Sorge v. Sorge (202 Cal. App. 4th 626, 2012)

Opinion

AARON, J.

I.

INTRODUCTION

Joseph A. Sorge appeals after the trial court modified the child support awarded to his ex-wife, Maryanne K. Sorge, and awarded Maryanne sanctions and attorney fees, both related to the costs of the underlying litigation, as well as pendente lite attorney fees for defending against Joseph’s appeal.

On appeal, Joseph first contends that the trial court erred in calculating the child support amount. According to Joseph, the trial court ignored his bona fide business expenses in calculating his monthly income, in contravention of Family Code section 4058, subdivision (a)(2).

Joseph also contends that the trial court erred in concluding that for purposes of section 2102, subdivision (c), the parties’ duty to disclose to each other, sua sponte, all material changes in their financial status continues from the date of separation until the trial court no longer has jurisdiction to order child support. Joseph argues that the court erred in determining that the cessation of a child support obligation is the event that constitutes a “valid, enforceable, and binding resolution of all issues relating to child . . . support” under section 2102, subdivision (c). According to Joseph, because the trial court’s award of sanctions to Maryanne was based in part on the court’s erroneous interpretation of section 2102, subdivision (c), the sanction order must be reversed.

Finally, Joseph contends that the trial court abused its discretion in awarding Maryanne attorney fees in the amount of $200,000 for proceedings in the trial court and $60,000 in pendente lite attorney fees for proceedings on appeal because Maryanne has no need for these fees, since she has a net worth of over $14 million, more than half of which is in liquid assets.

We conclude that the trial court erred in sanctioning Joseph on the ground that he breached his fiduciary duty under section 2102, subdivision (c) to disclose to Maryanne all material changes in his income. Specifically, we conclude that any fiduciary duty that Joseph had to disclose material changes in his income to Maryanne ended upon entry of their 2002 divorce decree. We reject all of Joseph’s other contentions.

The trial court’s sanction order must be reversed and the matter remanded for the trial court to reconsider that issue. In all other respects, we affirm the trial court’s orders.

n.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual background

Maryanne and Joseph were married in 1983, and separated in September 2000. The parties had three children. Maryanne filed a petition for divorce in Wyoming in November 2000.

Pursuant to a marital settlement agreement (MSA) that the parties entered into in Wyoming, the parties agreed to share joint custody of the children, who were minors at the time the divorce petition was filed. Maryanne and Joseph also agreed that Joseph would pay Maryanne child support in the amount of $8,500 per month for all three children (and not less than $4,000 per month for one child)—an amount that was based on Joseph’s gross income of more than $800,000 per year related to his position at Stratagene Holding Corporation, Inc. (Stratagene), a company that Joseph founded. The child support was to commence in July 2002 or the first day of the month in which Maryanne and the children moved to San Diego, California. Joseph also agreed to pay Maryanne $12,000 per month in nonmodifiable spousal support for 120 months.

The MSA was made a judgment of the Wyoming court on March 28, 2003. The parties subsequently registered the MSA with the San Diego County Superior Court, and it was established as a judgment on November 21, 2005.

B. Procedural background

1. Maryanne’s motion to modify custody of the remaining minor child, modify child support, award attorney fees, and establish spousal support arrears

On August 24, 2007, Maryanne filed an order to show cause (OSC) seeking to modify the child custody and visitation arrangement for the parties’ minor son, who was 14 years old at the time. Maryanne also requested modification of child support, as well as attorney fees, and payment of spousal support arrears.

The parties retained Tony Yip as a joint expert to perform an analysis of the parties’ income and assets.

Maryanne filed a schedule of assets and debts in July 2008, which showed that she had no debt, and that she had $14,237,593 in assets. In an income and expense declaration dated August 1, 2008, Maryanne indicated that she had $13.5 million in assets and $43,214 in monthly expenses.

Joseph’s income and expense declaration demonstrated that he had sold Stratagene and no longer held his position at the company. His average monthly income included $10,980 in salary, $224,867 in dividends and interest, and $426,556 in investment and ordinary losses. Joseph listed his monthly expenses as $62,539.

Yip prepared an initial report in which he presented Joseph’s income in two different ways, the first of which included Joseph’s net losses from a number of startup companies that he founded after selling his interest in Stratagene, and the second of which excluded those losses. Joseph objected to the second approach, and suggested to Yip that taking an approach that excluded his net losses would constitute “professional malpractice.” Joseph threatened Yip’s firm with a lawsuit for damages that Joseph might suffer as a result of Yip’s report.

Yip’s firm appeared ex parte before the trial court, seeking guidance as to how to present Joseph’s income in the report. The trial court ordered that Yip could present his report as Yip deemed necessary, and specifically, that Yip could include alternative approaches to determining Joseph’s income.

In the final report, Yip noted that Joseph had received in excess of $100 million, before taxes, from the sale of his interest in Stratagene when he sold the company in 2007. Joseph used those funds for a number of purposes, including making capital contributions to several new startup companies, purchasing real property, paying down mortgages, and paying income taxes. Joseph placed the remainder of the proceeds from the sale of Stratagene in various investment accounts. His portfolio balance as of December 31, 2008, was $63.6 million.

