 308(b)(6), 9A U.L.A. 348 (1987) (court shall consider financial "ability of spouse from whom maintenance is sought" to provide support). See generally 2 H. Clark, The Law of Domestic Relations in the United States 17.5 at 259 (2d ed. 1987).
Almost every child support statute also contains the authority to impute income. But see Heley v. Heley, 506 N.W.2d 715 (N.D. 1993) (there is no statutory authority to impute income to parent). Since the enactment of child support guidelines in every state pursuant to federal mandate, 42 U.S.C.A. 667(a) (West Supp. 1991), most states have specifically included in their child support statutes the requirement that a court impute income to an obligor spouse who is unemployed or underemployed where the circumstances so warrant. For example, Va. Code Ann. 20-108.1(B)(3) (Supp. 1992) provides that the court shall consider "imputed income to a party who is voluntarily unemployed or voluntarily under employed; provided that income may not be imputed to the custodial parent when a child is not in school, child care services are not available and the cost of such child care services are not included in the computation." Similarly, N.Y. Dom. Rel. Law 240 (McKinney Supp. 1992) provides that the court shall consider "an amount imputed as income based upon the parent's former resources or income, if the court determines that a parent has reduced resources or income in order to reduce or avoid the parent's obligation for child support." See also, e.g., Alabama Rules of Judicial Administration, Rule 32(B)(1) (income means ability to earn if unemployed or underemployed); Alaska Rules of Court, Civil Rule 90.3 Commentary III(C) (court may calculate child support based on determination of potential income); Arizona Child Support Guidelines, 5(e) (court may attribute income to parent whose earnings are reduced as a matter of choice and not for reasonable cause); Cal. Fam. Code 4057(g)(2) (court may, in its discretion, consider the earning capacity of a parent); Colo. Rev. Stat. 14-10-15(A)(4) (if parent is voluntarily unemployed or underemployed, child support shall be calculated on a determination of potential income); Connecticut Child Support Guidelines, 46b-215a-1(12) (imputed support obligation); Florida Civil Practice and Procedure Rules, Rule 61.30 (income shall be imputed to an unemployed or underemployed parent when it is voluntary); La. Rev. Stat. Ann. 9:315(6)(b) (income means potential income if party is voluntarily unemployed or underemployed); Md. Fam. Law Code Ann. 12-201(b)(2) (income included potential income if parent is voluntarily impoverished); Massachusetts Rules of Probate Court, Child Support Guidelines, II(H) (court may consider potential earning capacity); N.J. Stat. Ann. 2A:34-23(a)(4) (one of the factors to be considered in determining child support is the earning ability of each parent); Ohio Rev. Code Ann. 3113.215(A)(1)(b) (for a parent who is unemployed or underemployed, income means that which he or she could be earning at full capacity); Pennsylvania Supreme Court Rules, Rule 1910.16-5(c)(1) (where a party voluntarily assumes a lower-paying job, there will be no modification of support). Seegenerally 2 H. Clark, The Law of Domestic Relations in the United States 18.1 at 360 (2d ed. 1987).
Types of Imputed Income
In determining whether to charge a party with more than his actual reported earnings, courts have imputed income in two different ways. First, the court is always free to disbelieve the party's own testimony on his actual earnings. When this occurs, the court is not truly imputing income, since it is still limiting itself to the party's actual earnings. Because the assumed income is greater than the actual income reported by the party to the court, however, courts using this principle are in a sense imputing income to a party. We will call this principle imputing income as a matter of fact.
Second, even if the court believes the party's evidence of his own actual earnings, the court can determine that the party has a higher earning capacity. This principle will be called "true" imputation of income, or imputing income as a matter of law. Many of the cases focus on situations where the party's actual earnings decrease, and the court must determine whether or not this decrease was matched by a similar decrease in earning ability. Courts in these cases look first to whether the party had control over the drop in earnings. If the drop was involuntary, the inquiry will stop, and a court will not impute income because of the loss of income. A court might, however, impute income if the obligor fails to mitigate damages by failing to seek new employment. In this instance, the court is effectively saying that while the loss of income may have been involuntary, the maintenance of the lower income is a voluntary act.
If the drop was voluntary, there is a major split in authority. Some courts will automatically impute income whenever a voluntary act leads to a drop in income, regardless of the motives of the obligor. Other courts will not impute income if the voluntary act was undertaken in "good faith," i.e., if the obligor spouse was not seeking to avoid support obligations. Another way of stating the good-faith test is whether the obligor would have done the act in question even if he or she had still been married and providing for his or her family as before. In re Marriage of Richards, 472 N.W.2d 162 (Minn. Ct. App. 1991); accord 2. H. Clark, The Law of Domestic Relations in the United States 17.6 at 281 (2d ed. 1987).
III. DEFINING "INCOME"
Before considering whether to impute income, the court must first define the term. Income obviously includes any benefit received as compensation for services performed, including income from salaries, wages, commissions, royalties, and bonuses. Most child support statutes include in their definitions of income the following: workers' compensation benefits, disability benefits, unemployment insurance benefits, Social Security benefits, veterans' benefits, pension and retirement benefits, fellowships and stipends, annuity payments, rental income, gifts, prizes, and awards. Thus, perquisites given by an employer are income. Helsey v. Helsey, 430 Pa. Super. 16, 633 A.2d 211 (1993); Boudreay v. Benitz, 827 S.W.2d 732 (Mo. Ct. App. 1992); In re Marriage of Jacobson, 251 Mont. 394, 825 P.2d 561 (1992). But see Graham v. Graham, 640 So. 2d 963 (Ala. Civ. App. 1994) (value of free day care mother received from her employer would not be attributed to mother as income); Campbell v. Campbell, 635 So. 2d 44 (Fla. Dist. Ct. App. 1994) (contributions made by husband's employer to husband's profit-sharing plan were not income to husband; husband had no stock in company, contributions were not voluntary, and husband had no control over contributions). Further, certain items are specifically excluded from the definition of income, such as AFDC payments. Items specifically excluded are obviously not income. See Tulloch v. Flickinger, 616 A.2d 315 (Del. 1992) (monthly annuity payment received from insurance company as result of premarital personal injury settlement is not income for child support).
These cases have demonstrated a willingness of the courts to consider almost any source of funds as income, regardless of whether such funds would be considered income for federal and state tax purposes. Glenn v. Glenn, 848 P.2d 819 (Wyo. 1993) (prison pay is income for purposes of child support); In re Armstrong, 831 P.2d 501 (Colo. Ct. App. 1992) (inheritance is income for calculating gross income for child support); Belue v. Belue, 38 Ark. App. 81, 828 S.W.2d 855 (1992) (veterans' benefits are includable as income, although they are not income under federal tax law); Alexander v. Armstrong, 415 Pa. Super. 263, 609 A.2d 183 (1992) (serviceman's allowance for quarters and variable housing allowance are includable as income for child support, although they are not taxable); In re McGowan, ___ Ill. App. 3d ___, 638 N.E.2d 695 (1994) (housing allowance, though not subject to federal tax or garnishment, is income to soldier); Hyde v. Hyde, 421 Pa. Super. 415, 618 A.2d 406 (1992) (alimony woman receives from ex-husband is income when calculating her obligation to husband who has custody); Forbes v. Forbes, 610 N.E.2d 885 (Ind. Ct. App. 1993) (disabled parent's Social Security benefits are includable as income); cf. Jones v. Jones, 628 So. 2d 1304 (La. Ct. App. 1993) (although unearned income was "income" for federal tax purposes, court would not consider it income for support).
A number of cases have considered whether gifts from relatives are "income" for support purposes. In Cummings v. Cummings, 21 Fam. L. Rep. (BNA) 1130 (Ariz. Ct. App. Dec. 15, 1994), the court held that gifts that the mother received from her parents were income to her, because such gifts were continuous and predictable. Accord Petrini v. Petrini, 336 Md. 453, 648 A.2d 1016 (1994) (gifts father received from his mother, including rent-free housing, health insurance, and reimbursement for medical expenses for father's children, were income to father). Where gifts are not predictable, however, they cannot be considered income. Huebscher v. Huebscher, ___ A.D.2d ___, 614 N.Y.S.2d 524 (1994) (court cannot impute to mother gifts she receives from her mother, where gifts might cease); Shively v. Shively, 635 So. 2d 1021 (Fla. Dist. Ct. App. 1994) (cannot impute to wife income based on gift she has yet to receive).
Several recent decisions have faced the difficult question of whether "income" exists when one spouse is freed from paying a necessary expense. A good example is Ogard v. Ogard, 808 P.2d 815 (Alaska 1991). In that case, the husband lived in one unit of a fourplex building he owned. The trial court imputed to him the income that he could have received had he rented out the unit. The appellate court reversed this imputation of income. "As owner of the property he should not be required, in effect, to pay to live there." Id. at 818. The court continued, however, that "special circumstances" might justify imputing rental income. One special circumstance the court cited would be where an obligor reduces his or her income by liquidating income-producing assets and applying the proceeds to the mortgage on his or her dwelling. The reduction of the mortgage, and thus the lessening of the "rental obligation," could be imputed in such a case, because the obligor spouse was in actual receipt of funds that he or she then used for purposes other than support. Id. at 819; see In re Marriage of Kirk, 217 Cal. App. 3d 597, 366 Cal. Rptr. 76 (1990) (voluntary diversion of income to repay a debt was voluntary reduction of income; amount of diversion would be imputed).
Similarly, in Zimmerman v. Zimmerman, 169 Wis. 2d 516, 485 N.W.2d 294 (Ct. App. 1992), the appellate court held that the trial court had erred when it imputed income to the husband of the value of theoretical mortgage payments on his residence when the residence was mortgage free. The voluntary reduction of one's expenses, therefore, does not usually translate into imputed income.
