In re Marriage of Terry

• Citation: 95 Cal.Rptr.2d 760,80 Cal.App.4th 921
• Decision Date: 18 April 2000
• Docket Number: No. A083746.,No. A083772.,A083746.,A083772.
• Court: California Court of Appeals Court of Appeals
• Parties: In re the MARRIAGE OF Mary E. and Thomas D. TERRY. Mary E. Terry, Appellant, v. Thomas D. Terry, Respondent. In re the Marriage of Mary E. and Thomas D. Terry Mary E. Terry, Respondent, v. Thomas D. Terry, Appellant.

95 Cal.Rptr.2d 760

80 Cal.App.4th 921

In re the MARRIAGE OF Mary E. and Thomas D. TERRY.

Mary E. Terry, Appellant, v. Thomas D. Terry, Respondent.

In re the Marriage of Mary E. and Thomas D. Terry

Mary E. Terry, Respondent, v. Thomas D. Terry, Appellant.

No. A083746.

No. A083772.

Court of Appeal, First District, Division 4.

April 18, 2000.

Rehearing Denied May 16, 2000.^*

Review Denied July 26, 2000.

Verna A. Adams, Adams & Dornan, Inc., San Rafael, Bernard N. Wolf, Law Offices of Bernard N. Wolf, San Francisco, for Appellant in No. A083746 and for Respondent in No. A083772.

Richard Sherman, DeGoff and Sherman, Berkeley, for Appellant in No. A083772 and for Respondent in No. A083746.

Hanson Family Law Group, Harry A. Hanson, Jr. and Belinda Hanson for Appellant in No. A083772 and for Respondent in No. A083746.

REARDON, J.

Three times the trial court has ruled on the matter of spousal support in this case. Each time the supported spouse's estate has grown and the supporting spouse's income has diminished. Yet, on this last go-around, with the supported spouse enjoying an investment portfolio of nearly $3.75 million, retirement benefits approaching $1 million and real estate valued at $773,500, the trial court refused to invoke its independent authority under Family Code¹ section 4322 to terminate support. We reverse the order diminishing, but continuing spousal support, and concurrently affirm the subsequent order denying the supported spouse's request for attorney fees.

I. FACTUAL BACKGROUND

Mary and Thomas Terry separated in April 1993 after a 34-year marriage. By then their three children were adults. Mr. Terry has remarried; Ms. Terry has not.

Mr. Terry has been one of the country's leading tax experts in the area of employee benefits. He has been a partner with two Bay Area law firms, first with Morrison & Foerster and then with Pillsbury, Madison & Sutro (PM & S). In between, Mr. Terry served as a benefits tax counsel in the United States Treasury Department. In contrast, Ms. Terry has no significant out-of-home employment.

In December 1993 the trial court entered judgment dissolving the marriage. The parties reserved issues of property division and support. When all was said and done, by stipulation or court order, major items of property were disposed of as follows: (1) Mr. Terry's retirement benefits from Morrison & Foerster and PM & S were divided equally; (2) the family home in Kentfield, valued at $773,500, was awarded to Ms. Terry; (3) the value of Mr. Terry's law practice with PM & S, set at $276,868, was awarded to him; and (4) Ms Terry made an equalizing payment of $220,830.50 to Mr. Terry.

A. Initial Spousal Support Award

Spousal support was hotly disputed at trial, in part because Ms. Terry had substantial separate property assets. Trial took place in late 1994.

In its May 1995 statement of decision and August 1995 order, the trial court found that with separate property assets of approximately $2 million, Ms. Terry's net worth was "substantially greater than Mr. Terry's." Nonetheless it ordered Mr. Terry to pay spousal support of $8,750 per month based on the following: Ms. Terry's reasonable needs were $10,000 to $12,000 per month, net of taxes;² Mr. Terry had the ability to pay support, with an annual income of $315,960 from PM & S and unearned income of $25,884; and Ms. Terry's investment portfolio would generate an estimated 5 percent return,³ or approximately $82,908. The $8,750 per month in spousal support, combined with income from Ms. Terry's investments, would meet her reasonable needs. Under these circumstances, the court saw no need for Ms. Terry to change her investment strategy or draw down on the retirement accounts.

B. Motion to Reduce Spousal Support

In February 1996 Mr. Terry moved to reduce spousal support by $2,000 a month because Ms. Terry had received an additional $303,000 from her mother's estate, and his income had decreased. While the motion was pending, PM & S notified Mr. Terry that he would be converted to a "salaried" partner, with his 1996 income reduced to $250,000 and his 1997 income to $225,000. Meanwhile, Ms. Terry's portfolio had increased to $2,702,597.65.