With respect to the companies that Joseph started in 2007, Yip noted that the companies experienced significant operating losses in 2007 and 2008. In Yip’s final report, Yip presented Joseph’s income using the same two methods that he had used in his initial report. Applying the first method to calculate Joseph’s income, Yip included both income and losses from Joseph’s startup companies between June 2007 and December 2008. Using this method, Joseph had a net monthly loss of $9,100 in 2007, and a net monthly loss of $235,600 in 2008. Applying the second method, Yip excluded the losses from Joseph’s startup companies. Under this method, Joseph had a net monthly income of $320,800 in 2007, and $229,100 in 2008.

Yip did not analyze the detailed expenses of the startup companies for possible personal and/or nonrecurring expenses. Yip explained that the reason he did not analyze the expenses was because he determined that if the trial court decided to include the $5.69 million in net losses over the relevant period for purposes of calculating support, then Joseph would have a net loss of $2.8 million in 2008 as the basis for support, and the “[a]dd backs” of personal and/or nonrecurring expenses, if they existed, would not result in a net positive number.

In addition to the income and/or losses from Joseph’s startup companies, Joseph had interest and dividend income of $1.9 million from June to December 2007, and $2.35 million from January to December 2008.

2. Maryanne’s motion to compel and request for sanctions

In October 2008, Maryanne filed a motion to compel the production of documents and other information, and a request for sanctions against Joseph in the amount of $125,000. The request for sanctions was based, for the most part, on Joseph’s “refus[al] to produce . . . information and documents, and for providing false, evasive and misleading discovery responses to the parties’ joint expert and Respondent’s counsel.” Among the things that Maryanne complained of in her request for sanctions was that Joseph failed to disclose that he received more than $3 million in income during 2006, failed to disclose that he received more than $9 million in cash between January and June 2007 from the sale of Stratagene stock, and failed to disclose that he received more than $100 million in cash from the sale of his interest in Stratagene.

3. Yip’s testimony

At the hearing, Yip testified about his final report, and explained the two different methods that he used to calculate Joseph’s income for purposes of the report. Yip agreed that the expenses that appeared in Joseph’s accountings for his startup businesses were current operating expenses, and said that he had no reason to believe that the expenses were not legitimate business expenses. Yip also testified that he assumed that Joseph was operating all of the businesses with the intent of making them profitable, and that he understood the expenses to be “start-up” expenses not because they fit a particular Internal Revenue Code definition of a “start-up” expense, but because he viewed the companies as being at an early stage in their development. Yip further explained that he did not assume that Joseph was engaging in any of the businesses as a hobby or tax shelter.

Yip did not examine any of the particular expenses reported by the companies. Instead, he considered and included all of the expenses under the first method for calculating Joseph’s income, and excluded all of the expenses under the second. Using the first method, Joseph’s income was negative.

4. The court’s January 29, 2010 order

In addressing the parties’ contentions with respect to Maryanne’s various requests, the trial court issued a lengthy statement of decision and order that covered a number of topics. Of relevance to this appeal are the court’s comments with respect to modification of child support, sanctions against Joseph, and attorney fees and costs awarded to Maryanne. The trial court declined to consider the operating expenses of the startup companies in determining Joseph’s income for purposes of calculating child support, and increased child support from $4,000 per month to approximately $18,000 per month. In addition, the trial court determined that Joseph had engaged in conduct that frustrated settlement and furthered the litigation, and that he had also breached his fiduciary duties to Maryanne by failing to disclose material changes to his income, beginning in 2006 and continuing throughout the litigation. Finally, with respect to attorney fees and costs, after noting that “Joseph retains 80% of the parties’ combined incomes and approximately 85% of the combined liquid assets,” the trial court ordered Joseph to pay $200,000 in attorney fees and costs to Maryanne.

5. Maryanne’s request for pendente lite attorney fees and costs to defend against Joseph’s appeal from the trial court’s January 29, 2010 order

On August 16, 2010, Maryanne filed a request for an additional $60,000 in pendente lite attorney fees and $250 in costs to defend against Joseph’s appeal. According to Maryanne, because Joseph appealed the order of the trial court, he had not paid her any of the $18,030 in current child support, $414,444 in child support arrears, $200,000 in attorney fees, or $75,000 in sanctions that the trial court had ordered, but instead, posted a cash undertaking to stay the order for those amounts.

Maryanne attached an income and expense declaration in which she stated that her only income derived from dividends and interest on her investments. For the month prior to her request for pendente lite attorney fees, that income had been in excess of $50,000. Maryanne estimated her assets to be approximately $11.5 million, of which $8.5 million were liquid assets. Maryanne indicated that she was remarried, but declined to state her husband’s income. Maryanne’s expenses were listed as $60,527 per month.

Maryanne’s trial attorney filed a declaration stating that it had cost $4,143 to prepare the motion for pendente lite attorney fees, and that his firm would be required to spend approximately 30 hours assisting appellate counsel in drafting Maryanne’s respondent’s brief on appeal. Maryanne’s appellate counsel declared that he was a certified appellate specialist and certified family law specialist, and estimated that it would take him approximately 160 hours to defend Joseph’s appeal. He requested a pendente lite award of $60,000, and asked the court to retain jurisdiction over the issue of appellate attorney fees and costs, given the potential for further complications.

Joseph’s income and expense declaration listed cash and checking accounts valued at $207,208, and stated that the value of his stocks, bonds and other assets that he “could easily sell” was $51.63 million. Joseph stated that the value of his less liquid assets was $16.28 million, for a total asset value of more than $68 million. Joseph’s estimated expenses were listed as $393,253 per month, including business expenses of $330,003 per month.