By way of contrast, where a person has absolute control over the receipt of real funds and voluntarily reduces the funds received, income will generally be imputed. This situation frequently arises when an obligor is the sole or majority stockholder of a close corporation. Jensen v. Jensen, 877 S.W.2d 131 (Mo. Ct. App. 1994) (courts will impute income where a party quits a job to avoid support, involuntarily loses a job but makes no effort to restore income, or manipulates the income and assets of a close corporation). For example, in Abbott v. Dunlap, 541 So. 2d 995 (La. Ct. App.), writ denied, 544 So. 2d 403 (La. 1989), the husband wholly owned his own corporation. After his divorce, he set his own salary at $2,000 per month. He set the salary of a lesser-trained employee, however, at $4,000 per month. Because the husband had control over his reduction in income, the court imputed income to him. Accord In re Marriage of Elies, 248 Ill. App. 3d 1052, 618 N.E.2d 934 (1993) (where husband was employed by father in family business, and evidence showed father and husband together manipulated husband's income, court would impute income by averaging last three years); Mathers v. Mathers, 579 So. 2d 503 (La. Ct. App. 1991) (no modification of child support where father's income had decreased from $2,500 per month to $2,000 per month and father was in control of how much he earned); Faintich v. Faintich, 861 S.W.2d 217 (Mo. Ct. App. 1993) (husband as sole owner of business had complete control over salary); Boudreau v. Benitz, 827 S.W.2d 732 (Mo. Ct. App. 1992) (the court attributed to the father amounts listed as "retained earnings" and "loan from stockholder" (himself) on the corporate balance sheet; this amount represented the profits of the wholly owned corporation that the father placed in the corporate account); In re Marriage of Christensen & Christensen, 123 Or. App. 412, 859 P.2d 1192 (1993) (husband, as sole shareholder in automobile body shop, cut own salary precipitously before trial).
The courts are especially ready to impute income to the majority shareholder of a close corporation where the corporation pays the shareholder's new spouse an especially large salary. In In re Marriage of Aronow, 480 N.W.2d 87 (Iowa Ct. App. 1991), the court imputed to the obligor ex-husband the salary he paid to his new wife. The court found that the new wife's salary, over $70,000, was clearly excessive in light of her minimal duties and concluded that the husband must be paying his new wife this salary in an attempt to lessen his own salary while still maintaining his standard of living. Similarly, in Pratt v. Pratt, 645 So. 2d 510 (Fla. Dist. Ct. App. 1994), the husband claimed he "retired" from his business. In actuality, he established a new business with the same customers in his new wife's name, and had the complete benefit of all business income by access to the corporate and joint accounts. Not surprisingly, the court imputed income to the husband. See also Evjen v. Evjen, 171 Wis. 2d 677, 492 N.W.2d 361 (Ct. App. 1992) (court imputed income of obligor's wife to obligor where both were employed by family-owned corporation, and obligor had full control over what his wife earned); cf. Miller v. Miller, 171 Wis. 2d 131, 491 N.W.2d 104 (Ct. App. 1992) (obligor's wife's earnings from joint venture with obligor were not income to obligor).
Other cases reached similar results. In Marsh v. Fieramusca, 150 Misc. 2d 776, 569 N.Y.S.2d 1012 (Fam. Ct. 1991), the full amount of husband's voluntary contribution to his 401k plan was imputed to him as income, because he had complete control over whether he could realize this income. In McGinley-Ellis v. Ellis, 638 N.E.2d 1249 (Ind. 1994), the court imputed income to the obligor for shifting around the income in his own corporation from salary to paid perquisites. In Koch v. Koch, 874 S.W.2d 571 (Tenn. Ct. App. 1993), the husband withdrew a large amount of funds from his corporation and claimed they were "capital withdrawals." The court declined to put such a spin on the withdrawals and instead considered the withdrawals as income. Similarly, in Jose R.D. v. Elisabeth R.D., 197 A.D.2d 457, 603 N.Y.S.2d 37 (1993), the court found that the husband was able, through various business enterprises, to manipulate the amount of reflected business expenses so as to reduce his reflected income. Given husband's manipulation of expenses, it was not error to impute to him his earning capacity.
In an especially egregious case, In re Marriage of Dick, 15 Cal. App. 4th 144, 18 Cal. Rptr. 2d 743 (1993), the court imputed income to the husband in the amount of $35,000 per month. The court found that the husband had organized his assets to create a labyrinth of trusts and corporations to shield himself from creditors, such that while the husband claimed he had no assets in his name, he had, in reality, over $20 million in income-producing assets. Accord Bielecki v. Bielecki, 505 So. 2d 546 (Fla. Dist. Ct. App.), review dismissed, 511 So. 2d 297 (Fla. 1987) (where husband "retired" from business, but, after divorce, was set to receive "deferred profit" from business, court agreed with wife that payments were concealed income); Vandal v. Vandal, 31 Conn. App. 561, 626 A.2d 784 (1993) (where husband could earn more from business by better business practices, court would impute income); cf. In re Marriage of Mull, 61 Wash. App. 715, 812 P.2d 125 (1991) (court would not impute payments into pension plan where such payments were mandatory after election, and payments did not compromise needs of children); Peterson v. Peterson, 434 N.W.2d 732 (S.D. 1989) (court would not consider income to husband which he put back into family business, where husband, as minority shareholder, was without power to determine and guide the disposition of the income); Allison v. Allison, 554 So. 2d 1196 (Fla. Dist. Ct. App. 1989) (court would not impute income husband lost as a result of a change in the tax law).
Courts will also consider as income the retained earnings of a subchapter S corporation, where the obligor has control over whether the corporation retains those earnings or distributes those earnings. Compare Merrill v. Merrill, 587 N.E.2d 188 (Ind. Ct. App. 1992) (retained earnings of wholly owned close corporation is income to father); King v. King, 390 Pa. Super. 226, 568 A.2d 627 (1989) (retained earnings of husband's partnership would be attributed to husband where evidence was insufficient to establish its legitimate need); Boudreau v. Benitz, 827 S.W.2d 732 (Mo. Ct. App. 1992) (funds labeled as retained earnings were income to father where he had control over funds) and Williams v. Williams, 74 Ohio App. 3d 838, 600 N.E.2d 739 (1991) (income for purposes of support included retained earnings of father's corporation, of which he owned a majority of the stock) with Riepenhoff v. Riepenhoff, 64 Ohio App. 3d 135, 580 N.E.2d 846 (1990) (retained earnings held by close corporation should not be considered part of gross income, where obligor owned 47% of stock, and earnings were not available upon his request). But see In re Perlenfein, 316 Or. 16, 848 P.2d 604 (1993) (undistributed income of closely held corporation that is attributable to minority stockholder is income for child support); Smith v. Smith, 197 A.D.2d 830, 602 N.Y.S.2d 963 (1993) (court, not considering whether shareholder was majority or minority, held that subchapter S corporation's gross receipts were income). Courts will also decline to impute reinvested earnings where the decision to reinvest is based on sound business practice. Roberts v. Wright, 117 N.M. 294, 871 P.2d 390 (1994) (where mother reinvested $330,750 back into business to maintain inventory, this would not be imputed, as decision was based on sound business practice); Muir v. Muir, 841 P.2d 736 (Utah Ct. App. 1992) (reinvestment to maintain business in present condition will not be imputed; reinvestment to expand business will be imputed).
IV. IMPUTING INCOME AS A MATTER OF FACT
Courts can impute income to a divorce litigant either as a matter of fact or as a matter of law. Imputation as a matter of fact occurs when the court disbelieves a party's own evidence on the size of his income. Such disbelief is not true imputation of income, since the court is not charging the party with more than his actual income, but instead merely disagreeing as to the actual amount of that income. Nevertheless, courts applying this principle frequently refer to it as a form of imputing income, and that characterization has been accepted for purposes of this article. See Annotation, Attributing Undisclosed Income to Parent or Spouse for Purposes of Making Child or Spousal Support Award, 70 A.L.R.4th 173 (1989) (collecting cases where court attributes income to obligor based on belief or disbelief of income evidence).
A good example of imputation of income as a matter of fact is Johnson v. Fritz, 406 N.W.2d 614 (Minn. Ct. App. 1987). In that case, the husband moved for modification of child support obligations. In support of this modification, he stated that his sole income was from his trucking business, that he lost his license to operate trucks, that despite due diligence he was unemployed, and that his monthly income of $706.06 did not permit even the basic necessities of life. The deposition testimony of the husband's banker revealed, however, monthly income of $14,000, savings in the amount of $21,629.90, and gross income for the previous year of $127,702.25. The husband's own deposition showed that he owned three trucks, three trailers, three cars, and an airplane.
Not surprisingly, the court refused to modify the husband's obligation. In so doing, the court did not charge the husband with more than his actual income, but, rather, chose not to believe the husband's claim. In reaching this result, the court emphasized the disparity between the income the husband claimed and the lifestyle he actually led. "The court can take into account the lifestyle of a sole business owner if the figures offered do not comport with the evidence of that person's lifestyle. . . . This evidence showed a lifestyle totally out of reach of one who earns less than $700 per month." Johnson v. Fritz, 406 N.W.2d 614, 616 (Minn. Ct. App. 1987).
Other cases agree that income should be imputed as a matter of fact where a party's lifestyle is inconsistent with his claimed income. See Bryant v. Bryant, 634 So. 2d 596 (Ala. Civ. App. 1994) (court was within its discretion in disbelieving husband's affidavit of income and in imputing income to him); Polley v. Polley, 588 So. 2d 638 (Fla. Dist. Ct. App. 1991) (court disbelieved husband's testimony that he earned no income from his position as consultant); Seitz v. Seitz, 471 So. 2d 612 (Fla. Dist. Ct. App. 1985) (court imputed income to the husband in the amount of $60,000, based on the wife's and accountant's testimony that the husband was skimming money from his business and had large amounts of ready cash); Bushnell v. Bushnell, 527 So. 2d 15 (La. Ct. App. 1988) (husband claimed income of $13,000 per year, but standard of living defied that contention); In re Baskett, 519 So. 2d 259 (La. Ct. App. 1988) (obligor's testimony was evasive and equivocal, leading court to conclude that the obligor was not limited to the take-home pay alleged); Canning v. Juskalian, 33 Mass. App. Ct. 202, 597 N.E.2d 1074 (1992) (husband's listing of rental income was inaccurate; court would impute proper amount of income to him); Westwater v. Donnelly, ___ A.D.2d ___, 612 N.Y.S.2d 58 (1994) (court would decline to modify husband's obligation despite his claim of lower income, where evidence showed he lived in high style, with cars and Hawaiian vacations); Jose R.D. v. Elisabeth R.D., 197 A.D.2d 457, 603 N.Y.S.2d 37 (1993) (where husband was able to manipulate numerous businesses to reduce income by increasing expenses, court was within its power to impute income to husband); Reif v. Reif, 197 A.D.2d 611, 602 N.Y.S.2d 690 (1993) (court within its discretion to disbelieve affidavits of husband); Praeger v. Praeger, 162 A.D.2d 671, 557 N.Y.S.2d 394 (1990) (although husband claimed stroke rendered him disabled and unable to practice as surgeon, husband's failure to disclose his finances or the nature and extent of his condition belied his claims of disability); Cusimano v. Cusimano, 149 A.D.2d 397, 539 N.Y.S.2d 502 (1989) (statements of worth and tax returns showed disparities, and disparities were not explained; court concluded husband had more money available to him than he claimed); Edmons v. Bisbano-Edmons, 590 A.2d 97 (R.I. 1991) (husband, sole shareholder, testified his salary was cut back, but evidence, including husband's ownership of two cars, including a Jaguar, and multiple credit cards, indicated otherwise); McCormick v. McCormick, 159 Vt. 472, 621 A.2d 238 (1993) (court imputed income to husband where it found his evidence of income not credible).
