Court Opinion

ID: 3196744
Source: CourtListenerOpinion
Date Created: 2016-04-21 22:01:44.287294+00
Date Added: 2024-06-11T12:24:09.657526
License: Public Domain

Filed 4/21/16 Marriage of Shepherd CA6
                       NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      SIXTH APPELLATE DISTRICT

In re the Marriage of SCOTT G. and                                   H039876
CINDY D. SHEPHERD.                                                  (Santa Cruz County
                                                                     Super.Ct.No. FL26949)

SCOTT G. SHEPHERD,

         Appellant,

                  v.

CINDY D. SHEPHERD,

         Respondent.

         The appeal in this highly contentious dissolution proceeding is from a 2013
postjudgment order denying a motion to modify spousal support. In November 2010, the
court ordered appellant Scott Shepherd to pay respondent Cindy Shepherd permanent
spousal support of $7,828 per month.1 In addressing spousal support, the court heard
evidence concerning two employee transition loans totaling $980,096 (the loans) that
Scott had received when he changed jobs in 2009. The loans were subject to being
forgiven proportionally over nine- and five-year periods, respectively, so long as Scott
remained with the employer-lender and met specified performance goals. In the court’s

         1
        “Hereafter, we refer to the parties by their first names, as a convenience to the
reader. We do not intend this informality to reflect a lack of respect. [Citation.]” (In re
Marriage of Balcof (2006) 141 Cal. App. 4th 1509, 1513, fn. 2.)
November 2010 order, the court held that the loan proceeds were “[Scott’s] separate
property, to be characterized as income available for support as the loans are forgiven.”
        In April 2013, Scott moved to modify the support order based upon an alleged
change of circumstances, including (1) a significant reduction in his income as a financial
advisor/stockbroker, (2) a depletion of available funds originating from the loans, and
(3) Cindy’s failure to seek or obtain employment within a reasonable time. The court
denied the motion to modify and awarded Cindy attorney fees of $10,000.
        Scott contends on appeal the court abused its discretion by denying the motion to
modify spousal support. He argues that (1) his income was substantially reduced from
the level upon which the original support order was based; (2) his available income was
further reduced because he was required to make annual income tax payments on the
loans; and (3) the proceeds from the loans—which had been used to fund spousal
support—were exhausted. Scott also contends the court erred in failing to consider that
Cindy had not made efforts to seek employment within a reasonable time period. Lastly,
Scott asserts the court abused its discretion in awarding Cindy $10,000 in attorney fees.
        We conclude the court abused its discretion by denying Scott’s motion to modify
spousal support and by awarding attorney fees to Cindy. Accordingly, we will reverse
and remand the matter for further proceedings.
                                PROCEDURAL HISTORY
        I.     Trial and Judgment of Dissolution
        Scott filed a petition for dissolution of his marriage with Cindy on July 10, 2008.
The two contested issues at trial were the characterization of the loans Scott received in
2009 from his new employer, UBS Financial (UBS), and a determination of spousal
support. After a six-day trial commencing in December 2009 and concluding in June
2010, the court (Hon. John S. Salazar) issued its statement of decision on November 24,
2010.

                                              2
       In the statement of decision, the court recited that the parties were married on June
3, 1989, and had separated on July 10, 2008. As of November 2010, Scott and Cindy
were 52 and 54 years old, respectively, and they were both in good health. They had two
children, Chase (born in July 1991) and Connor (born in June 1993). The parties
stipulated that child support for Connor would be $1,629, based upon Scott’s estimated
2010 income of $222,655.
       The court noted that Cindy had argued the loans were community property
because Scott received them in consideration of his “bringing clients from Morgan
Stanley,” his former employer, to UBS. She characterized Scott’s “book of business” as
a community asset. Scott argued “the transfer of clients was a natural result of his move
to [UBS], and that his post[-]separation efforts [were] required in order for the loan
forgiveness to occur.” The court rejected Cindy’s position, concluding the loan proceeds
were “[Scott’s] separate property, to be characterized as income available for support as
the loans are forgiven.”
       The court fixed spousal support at $7,828 per month, retroactive to June 14, 2010.
(Scott had previously been paying temporary spousal support of $3,551 per month.) The
court derived the $7,828 figure from several factors, including Cindy’s marketable skills
and earning capacity, the needs of the parties based upon the marital standard of living,
and Scott’s ability to pay spousal support.
       Cindy was 54 at the time of trial. She had received a high school diploma in 1974,
had attended one year of college, and had not been employed outside the home since
1991. Cindy’s vocational plan—presented in the testimony of her vocational expert,
Timothy Harper—was approved by the court and found to be “reasonable.” It involved
Cindy’s attendance in school to improve her computer and business skills, and her
enrollment in junior college in an interior design program to improve her marketable
skills and potential earning capacity. The court found that while Cindy “could earn a
small [amount of] income at this time, it would be more prudent to place her entire focus