On November 9, 2010, the trial court granted Maryanne’s request for pendente lite attorney fees and costs on appeal, and ordered Joseph to pay Maryanne $60,000 as a contribution to her appellate attorney fees and costs, pursuant to sections 2030 and 2032. Joseph filed a timely notice of appeal with respect to the court’s order requiring him to pay Maryanne $60,000 in pendente lite attorney fees and costs.

HI.

DISCUSSION

A. The trial court did not err in determining Joseph’s income for purposes of setting child support

Joseph contends that the trial court “never calculated guideline support pursuant to the [Family] Code” (underscoring omitted) because, according to Joseph, the court excluded “bona fide business expenses” and, therefore, the court “calculated child support based on only the positive numbers.” Joseph asserts that the expenses shown on his profit and loss statements were required for the operation of his good faith businesses, and that the court had no legal basis for excluding those business expenses from its calculation when it determined his income. What Joseph fails to acknowledge is that the court had discretion under subdivision (b) of section 4058 to consider Joseph’s “earning capacity,” rather than his actual income, for purposes of calculating guideline child support. It appears from the court’s discussion of the child support issue that this is precisely what the court did when it elected not to consider the expenses from Joseph’s startup businesses in calculating child support.

1. Additional background regarding the trial court’s order with respect to whether to consider or exclude Joseph’s business expenses in determining child support

The court noted that the existing child support order was based on Joseph having an annual gross income of $800,000. The court found that Joseph’s sale of Stratagene constituted a substantial change in his financial circumstances because that sale netted him approximately $100 million. In 2008, after the sale of Stratagene, Joseph’s non-real-property investment portfolio, alone, generated unearned income of more than $2.35 million.

The court then considered the losses that Joseph suffered as a result of the startup businesses that he formed after he sold Stratagene. The court quoted section 4058, subdivision (a), and also cited and explained the case of In re Marriage of Berger (2009) 170 Cal.App.4th 1070 [88 Cal.Rptr.3d 766] (Berger). The court noted that Yip had calculated Joseph’s 2008 income in two different ways: (1) including the losses from the startup businesses and (2) excluding those losses.

The court observed that the difference in Joseph’s monthly income when calculated using these two methods was “dramatic.” Excluding the losses from the startup companies, Joseph’s monthly income in 2008 was $229,100; if those losses were included, Joseph’s monthly income that year would be negative $235,600. The court concluded that although Joseph was not deferring the receipt of a salary, like the husband in Berger, Joseph was “ask[ing] this court to shield a portion of his income from support.”

The court noted that Joseph maintained “an affluent, even wealthy lifestyle despite those business losses,” and went on to describe the multiple homes that Joseph owns: a multimillion dollar house that Joseph purchased in Las Vegas in 2007 and a $1.8 million ranch that Joseph purchased in San Marcos in 2009. The court further noted that Joseph continued to use private jets for international travel. The court observed, “Joseph’s losses have not hampered his lifestyle.”

With respect to Joseph’s income, the court ultimately concluded:

“Joseph may not voluntarily prefer his businesses to his child’s right to receive current support in accordance with Joseph’s abilities. Joseph may not invest in businesses and thereby minimize his support obligation while he maintains a wealthy lifestyle. Joseph may not divest himself, in whole or in part, of his earning ability at the expense of his minor child. Joseph may not take a break from his child support obligation in favor of his business investments. Marriage of Berger, supra, at 1082 and 1083. In short, as the court in Berger determined, Joseph ‘cannot unilaterally, and voluntarily, arrange his business affairs in such a way as to effectively preclude his children from sharing in the benefits of his current standard of living.’ Marriage of Berger, supra, at 1082.

“This court is mindful of the mandate of [section] 4058[, subdivision] (a)(2) to deduct business expenses in the calculation of gross income. Joseph strongly makes this argument. However, that statute, which far predates Berger, does not compel the court to deduct losses from business investments to enable a parent to prefer his business investments to his support responsibility for a season while that parent maintains a wealthy lifestyle. To do so would enable Joseph or any parent to voluntarily divert income otherwise available for support to various start-up businesses, live extravagantly off sizeable assets, and plead poverty at the support hearing. See Marriage of Berger, supra, at 1073. To apply that statute in this manner would create the impermissible irony Berger described of enabling Joseph, ‘who does not need a job to support himself in the short term—as a less wealthy man would—to spin that into the justification for granting him a break from the obligation to support his family.’ Marriage of Berger, supra, at 1086.

“Therefore, the court declines Joseph’s request to deduct from his income any of the business losses.”

2. Standards of review

“The standard of review for an order modifying a child support order is well established. ‘[A] determination regarding a request for modification of a child support order will be affirmed unless the trial court abused its discretion, and it will be reversed only if prejudicial error is found from examining the record below.’ [Citations.] Thus, ‘[t]he ultimate determination of whether the individual facts of the case warrant modification of support is within the discretion of the trial court. [Citation.] The reviewing court will resolve any conflicts in the evidence in favor of the trial court’s determination. [Citation.]’ [Citation.]” (In re Marriage of Williams (2007) 150 Cal.App.4th 1221, 1233-1234 [58 Cal.Rptr.3d 877] (Williams).)