Where there is no inconsistency between lifestyle and claimed income, it is much less likely that the court will impute income as a matter of fact. For instance, in Stinson v. Stinson, 494 So. 2d 435 (Ala. Civ. App. 1986), the father alleged that his actual income was minimal. The mother tried to prove that the father had secreted assets and had income greater than what he alleged. The trial court concluded, and the appellate court agreed, that the trial court's conclusion that the father had secreted assets and income was not supported by the evidence. Rather, the evidence showed that the father was uneducated, broke, ill, and without funds other than those earned when he worked a few days at $30 per day.
Of course, where a court discovers that a party has concealed assets and income, it is proper for the court to attribute that income to the party. E.g., In re Marriage of Stearns, 88 Ohio App. 3d 264, 623 N.E.2d 711 (1993); Olson v. Olson, 384 Pa. Super. 224, 558 A.2d 93 (1989); Nicholson v. Lewis, 295 S.C. 434, 369 S.E.2d 649 (Ct. App. 1988).
V. IMPUTING INCOME AS A MATTER OF LAW
In addition to imputing income as a matter of fact, the court can also impute income as a matter of law. Income is imputed as a matter of law when the court decides to disregard a party's actual earnings and look instead to his or her earning capacity. The conditions under which this type of imputation should occur are among the most controversial issues in modern support law.
Determining Earning Capacity
In most states, the first step in determining whether to impute income as a matter of law is to determine earning capacity. But see In re Marriage of Bonnette, 492 N.W.2d 717 (Iowa Ct. App. 1992) (before considering earning capacity as opposed to actual earnings, the party challenging actual earnings must show that support based on actual earnings will result in an injustice to the obligee). A party's earning capacity is the amount of income he or she would earn by making all reasonable voluntary efforts to maximize income. If there is no voluntary act a party can reasonably take which will increase his actual earnings, then actual earnings and earning capacity are the same, and income cannot be imputed. Malenfant v. Malenfant, ___ Pa. Super. ___, 639 A.2d 1249 (1994) (earning capacity is the amount a party can realistically earn given his or her health, age, mental and physical condition, training, and work history). A person's earning capacity is a question of fact, and must be based on evidence in the record as to what a person's earning capacity is. See Seilkop v. Seilkop, 575 So. 2d 269 (Fla. Dist. Ct. App. 1991) (it is error to impute income without a sufficient factual finding of what amounts the court is imputing and from what sources or bases the court is deriving its figures); Kehoe v. Kehoe, 31 Mass. App. Ct. 958, 583 N.E.2d 283 (1992) (court should not impute income to wife where she had not worked for 21 years and had insufficient work history to base earnings on); In re Marriage of Braun, 887 S.W.2d 776 (Mo. Ct. App. 1994) (court correctly declined to impute income to a party where there was no evidence of her earning capacity since she had been out of the job market for eight years); Spilovoy v. Spilovoy, 488 N.W.2d 873 (N.D. 1992) (error to impute income to stay-at-home mom where there was no evidence or specific findings as to what her income could be); Pettit v. Pettit, 612 N.E.2d 1090 (Ind. Ct. App. 1993) (party to whom income is to be imputed is entitled to evidentiary hearing); Brooks v. Rogers, ___ Va. App. ___, 445 S.E.2d 725 (1994) (wife failed to present evidence that spouse could have earned greater amount or had engaged in conduct to economic disadvantage, and therefore income would not be imputed).
In recent years, courts have defined how to determine income capacity, i.e., what evidence will prove income capacity. Some cases have focused exclusively on the party's work history. In re Marriage of Jaeger, 883 P.2d 577 (Colo. Ct. App. 1994) (capacity is based on average income of three years prior to drop in earnings); Stodtko v. Stodtko, 636 So. 2d 814 (Fla. Dist. Ct. App. 1994) (it is error to impute income higher than party ever earned); Holdsworth v. Holdsworth, 621 So. 2d 71 (La. Ct. App. 1993) (earning capacity is income of most recent job party left voluntarily); Atkinson v. Atkinson, 420 Pa. Super. 146, 616 A.2d 22 (1992) (earning capacity must be based on the party's work record and employability); Hill v. Hill, 869 P.2d 963 (Utah Ct. App. 1994) (imputed income based on earnings history); Hall v. Hall, 858 P.2d 1018 (Utah Ct. App. 1993) (where party has highly unique and specialized skills, court should consider earnings in profession in general and then make adjustments for party's unique skills). Other cases have taken a more expansive view of the type of evidence that may be used to prove earning capacity. In Reuter v. Reuter, 102 Md. App. 212, 649 A.2d 24 (1994), the court said that potential income may be determined by the physical and mental condition of the party, the party's education, the party's work history, the party's efforts to find and retain employment, and the job market. See also Lewis v. Lewis, 569 So. 2d 1342 (Fla. Dist. Ct. App. 1990) (evidence of earning capacity may include the Department of Health and Human Services imputed income calculations); Elliott v. Elliott, 634 N.E.2d 1345 (Ind. Ct. App. 1994) (potential earnings are determined by work history, occupational qualifications, and earning levels in community); Castaneda v. Castaneda, 615 N.E.2d 467 (Ind. Ct. App. 1993) (potential income is determined by party's work history, occupational qualifications, prevailing job opportunities, and earning levels in community).
A recent case offers a good example of a bad decision concerning determination of income capacity. In Goldberger v. Goldberger, 96 Md. App. 313, 624 A.2d 1328 (1993), an initial child support case, the father was a lifelong Orthodox Jewish Talmudic scholar who had never held an income-producing job. The wife argued that the husband was voluntarily impoverished and therefore income should be imputed to him. The trial court agreed and the appellate court affirmed, holding that a religious life of poverty is a luxury few can afford.
This decision is fundamentally flawed, because the court erred in the determination of the husband's income capacity. This man's income capacity was clearly zero: he had never worked a day in his life, and his whole life had been dedicated to Talmudic scholarship. Members of his orthodox congregation supported him and his family in lieu of him supporting his family, and that was the way it had been since the day this man and wife married. By imputing income to the husband, the court effectively penalized the husband for a chosen career path that his wife had consented to, a path chosen long before any court involvement. This a court may not do. See discussion infra regarding state of mind.
Recent Decreases in Earnings. Determining earning capacity poses special problems when actual earnings have suffered a recent decrease. In that event, the court must determine whether the party could reasonably have prevented the decrease from occurring. If the decrease was unavoidable, then the drop itself is not a valid basis for imputing income. See, e.g., Snyder v. Snyder, 270 Ohio App. 3d 1, 499 N.E.2d 320 (1985) (where husband was pressured to leave his employment after divorce because company was owned by ex-father-in-law, reduction in income was involuntary). Note, however, that income could still be imputed if the party failed to make sufficient efforts to restore the previous income after the decrease occurred. This point is discussed further below.
Courts have applied the voluntariness test to a number of specific types of decreases in earnings:
Involuntary Discharge. While being fired from one's job is ostensibly an involuntary act, courts have drawn a distinction between being discharged for no cause and being discharged for wrongful conduct. All courts agree that being discharged from employment for no reason attributable to the employee is an involuntary act. Winfrey v. Winfrey, 602 So. 2d 904 (Ala. Civ. App. 1992) (where employee was terminated for refusing to take an unlawful assignment, such job loss was not a voluntary act); Grable v. Grable, 307 Ark. 410, 821 S.W.2d 16 (1991) (change in jobs was not truly voluntary where employer was facing bankruptcy); Grady v. Grady, 640 So. 2d 157 (Fla. Dist. Ct. App. 1994) (husband let go because of difficult job market); Sheeder v. Sheeder, 570 So. 2d 361 (Fla. Dist. Ct. App. 1990) (husband involuntarily terminated from teaching position at University of Miami he held for over 20 years); Duncan v. Duncan, 262 Ga. 872, 426 S.E.2d 857 (1993) (error to impute income where husband was laid off); In re Marriage of Lavelle, 206 Ill. App. 3d 607, 565 N.E.2d 291 (1990) (where husband's business went bankrupt, husband tried to find a comparable position but could not, took training to be a broker, but had not yet regained his former income, income would not be imputed); Garrod v. Garrod, 590 N.E.2d 163 (Ind. Ct. App. 1992) (no imputed income to husband who was laid off from university due to cutbacks); Saussy v. Saussy, 638 So. 2d 711 (La. Ct. App. 1994) (where husband fired over dispute with employer, husband not voluntarily unemployed); In re Marriage of Garrison, 846 S.W.2d 771 (Mo. Ct. App. 1993) (error to impute income where husband's business failed due to slowing economy); Meyer v. Meyer, ___ A.D.2d ___, 614 N.Y.S.2d 42 (1994) (husband lost job through no fault of his own); Preischel v. Preischel, 193 A.D.2d 1118, 598 N.Y.S.2d 642 (1993) (husband lost job through no fault of his own).
Some courts have also taken the view that certain "resignations" are in fact involuntary terminations. In Snyder v. Snyder, 270 Ohio App. 3d 1, 499 N.E.2d 320 (1985), the husband was employed by a company that was owned by his wife's family. After the divorce, the husband was pressured into leaving the company. The court wisely recognized that in such a situation, husband's resignation was not truly "voluntary"; he was in fact fired. See also Ullery v. Ullery, 605 N.E.2d 214 (Ind. Ct. App. 1992) (where husband quit job because he was not treated fairly by employer, his resignation was not voluntary act).
