When calculating spousal or child support, courts look to a wage earner’s monthly income to determine an appropriate support amount.  However, what if the wage earner spouse or parent receives bonus income in the years after the initial support order is entered?  Support orders can be altered, but the process involves a court room, lawyers, and more legal fees.  In re Marriage of Ostler & Smith offers an alternative answer—the Smith/Ostler order.

A Smith/Ostler order takes into account a spouse or parent’s unearned or prospective income, detailing when and how any future, additional earnings should be incorporated into a support order.  However, because bonus income is prospective only, it may never be realized.  Calculating support based off an unknown and/or unguaranteed dollar amount can underestimate or inflate a support order.  Therefore, to account for the speculative nature of bonus payments, courts deal in percentages.

For example, in the seminal In re Marriage of Ostler & Smith case, the court awarded Wife 15 percent of Husband’s future cash bonuses.  If Husband received a bonus, he would give 15 percent of whatever amount he earned to Wife, but if Husband did not receive any cash bonuses, he would not pay additional support.  Importantly, the original support order would remain intact, and the parties would not need to argue over how much of the bonus income the supported spouse should be paid—the court order took care of those details and created a more easily administered support order.

In addition to cash bonuses, a Smith/Ostler order can account for future stock option income.  For example, in In re Marriage of Kerr, Wife and Husband, while married, improved their standard of living by exercising stock options that had increased in value.  Subsequently, during divorce proceedings, the court award Wife, through a Smith/Ostler order, a percentage of Husband’s income from any future exercise of those same stock options.

However, In re Marriage of Kerr presented an exceptional case where an additional measure besides a percentage amount was necessary to ensure that Husband’s spousal support order was not inflated.  The value of Husband’s stock had increased exponentially after he divorced Wife.  A specified percentage of the stock’s value would have increased Husband’s payments to a point that far exceeded the marital standard of living he shared with Wife.  Thus, the court concluded that under special circumstances, such as the case at hand, use of a Smith/Ostler order is permissible only if the court caps the amount of future income a spouse can receive at a number proportionate to the martial standard of living.

If you are considering a divorce or legal separation and would like more information about how either action may affect your finances, please contact the experienced family law attorneys at Lonich Patton Ehrlich Policastri.  We can help you understand and manage any spousal or child support issues that may arise.

Lastly, please remember that each individual situation is unique, and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

Sources:

In re Marriage of Ostler & Smith (1990) 223 Cal.App.3d 33

In re Marriage of Kerr (1999) 77 Cal.App.4th 87