However, “the trial court has ‘a duty to exercise an informed and considered discretion with respect to the [parent’s child] support obligation . . . .’ [Citation.] Furthermore, ‘in reviewing child support orders we must also recognize that determination of a child support obligation is a highly regulated area of the law, and the only discretion a trial court possesses is the discretion provided by statute or rule. [Citations.]’ [Citation.] In short, the trial court’s discretion is not so broad that it ‘may ignore or contravene the purposes of the law regarding . . . child support. [Citations.]’ [Citation.]” (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 282-283 [111 Cal.Rptr.2d 755] (Cheriton).)

3. The child support guidelines, generally

“California has a strong public policy in favor of adequate child support. [Citations.] That policy is expressed in statutes embodying the statewide uniform child support guideline. (See . . . §§ 4050-4076.) ‘The guideline seeks to place the interests of children as the state’s top priority.’ (§ 4053, subd. (e).) In setting guideline support, the courts are required to adhere to certain principles, including these: ‘A parent’s first and principal obligation is to support his or her minor children according to the parent’s circumstances and station in life.’ (§ 4053, subd. (a).) ‘Each parent should pay for the support of the children according to his or her ability.’ (§ 4053, subd. (d).) ‘Children should share in the standard of living of both parents. Child support may therefore appropriately improve the standard of living of the custodial household to improve the lives of the children.’ (§ 4053, subd. (f).)” (Cheriton, supra, 92 Cal.App.4th at p. 283, fn. omitted.)

“To implement these policies, courts are required to calculate child support under the statutory guidelines. (See §§ 4052-4055.) ‘[A]dherence to the guidelines is mandatory, and the trial court may not depart from them except in the special circumstances enumerated in the statutes. (§§ 4052, 4053, subd. (k); [citation].)’ [Citation.] The guideline amount of child support, which is calculated by applying a mathematical formula to the parents’ incomes, is presumptively correct. [Citations.]” (Williams, supra, 150 Cal.App.4th at p. 1237.) For example, section 4057 provides in pertinent part: “(a) The amount of child support established by the formula provided in subdivision (a) of Section 4055 is presumed to be the correct amount of child support to be ordered. [][] (b) The presumption of subdivision (a) is a rebuttable presumption affecting the burden of proof and may be rebutted by admissible evidence showing that application of the formula would be unjust or inappropriate in the particular case, consistent with the principles set forth in Section 4053, because one or more of the following factors is found to be applicable by a preponderance of the evidence, and the court states in writing or on the record the information required in subdivision (a) of Section 4056 ____” (Italics added.)

A deviation from the guideline amount may be appropriate where “[application of the formula would be unjust or inappropriate due to special circumstances in the particular case.” (§ 4057, subd. (b)(5).) The statute provides a nonexhaustive list of some examples of special circumstances that might call for deviation from the guideline calculation, including, for example, cases in which parents “have different time-sharing arrangements for different children,” or where the parents have substantially equal time-sharing, but one parent “has a much lower or higher percentage of income used for housing than the other parent.” (Ibid.)

4. Calculating annual gross income for purposes of determining guideline support

Section 4058 sets forth the manner by which a trial court is to ascertain a parent’s income for purposes of determining the guideline child support amount. This section provides:

“(a) The annual gross income of each parent means income from whatever source derived, except as specified in subdivision (c) and includes, but is not limited to, the following:

“(1) Income such as commissions, salaries, royalties, wages, bonuses, rents, dividends, pensions, interest, trust income, annuities, workers’ compensation benefits, unemployment insurance benefits, disability insurance benefits, social security benefits, and spousal support actually received from a person not a party to the proceeding to establish a child support order under this article.

“(2) Income from the proprietorship of a business, such as gross receipts from the business reduced by expenditures required for the operation of the business.

“(3) In the discretion of the court, employee benefits or self-employment benefits, taking into consideration the benefit to the employee, any corresponding reduction in living expenses, and other relevant facts.

“(b) The court may, in its discretion, consider the earning capacity of a parent in lieu of the parent’s income, consistent with the best interests of the children.

“(c) Annual gross income does not include any income derived from child support payments actually received, and income derived from any public assistance program, eligibility for which is based on a determination of need. Child support received by a party for children from another relationship shall not be included as part of that party’s gross or net income.”

“ ‘[I]ncome is broadly defined for purposes of child support. [Citations.] Subject to certain statutory exceptions . . . [annual] gross income “means income from whatever source derived . . . .” [Citation.] Although [section 4058] specifically lists more than a dozen possible income sources, by the statute’s express terms, that list is not exhaustive. [Citations.] Rather, the codified income items “are by way of illustration only. Income from other sources . . . should properly be factored into the ‘annual gross income’ computation. [Citations.]” ’ [Citation.] ‘The judicially recognized sources of income cover a wide gamut.’ [Citation.]” (M.S. v. O.S. (2009) 176 Cal.App.4th 548, 553-554 [97 Cal.Rptr.3d 812], fn. & italics omitted.)

In determining a parent’s income for purposes of calculating guideline child support, a trial court may choose to follow the guidance of subdivision (a) of section 4058, by utilizing the factors identified in subdivision (a)(1) through (3) to determine a parent’s actual income, or the court may, in its discretion, impute to that parent an income different from his or her actual income—i.e., an income amount that corresponds with that parent’s earning capacity. Thus, a trial court may ultimately calculate the guideline child support amount by using, as the income factor in its support calculation, either (1) the parent’s actual income, as calculated under section 4058, subdivision (a) or (2) the parent’s imputed income, as authorized by section 4058, subdivision (b), if the court determines that imputing income to the parent would be more appropriate and would better serve the child’s best interests.