Moreover, some "firings" are actually willful resignations. In that case, the court will impute income. Mitchell v. Kelley, 628 So. 2d 807 (Ala. Civ. App. 1993) (husband provoked employer into firing him); Lee v. Lee, 608 So. 2d 1383 (Ala. Civ. App. 1992) (although husband claimed he was fired, employer testified that husband and employer mutually agreed upon husband's resignation).
Discharge for cause, however, may result in imputation of income. In Edwards v. Lowry, 232 Va. 110, 348 S.E.2d 259 (1986), the obligor was discharged from his employment for theft. The court held that such a discharge was the result of a voluntary act that the obligor knew was wrong; therefore, the loss of employment was voluntary, and income would be imputed. Accord Cunningham v. Cunningham, 641 So. 2d 807 (Ala. Civ. App. 1994) (where party was fired because he tested positive for cocaine, court imputed income); In re Marriage of Imlay, 251 Ill. App. 3d 138, 621 N.E.2d 992 (1993) (discharge from job as salesman because of loss of license due to driving under the influence conviction was "voluntary" loss of job; income was imputed); Holmes v. Holmes, 878 S.W.2d 906 (Mo. Ct. App. 1994) (where father failed to offer reason for his termination, court concluded it was for cause and imputed income). Contra In re Marriage of Foley, 501 N.W.2d 497 (Iowa 1993) (discharge for insubordination was not voluntary loss of employment); Lee v. Lee, 459 N.W.2d 365 (Minn. Ct. App. 1990) (although father was fired for willful misconduct on the job, court concluded that such discharge was not voluntary); Parker v. Parker, 21 Fam. L. Rep. 1082 (Miss. Dec. 1, 1994) (although father fired from job due to sexual misconduct, no imputed income; court refused to equate termination for cause with quitting); Shaw v. Shaw, ___ Vt. ___, 648 A.2d 836 (1994) (unauthorized purchase of pick-up truck that resulted in termination was not voluntary).
Labor Disputes. A conflict exists as to whether discharge for going out on strike or refusing to cross a picket line is a "voluntary" or "involuntary" discharge. In Scapin v. Scapin, 547 So. 2d 1012 (Fla. Dist. Ct. App. 1989), the court imputed to the husband the $24,000 the husband had earned as an air traffic controller before he had gone out on strike. On the other hand, in O'Neil v. Wynn, 64 N.C. App. 149, 306 S.E.2d 822 (1983), the court recognized that the air traffic controllers' decision to go on strike and the husband's decision not to cross the picket line may not have been "voluntary" to the husband in the ordinary sense, but were motivated by proper business concerns. In that case, income would not be imputed. Likewise, in Reep v. Reep, 565 So. 2d 814 (Fla. Dist. Ct. App. 1990), the court did not impute income where the husband participated in a sympathy strike, because the husband feared for his safety if he crossed the picket line.
Imprisonment. Most courts have held that imprisonment is an involuntary act. For example, in Leasure v. Leasure, 378 Pa. Super. 613, 549 A.2d 225 (1988), the husband was sent to prison for two years for crimes unconnected with his support obligation. The trial court had refused to modify the child support obligation, concluding that it was the husband's voluntary act which put him behind bars. The appellate court reversed, finding that incarceration is usually involuntary. It is highly unlikely, the court concluded, that a parent would seek to avoid child support by going to prison. The same result was reached in In re Willis, 314 Or. 566, 840 P.2d 697 (1992), wherein the court held that incarceration would suspend a parent's child support obligations. Accord Clemans v. Collins, 679 P.2d 1041 (Alaska 1984); Commissioner of Human Resources v. Bridgeforth, 42 Conn. Supp. 126, 604 A.2d 836 (Super. Ct. 1992); Lewis v. Lewis, 637 A.2d 70 (D.C. 1994) (going to jail is not voluntary act); Nab v. Nab, 114 Idaho 512, 757 P.2d 1231 (Ct. App. 1988); People ex rel. Meyer v. Nein, 209 Ill. App. 3d 1087, 568 N.E.2d 436 (1991) (incarceration due to felony drug conviction was involuntary act reducing income); Franzen v. Borders, 521 N.W.2d 626 (Minn. Ct. App. 1994) (imprisonment for assault of child's mother was not voluntary unemployment); Johnson v. O'Neill, 461 N.W.2d 507 (Minn. Ct. App. 1990); Pierce v. Pierce, 162 Mich. App. 367, 412 N.W.2d 291 (1987); In re Marriage of Edmonds, 53 Or. App. 539, 633 P.2d 4 (1981); Peters v. Peters, 69 Ohio App. 3d 275, 590 N.E.2d 777 (1990); Voecks v. Voecks, 171 Wis. 2d 184, 491 N.W.2d 107 (Ct. App. 1992) (incarceration is not shirking of child support obligation, and thus court will allow modification of obligation).
A growing number of courts, however, have taken the position that since imprisonment is the result of an intentional criminal act, imprisonment is a voluntary act. For example, in McDermott v. Bender, 598 A.2d 709 (Del. Fam. Ct. 1990), the obligor spouse was incarcerated for using heroin. The court held that the heroin addiction was self-inflicted and thus would not excuse payment of child support. Accord J.W. v. J.A., 19 Fam. L. Rep. (BNA) 1148 (D.C. Super. Ct. 1993) (wherein the court held that a person who is incarcerated comes into court with unclean hands, and may not therefore pray for a decrease in child support); Davis v. Vance, 574 N.E.2d 330 (Ind. Ct. App. 1991) (obligor must take responsibility for the crimes he committed and all the repercussions which come with breaking the law; to free obligor of his support obligation would serve to free him of some of those repercussions); In re Marriage of Kern, 408 N.W.2d 387 (Iowa Ct. App. 1987) (after suspension of husband's medical license and conviction for delivering a controlled substance, husband was not allowed to modify alimony obligation); In re Marriage of Vetternack, 334 N.W.2d 761 (Iowa 1983) (order for child support payments would not be reduced where father incarcerated); Louisiana v. Nelson, 587 So. 2d 176 (La. Ct. App. 1991); Oberg v. Oberg, 869 S.W.2d 235 (Mo. Ct. App. 1993) (court would not modify child support obligation based on father's incarceration for forgery); Ohler v. Ohler, 220 Neb. 272, 369 N.W.2d 615 (1985); Noddin v. Noddin, 123 N.H. 73, 455 A.2d 1051 (1983); Parker v. Parker, 152 Wis. 2d 1, 447 N.W.2d 64 (1989) (child support cannot be suspended during incarceration, as obligor can anticipate that unlawful activity might result in imprisonment).
Courts have been especially loath to allow an incarcerated parent to suspend his or her child support obligations when the incarceration is upon a conviction for failure to pay support. The courts reason that it would be against public policy to allow an obligor to profit from his or her own criminal misconduct toward the child. E.g., Ross v. Ross, 581 N.E.2d 983 (Ind. Ct. App. 1991); Commissioner of Human Resources v. Bridgeforth, 42 Conn. Supp. 126, 604 A.2d 836 (Super. Ct. 1992); In re Marriage of Edmonds, 53 Or. App. 539, 633 P.2d 4 (1981). Courts are also loath to suspend child support obligations where the conviction is related to the family. Koch v. Williams, 456 N.W.2d 299 (N.D. 1990) (obligor was incarcerated for incest; court concluded that incarceration was self-induced, and thus no modification would lie for change in circumstances); In re Phillips, 493 N.W.2d 872 (Iowa Ct. App. 1992) (husband was incarcerated for sexually abusing his stepdaughter).
It is worth noting that in the case of incarceration, some courts have chosen to eschew the "voluntary/involuntary" analysis altogether, and instead focus on whether the obligor has other assets against which the support obligation could be charged. See Division of Child Support Enforcement ex rel. Harper v. Barrows, 570 A.2d 1180 (Del. 1990); In re Marriage of Vetternack, 334 N.W.2d 761 (Iowa 1983) (court denied motion to modify because father had equity in marital home); Hebert v. Hebert, 475 A.2d 422 (Me. 1984); Sodders v. Sodders, 210 Neb. 276, 313 N.W.2d 927 (1981) (court denied modification because obligor had trust on which he could draw to satisfy obligation); Proctor v. Proctor, 773 P.2d 1389 (Utah Ct. App. 1989) (incarcerated obligor possessed assets to satisfy obligation); Noddin v. Noddin, 123 N.H. 73, 455 A.2d 1051 (1983) (obligor possessed other assets against which support obligation could be charged).
Illness. Illness that reduces a person's ability to earn is an involuntary act. See Susan M. v. Louis N., ___ Misc. 2d ___, 614 N.Y.S.2d 584 (Sup. Ct. 1994) (evidence did not support mother's allegation that her medical problem prevented her from working). "Illness" has been taken to include alcoholism. Haas v. Haas, 552 So. 2d 252 (Fla. Dist. Ct. App. 1989) (alcoholism which limited husband's ability to earn was involuntary condition, thereby justifying court's refusal to impute income). But see Carstens v. Carstens, 10 Wash. App. 964, 521 P.2d 241 (1974) (reduction in husband's income caused by alcoholism was self-imposed and therefore not sufficient grounds for reducing husband's alimony obligation). Illness does not include, however, a self-inflicted drug addiction. McDermott v. Bender, 598 A.2d 709 (Del. Fam. Ct. 1990) (self-inflicted heroin addiction which limited ability to find employment would not excuse child support payments where obligor could pursue employment if he so chose); cf. In re Marriage of Drury, 475 N.W.2d 668 (Iowa Ct. App. 1991) (where husband's weight gain put him over mandatory weight limits for Marine Corps resulting in honorable discharge and husband's reduction in earnings, such reduction in earnings was not voluntary act for purpose of imputing income).
