Clark v. Clark: Spousal support to a wife could only terminate automatically after 18 months if her income was found to be sufficient to meet her needs.
By Thomas C. Montoya, Family Lawyer
1. Husband and Wife were married for 13 years. There were no children.
2. The husband had a separate property business, a Subchapter-S corporation and Husband was the sole owner and operator of the business. Husband earned a 3 year average annual W-2 income of$423,413, and average annual non-W-2 income distributed from his business of $212,020, for total income of $635,433
3. Based on Husband’s W-2 income alone, it calculated Husband’s gross pre-tax income for spousal support purposes as $35,284 per month.
4. At the time of the final decree of divorce, Husband was 66 years of age, and Wife was 60. Husband’s job was physically demanding and, due to his age and health, he wanted to retire.
5. The parties did not introduce any evidence of Wife’s earning capacity and did not anticipate Wife’s return to work as a viable reality under the circumstances presented to the district court.
6. The district court awarded Wife transitional spousal support for an eighteen-month period, in the amount of $6,500 per month, without any findings regarding how she would be supporting herself thereafter. Wife appealed.
7. The Court of Appeals held that
a. Subject to certain exceptions, income received from a Subchapter-S corporation owned by a spouse is included when calculating spousal support;
b. The duration of spousal support is controlled by the recipient spouse’s ability to become self-sufficient.
8. Spousal support represents a substitute for or a continuation of the right to support that the spouse had during the marriage.
9. The non-W-2 income that is actually distributed by a Subchapter S business is available to be consumed by the parties and can also be used to pay the increased tax obligations incurred as a result of the K-1 allocations issued by the business. Important to this analysis, the non-W-2 income distributions from a Subchapter S business that exceed the amount necessary to pay corporate business expenses or the shareholder spouses tax obligations are considered income for purposes of calculating family support obligations.
10. The owner of a closely-held corporation cannot avoid a support obligation by sheltering income that should be available for support by manipulating salary, perquisites, corporate expenditures, and/or corporate distribution amounts. However, we cannot attribute as income funds not actually available to or received by the party.
11. A shareholder-spouse who is able to control the retention or disbursement of corporation funds is required to prove that such actions were necessary to maintain or preserve the business.
12. It was an abuse of discretion for the district court to exclude all of Husband’s non-W-2 income received from his separate business when calculating spousal support.
13. The case was remanded the matter to the district court for a factually definitive and legally reviewable calculation of Husband’s business income. Upon recalculation, Husband’s support obligation to Wife should then be adjusted as necessary.
14. A district court should not terminate jurisdiction to extend a future support order after a lengthy marriage – unless the record clearly indicates that the supported spouse will be able to adequately meet his or her financial needs at the time selected for termination of jurisdiction. As a result, rehabilitation awards that provide spousal support for a limited duration have generally involved younger recipients with substantial job skills and relatively short marriages.
15.When a district court finds that a spouse is currently entitled to periodic spousal support but may later become self-sufficient, the proper course is to order such support for an indefiniteti me, with the payor spouse bearing the burden to move for reduction or elimination of support when it appears that the recipient spouse has, in fact, become more self-sufficient.
16. Automatic termination of Wife’s spousal support after eighteen months could only be justified in this case if, after eighteen months, Wife’s income was sufficient to establish that spousal support would no longer be necessary to help support her reasonable needs, which evidence was lacking. The case was remanded for further consideration by the district court regarding the duration of the spousal support to Wife.
Certi Orari Denied, December 11, 2013, No. 34,414. 2014-NMCA-030, _ P.3d_;
Tom Montoya is a shareholder with Atkinson & Kelsey, practicing primarily in matrimonial law and marital property distribution. He attended Stanford University, obtained his J.D. Degree from the University of Southern California, and is a member of the American Law Institute. www.atkinsonkelsey.com
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