5. Use of a parent’s assets in calculating child support

Regarding a parent’s assets, the Supreme Court has stated, “Assets at the time of dissolution play little part in the computation of child support. They may enter indirectly into the calculation in two ways: (1) In assessing earning capacity, a trial court may take into account the earnings from invested assets (see, e.g., [Cheriton, supra,] 92 Cal.App.4th [at p.] 292 . . .); and (2) a court may deem assets a ‘special circumstance’ (. . . § 4057, subd. (b)(5)) that may justify a departure from the guideline figure for support payments [citation]. But these are exceptional situations; the child support obligation is based primarily on actual earnings and earning capacity.” (Mejia v. Reed (2003) 31 Cal.4th 657, 671 [3 Cal.Rptr.3d 390, 74 P.3d 166].)

With respect to assessing earning capacity, the court in Cheriton determined that the trial court had erred in failing to include the father’s gross proceeds of $9.75 million from his exercise of stock options and sale of stock in determining the father’s income. (Cheriton, supra, 92 Cal.App.4th at p. 289.) By refusing to consider the father’s substantial wealth in setting child support, the trial court had effectively permitted him to avoid his obligation to support his children according to his “ ‘ability,’ ” his “ ‘circumstances and station in life,’ ” and his “ ‘standard of living.’ (§ 4053, subds. (d), (a), (f).)” (Cheriton, supra, at p. 292, fn. omitted.) The Cheriton court concluded that “the trial court’s refusal to consider [the father’s] substantial wealth in setting child support may have resulted in an order that is too low to be in the best interests of his children, based on an assessment of their reasonable needs,” and remanded the matter for the purpose of allowing the trial court to “[a]t the very least, . . . consider imputing reasonable income on [the father’s] assets, pursuant to section 4058, subdivision (b), to the extent necessary to meet the children’s reasonable needs.” (Cheriton, supra, at p. 292.)

Thus, “where the supporting party has chosen to invest his or her funds in non-income-producing assets, the trial court has discretion to impute income to those assets based on an assumed reasonable rate of return. [Citations.]” (In re Marriage of Pearlstein (2006) 137 Cal.App.4th 1361, 1373-1374 [40 Cal.Rptr.3d 910], fn. omitted; see also In re Marriage of Schlafty (2007) 149 Cal.App.4th 747, 755-756 [57 Cal.Rptr.3d 274] [court did not abuse discretion in imputing 3 percent rate of return on stock market portfolio]; County of Kern v. Castle (1999) 75 Cal.App.4th 1442, 1453-1454 [89 Cal.Rptr.2d 874] [based on statute and case law, a trial court may impute income based on interest that could be earned from investment of a lump-sum inheritance].)

6. Analysis

Joseph maintains that the trial court was required to consider the operating expenses of his newly formed businesses in determining his annual gross income for purposes of calculating a guideline child support amount. Joseph relies specifically on subdivision (a)(2) of section 4058 in contending that the trial court should have “reduced” the income that he received each month by the monthly expenditures that were necessary to operate his new companies. Joseph essentially contends that the trial court calculated his income incorrectly for purposes of determining the guideline support amount. According to Joseph, the court deviated from the appropriate guideline calculation (which, under Joseph’s theory, would have resulted in Maryanne owing him child support), without making the findings that are required before a court may deviate from the guideline support amount under section 4057. Joseph’s argument is premised on the notion that the trial court had no authority to utilize an income amount that did not include the losses he suffered as a result of the operating expenses of his startup businesses. We disagree that the trial court erred in calculating Joseph’s income.

Although section 4058, subdivision (a)(2) provides that gross receipts from a business are to be reduced by expenditures required for the operation of the business in calculating income under subdivision (a) of that section, subdivision (b) of section 4058 provides a trial court with discretion to determine a parent’s annual gross income on a basis different from that parent’s actual income. Pursuant to subdivision (b), the court “may, in its discretion, consider the earning capacity of a parent in lieu of the parent’s income, consistent with the best interests of the children.” Thus, although subdivision (a) of section 4058 instructs the trial court to deduct the operating expenditures of a parent’s business in determining that parent’s actual income, the court is not required to utilize a parent’s actual income in setting child support if it determines that the parent’s actual income does not reflect that parent’s earning capacity. The trial court thus was not required to use Joseph’s actual income in the guideline support formula, as Joseph’s argument suggests. Rather, it was within the court’s discretion to consider Joseph’s earning capacity in lieu of his actual income.

Although the trial court did not expressly state that it was imputing income to Joseph pursuant to subdivision (b) of section 4058, it is clear that this was, in fact, what the court did when it declined to include the losses caused by the operating expenses of Joseph’s startup companies in calculating Joseph’s income. The court rejected the use of Joseph’s actual income as calculated under section 4058 subdivision (a), in favor of a calculation of income that was based, at least in part, on an amount that the court determined was fair to impute to Joseph in view of his decision to invest in companies that would predictably operate at a loss for some period of time, rather than investing in income-producing assets.

