Severance, Bonus Payments and Child Support

Posted on January 16th, 2012

Severance Payment Should Not be Considered as One-Month’s Compensation for Child Support Guideline

In the recent matter of IRMO Tong & Samson, (filed July 5, 2011), the Court of Appeal held that a parties’ receipt of severance pay should not be considered as one-month’s pay for purposes of calculating guideline child support.  In the Tong matter, the parties separated after a 22-year marriage.  The court ordered the husband to pay the wife over $9000 per month in support, plus 35% of all his compensation in excess of $25,000 pursuant to the Smith-Ostler formula. The order contemplated both child support and spousal support.

One year later, the husband was laid off from his job and received over $300,000 in severance.  One and a half years after he was laid off, the husband filed a motion to modify support and sought to clarify whether his severance pay would be spread over a thirteen month period based on the Stephenson case, which allows the court to spread over a period of time large receipts of money for support purposes. The Court of Appeals reversed the trial court and found that the husband’s severance pay cannot be treated as one-month’s earnings and should be spread out over thirteen months.  The husband’s severance pay had several components, including pay for past years’ service, pay in lieu of commissions, and other components.  The fact that the husband’s pay was partitioned for certain past and future pay was crucial in the court’s eyes because the lump-sum severance pay was obviously intended by the husband’s employer to compensate for more than one-month of pay.

Is Severance Pay Considered Income for Child Support?

If the Court had not determined that the husband’s severance pay was intended to compensate for more than one month of service, the husband could have suffered a disastrous court order.  Essentially, the court could have said the $300,000 payment for the husband’s severance was a monthly earnings amount, thus increasing the husband’s monthly support obligation to an amount that he would never have been able to pay.

The court had also ruled on the husband’s request to downward modify support based on the wife’s cohabitation with an unrelated male pursuant to Family Code 4323.  The court denied the request based on the fact that the unrelated male contributed only $800 per month to the wife’s monthly expenses, and therefore this amount did not significantly reduce the wife’s need for support.

Child and spousal support issues must be dealt with a careful manner.  The Tong case could easily have been decided in a manner significantly different than the actual outcome.  As a result, it is imperative that family law litigants have an expert on their side to guide them through the process.  At Wilkinson & Finkbeiner, LLP, our San Diego family law attorneys have extensive litigation experience with child and spousal support matters.  Please email us using our contact page or call us at (619) 284-4113 today!