                                              3
on increasing her earning capacity, especially in this depressed job market.” It added that
as long as Cindy “continue[d] on her chosen path of career development, she [was]
required to attend school/training full time.” The court ordered that if Cindy ceased
attending school, she was required to seek and maintain full-time employment, and if she
attended school part time, she was required to obtain a part-time job. The court ordered
that (1) any income Cindy earned would be deducted from her spousal support, and
(2) Cindy had to report her income to Scott on a quarterly basis, beginning April 1, 2011.
       The court also considered the needs of the parties based upon the standard of
living established during the marriage. In that respect, the court found that “the parties
enjoyed an upper middle class lifestyle; however, they appeared to have lived somewhat
beyond their means.” It based this conclusion on the fact that at the time of the parties’
separation, their savings were minimal, their liabilities in addition to their mortgage were
numerous, and Cindy’s $100,000 inheritance had been exhausted. The court also found
that both parties, contrary to their testimony, continued to maintain their pre-separation
lifestyles, with Scott doing so “by spending his advanced income,” and Cindy doing so
with her mother’s financial assistance. It concluded that Scott’s income “ha[d] remained
stable, and appear[ed] to be increasing,” and Scott had access to a large sum of cash (i.e.,
the UBS loans). Cindy, on the other hand, had no income, and was reliant upon support
paid by Scott and additional money from her mother. The court concluded that Cindy
would “require $7,828 (pre-tax 2010 dollars) per month to achieve the marital standard of
living.”
       Another factor the court considered was Scott’s ability to pay spousal support. In
the five years before separation, Scott’s gross income from Morgan Stanley ranged from
$195,000 to $225,000. The court noted there had been no evidence presented that Scott’s
income would decrease in the future. It cited the testimony of an expert witness, Donald
Glenn (a certified public accountant), who estimated Scott’s annual income—anticipated

                                             4
base pay, commissions, and forgiven amounts of the loans—to be $222,655 (2010) and
$248,060 (2011).
       The court also addressed Cindy’s request for attorney fees pursuant to Family
Code sections 271, 2030, and 2107.2 The court found that Scott had engaged in
fraudulent conduct before the parties’ separation (falsifying tax returns and diverting joint
funds to his separate bank accounts) that warranted sanctions of $30,000 pursuant to
section 271. The court did not award fees pursuant to sections 2030 or 2107, finding that
“each party paid, or will pay[,] for their attorney’s fees from borrowed funds.” The court
concluded: “The amount of incurred attorneys’ fees in this case is astronomical, reported
to be in the area of $700,000 between the two parties. There is no way to justify the
exorbitant expenses incurred in this case. Neither party has sufficient funds of their own
to cover these fees. The playing field was even.”
       A judgment of dissolution was entered on February 8, 2011. The judgment,
among other things, incorporated by reference the court’s November 24, 2010 statement
of decision. Neither party appealed the judgment.
       II.    Scott’s 2011 Motion to Modify Spousal Support
       On August 5, 2011, Scott filed a motion to modify or terminate spousal support
(the 2011 motion), claiming that changed circumstances warranted a reduction or
termination of support. He later withdrew his request for termination of spousal support,
but not his request to reduce the amount of spousal support. He asserted that his earnings
since he had started working at UBS in February 2009 were significantly less than they
had been at Morgan Stanley. He contrasted his UBS earnings—$69,617 (2009),
$120,089 (2010), and $123,400 (2011 [projected])—with his Morgan Stanley earnings of
$222,401 in 2008. Scott indicated that, given the economic times, it would be several
additional years before his income level would reach pre-2009 levels. Scott also

       2
        All further statutory references are to the Family Code unless otherwise
indicated.

                                             5
contended that a large portion of the loans he received from UBS were no longer
available to him. He stated that he had expended or lost control of more than 79 percent
of the $691,832 he had received because:3 (1) he had paid $240,000 in attorney fees,
mostly in successfully defending against Cindy’s claim that the loans were community
property; (2) he had paid $30,000 to Cindy pursuant to the court’s sanctions order; and
(3) $276,732 had been set aside in a trust account for support payments to Cindy. Scott
pointed out that although these funds were no longer available to him, he would continue
to pay taxes on the loan proceeds for seven more years as the loan amounts were
incrementally forgiven. Finally, Scott argued that Cindy should have obtained
employment by the time of the motion, i.e., more than three years since the parties’
separation.
       Cindy opposed the 2011 motion. She asserted that the motion, brought only seven
months after the entry of judgment, offered no new or different information presenting a
material change in the financial circumstances of the parties. She noted that she had been
following the plan previously approved by the court of pursuing formal education. She
was enrolled full time at West Valley College in the interior design program and
anticipated completing the program by June 2013. Cindy also requested that, in light of
the fact that Scott was no longer paying $1,629 in child support, monthly spousal support
should be increased to $10,000. Lastly, Cindy sought an award of $30,000 in attorney
fees and costs under sections 271, 2030, and 2032.
       Cindy subsequently filed a motion for sanctions pursuant to Code of Civil
Procedure section 128.7, arguing that the 2011 motion was brought for an improper
purpose––to harass Cindy––and to needlessly increase the cost of litigation. She sought

       3
        In the 2011 motion, Scott inexplicably referred to the loan proceeds as $691,832,
the amount of the first loan, but made no mention of the second loan made by UBS in
2009 in the sum of $288,264. Scott did, however, reference the second UBS loan in his
income and expense declaration filed on August 24, 2011.

                                            6
sanctions of $40,000, in addition to attorney fees of $10,000 in opposing the 2011
motion. Later, in her reply papers, Cindy modified her attorney fee request, seeking
$120,000 in attorney fees and costs.
      At an unreported trial readiness conference on March 22, 2012, the court (Hon.
Jeff Almquist) summarily denied the 2011 motion, concluding in a minute order that
“there is no change of circumstance.” In a subsequent minute order after a hearing on
Cindy’s motion for sanctions held on April 2, 2012, the court confirmed the denial of the
motion, indicating: “[Scott] is a financial planner[4] and knew what support would be and
what his obligations were at the time support was set. [¶] The court finds no material
change of circumstances and that there are no adequate grounds for the motion.” The
court had also heard testimony from Cindy concerning her education and employment
efforts and found that she was “in compliance with Judge Salazar’s order contained in the
Statement of Decision filed 8/17/12 [sic].” The court took under submission Cindy’s
motion for sanctions.
      In a formal order of August 29, 2012, the court imposed net sanctions of $2,500
against Scott pursuant to section 271. This net amount was derived from (1) sanctions of
$5,000 imposed against Scott, based upon finding that the 2011 motion “was never more
than a request for a new trial, made without an adequate showing, or a motion for
reconsideration with no new facts and no new law”; and (2) sanctions of $2,500 imposed
against Cindy, based upon the finding that “[Cindy’s] attorney fee claim for $120,000
was essentially undocumented.” The court also awarded Cindy reasonable attorney fees
of $15,000 and reimbursement of expert fees of $4,000, payable by Scott.
      Neither party appealed the order denying the 2011 motion or the order imposing
sanctions and awarding attorney fees.