Indeed, by not taking into consideration the operating expenses of Joseph’s startup companies in determining Joseph’s income for purposes of calculating the guideline support amount, the trial court effectively imputed a net zero income to Joseph with respect to these companies, rather than allowing him to take a “loss” from the operating expenses from these companies. The only error in the trial court’s analysis of this issue, if any, was that it did not articulate that it was effectively proceeding pursuant to the discretion granted the court under subdivision (b) of section 4058 to adjust the income calculation to reflect Joseph’s earning capacity, rather than simply calculating Joseph’s actual income pursuant to subdivision (a) of section 4058. Despite failing to expressly state that it was attributing income to Joseph pursuant to subdivision (b), the court employed language pertaining to imputing income that is nearly identical to the language used in section 4058, subdivision (b), in commenting that Joseph “may not divest himself, in whole or in part, of his earning ability at the expense of his minor child.” (Italics added.) As we will explain further, it was within the court’s discretion to attribute income to Joseph under section 4058, subdivision (b) rather than calculating his income under subdivision (a).

“The strong public policy in favor of providing adequate child support has led to an expansive use of the earning capacity doctrine in setting the level of support when consistent with the needs of the child. [Citation.]” (In re Marriage of Destein (2001) 91 Cal.App.4th 1385, 1391 [111 Cal.Rptr.2d 487] (Destein).) Destein and subsequent cases have made clear that a trial court has discretion to consider not only a parent’s earning capacity with respect to income from labor, but also “to impute a reasonable rate of return on the supporting parent’s underutilized or non-income-producing investment assets in order to calculate guideline child support in the best interests of the child.” (Williams, supra, 150 Cal.App.4th at p. 1239, italics added.)

Thus, for example, in Destein, supra, 91 Cal.App.4th at pages 1390-1391, the issue was whether the trial court abused its discretion in imputing to the father “a hypothetical rate of return on his real estate investments when those investments do not produce income and would need to be liquidated to do so.” Citing section 4058, subdivision (b), the Destein court found no error, noting that “[t]he only statutory limitation on the court’s discretion to apply the earning capacity doctrine to investment assets is the best interests of the child.” (91 Cal.App.4th at p. 1394.) According to the Destein court, there was no legal bar to attributing income to assets that were allocated for growth rather than income, and the trial court was permitted to address the difference in the parties’ living standards by imputing income from the father’s real estate investments. (Id. at pp. 1395, 1397.) The Destein court concluded that attributing a 6 percent rate of return on the equity in the father’s assets, pursuant to the opinion of the mother’s accounting expert, was reasonable. (Id. at pp. 1397-1398.)

Similarly, in In re Marriage of Dacumos (1999) 76 Cal.App.4th 150 [90 Cal.Rptr.2d 159] (Dacumos), the appellate court considered whether it would be proper to attribute income to a father’s non-income-producing assets. (Id. at pp. 153-154.) The father owned two rental properties, which he was renting at a loss. (Id. at p. 153.) The Dacumos court determined that the trial court had not erred in imputing income to the rental properties, noting that “[the] broader definition of earning capacity to include income that could be derived from income-producing assets as well as from work is in accord with . . . legislative intent.” (Id. at pp. 154-155, italics added.) In reaching this conclusion, the court reasoned that “[j]ust as a parent cannot shirk his parental obligations by reducing his earning capacity through unemployment or underemployment, he cannot shirk the obligation to support his child by underutilizing income-producing assets.” (Id. at p. 155.)

Expanding upon this approach to the determination of a parent’s income, the court in Williams, supra, 150 Cal.App.4th at page 1241, determined that a trial court acted within its discretion under section 4058, subdivision (b) in “implicitly determin[ing] that the children’s best interests would be served by an increase in guideline child support, calculated in part by attributing an assumed 3 percent rate of return on [father’s] investment assets.” The Williams court explained, “To ensure that child support orders are made in the best interests of the children, section 4053, which provides for implementation of the statewide uniform guidelines for child support, ‘gives a court great latitude in applying its principles to individual cases. In outlining relevant considerations, the Legislature did not limit the guidelines simply to parental income from salary, return on investment, or from any other particular source. Rather, it adopted the broader concepts of station in life, ability to pay, and standards of living.’ [Citation.] Consequently, ‘our Supreme Court has refused to read any limitation into a trial court’s discretion to impute income when in the child’s best interests.’ [Citations.]” (Williams, supra, at p. 1240.)

It seems clear that in declining to consider Joseph’s business losses from the startup companies that Joseph formed after he obtained more than $100 million in cash from the sale of his interest in Stratagene, the trial court was preventing Joseph from “shirking]” his obligation to support his child “by underutilizing income-producing assets” (Dacumos, supra, 76 Cal.App.4th at p. 155). The money that Joseph received from his sale of Stratagene could have produced income; indeed, Joseph has invested a large portion of those funds and earns significant returns on his investment portfolio. Joseph chose to invest a significant portion of the proceeds from the sale of his company in assets that did not produce income during the second half of 2007 and all of 2008, and in fact, operated at a loss during the relevant time period.

Under section 4058, subdivision (b) and relevant case law, the trial court could have imputed positive income to Joseph for the cash assets that he chose to use to make capital outlays and to pay operating expenses for his various startup business ventures rather than investing that money in income-producing assets that would earn income similar to the income his investment portfolio earned during the same time period. The court thus could reasonably have imputed the same percentage return on the money Joseph earned from his investment portfolio to the money that Joseph chose to invest in his startup companies. From this perspective, it was certainly reasonable for the court to do what it appears to have done here, which was to implicitly impute a 0 percent return on the money Joseph invested in the startup companies. In essence, by not allowing Joseph to deduct the operating expenses of his newly formed companies from his actual income, the court was imputing no income to Joseph based on the cash that he invested in those companies, and disallowing any claim that Joseph’s income was negative.