In a supplemental declaration, Mr. Terry asked to have his support obligation reduced to $5,200 per month. The trial court reduced spousal support to $5,500 per month.

C. Motion to Terminate Spousal Support

Upon learning that his employment with PM & S would permanently end effective January 1, 1998, Mr. Terry moved to terminate support. In the meantime he explored job possibilities in the private and public sectors, but to no avail. Mr. Terry explained in his moving papers that since he was 64 at the time and many private firms have a mandatory retirement age of 65, private employment was unrealistic, particularly since he did not have a personal "book of business."

Due to these developments, Mr. Terry decided to start drawing $5,500 per month from his retirement account. As well, he started a consulting practice, earning gross receipts of $12,843.75 during the first three months.

During this time frame, Ms. Terry's investments increased in value. Her February 1998 Merrill Lynch account statement revealed a net portfolio value of $3,545,788. Annual income was estimated at $95,130, for a current yield of approximately 2.7 percent. Ms. Terry also reported interest, income in the amount of $9,472 on a $200,000 promissory note, as well as $787 from a government pension.

Mr. Terry pointed out that Ms. Terry's portfolio consisted primarily of low basis stocks, which she managed in a manner so as not to maximize income. Should Ms. Terry elect to increase income by reconfiguring her portfolio, there would be capital gains taxes, but the tax consequence would be substantially reduced because "1997 tax legislation reduced capital gains tax rates from 28% to 20%...." He further explained that Ms. Terry's retirement account had grown to $959,786. Ms. Terry turned 61 on January 20, 1998, at which time she could draw down on the retirement account without incurring any penalty.

Ms. Terry responded that (1) her portfolio had decreased slightly because of the $200,000 loan; (2) she should not be expected to withdraw from the retirement accounts until after Mr. Terry's death; (3) Mr. Terry could easily affiliate with a major firm, obtain a government position or teach, thereby increasing his income; and (4) the expenses associated with his consulting business were unnecessarily high.

The trial court found there had been substantial changes in circumstances, namely the loss of Mr. Terry's job and the increase in value of Ms. Terry's separate assets. However, the court concluded the showing was insufficient to require Ms. Terry to begin drawing down on her retirement benefits or to change her investment strategy. The court further found that Mr. Terry's business expenses "appear somewhat overstated" and imputed approximately $80,000 in annual income to him from the consulting practice. The court reduced spousal support to $2,750 per month. In so doing it took into consideration the funds that Mr. Terry was drawing from his retirement account. As well, the court observed that under the current order, Mr. Terry would "be unable to pay his living expenses" but that his spouse's income would be available to reduce his own living expenses.

Mr. Terry requested specific findings as to Ms. Terry's net worth and rate of return on her investments, but the court refused. Thereafter, the court ordered each party to pay his or her own attorney fees and cost of suit. Mr. Terry appeals from the modification order (No. A083772); Ms. Terry cross-appeals from the fee order (No. A083746).

II. DISCUSSION

A. Support Order

1. Introduction; Standard of Review

The trial court has broad discretion to decide whether to modify a spousal support order based on a material change of circumstances. In exercising this discretion, the court considers the same criteria set forth in section 4320 as it considered when making the initial order and any subsequent modification order. (In re Marriage of Stephenson (1995) 39 Cal. App.4th 71, 76-78, 46 Cal.Rptr.2d 8.) These factors include the ability of the supporting party to pay; the needs of each party based on the standard of living established during the marriage; the obligations and assets of each party; and the balance of hardships to each party. (§ 4320, subds.(c)-(e), (j).)

As well, section 4322 provides that in original or modification proceedings, "where there are no children, and a party has or acquires a separate estate, including income from employment, sufficient for the party's proper support, no support shall be ordered or continued against the other party." (Italics added.) Denial of continued support is thus mandatory if the sufficiency threshold is met, irrespective of circumstances the court would otherwise consider under section 4320.

The trial court repeatedly found that Ms. Terry's separate estate was not sufficient to meet her proper needs for support and thus section 4322 did not apply. This, despite the fact that Ms. Terry's separate estate has consistently grown.

The initial support order set Ms. Terry's reasonable needs as totaling between $10,000 and $12,000 per month after taxes. She did not appeal that ruling and it is too late to do so now. This is the pivotal amount for ascertaining Mr. Terry's support obligation, if any.

The question under section 4322 is whether Ms. Terry's separate estate is sufficient to fund this level of support. This is a mixed question of fact and law calling for (1) the establishment of the historical facts concerning the value and character of Ms. Terry's separate estate as well as her support needs; and (2) the application of those facts to the legal standard of sufficiency with the resulting determination as to whether that standard is met. The facts are not in dispute.

When the inquiry into whether the standard...