      4
         At the hearing on April 2, 2012, Scott’s counsel clarified that Scott was a
commissioned salesperson, not a financial planner. As indicated in the court’s statement
of decision, Scott’s chosen profession was “in the stock broker/financial advisor field.”

                                            7
       III.   Scott’s 2013 Motion to Modify Spousal Support
       On March 8, 2013, Scott filed a second motion to modify spousal support (the
2013 motion). In support of his request that the court reduce spousal support to an
unspecified amount, Scott declared, among other things, that (1) the loan proceeds used
to fund spousal support payments had been exhausted; (2) he would continue to pay taxes
on forgiven loan amounts and imputed interest for an additional five years; (3) were he to
lose his job at UBS, he would still be responsible for repayment of the portion of the
loans not forgiven ($557,309 as of the time Scott filed a supplemental declaration in May
2013); (4) his annual “net earnings”—a term he did not define—for 2010, 2011, and 2012
were significantly less than the annual spousal support obligation of $99,936;5 (5) at
$7,828 per month, he could not pay spousal support from his net earnings, let alone pay
for his own living expenses; (6) he could not have foreseen in 2009 when he joined UBS
“that the Court would [have] permit[ted Cindy] to not work a day in the last 5 years”
even though she was warned three times that she was expected to become self supporting;
and (7) due to the ongoing financial crisis, his gross income from UBS had still not
recovered to the level it was in 2008 when he was employed at Morgan Stanley, a
circumstance he could not have foreseen at the time he joined UBS.
       Cindy opposed the 2013 motion. She argued, among other things, that Scott had
“not offered any ‘new or different’ information to demonstrate a ‘material change’ in his
financial circumstances” warranting modification of the spousal support order. She also
requested an award of attorney fees of $20,000 pursuant to section 2030.

       5
        Scott listed his annual net earnings (however that term was defined) as $60,326
(2010), $55,361 (2011), and $77,349 (2012).

                                             8
         The court heard argument during a short hearing held on June 5, 2013.6 It denied
the 2013 motion, finding there was no change of circumstances warranting relief. The
court also awarded Cindy $10,000 in attorney fees pursuant to section 2030.
         Scott filed a timely appeal from the order. A postjudgment order granting or
denying a motion to modify spousal support is an appealable order. (Code of Civ. Proc.,
§ 904.1, subd. (a); see In re Marriage of Schroeder (1987) 192 Cal. App. 3d 1154, 1158.)
                                       DISCUSSION
         I.    Motions to Modify Orders for Spousal Support
         A spousal support order, with certain exceptions not relevant here, may be
modified or terminated at any time by the court. (§ 3651, subd. (a).) Spousal support
may only be modified “upon a material change of circumstances since the last order.
‘Change of circumstances’ means a reduction or increase in the supporting spouse’s
ability to pay and/or an increase or decrease in the supported spouse’s needs. It includes
all factors affecting need and the ability to pay.” (In re Marriage of West (2007)
152 Cal. App. 4th 240, 246.) The requirement that there be a showing of a material
change of circumstances is “to prevent parties from relitigating issues that the court has
previously addressed.” (In re Marriage of Freitas (2012) 209 Cal. App. 4th 1059, 1071-
1072.)
         “Whether a modification of a spousal support order is warranted depends upon the
facts and circumstances of each case.” (In re Marriage of Hoffmeister (1987)
191 Cal. App. 3d 351, 357.) In deciding a motion to modify a spousal support order, the
court is required to address the same factors it must consider under section 4320 in
making an initial spousal support order. (In re Marriage of Shaughnessy (2006)
139 Cal. App. 4th 1225, 1235.) Those statutory factors include (1) “[t]he extent to which
the earning capacity of each party is sufficient to maintain the standard of living

         6
         At oral argument, the parties agreed that the hearing—transcribed in a four-page
reporter’s transcript—was approximately six minutes in duration.
                                              9
established during the marriage”; (2) the supporting party’s ability to pay support, based
upon his or her “earning capacity, earned and unearned income, assets, and standard of
living”; (3) the parties’ respective needs, “based on the standard of living established
during the marriage”; (4) the parties’ respective assets and liabilities, including separate
property; and (5) “[t]he balance of the hardships to each party.” (§ 4320.) The court
must also consider “[a]ny other factors the court determines are just and equitable.”
(§ 4320, subd. (n).)
         The moving party bears the burden of demonstrating that “the economic situation
of the parties has changed, since it is the economic relation which is to be affected by the
proposed modification. [Citations.]” (In re Marriage of Clements (1982)
134 Cal. App. 3d 737, 745-746.) A failure to realize reasonable expectations contemplated
at the time of the prior order may constitute a material change of circumstances
warranting modification. (In re Marriage of Beust (1994) 23 Cal. App. 4th 24, 29.) But
while proof of a material change of circumstances is generally required to grant a motion
to modify spousal support (cf. In re Marriage of Freitas, supra, 209 Cal.App.4th at
p. 1069 [“changed circumstances rule is not to be applied mechanically or without
exception”]), the court is not required in all instances to grant the motion if such a
showing is made. (In re Marriage of Khera & Sameer (2012) 206 Cal. App. 4th 1467,
1484.)
         We review an order granting or denying a motion to modify a spousal support
order for abuse of discretion. (In re Marriage of Olson (1993) 14 Cal. App. 4th 1, 7.) “In
exercising its discretion the trial court must follow established legal principles and base
its findings on substantial evidence. If the trial court conforms to these requirements its
order will be upheld whether or not the appellate court agrees with it or would make the
same order if it were a trial court.” (In re Marriage of Schmir (2005) 134 Cal. App. 4th
43, 47, fn. omitted.) If a finding of a material change of circumstances is unsupported by