Change in Employment. A deliberate decision to change employment clearly meets the voluntariness test. See, e.g., Wall v. Wall, 611 So. 2d 1107 (Ala. Civ. App. 1992) (failure to renew pilot's license, necessitating new job, constituted voluntary act); McLaughlin v. McLaughlin, 580 So. 2d 812 (Fla. Dist. Ct. App. 1991) (husband voluntarily left $35,000 position in attorney general's office to start private practice); Mayo v. Crazovich, 621 So. 2d 120 (La. Ct. App. 1993) (decision to leave employment to start poultry farm was voluntary); In re Marriage of Stanley, 793 S.W.2d 487 (Mo. Ct. App. 1990) (voluntary break-up of accounting partnership and start of new accounting firm); Hopkins v. Hopkins, 859 S.W.2d 205 (Mo. Ct. App. 1993) (husband left job as appliance salesman, sold stake in business, became bartender instead; was voluntary reduction of income); Luker v. Luker, 861 S.W.2d 195 (Mo. Ct. App. 1993) (left employment to start own business); Roberts v. Roberts, 847 S.W.2d 108 (Mo. Ct. App. 1992) (husband left position to form own company; was voluntary act); Mahoney v. Mahoney, 516 N.W.2d 656 (N.D. Ct. App. 1994) (doctor left lucrative clinic to set up own practice); Cardia v. Cardia, ___ A.D.2d ___, 610 N.Y.S.2d 620 (1994) (husband left eight-year advertising career to start children's clothing store); Brockmeier v. Brockmeier, 91 Ohio App. 3d 689, 633 N.E.2d 584 (1993) (husband's misappropriation of funds resulting in disbarment and change of careers was voluntary act); Barnhill v. Brooks, 15 Va. App. 696, 427 S.E.2d 209 (1993); Cochran v. Cochran, 14 Va. App. 827, 419 S.E.2d 419 (1992); Van Offeren v. Van Offeren, 173 Wis. 2d 482, 496 N.W.2d 660 (Ct. App. 1992) (leaving job to start own business was voluntary act). Of course, where the decision to "voluntarily" leave employment is not truly voluntary, but is rather forced upon a person, then the decision is involuntary. Snyder v. Snyder, 270 Ohio App. 3d 1, 499 N.E.2d 320 (1985) (where husband was pressured to leave his employment after divorce because company was owned by ex-father-in-law, reduction in income was involuntary).
Return to College or Graduate Studies. A decision to voluntarily leave employment and return to school is a voluntary decision. See In re Marriage of Mitteer, 241 Ill. App. 3d 217, 608 N.E.2d 607 (1993) (where father left job to finish college, court would impute income as father did not demonstrate that he had to finish college to maintain his employment); In re McNeely, 15 Kan. App. 2d 762, 815 P.2d 1125 (1991) (husband quit his job to go to law school; such act was voluntary); Tingle v. Tingle, 573 So. 2d 1389 (Miss. 1990) (husband left employment to attend college). But see In re Marriage of Nordahl, 834 P.2d 838 (Colo. Ct. App. 1992) (mother was not voluntarily underemployed where she was attending college in order to later become self-sufficient); In re Marriage of Ehlert, 868 P.2d 1168 (Colo. Ct. App. 1994) (decision to return to college was not "voluntary underemployment" because it would result in greater future income).
Failure to Work Overtime. Where a person has a work history of working overtime, or where overtime is a regular part of the obligated party's employment, the failure to continue to work overtime constitutes a voluntary act decreasing income. State ex rel. Smith v. Smith, 631 So. 2d 252 (Ala. Civ. App. 1993); Conklin v. Conklin, 551 So. 2d 1279 (Fla. Dist. Ct. App. 1989); In re Pins, 19 Fam. L. Rep. (BNA) 1046 (Iowa Ct. App. Oct. 27, 1992); In re Marriage of Hunt, 264 Mont. 159, 870 P.2d 720 (1994); Alfano v. Alfano, 151 A.D.2d 530, 542 N.Y.S.2d 313 (1989); Crompton v. Crompton, 21 Fam. L. Rep. (BNA) 1142 (Utah Ct. App. Dec. 28, 1994); Cochran v. Cochran, 14 Va. App. 827, 419 S.E.2d 419 (1992). Where, however, the overtime is neither usual nor predictable, using overtime to calculate earning capacity is error. In re Marriage of Simpson, 4 Cal. 4th 225, 14 Cal. Rptr. 2d 411 (1992); Johno v. Johno, 633 So. 2d 966 (La. Ct. App. 1994); Tracey v. Tracey, 328 Md. 380, 614 A.2d 590 (1992); Polen v. Polen, 886 S.W.2d 701 (Mo. Ct. App. 1994); see also Soden v. Soden, 251 Kan. 225, 834 P.2d 358 (1992) (husband could reduce hours from 72 hours per week to 40 hours per week without court imputing difference to him). See generally Annotation, Consideration of Obligated Spouse's Earnings from Overtime or "Second Job" Held in Addition to Regular Full-Time Employment in Fixing Alimony or Child Support Awards, 17 A.L.R.5th 143 (1994).
Early Retirement. Where a person retires before mandatory retirement age, such a decision is a voluntary act decreasing income. Pimm v. Pimm, 601 So. 2d 534 (Fla. 1992); Ward v. Ward, 502 So. 2d 477 (Fla. Dist. Ct. App. 1987); Ellis v. Ellis, 262 N.W.2d 265 (Iowa 1978); Bushnell v. Bushnell, 527 So. 2d 15 (La. Ct. App. 1988). Some courts have held that where a person retires before mandatory retirement age for health reasons, the decision to retire is involuntary. See, e.g., In re Marriage of Cooper, 524 N.W.2d 204 (Iowa Ct. App. 1994) (husband's chronic fatigue syndrome and consequent loss of income warranted change in support); Roach v. Roach, 61 Ohio App. 3d 315, 572 N.E.2d 772 (1989) (retirement at age 59, motivated in part by medical problems, was not voluntary, and thus income would not be imputed); Cox v. Cox, 877 P.2d 1262 (Utah Ct. App. 1994) (husband's disability and age made his retirement nonvoluntary). The decision to retire for health reasons, however, is more properly categorized as a voluntary act undertaken for good-faith reasons. (See discussion below.)
A number of recent cases have considered the question of whether acceptance of a buyout plan, whereby the employer encourages the employee to resign on more favorable terms than he would otherwise receive if he had stayed in the job, constitutes a "voluntary retirement." Most of these cases have held that this type of retirement is not voluntary; the courts reason that the employee would have been fired anyway, and acceptance of the buyout plan constitutes a rational employment decision. Jamison v. Jamison, 845 S.W.2d 133 (Mo. Ct. App. 1993); B v. K, 158 Misc. 2d 817, 601 N.Y.S.2d 980 (Fam. Ct. 1993); Matter of Marriage of Case, ___ Kan. App. 2d ___, 879 P.2d 632 (1994). As with the other retirement cases, these cases are better viewed as a voluntary act undertaken for a good-faith reason.
The Stay-at-Home Mom. While a decision to stay at home with young children may be made for the best of reasons, such a decision constitutes a voluntary act decreasing earnings. Sledge v. Sledge, 630 So. 2d 461 (Ala. Civ. App. 1993); Marshall v. Marshall, 596 So. 2d 675 (Fla. Dist. Ct. App. 1991); Gertcher v. Gertcher, 262 N.J. Super. 176, 620 A.2d 454 (App. Div. 1992); Hamel v. Hamel, ___ Va. App. ___, 441 S.E.2d 221 (1994); cf. Matter of Marriage of Cress, 119 Or. App. 197, 850 P.2d 383 (1993) (mom not capable of full- time employment so she was not voluntarily underemployed, where she was full-time student on work study caring for two small children).
Louisiana has decreed, by statute, that income cannot be imputed to a stay-at-home parent where any child in custody of the parent is under five years old. La. Rev. Stat. Ann. 9:315.9. Another state has also declared that before deciding whether to impute income to a stay-at-home mom, the court should consider her age, maturity, health, number of children at home, work history, age and health and availability of care-giver, and the relationship between the cost of care and the mother's probable income. Stanton v. Abbey, 874 S.W.2d 493 (Mo. Ct. App. 1994).
The courts are especially ready to label as "voluntary" a decision by a mother to stay at home with children of a subsequent marriage. Guskjolen v. Guskjolen, 499 N.W.2d 126 (N.D. 1993); Muller v. Muller, 3 Neb. App. 159, 524 N.W.2d 78 (1994); Brody v. Brody, 16 Va. App. 647, 432 S.E.2d 20 (1993); Roberts v. Roberts, 173 Wis. 2d 406, 496 N.W.2d 210 (Ct. App. 1992). But see In re Marriage of Pote, 847 P.2d 246 (Colo. Ct. App. 1993) (where child of second marriage had Down's Syndrome, necessitating special care, mother's decision to stay at home was not voluntary).
Restoring Lost Income. Even if a decrease in income is entirely involuntary, the spouse who suffered such loss still has a duty to seek additional income or other employment to make up for the decrease. If this duty is not met, the overall loss of earnings is considered "voluntary" even if the initial decrease was beyond the party's control. Stated otherwise, an obligor must undertake efforts to mitigate the damages to the obligee. In re Marriage of Seanor, 876 P.2d 44 (Colo. Ct. App. 1993) (parent's lack of initiative in keeping and finding work will influence court's decision to impute income; court will look to see if parent is engaged in good-faith effort to achieve higher income); Edwards v. Sanders, 622 So. 2d 587 (Fla. Dist. Ct. App. 1993) (court may impute income on evidence that party failed to use best efforts to secure appropriate employment); Grimes v. Grimes, 408 Pa. Super. 158, 596 A.2d 240 (1991) (in order to establish voluntary change in employment, obligor must show what efforts were made to mitigate income loss and what attempts were made to find comparable job).
What constitutes a "reasonable" job search is subject to some interpretation. No one would argue that sending out 1,500 to 2,000 resumes constitutes a reasonable job search. Darcy v. Darcy, 455 N.W.2d 518 (Minn. 1990); see alsoGriggs v. Griggs, 638 So. 2d 916 (Ala. Civ. App. 1994) (job search including sending out 90 resumes was sufficient); Lineham v. Lineham, 34 Ohio App. 3d 124, 517 N.E.2d 967 (1986) ("diligent efforts" to find work were found); Ensley v. Ensley, 578 So. 2d 497 (Fla. Dist. Ct. App. 1991) ("diligent" job search found); Duncan v. Duncan, 262 Ga. 872, 426 S.E.2d 857 (1993) (where obligor was working full-time job and two part-time jobs in effort to minimize effect of job loss, it was error to impute income); Taylor v. Taylor, 189 W. Va. 515, 432 S.E.2d 785 (1993) (although decision to quit job to prevent relocation was voluntary, income will not be imputed where obligor was diligently seeking alternate work).