The language that the trial court used in its order demonstrates that the court was attempting to determine Joseph’s earning capacity rather than accepting Joseph’s representation that although he had assets with a value in excess of $60 million and continued to maintain his wealthy lifestyle, for purposes of calculating child support, his income was negative. For example, the court stated: “Joseph may not voluntarily prefer his businesses to his child’s right to receive current support in accordance with Joseph’s abilities. Joseph may not invest in businesses and thereby minimize his support obligation while he maintains a wealthy lifestyle. Joseph may not divest himself, in whole or in part, of his earning ability at the expense of his minor child. Joseph may not take a break from his child support obligation in favor of his business investments.” (Italics added.) These statements, and particularly the court’s use of the words “earning ability,” show that the court was focusing on the crux of subdivision (b) of section 4058—i.e., a parent’s “earning capacity.”

The court thus essentially gave Joseph the benefit of the doubt with respect to Joseph’s new investments by not imputing to him any positive income from the capital outlays that Joseph invested in those startup businesses— income that Joseph could have had if he had made a different decision with respect to how to invest the money that he invested in these startup companies. The trial court did not abuse the discretion granted it pursuant to subdivision (b) of section 4058 in determining that Joseph’s choice to invest his considerable wealth in startup companies that were operating at a loss should not undermine his dependent child’s right to receive current support in accordance with Joseph’s earning capacity.

Joseph takes issue with the trial court’s reliance on Berger, supra, 170 Cal.App.4th 1070, and attempts to distinguish Berger, pointing out that the father in Berger “was voluntarily deferring his own income,” while Joseph’s “bona fide business expenses, paid out in cash to third parties, are a strict statutory deduction from his income.” (Italics omitted.) We agree that Berger is not precisely on point with this case, since the father in that case had been promised a salary that he chose to defer for a period of time in order to try to get his startup landscaping company off the ground. Earning capacity thus was not at issue in Berger. (See Berger, supra, at p. 1083.)

Berger is relevant to the present case, however, to the extent that it discusses a parent’s obligation not to voluntarily act in a way that negatively impacts the support that a child is entitled to receive from that parent. This case, like Berger, involves an unusual situation in which considering a parent’s actual monthly income would not reflect the true nature of the parties’ relative lifestyles and wealth. Like the husband in Berger, Joseph has sufficient wealth to enable him to choose to spend some of his capital on starting up a handful of new business ventures, all of which he expects will operate at a loss in the short term, but will bring him income in the future. As the trial court noted, Joseph continues to maintain his very wealthy lifestyle, despite the “losses” from his business ventures. Given the net value of Joseph’s assets, it is clear that his net worth is far greater than Maryanne’s. Thus, as in Berger, it would be ironic to allow Joseph’s wealth—“wealth which gives him the freedom to make [a] decision” (Berger, supra, 170 Cal.App.4th at p. 1085) to invest in ventures that operate at a loss for some period of time—“to be spun into the justification for granting him a break from the obligation to support his family” (ibid..), irrespective of the merits of those new ventures.

B. Because the court erroneously concluded that Joseph had a fiduciary duty to disclose to Maryanne material information about changes in his income after a final child support order had been entered and sanctioned Joseph, in part, for violating that fiduciary duty, the sanction order must be reversed; the court must reconsider sanctions on remand

The trial court awarded Maryanne sanctions in the amount of $75,000 pursuant to sections 271 and 2107, which authorize the court to impose sanctions in family law proceedings. Joseph contends that the sanction award was based, in part, on the court’s erroneous conclusion that Joseph owed Maryanne a fiduciary duty to provide her with material facts and information regarding his income after there was a final judgment of dissolution of their marriage.

1. Additional background regarding the court’s sanction award

The parties requested sanctions against each other, and the trial court addressed both parties’ requests. However, because Joseph does not appeal the trial court’s denial of his request for sanctions against Maryanne, we do not describe the court’s ruling in this respect. Rather, we describe the court’s ruling only with respect to Maryanne’s request for sanctions against Joseph, which the trial court granted, and which Joseph challenges on appeal.

The trial court noted that Maryanne sought sanctions against Joseph under section 271 “for behavior that frustrated settlement and furthered the litigation,” and also under sections 721 and 2102 “for breaches of fiduciary duties for failing to disclose material changes in his income beginning 2006, failing to disclose material facts about his income from the date of her filing in August 2007 to the date of formal discovery in March 2008, failing to produce material information and documents concerning various trusts, providing misleading financial and tax information, providing misleading information regarding BSP[] and the use of funds from BSP to pay child support.”