                                             10
substantial evidence, “an order modifying a support order will be overturned for abuse of
discretion. [Citation.]” (In re Marriage of West, supra, 152 Cal.App.4th at p. 246.)
        The trial court abuses its discretion when, after considering all of the
circumstances, its decision “has ‘exceeded the bounds of reason’ or it can ‘fairly be said’
that no judge would reasonably make the same order under the same circumstances.
[Citations.]” (In re Marriage of Smith (1990) 225 Cal. App. 3d 469, 480.) Although our
review is one that is deferential, in that the trial court is accorded the discretion to assign
the appropriate weight to the statutory factors relevant to spousal support, the trial
“ ‘court may not be arbitrary; it must exercise its discretion along legal lines, taking into
consideration the applicable circumstances of the parties set forth in [the statute],
especially reasonable needs and their financial abilities.’ [Citation.] Furthermore, the
court does not have discretion to ignore any relevant circumstance enumerated in the
statute. To the contrary, the trial judge must both recognize and apply each applicable
statutory factor in setting spousal support. [Citations.] Failure to do so is reversible
error. [Citations.]” (In re Marriage of Cheriton (2001) 92 Cal. App. 4th 269, 304, original
italics.)
        II.    Denial of 2013 Motion to Modify Was an Abuse of Discretion
               A.     Contentions of the Parties
        Scott makes several arguments in support of his contention that the trial court
abused its discretion in denying the 2013 motion. He asserts that a material change of
circumstances existed that the court failed to recognize, and the court did not give
appropriate consideration to some of the criteria specified in section 4320. He argues the
court did not properly consider “[t]he ability of the supporting party [Scott] to pay
spousal support, taking into account the supporting party’s earning capacity, earned and
unearned income, assets, and standard of living.” (§ 4320, subd. (c).) Specifically, he
contends the court failed to consider that (1) all of the loan proceeds were exhausted;
(2) Scott would continue to pay taxes on the balance of the loans and imputed interest for

                                              11
five more years, even though the proceeds were no longer available; (3) although the
proceeds were no longer available, Scott was nonetheless still liable for $614,962 of the
loans and would be required to pay the loans back in full if he lost his job with UBS;7 (4)
Scott’s annual commission income with UBS had continued to be at levels significantly
lower than his pre-2009 commission income with Morgan Stanley; and (5) Scott’s “net
income” for January 1 through May 15, 2013—which term was undefined but which we
infer to be take-home pay—was $34,392, an amount less than his total spousal support
obligation for that same period.
       Scott also argues that the trial court failed to give proper consideration to Cindy’s
earning capacity (§ 4320, subd. (a)), and “[t]he goal that the supported party shall be self-
supporting within a reasonable period of time.” (§ 4320, subd. (l).) He asserts that at the
trial before Judge Salazar in May 2010, Cindy’s vocational expert, Timothy Harper,
testified that, while Cindy should be given the opportunity to attend school to study
interior design, she would be ready to start looking for work between January and June
2011. But Harper then presented an updated vocational evaluation in June 2012 in
connection with the 2011 motion in which he indicated a likelihood that Cindy would be
ready to enter the workforce in Spring 2013, or by the end of Fall of that year if she took
extra classes or summer school. Cindy testified in that proceeding that she would
complete her classes to become an interior designer by December 2013. Because the
loan proceeds are now exhausted and Scott’s commission income has not returned to its
pre-2009 level, Scott argues the circumstances have changed and the court failed to
consider the statutory goal of supported spouses becoming self-supporting in light of
these changed circumstances.
       Lastly, Scott argues the trial court failed to consider “[t]he needs of each party
based on the standard of living established during the marriage.” (§ 4320, subd. (d).) He

       7
         The record shows that at the time of the hearing on the 2013 motion (June 2013),
the total loan balance was $557,312.
                                             12
contends the court failed to consider his need to support himself, given that the monthly
spousal support obligation of $7,828 exceeded his monthly net pay. He argues further
that “for at least 20 months, Cindy had been increasingly including thousands of dollars
of the parties’ adult children’s expenses as part of her purported spousal support needs,
and had been spending at far above her $7,828 reasonable needs under the marital
standard of living.” He asserts this is an additional change of circumstance the court
should have evaluated.
       Cindy responds that there is no material change of circumstances warranting the
modification of the spousal support order. Generally, she asserts that Scott’s alleged
grounds for the modification request in the 2013 motion were ones that he had previously
raised in the 2010 trial or in the 2011 motion. She argues, among other things, that (1)
the court, in establishing spousal support in 2010, took into consideration the fact that
Scott’s annual gross income would include a loan-forgiveness component; (2) Scott’s
expert, Donald Glenn, accurately predicted the loan-forgiveness amounts for 2010
through 2012; (3) the court in 2010 anticipated that Scott’s gross earnings would be
$222,655 for 2010 and $248,060 for 2011, and Scott’s earnings were in excess of the
anticipated figure in 2010 ($224,632), slightly below the anticipated figure in 2011
($239,609), and were much higher in 2012 ($355,031); (4) Scott accepted the
consequences of the loans, including their tax consequences, and cannot complain about
them in seeking modification of spousal support; (5) there was no change of
circumstances regarding Cindy’s efforts in seeking employment, and Scott is simply
relitigating an issue he lost in the 2011 motion; and (6) Cindy established that she had
complied with orders concerning vocational training.
              B.     The Employee Transition Loans
       Scott declared in the 2011 motion that shortly after he filed for dissolution in July
2008, “the financial markets entered into a period of unprecedented financial instability.”
He feared that his employer, Morgan Stanley, would cease business operations like its