On the other hand, the failure to look for a new job at all does not constitute a "reasonable" effort to secure employment, and thus the unemployment may be considered voluntary. Sheridan v. Sheridan, 247 N.J. Super. 552, 589 A.2d 1067 (Ch. Div. 1990) (court imputed income to husband where the limitations on his income were due purely to husband's own intransigence); see also Jamison v. Jamison, 845 S.W.2d 133 (Mo. Ct. App. 1993) (although it was reasonable for husband to take early retirement pursuant to buyout plan, husband's lack of efforts to secure employment after buyout justified imputing income); Harris v. Harris, 235 N.J. Super. 434, 563 A.2d 64 (App. Div. 1989) (good-faith effort to find new employment not found); Adam v. Adam, 624 A.2d 1093 (R.I. 1993) (husband showed lack of diligence in securing employment after retiring from Navy).
Given that an obligor must take reasonable steps to find new employment, an obligor may be in a bind as to whether to take a job offer that pays less than the previous job, and have the court rule that he or she should have waited for a job commensurate with his or her abilities, or to wait for a job more commensurate with his or her abilities, and have the court rule that he or she should have taken a job that offers less rather than remain unemployed.
For example, in Conklin v. Conklin, 551 So. 2d 1279 (Fla. Dist. Ct. App. 1989), the court imputed income to the father after it determined that the father had accepted a job out of his field at a reduced salary after a limited job search. The court implied that the father should have waited for a job more commensurate with his abilities, i.e., earning capacity, rather than take the first job that came along. See also Grady v. Grady, 295 Ark. 94, 747 S.W.2d 77 (1988) (court may consider change in employment that lessens capacity to earn and impute income that could be earned by best efforts to obtain employment according to one's capabilities); Finn v. Finn, 517 A.2d 317 (Me.), cert. denied, 483 U.S. 1022 (1986) (although husband obtained part-time job, court would impute previous salary on finding that husband could increase his efforts to find a full-time job); Davis v. Davis, 197 A.D.2d 622, 602 N.Y.S.2d 672 (1993) (no evidence that father made good-faith effort to obtain employment commensurate with qualifications and skills); Al Sadi v. Al Sadi, 823 S.W.2d 123 (Mo. Ct. App. 1992) (no evidence of effort to obtain employment which would utilize skills).
On the other hand, in Morovitz v. Morovitz, 778 S.W.2d 369 (Mo. Ct. App.), cert. denied, 494 U.S. 1085 (1989), the court implied that when job opportunities are scarce, an obligor should take a job that is offered. In that case, the obligor husband went to law school after being laid off. After law school, despite a diligent search, the husband was unable to secure a job as a lawyer. The court imputed to the husband his pre-law school income, on the theory that the husband failed to take into consideration his "other talents" when he was job searching. Accord Robinson v. Robinson, 597 So. 2d 415 (Fla. Dist. Ct. App. 1992) (although obligor was construction worker, obligor should have taken advantage of job opportunities in other areas besides construction in which he had skills).
Perhaps it is best for a court to lift itself out of this bind by considering what opportunities are available to an obligor and whether the obligor made a good-faith effort to take advantage of those opportunities. See In re Marriage of Gebhardt, 240 Mont. 165, 783 P.2d 400 (1989) (local employment opportunities did not realistically reflect obligor's earning capacity, and therefore it was error to impute income to obligor); In re Marriage of Skinner, 240 Mont. 299, 783 P.2d 1350 (1989) (court may consider whether employment is appropriate given circumstances of the case). But see Tackett v. Jones, 575 So. 2d 1123 (Ala. Civ. App. 1990) (where father had ability to earn $24,000, and only reason he did not was that he could not find type of work he desired, it was not error to impute income).
State of Mind
If the court determines that earning capacity and actual earnings are equal or that the difference between actual earnings and earning capacity is involuntary, then income will obviously not be imputed. If the court determines that the difference between actual earnings and earning capacity is voluntary, it must then confront a major split in authority. A significant and growing minority of states treat any voluntary difference as a sufficient basis for imputing income. A majority of states will take the test one step further by looking at the earning spouse's state of mind.
Minority View. Under the minority view, the court must impute sufficient income to cover any voluntary difference between actual earnings and earning capacity. Under this view, the only question is whether the earning spouse could have caused an increase or avoided a decrease in his actual earnings. The reasoning behind the earning spouse's actions has no bearing on the outcome. This view has been adopted recently in Coleman v. Coleman, 628 So. 2d 698 (Ala. Civ. App. 1993); Ilas v. Ilas, 12 Cal. App. 4th 1630, 16 Cal. Rptr. 2d 345 (1993); Atkinson v. Atkinson, 124 Idaho 23, 855 P.2d 484 (Ct. App. 1993); State ex rel. Lara v. Lara, 495 N.W.2d 719 (Iowa 1993); Luker v. Luker, 861 S.W.2d 195 (Mo. Ct. App. 1993); Sabatka v. Sabatka, 245 Neb. 109, 511 N.W.2d 107 (1994); Fleischmann v. Fleischmann, 195 A.D.2d 604, 601 N.Y.S.2d (1993); Matter of Marriage of Harper, 122 Or. App. 9, 856 P.2d 334 (1993); Rock v. Cabral, 67 Ohio St. 3d 108, 616 N.E.2d 218 (1993); Calvert v. Calvert, ___ Va. App. ___, 447 S.E.2d 875 (1994); Smith v. Smith, 177 Wis. 2d 128, 501 N.W.2d 850 (1993).
For example, in McLauchlin v. McLauchlin, 580 So. 2d 812 (Fla. Dist. Ct. App. 1991), the court imputed income of $35,000 to the husband to determine his support obligations, where he left his $35,000 per year job in the attorney general's office in order to enter private practice. It made no difference to the court that the husband's long-term financial gain might be improved by the move. Accord Paddock v. Paddock, 22 Conn. App. 367, 577 A.2d 1087 (1987) (trial court may impute income where party voluntarily quits or avoids employment in his field); Ilas v. Ilas, 12 Cal. App. 4th 1630, 16 Cal. Rptr. 2d 345 (1993) (where father quit job to go back to school, court would impute income); Wollschlager v. Veal, 601 So. 2d 274 (Fla. Dist. Ct. App. 1992) (court will impute income to father who quit job to go to medical school; while decision may be beneficial in long run, immediate effect was to divest children of needed support); Billings v. Billings, 560 N.E.2d 553 (Ind. Ct. App. 1990) (husband quit lucrative job as journeyman electrician to become self-employed in own corporation; difference in actual earnings imputed); Atkinson v. Atkinson, 124 Idaho 23, 855 P.2d 484 (Ct. App. 1993) (classical guitarist with master's degree was underemployed; motives irrelevant); Luker v. Luker, 861 S.W.2d 195 (Mo. Ct. App. 1993) (court will impute $30,000 per year where obligor quit job to start own business; motives irrelevant); Schulze v. Schulze, 238 Neb. 81, 469 N.W.2d 139 (1991) (husband's employment as nurse's aide at substantially lower income did not constitute change in circumstances where husband could have continued to earn greater income as painter); In re Marriage of Stanley, 793 S.W.2d 487 (Mo. Ct. App. 1990) (decline in income due to voluntary breakup of accounting partnership and start of new accounting firm did not justify change in support); Rock v. Cabral, 67 Ohio St. 3d 108, 616 N.E.2d 218 (1993) (mother who had accounting degree but worked as weaver was underemployed; motives irrelevant); Gil v. Gil, 151 Vt. 598, 563 A.2d 624 (1989) (downturn in business was self-inflicted and could be overcome by devoting efforts to business; court will impute income).
Under this view, courts will not look beyond the voluntariness of a reduction in any pay, even overtime pay. For example, in Alfano v. Alfano, 151 A.D.2d 530, 542 N.Y.S.2d 313 (1989), the husband voluntarily left his job paying $50,000 per year, which included overtime, to take a supervisory position that paid a higher base rate, but provided no overtime. The result was lower net earnings, but a higher base rate of pay. The court refused to modify the child support, in effect imputing to the husband the higher net pay, because the husband's acts were voluntary.
In the case of Cochran v. Cochran, 14 Va. App. 827, 419 S.E.2d 419 (1992), the court held that depending on the circumstances of the case, a court may impute personal income for more than one job, particularly where there is a history of the spouse having had two jobs. In that case, the husband, a schoolteacher, had always held a job for the summer months when he was not employed as a teacher. In those circumstances, it was not error for the court to impute to the husband the earnings from the second job. See also Chiovaro v. Tilton-Chiovaro, 247 Mont. 185, 805 P.2d 575 (1991) (trial court did not abuse discretion in imputing income to father for track coaching fees he had previously earned after he chose not to pursue coaching in addition to his teaching duties); Conklin v. Conklin, 551 So. 2d 1279 (Fla. Dist. Ct. App. 1989) (where husband did not continue to work overtime after marriage, income from overtime would be imputed).
While it is understandable that an obligor should make every effort to maintain his or her income level, it seems unduly onerous for a court to impose the duty of overtime on an obligor simply because he or she earned it in the past. An obligor may have undertaken overtime for a specific purpose, such as saving for a downpayment on a house or a new car. A person should not be held to maintaining a 50-hour work week in perpetuity, for this ignores the possibility of job burnout. For example, in Massingil v. Massingil, 564 So. 2d 770 (La. Ct. App. 1990), the husband filed a request to modify alimony and child support, asserting a change in circumstances due to his intent to leave his practice as an internist and reenter medical school. The appellate court held that it was not unreasonable for the husband to wish to leave his present practice and reenter school in order to become board certified in another specialty. The court held, however, that the trial court could impute to the husband part-time employment available to the husband, i.e., working weekend hours in the emergency room. The court refused to consider this burden onerous, since the decision to reenter medical school was voluntary and unilateral on the part of the husband.
In some cases, an unwillingness to look beyond the voluntary aspect of the reduction in income is understandable. For example, in In re Marriage of Scherrman, 447 N.W.2d 564 (Iowa Ct. App. 1989), the husband left his position and moved out of state, taking another less lucrative position, in order to be near his girlfriend. In that case, the court imputed to the husband his prior salary. Accord In re Marriage of Doren, 474 N.W.2d 583 (Iowa Ct. App. 1991) (where husband chose to leave law practice to move to new girlfriend's state, income would be imputed); see also McCormick v. McCormick, 150 Vt. 431, 553 A.2d 1098 (1988) (voluntary leave from job cannot prevent an otherwise warranted increase in support). Rather than view these cases as an unwillingness to look beyond the "voluntary" aspect of the change, however, it is more appropriate to view these cases as holding that a decision to be near one's girlfriend at the expense of one's children constitutes "bad faith."