                                             13
competitors, Bear Sterns and Lehman Brothers. He therefore decided to leave Morgan
Stanley, and in January 2009, he joined UBS, a company he thought to be more stable.
       After commencing employment with UBS in 2009, Scott received two loans from
UBS that totaled $980,096. He received the proceeds from the first loan ($691,832) on or
about February 25, 2009, and the proceeds of the second loan ($288,264) on or about
September 25, 2009. Scott explained that such transition loans are common in the
brokerage field to assist a financial advisor who changes jobs during “the several years [it
may take] to rebuild sales/production to the same level as before the transition.” The
payments to the employee are structured as a loan or loans, with the principal amounts to
be forgiven incrementally over a period of seven to nine years, so that taxes do not have
to be paid by the employee in a lump sum in the year the funds are received.
       According to the loan schedules submitted in connection with the 2013 motion,
UBS each year is forgiving one-ninth of the total principal of the first loan to Scott (i.e.,
$76,870.22) over a period of nine years. The loan forgiveness commenced in January
2010 and will conclude in January 2018. UBS each year is forgiving one-fifth of the total
principal of the second loan to Scott (i.e., $57,652.80) over a period of five years, with
the forgiveness commencing in March 2012 and concluding in March 2016. As of March
2013, $307,480.88 and $115,305.60 of principal balances of the first loan and second
loan, respectively, had been forgiven. In addition to having the forgiven portions of the
principal balance of each loan declared as income according to the designated schedule,
imputed interest on the forgiven loan amounts was also reported as income to Scott.
Between 2010 and March 2013, a total of $143,275.02 of imputed interest was reported
as income.
       When Scott filed the 2011 motion, he declared that he had expended or lost
control of $546,732 (over 79 percent) of the $691,832 loan proceeds because he had
(1) spent $240,000 in attorney fees in the dissolution proceeding, (2) paid $30,000 in
sanctions to Cindy, and (3) placed $276,732 in a trust account to fund support payments

                                              14
to Cindy. On March 16, 2012, shortly before the unreported trial readiness conference in
which the court denied Scott’s 2011 motion, Scott filed a supplemental declaration. He
declared that, of the $980,096 of original loan proceeds, he only had control of
approximately $200,000. The remaining amounts were expended to fund the trust
account, pay the sanctions award, pay his attorney fees, and supplement his salary to
cover living expenses, including loan repayment. When Scott filed the 2013 motion, he
declared that the entire loan proceeds had been exhausted.8
              C.      The Trial Court Must Reconsider the 2013 Motion
       Some of the circumstances Scott contends amount to changed circumstances
existed at or prior to the 2011 motion; therefore, those circumstances could not serve as
proper grounds for modification of spousal support in the 2013 motion. Most
significantly, Scott’s ongoing liability for a substantial portion of the loans was not by
itself a material change of circumstances. The character of the loans was fully known at
the time of trial in 2010. Furthermore, Scott’s contention that Cindy’s failure to become
employed by March 2013 constituted a change of circumstances is likewise without
merit. Scott argued at length in the 2011 motion that Cindy had not sought and obtained
employment within a reasonable period of time. On April 2, 2012, the court found Cindy
to be “in compliance with Judge Salazar’s order.” Thus, Scott cannot assert that Cindy’s
failure to earn income by March 2013 constituted a material change of circumstances. To
do so would be an attempt to relitigate an issue decided against him in the 2011 motion.
(See In re Marriage of Olson, supra, 14 Cal.App.4th at p. 14 [“change of circumstances
referred to occurs ‘since the last order’ ”].)

       8
          The parties disagree on one aspect of the structuring of the loans. At oral
argument, Cindy’s counsel asserted that UBS in essence pays the taxes on the loan
forgiveness. Scott’s counsel responded by indicating that UBS does not pay taxes on the
loan forgiveness. The record concerning this issue is unclear, but in any event this issue
is not critical to our analysis. As discussed, post, we conclude the order must be reversed
and the matter remanded for further consideration of the 2013 motion so the trial court
can consider all of the factors stated in section 4320.
                                                 15
       But Scott did demonstrate in the 2013 motion a change of circumstances regarding
his ongoing ability to pay spousal support due to extraordinary expenses that depleted the
loan proceeds. It was undisputed that by the time of the 2013 motion, there were no
funds left from the loans from which Scott could draw to make spousal support
payments. In November 2010, when the court initially established monthly spousal
support of $7,828, it contemplated that portions of the loan would be considered “income
available for support as [portions of] the loans [we]re forgiven.” “[A] change of
circumstances may be in the form of ‘unrealized expectations.’ ” (In re Marriage of
Beust, supra, 23 Cal.App.4th at p. 29; see also In re Marriage of Hoffmeister, supra,
191 Cal.App.3d at p. 365 [“a deviation from . . . reasonable expectations” may constitute
a change of circumstances].) The continued availability of funds from the loans was a
reasonable expectation that, in this instance, was unrealized. Thus, the extraordinary
expenses that led to the exhaustion of the loan proceeds constituted a material change of
circumstances.
       The circumstances presented in the 2013 motion were in contrast to those
presented in the 2011 motion, when at least $200,000 of the loan proceeds were available
to fund support payments. Scott argued in the 2011 motion that the proceeds of the UBS
loans were being depleted and that only a portion of the principal (approximately
$200,000) remained available to him. But complete exhaustion of the loan proceeds due
to extraordinary expenses—as opposed to a significant depletion of the funds—is a
different circumstance. Coupled with the remaining circumstances concerning Scott’s
continuing ability to pay support (discussed below), the unavailability of loan proceeds
due to extraordinary expenses constituted a material change of circumstances warranting
consideration of the 2013 motion.
       In addressing the ability-to-pay factor, Scott also showed in the 2013 motion that
his earned income, taking into account depletion of the loan funds due to extraordinary
expenses, could not support an obligation of $7,828 per month. As noted in the court’s

                                            16
November 2010 statement of decision, Scott’s annual income from Morgan Stanley for
the five years before separation in July 2008 ranged from $195,000 to $225,000. The
record showed that Scott’s annual earnings from UBS (excluding loan forgiveness) were
significantly less than his pre-2009 income levels. His gross earnings from UBS between
2009 and 2012 ranged from $77,515 to $159,348. He declared that his “net pay” from
January 1 to May 15, 2013—which we infer to be his take-home pay—was $34,392.
This projects to $91,712 annually (approximately $7,643 per month), a sum less than the
annual spousal support obligation of $93,936 ($7,828 monthly).
       The court, in considering the motion to modify spousal support, was required to
consider all of the statutory criteria in making an initial support order. (In re Marriage of
West, supra, 152 Cal.App.4th at p. 247.) One such factor was Scott’s ability to pay
support. Indeed, the supporting party’s ability to pay is “the fundamental factor” in a
court’s analysis in a support order. (In re Marriage of McTiernan & Dubrow (2005)
133 Cal. App. 4th 1090, 1106; see also In re Marriage of Cheriton, supra, 92 Cal.App.4th
at p. 304 [supporting party’s ability to pay is “a key factor”].)
       Here, the record shows the court did consider Scott’s ability to pay. But as seen
from the following exchange between the court and Scott’s counsel at the hearing on the
2013 motion, the court misapprehended the severe limitations on Scott’s current ability to
comply with the spousal support order due to the payment of extraordinary expenses.
Instead, the court focused only on Scott’s reportable gross income: “[Court:] Well, I’ve
read all your papers and I still don’t see much in the way of a change in circumstances.
[¶] . . .[¶] Mr. Sheperd says he’s getting poorer and poorer while he’s getting richer and
richer. I don’t get it. [¶ Scott’s Counsel:] Well, if you look at the actual cash he has to
pay support, the net income that he has is $7600 a month. With his living expenses and
the spousal support amount of [$]7800 a month, he doesn’t have the money to . . . pay
support. [¶] And I guess where does it come from, now that the loan proceeds have been
exhausted, Judge? [¶ Court:] From his ever-increasing income in the booming stock

                                              17
market. [¶] . . . [¶] It’s gone up every year since 2009. [¶ Scott’s Counsel:] His taxable
income has increased, and the Court knows from— [¶ Court:] The increase is—the
imputed part is flat. It’s been divided by five and the same every year.[9] The actual
income is going up every year because he’s getting more commissions and the stock
market is[,] like I say[,] booming.” Thus, the court apparently considered Scott’s
increasing gross taxable income without regard to Scott’s actual take-home pay or
whether he had the resources to continue funding spousal support at the level of $7,828
per month.10 (See In re Marriage of Rosen (2002) 105 Cal. App. 4th 808, 824-825 [court
abused its discretion by basing spousal support order on supporting spouse’s 1996
income, when undisputed evidence was that his current income more than two years later
was 57 percent lower].)
       An analogous case in which the trial court failed to recognize the supporting
party’s changed financial circumstances—specifically, the ability-to-pay factor—is In re
Marriage of Mosley (2008) 165 Cal. App. 4th 1375. There, the supporting party (Paul)
sought a downward modification of spousal support. Paul had been a successful real
estate partner in a large law firm, but was terminated due to a downturn in the real estate
market. (Id. at p. 1379.) He became in-house counsel for a builder, receiving a base
salary of less than 50 percent of his salary at his former law firm, but was potentially
eligible for a significant discretionary year-end bonus. (Ibid.) Paul also showed that with