Although it is troubling that courts might seem unwilling to look beyond the voluntariness of an act and examine the reasons behind the act, courts have realized that there are limits to imputing income on the basis that the action limiting income was voluntary. A court may not base its decision to impute income on predivorce career decisions. It would be especially unfair to penalize a spouse for having chosen a particular career path before the marriage. For example, were a court to examine all career path decisions, a court might be tempted to impute income to a lawyer who earns only $30,000 as a public defender, on the grounds that the average salary for a lawyer in private practice is much higher. Courts have recognized that an obligor spouse should not be penalized for a legitimate career decision undertaken before a court has ordered support. See Neal v. Meek, 591 So. 2d 1044 (Fla. Dist. Ct. App. 1991) (earning capacity should be determined by work history and prior qualifications); Gonzales v. Gonzales, 474 N.W.2d 581 (Iowa 1991) (in assessing earning capacity, a court must look not to what a person might have done or could have done with his or her life, but what that person actually has done); Beard v. Beard, 575 So. 2d 1331 (Fla. Dist. Ct. App. 1991) (it is error to impute income where evidence shows obligor is working full time in a job commensurate with current education and training).
Majority View. A majority of states take a less harsh position. In these states, when there is a voluntary difference between actual earnings and earning capacity, the court must look at the earning spouse's state of mind. If the earning spouse acted in good faith, then income will not be imputed, even though his actions were entirely voluntary.
Generally, whether an obligor has acted in good faith may be determined by whether the obligor has undertaken an act that reduces or suppresses income for a reason other than avoiding the support obligation. Thomas v. Thomas, 589 So. 2d 944 (Fla. Dist. Ct. App. 1991) (where spouse reduces his or her income in order to avoid compliance with support order and is not acting in good faith, modification of orders will be denied); Nab v. Nab, 114 Idaho 512, 757 P.2d 1231 (Ct. App. 1988) (where parent in bad faith voluntarily worsens financial condition, income may be imputed); In re Marriage of Schuster, 224 Ill. App. 3d 958, 586 N.E.2d 1345 (1992) (key question is good faith of obligor); Hines v. Hines, 236 Ill. App. 3d 739, 602 N.E.2d 902 (1992) (change in employment must be made in good faith to avoid imputation of income); In re Marriage of Stone, 155 Ill. App. 3d 62, 507 N.E.2d 900 (1987) ("crucial consideration" is whether change in status is prompted by a desire to evade responsibility for support); Keplinger v. Keplinger, 839 S.W.2d 566 (Ky. Ct. App. 1992) (must show bad faith; it is not enough merely to show party voluntarily left paying job); Redmon v. Redmon, 823 S.W.2d 463 (Ky. Ct. App. 1992) (court will impute income only where there is an intent to interfere with the support obligation); Richardson v. Richardson, 590 So. 2d 1302 (La. Ct. App. 1991) (voluntariness is not the test for modification, unless the decrease in income is contrived in order to establish modification of support); Knowles v. Knowles, 185 Mich. App. 497, 462 N.W.2d 777 (1990) (ability to pay includes unexercised ability to earn if obligor has voluntarily reduced income to avoid paying alimony); Nazar v. Nazar, 505 N.W.2d 628 (Minn. Ct. App. 1993) (without evidence of bad faith, it is improper to consider earning capacity); In re Marriage of Larson, 408 N.W.2d 612 (Minn. Ct. App. 1987) (court must consider reasons why obligor's income is lower than earning capacity); In re Adoption of JPS, 876 S.W.2d 762 (Mo. Ct. App. 1994) (voluntary effort to reduce income in anticipation of support order justifies imputation of income); Monroe County Department of Social Services on Behalf of Carpenter v. Bennett, 179 A.D.2d 919, 578 N.Y.S.2d 733 (1991) (income may be imputed where former spouse unilaterally attempts to diminish support obligation); Kennedy v. Kennedy, 101 N.C. App. 695, 421 S.E.2d 795 (1992) (capacity to earn may be considered only if there is a finding that the decrease in earnings was deliberate and undertaken to avoid support obligations); Greer v. Greer, 101 N.C. App. 351, 399 S.E.2d 399 (1991) (capacity to earn may be considered only if there is a finding that the decrease in income was deliberate and undertaken in order to avoid support obligations); Olson v. Olson, 520 N.W.2d 572 (N.D. 1994) (court will examine whether change in employment was reasonable under circumstances, and whether employee had good reason to terminate employment); Stack v. Nelson, 878 S.W.2d 302 (Tex. Ct. App. 1994) (court must find party is intentionally underemployed); Clayton v. Clayton, 153 Vt. 138, 569 A.2d 1077 (1989) (voluntarily reducing income must be result of rational business purpose); Roellig v. Roellig, 146 Wis. 2d 652, 431 N.W.2d 759 (1988) (where there is evidence that obligor is "shirking" obligations, income may be imputed).
So strong is the impetus to examine the motives behind a reduction or suppression of income that one court has read into its statute the requirement that an obligor be acting in bad faith, although the statute at issue clearly did not have such a requirement. In McKinney v. McKinney, 813 S.W.2d 828 (Ky. Ct. App. 1991), the court examined its provision for imputing income, looking at the phrase "voluntary underemployment." The court concluded that this phrase includes the element of bad faith.
Two states, Oregon and New Jersey, have stated their good-faith test somewhat differently. In these states, a voluntary decrease in income may justify modification of support only if the change is made in good faith, and only if the hardship to the obligor if there is no change in support outweighs the hardship to the obligee if the change in support is made. Matter of Marriage of Gay, 108 Or. App. 121, 814 P.2d 543 (1991); Deegan v. Deegan, 254 N.J. Super. 350, 603 A.2d 542 (App. Div. 1992). Thus, not only must the decision to decrease income be made in good faith, there cannot be an unjust burden on the obligee. For example, there may be a perfectly good business reason for changing jobs: long-term security, greater ultimate financial goals, greater career satisfaction. This change, however, may not so drastically reduce the obligor's support obligation that the obligee no longer receives the basic necessities of life. This test in effect conceptualizes another aspect of the good-faith test: Would the action be undertaken even if the parties were still married? Clearly, an obligor would not jeopardize the basic needs of his or her family were the family still intact. See In re Jones, 106 Or. App. 264, 806 P.2d 1170 (1991) (although father's decision to return to college was a good one, it did not entitle him to reduce his child support obligations, where reduction would threaten children's basic necessities).
Courts applying the good-faith test have looked at many different types of evidence. An Alaska court considered the following factors:
Kowalski v. Kowalski, 806 P.2d 1368 (Alaska 1991).
- whether the act reducing or limiting income was voluntary;
- whether there was any medical justification for limiting income;
- whether the obligor had undertaken diligent efforts to become employed to full capacity by applying for new employment;
- whether the obligor had a pattern of unemployment.
A Minnesota court stated a similar set of factors:
Schneider v. Schneider, 473 N.W.2d 329 (Minn. Ct. App. 1991). In Wolcott v. Wolcott, 105 N.M. 608, 735 P.2d 326 (Ct. App.), cert. denied, 105 N.M. 618, 735 P.2d 535 (1987), the court found probative of bad faith the following factors:
- whether the obligor has the ability to work;
- whether the obligor has taken the opportunity to find gainful employment;
- whether the obligor has the disposition and will to earn money and contribute to the family's support.
- whether husband had disregarded other financial obligations under the property settlement agreement;
- whether husband had made full disclosure to wife of his future intentions at the time of the divorce;
- whether husband was self-indulgent with regard to his own lifestyle and personal necessities.
Reported decisions have applied these factors particularly often to a number of recurring fact patterns:
Change in Support. The clearest example of bad faith is a deliberate purpose to cause a favorable change in the amount of support received or paid. For example, in In re Marriage of Braun, 887 S.W.2d 776 (Mo. Ct. App. 1994), the husband told a third party he would quit his job before he would pay the wife support. He subsequently quit his job and took a lower paying job. The court imputed income to him. Accord Goodwin v. Goodwin, 746 S.W.2d 124 (Mo. Ct. App. 1988); Langdon v. Langdon, 792 S.W.2d 645 (Mo. Ct. App. 1990); Ellis v. Ellis, 802 S.W.2d 546 (Mo. Ct. App. 1991); see also In re Marriage of Wiley, 199 Ill. App. 3d 223, 556 N.E.2d 788, appeal dismissed, Wiley v. Wiley, 133 Ill. 2d 575, 561 N.E.2d 710 (1990) (court had no basis to believe husband's explanations of why he left $37,000 per year job for job paying $7,000 per year and inferred that reason must be intent to avoid obligations); In re Matter of Gable, 89 Or. App. 664, 750 P.2d 534 (1988) (where husband quit dental practice out of desire not to provide support, income would be imputed); Hutto v. Kneip, 627 So. 2d 802 (La. Ct. App. 1993) (where husband quit his job to become rector of church, court found bad faith in his desire to avoid his support obligations).
Change in Employment. Some cases have held that a change in jobs to a lower paying position is undertaken in good faith where the new job offers greater long-term security. This was the case in McKinney v. McKinney, 813 S.W.2d 828 (Ky. Ct. App. 1991). In that case, the husband had been laid off from his job at an aluminum company, at which he earned $40,000. The husband found a job paying $24,000. He was later recalled to his former job, but he refused to return. The husband considered his new job more secure than his prior job, and the court found this reason sufficient to sustain the husband's decision not to return to his former job. Likewise in Arce v. Arce, 566 So. 2d 1038 (Fla. Dist. Ct. App. 1990), the husband had been an emergency room physician. He left this position to return to medical school in order to become board certified as a cardiologist. This job offered greater long-term financial security to the husband and thus his family, the husband asserted, because most emergency room physicians do not last more than a few years. The appellate court agreed that income should not be imputed to the husband, for to do so would compromise the husband's ultimate financial security. See also In re Meegan, 11 Cal. App. 4th 156, 13 Cal. Rptr. 2d 799 (1992) (support obligation would be modified where obligor left job to become priest; change was not undertaken in bad-faith effort to avoid support); Mayo v. Crazovich, 621 So. 2d 120 (La. Ct. App. 1993) (where husband left current employment to start his own poultry farm, which he believed would be profitable, court would not second-guess decision); Sherwood v. Sherwood, 622 A.2d 719 (Me. 1993) (husband's decision to close business because it was yielding no profit despite 70-hour workweeks was done in good faith); DeVault v. Waller, 494 N.W.2d 92 (Minn. Ct. App. 1992) (wife's employment choices exhibited no bad faith; husband failed to show that her choices unjustifiably limited her income); Mahoney v. Mahoney, 516 N.W.2d 656 (N.D. Ct. App. 1994) (doctor's leaving lucrative clinic to set up own practice was done in good faith); Roberts v. Roberts, 847 S.W.2d 108 (Mo. Ct. App. 1992) (not error not to impute income where husband left position to form his own company which would enable husband to specialize and use talents more fully); Vestal v. Vestal, 297 S.C. 215, 375 S.E.2d 355 (Ct. App. 1988) (where husband had been passed over for promotion in military and was discharged, and made decision to reenlist rather than find other higher paying job, such a decision was made in good faith as military offered greater long-term security). But see Massingil v. Massingil, 564 So. 2d 770 (La. Ct. App. 1990) (court may impute to husband going back to medical school income that could be earned as part-time emergency room physician).
The same reasoning was used in In re Marriage of Fidone, 462 N.W.2d 710 (Iowa Ct. App. 1990). In that case, the court examined whether the husband's change in jobs was a "self-inflicted reduction in salary" that would warrant imputation of income pursuant to the child support statute. The court examined the father's reasons for accepting a discharge from employment rather than taking a job offer from the same company: the new position would entail moving 1,200 miles from his children, and the father wanted to maintain strong ties with his children; the new job would have no security. The court determined that the desire to stay close to one's family and a desire to find a job that offers long-term security were good- faith reasons for declining employment offered. Accord Anderson v. Anderson, 854 S.W.2d 32 (Mo. Ct. App. 1993) (mother's change from night shift to day shift, although reducing income, was undertaken for good-faith reason of spending more time with children).
A change in employment is undertaken in good faith when done for medical reasons. In In re Marriage of Maczko, ___ Ill. App. 3d ___, 636 N.E.2d 559 (1992), the husband changed jobs because of the onset of severe arthritis. In this instance, the court held, the court would not impute income at the higher earning level.
Return to College or Graduate Studies. For some reason, courts have been more than willing to find that a desire to return to school does not constitute a good-faith reason for lower support. For example, in In re McNeely, 15 Kan. App. 2d 762, 815 P.2d 1125 (1991), a court imputed income to a husband who quit his job in order to enter law school. The court reasoned that the husband compromised his ability to support his ex-wife, who was trying to finish her undergraduate degree. In essence, the court weighed the husband's desire to get his law degree with the wife's desire to get her undergraduate degree, and found the wife's wishes more compelling. See also McKenna v. Steen, 493 So. 2d 876 (La. Ct. App. 1986) (where husband voluntarily quit his dental practice to attend law school, had graduated, but declined to practice for a year, court would impute income for the one-year period he should have been practicing); Tingle v. Tingle, 573 So. 2d 1389 (Miss. 1990) (where husband voluntarily left employment to attend college, court would not reduce his child support payments).
Likewise, in Olson v. Olson, 189 Mich. App. 620, 473 N.W.2d 772 (1991), the husband voluntarily reduced his income in order to eventually earn more later by entering a two-year education program. The court declined to examine the long-term goals of the husband or his good faith, and imputed income to him.
Of course, it is understandable that a court would not allow a reduction in child support obligations based on a return to school if such threatened the children's basic standard of living. In re Jones, 106 Or. App. 264, 806 P.2d 1170 (1991) (although father's decision to return to college was a good one, it did not entitle him to reduce his child support obligations, where reduction would threaten children's basic necessities). It is also understandable for a court to decline to allow a reduction in child support where there is no evidence that returning to school would either provide greater career satisfaction or lead to greater financial reward. Ferlo v. Ferlo, 152 A.D.2d 980, 554 N.Y.S.2d 254 (1989).
On the other hand, some courts have been willing to look at the long-term consequences of a return to school and find that if the desire to return to school is undertaken in good faith, income will not be imputed. In re Marriage of Seanor, 876 P.2d 44 (Colo. Ct. App. 1993); Keplinger v. Keplinger, 839 S.W.2d 566 (Ky. Ct. App. 1992). It is worth noting, however, that in these cases it was the wife who was returning to school, not the husband. See also Daigre v. Daigre, 527 So. 2d 9 (La. Ct. App. 1988) (where husband was a real estate agent and the real estate market crashed, husband would not be imputed income where he left the real estate field to enter law school, and he was not attempting to avoid his obligations); In re Marriage of Webber, 191 Ill. App. 3d 327, 547 N.E.2d 749 (1989) (husband's good-faith decision to enroll as a full-time student warranted reduction in support obligations); Kelly v. Hougham, 178 Wis. 2d 546, 504 N.W.2d 440 (1993) (husband's desire to return to school was not undertaken in bad faith; court will not impute income).
Early Retirement. Many times, an obligor spouse will take early retirement due to medical reasons. Where an obligor justifiably relies on medical reasons for retirement, income will generally not be imputed. Shaughnessy v. Shaughnessy, 164 Ariz. 449, 793 P.2d 1116 (1990) (voluntary retirement may provide basis to modify so long as there is good-faith reason for such retirement); In re Marriage of Colombo, 197 Ill. App. 3d 767, 555 N.E.2d 56 (1990) (modification of alimony warranted where husband retired on doctor's orders after heart pain caused hospitalization); Deegan v. Deegan, 254 N.J. Super. 250, 603 A.2d 512 (App. Div. 1992) (when considering retirement, court will look to age, health, and motive of retiree, as balanced against disadvantage to children); Haase v. Haase, 64 Ohio App. 3d 758, 582 N.E.2d 1107 (1990) (denial of motion to modify alimony was abuse of discretion where husband retired because of aggravated health problems); Roach v. Roach, 61 Ohio App. 3d 315, 572 N.E.2d 772 (1989) (retirement at age 59, motivated in part by medical problems, was not voluntary and thus income would not be imputed).
For example, in Gilbertson v. Graff, 477 N.W.2d 771 (Minn. Ct. App. 1991), the appellate court found that it was improper for the trial court to impute income absent a finding that the father used his medical condition to unjustifiably limit his income. By contrast, in Curtis v. Curtis, 442 N.W.2d 173 (Minn. Ct. App. 1989), the obligor quit his job, claiming his doctor had advised him to take early retirement. The evidence showed, however, that the doctor had merely stated that the husband's allergies were aggravated by his working conditions. The doctor had not stated that retirement was necessary. The court thus found that the husband's retirement was in bad faith. See also In re Marriage of Lyons, 155 Ill. App. 3d 300, 508 N.E.2d 458 (1987) (although father claimed he was forced to quit his job earning $40,000 per year, there was insufficient medical evidence to establish injury that father claimed); Aaker v. Aaker, 447 N.W.2d 607 (Minn. Ct. App. 1989) (although father claimed he was unable to work, testimony of psychologists established husband's inability to work was temporary and would improve after divorce; income could therefore be imputed to capacity levels).
In New Jersey, a court may find that the early retirement was undertaken in good faith and for good reasons, and may still impute income if the disadvantage to the obligee outweighs the advantage to the obligor. Deegan v. Deegan, 254 N.J. Super. 350, 603 A.2d 542 (App. Div. 1992). In the case of Dilger v. Dilger, 242 N.J. Super. 380, 576 A.2d 951 (App. Div. 1990), the court laid out the various factors to consider in determining whether the advantage of retirement to the obligor outweighs the disadvantage to the obligee. These factors include the age and health of the retiring party, the motive in retiring, the timing of retirement, the ability to pay maintenance after retirement, the ability of the obligee to provide for herself or himself, the expectations of the parties at the time of the agreement, whether the retiring spouse was planning retirement at a particular age, and the opportunity given to the obligee to prepare to live on reduced support.
Early retirement for reasons other than health are generally not favored. For example, in Hughes v. Hughes, 761 S.W.2d 274 (Mo. Ct. App. 1988), the husband took the company's offer of voluntary early retirement out of fear that if he did not take the offer, he would be laid off. The court found that this reason was not sufficient, and that in any event the husband was bound to find another job if he was able.
Mothers of Small Children. Courts have consistently held that a mother's desire to stay home with a young child or disabled child is a good-faith reason for limiting income. This reasoning, however, applies only to children of the marriage, not subsequent children. See discussion, supra. For example, in In re Marriage of Keown, 225 Ill. App. 3d 808, 587 N.E.2d 644 (1992), the court held that it would be error to attribute income to a mother who was not working where the reason she was voluntarily unemployed was to take care of her children. Similarly, in Goldman v. Goldman, 28 Mass. App. Ct. 603, 554 N.E.2d 860 (1990), the court held that a mother's earning capacity may not be used to calculate child support obligations where the mother's desire to stay home with a troubled child was reasonable. See also Rock v. Rock, 86 Md. App. 598, 587 A.2d 1133 (1991) (court did not err in refusing to attribute income to wife where, as mother, she had neither time nor resources to return to school to complete training); McDonald v. Taylor, 106 N.C. App. 18, 415 S.W.2d 81 (1992) (it was reversible error to impute income to mother to calculate father's support obligation, in absence of evidence that mother deliberately suppressed income and in light of evidence mother was taking care of children); Cressend v. Cressend, 514 So. 2d 225 (La. Ct. App. 1987) (court will not impute income to mother where she is taking care of children). But see In re Jonas, 57 Wash. App. 339, 788 P.2d 12 (1990) (trial court should have considered earning capacity of mother who had chosen to stay home to care for her children of previous marriage when deciding amount of child support mother owed to custodial father); Mears v. Mears, 213 N.W.2d 511 (Iowa 1973) (claim of change of circumstances unsuccessful where loss of income was due to petitioner's assuming full-time housewife duties).
Restoring Lost Income. As noted above, courts will examine the efforts undertaken to secure a new job or greater income after change in income to determine whether the change in income was voluntary. A court can find that the change was voluntary, and yet excuse that change by finding that lack of efforts to undertake a job search were excused. For example, in Baker v. Baker, 811 S.W.2d 65 (Mo. Ct. App. 1991), the court excused the obligor's failure to seek employment where the obligor was 61 years old, had not been employed for 28 years, and was in bad health.
The decision of a court to impute income to a spouse or parent does justice to the notion that no one should be allowed to avoid obligations by deliberately taking actions making the fulfillment of those obligations impossible. So long as spouses and parents recognize that freedom from marriage does not mean freedom from responsibility, courts will have a lesser need to impute income.
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