       9
          The court was incorrect that the loans were being forgiven in equal amounts over
a period of five years and that therefore the imputed amount of income each year from
the loans is “flat.” As noted, the first loan of $691,832 was subject to being forgiven over
a period of nine years (2010 to 2018), while the second loan of $288,264 was subject to
being forgiven over five years (from 2012 to 2016). This structure resulted in a
significant increase beginning in 2012 of the amount of loan forgiveness and imputed
interest reflected on Scott’s W-2 forms.
       10
           The record, including Scott’s W-2 forms, showed that Scott’s reportable income
(including loan forgiveness and imputed interest amounts which are identified in
parentheses with the notation “loan”) was as follows: $77,515 (2009); $224,632 (2010;
$104,543 loan); $239,609 (2011, $101,468 loan); and $355,031 (2012, $195,685 loan).
                                             18
his current position, nearly his entire take-home pay was needed to fund support
obligations. He was required to borrow to meet his own monthly living expenses, with
the hope that he would receive a year-end bonus to repay his debts. (Ibid.) The trial
court denied Paul’s motion, finding no change in circumstances. (Ibid.)
       The appellate court reversed and remanded to the trial court for redetermination of
the motion to modify spousal support, directing the trial court to based the support
obligations “on Paul’s base salary, exclusive of a speculative bonus.” (In re Marriage of
Mosley, supra, 165 Cal.App.4th at p. 1387.) It concluded that Paul established a material
change of circumstances by presenting evidence that (1) his net pay for the first two
months of 2006 was less than the sums he paid in spousal support; (2) he borrowed to pay
for his own living expenses; (3) although he received $85,000 in March 2006 as part of
his 2005 bonus, most of the amount was used to pay off prior borrowings and the
remainder covered two more months of his expenses before his being required to borrow
again to pay for his living expenses; and (4) he anticipated he would need to borrow 100
percent of his living expenses for the last half of 2006. (Id. at pp. 1385-1386.)
       The appellate court held the trial court abused its discretion: “[I]t exceeded the
bounds of reason to require Paul to pay nearly 100 percent of his take-home pay in
support payments, on the assumption, based on only a one-year history with the
homebuilder, that he would continue to receive a six-figure bonus each subsequent year.
It placed him in a position of having to borrow for his living expenses, and thus resulted
in a miscarriage of justice.” (In re Marriage of Mosley, supra, 165 Cal.App.4th at
pp. 1386-1387; cf. In re Marriage of Beust, supra, 23 Cal.App.4th at p. 28 [denial of
supported spouse’s motion to extend duration of support based upon finding that there
was no evidence she could not support herself was “erroneous,” where uncontradicted
evidence was that her income was insufficient to cover her living expenses].)
       Here, Scott showed that his take-home pay was, at best, approximately $200 less
than what was needed to satisfy the monthly support obligation of $7,828 due to the

                                             19
extraordinary expenses he had incurred. But unlike Paul—who could point to the
possibility of a discretionary year-end bonus that would permit him to pay for funds
borrowed to pay his own living expenses—Scott had no such contingent resource. The
trial court’s failure to recognize Scott’s current financial situation “placed him in a
position of having to borrow for his living expenses” (In re Marriage of Mosley, supra,
165 Cal.App.4th at pp. 1386-1387) with nothing in the record to suggest he would be able
to repay the borrowed money with additional income.
       Cindy, both in her opposition below and on appeal, argues that Scott’s purported
premature and imprudent spending of the loan proceeds cannot furnish a basis for
modification of the support order. She asserted below that from 2009 through 2012,
Scott had at his disposal—combining the $980,096 in loan proceeds with his UBS draws
and commissions—a total sum of $1,483,126. Cindy argued that had Scott been prudent
in managing his money, there would be sufficient funds remaining, including loan
proceeds, to be able to pay for the court-ordered spousal support. Scott responded to this
assertion in a supplemental declaration, stating that in his 2013 motion, he had attached a
spreadsheet accounting for the loan proceeds, and Cindy had not disputed any figures in
his accounting.
       We agree with Cindy in principle that a party moving to modify a spousal support
order—either a supporting party or a supported party—may not through his or her
intentional acts manufacture a change of circumstances. Thus, for instance, a supported
spouse may not undertake additional debt beyond his or her reasonable means “to
manufacture a change in circumstances” supporting modification of a spousal support
order. (In re Marriage of Aninger (1990) 220 Cal. App. 3d 230, 242, superseded by
statute on another point as indicated in In re Marriage of O'Connor (1997)
59 Cal. App. 4th 877, 882-883; see also In re Marriage of McElwee (1988)
197 Cal. App. 3d 902, 909-910 [termination of spousal support proper, among other
reasons, because supported party’s imprudent management of assets that resulted in

                                              20
impairment of her financial status could not serve as basis for ongoing support].) Thus, if
the record demonstrated that Scott had manufactured the material change of
circumstance—i.e., the exhaustion of the loan proceeds—through mismanagement or
waste, the trial court might have been justified in rejecting that circumstance as a basis
for modifying the spousal support order.
       There is nothing in the record suggesting the court founded its denial of the 2013
motion on Cindy’s contention that Scott was profligate in the management of the loan
proceeds. Further, we have reviewed the record in detail, and we are unable to concur
that it supports Cindy’s generalized claim that Scott mismanaged those funds. Citing In
re Marriage of Ilas (1993) 12 Cal. App. 4th 1630, Cindy argues that Scott cannot claim the
exhaustion of the loan proceeds as a change of circumstances because “[a] supporting
spouse does not have the right to divest himself of his earning ability at the expense of his
wife and children.” But there is no evidence that Scott divested himself of his earning
ability. Instead, the record shows that the loan proceeds were exhausted due to
extraordinary expenses incurred by Scott, including but not limited to $313,600 in
litigation-related fees and costs, and a $110,000 property settlement to Cindy. In re
Marriage of Ilas is distinguishable. There, the court was concerned with a husband and
father, a pharmacist, who left his job to “fulfill[] a lifelong dream of attending medical
school.” (Id. at p. 1635.) The Ilas court rejected his position that the trial court could not
consider his earning capacity to determine support unless it concluded that his actions
had been a deliberate attempt to avoid support obligations by refusing to seek or obtain
employment. (Id. at p. 1638.) Here, Scott never left his job at UBS. Nor does the record
show he took any other action to reduce his earnings.
       Cindy contends that the exhaustion of the loan proceeds should not be considered
a basis for modifying the support order because it was caused in part by Scott’s having
“spent over $400,000 on attorney’s fees for himself and for [Cindy].” (Original
underscoring.) The court, in its November 2010 statement of decision, observed that the

                                             21
amount of fees incurred by the parties was “astronomical” and that “[t]here [was] no way
to justify the exorbitant expenses incurred in this case.” A different judge later concluded
that Cindy’s claim for $120,000 in attorney fees and costs to oppose the 2011 motion—a
claim which was originally $30,000 when she filed her initial opposition to the motion—
“was essentially undocumented.” And, according to Scott’s attorney, as of May 2013,
Cindy had incurred more than $737,000 in attorney fees in the proceeding, or nearly
triple the amount incurred by Scott. These fees are significant, and we see no basis to
conclude they do not amount to a material change of circumstances.
       Although the trial court’s discretion in making a spousal support order or deciding
a motion to modify a support order is broad, “ ‘it must exercise its discretion along legal
lines taking into consideration the applicable circumstances of the parties set forth in [the
statute], especially reasonable needs and their financial abilities.’ [Citation.]” (In re
Marriage of Cheriton, supra, 92 Cal.App.4th at p. 304.) The court does not have the
discretion to ignore any of the statutory factors. (Ibid.) And the court, in deciding a
spousal support modification motion, may not “base its finding on an assumption
unsupported by the record. [Citation.]” (In re Marriage of Hoffmeister, supra,
191 Cal.App.3d at p. 360.)
       Here, the court effectively ignored the statutory factor of “[t]he ability of the
supporting party to pay spousal support, taking into account [his] earning capacity,
earned and unearned income, assets, and standard of living.” (§ 4320, subd. (c).) This
constituted an abuse of discretion. (In re Marriage of Cheriton, at p. 304.) The court’s
finding that Scott was “getting richer and richer”—from which it concluded that Scott
had the ongoing ability to pay spousal support at the level ordered in November 2010—
was an assumption unsupported by the record. (In re Marriage of Hoffmeister, at p. 360.)
Accordingly, we will reverse the order denying the 2013 motion with directions to the
trial court that it reconsider the motion by addressing and balancing each of the statutory
factors in section 4320. In doing so, the court shall consider, among other things, Scott’s

                                              22
current ability to pay spousal support based upon his available assets and earnings,
including the amount of his available monthly take-home income.
              D.     The Attorney Fees Award
       Scott argues that, assuming the order denying the 2013 motion does not withstand
appellate scrutiny, the order awarding Cindy attorney fees of $10,000 should likewise be
reversed and remanded for reconsideration by the trial court. He argues in the alternative
that even if the order denying the 2013 motion is not reversed, the attorney fee order
should be reversed because it “imposes an unreasonable financial hardship on him.”
Cindy responds that Scott waived his right to challenge the attorney fee award because he
did not respond to or oppose it below. She also argues that substantial evidence
supported the attorney fee award.
       The record does not show that Scott specifically responded to Cindy’s responsive
declaration in which she asked the court to award her attorney fees of $20,000. But it is
likewise true—as noted in Scott’s reply brief—that Cindy, technically, may not have
complied with the California Rules of Court in making her request for attorney fees.
Since Scott did not seek attorney fees in the 2013 motion, Cindy, in seeking attorney fees,
may have been required to file a separate request for attorney fees, rather than simply
make the request in her responsive declaration. (See Cal. Rules of Court, rule 5.92(b);
see also Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2014)
¶¶ 5:373 to 5:374, p. 5-167 [responsive declaration “cannot be used to request affirmative
relief on issues not raised by the moving party”].) Moreover, the trial court made the
attorney fee award at the brief hearing immediately after denying the motion to modify
and without indication that it sought argument on the attorney fee request. We will
exercise our discretion to consider Scott’s appellate challenge to the attorney fee award.
(See Y.K.A. Industries, Inc. v. Redevelopment Agency of City of San Jose (2009)
174 Cal. App. 4th 339, 367, fn. 34: “[A]ppellate courts enjoy broad discretion not to hold

                                            23
an appellant to an implied waiver and may entertain an issue on appeal that might
otherwise have been deemed waived by inaction or omission.”)
       It is common when an appellate court reverses a family court order, such as one
involving spousal support or child support, that it will remand the matter, including an
attendant attorney fee order, to the trial court for reconsideration. (See, e.g., In re
Marriage of Kochan (2011) 193 Cal. App. 4th 420, 431 [trial court should reconsider
attorney fee order in light of reversal of spousal support order “because the attorneys’ fee
issue is also related to the parties’ respective financial circumstances”]; In re Marriage of
Corman (1997) 59 Cal. App. 4th 1492, 1502 [because reversal and remand required
reconsideration of child support issue, trial court should also reconsider attorney fee
issue].) Here, because the trial court must reconsider Scott’s motion to modify the
spousal support order, and Cindy’s attorney fee request is related to the parties’
respective financial circumstances, we reverse the attorney fee award and remand the
issue to the trial court.
                                       DISPOSITION
       The June 24, 2013 order denying Scott Shepherd’s motion to modify spousal
support order and awarding Cindy Shepherd attorney fees of $10,000 is reversed. The
matter is remanded to the trial court with directions that it, consistent with this opinion,
reconsider the motion, in light of the existence of a change of circumstances justifying
modification, giving appropriate consideration to all factors stated in Family Code section
4320. The parties shall bear his/her respective costs and attorney fees on appeal.

                                              24
                             Márquez, J.

WE CONCUR:

    Rushing, P.J.

    Premo, J.

In re Marriage of Shepherd
No. H039876