Joseph had argued that he no longer owed Maryanne any fiduciary duties, since the two were no longer married and there was a final judgment in their marital dissolution case. The court explained that despite Joseph’s protestations to the contrary, the court was of the view that Joseph continued to owe Maryanne a fiduciary duty to disclose material information pertaining to his income and expenses even after the Wyoming divorce decree was entered. The court stated, “[Section] 2102[, subdivision] (c) must be interpreted to apply until the court loses jurisdiction to make a child support order because the order for child support ‘(1) is terminated by the court or (2) terminates by operation of law pursuant to Sections 3900, 3901, 4007, and 4013.’ [Citation.] Therefore, Maryanne’s interpretation of [section] 2102[, subdivision] (c) is consistent to the statutory intent; Joseph’s is not.” The court concluded that “the fiduciary duties outlined in [section] 2102[, subdivision] (c) continued in this case after the entry of the Wyoming decree; and, because [the parties’ son] was and is at all times herein, an unemancipated minor child of the parties, the fiduciary duties have at all times herein remained in effect and are presently in effect between Maryanne and Joseph.”

Based on its conclusion that the parties continued to owe each other fiduciary duties, and in particular, a fiduciary duty to disclose all material changes to their incomes and expenses, the court determined that Joseph had “breached his fiduciary duties to Maryanne.” Specifically, the court found that Joseph had failed to disclose various material facts and information regarding his income prior to Maryanne seeking formal discovery of those matters, and also found that Joseph had used a variety of intimidation tactics throughout the litigation. The court concluded, “The court therefore finds Joseph’s failure to provide information to Maryanne about the Stratagene sale, the failure to provide Maryanne copies of the J.A. Sorge Trusts I-IV documents and Joseph’s intimidation tactics in this matter violated his fiduciary duties to Maryanne and fueled the litigation in this matter. Therefore, Maryanne’s motions are granted and she is awarded $75,000 in sanctions pursuant to [section] 2107 and [section] 271. The court does not find sufficient evidence to warrant sanctions on any of the other facts argued by Maryanne.” (Italics added.)

2. Relevant legal standards

a. Provisions regarding fiduciary duties owed between parties in a dissolution action

Section 2100 sets out the legislative policy behind the disclosure requirements between parties to a marital dissolution action. In that section, the Legislature explains that “[i]t is the policy of the State of California (1) to marshal, preserve, and protect community and quasi-community assets and liabilities that exist at the date of separation so as to avoid dissipation of the community estate before distribution, (2) to ensure fair and sufficient child and spousal support awards, and (3) to achieve a division of community and quasi-community assets and liabilities on the dissolution or nullity of marriage or legal separation of the parties as provided under California law.” (§ 2100, subd. (a).) “In order to promote this public policy, a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties. Moreover, each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts.” (§ 2100, subd. (c).)

Subdivision (c) of section 2102 provides: “From the date of separation to the date of a valid, enforceable, and binding resolution of all issues relating to child or spousal support and professional fees, each party is subject to the standards provided in Section 721 as to all issues relating to the support and fees, including immediate, full, and accurate disclosure of all material facts and information regarding the income or expenses of the party.” (Italics added.)

b. Provisions regarding sanctions

Section 2107, subdivision (c) requires the trial court to impose monetary sanctions and to award reasonable attorney fees if a party fails to comply with any portion of the chapter of the Family Code that deals with a spouse’s fiduciary duty of disclosure during dissolution proceedings. That provision provides, “If a party fails to comply with any provision of this chapter, the court shall, in addition to any other remedy provided by law, impose money sanctions against the noncomplying party. Sanctions shall be in an amount sufficient to deter repetition of the conduct or comparable conduct, and shall include reasonable attorney’s fees, costs incurred, or both, unless the court finds that the noncomplying party acted with substantial justification or that other circumstances make the imposition of the sanction unjust.” (§ 2107, subd. (c).)

Similarly, section 271, subdivision (a) provides the trial court with authority to order the opposing party to pay attorney fees and costs in the nature of a sanction when “the conduct of each party or attorney . . . frustrates the policy of the law to promote settlement of litigation . . . .” That subdivision provides in full: “Notwithstanding any other provision of this code, the court may base an award of attorney’s fees and costs on the extent to which the conduct of each party or attorney furthers or frustrates the policy of the law to promote settlement of litigation and, where possible, to reduce the cost of litigation by encouraging cooperation between the parties and attorneys. An award of attorney’s fees and costs pursuant to this section is in the nature of a sanction. In making an award pursuant to this section, the court shall take into consideration all evidence concerning the parties’ incomes, assets, and liabilities. The court shall not impose a sanction pursuant to this section that imposes an unreasonable financial burden on the party against whom the sanction is imposed. In order to obtain an award under this section, the party requesting an award of attorney’s fees and costs is not required to demonstrate any financial need for the award.” (Ibid.) Section 271 “advances the policy of the law ‘to promote settlement and to encourage cooperation which will reduce the cost of litigation.’ [Citation.]” (In re Marriage of Petropoulos (2001) 91 Cal.App.4th 161, 177 [110 Cal.Rptr.2d 111].)

Together, sections 271 and 2107 “give the trial court authority to order sanctions and the payment of attorney fees for breach of a party’s fiduciary duty of disclosure and for conduct which frustrates the policy of promoting settlement.” (In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 1474 [64 Cal.Rptr.3d 29] (Feldman).)

c. Standards of review

“ ‘A sanction order under . . . section 111 is reviewed under the abuse of discretion standard. “ ‘[T]he trial court’s order will be overturned only if, considering all the evidence viewed most favorably in support of its order, no judge could reasonably make the order.’ ” ’ [Citation.] ‘In reviewing such an award, we must indulge all reasonable inferences to uphold the court’s order.’ [Citation.] Although no case law discusses which standard of review we should apply to an order awarding sanctions under section 2107, subdivision (c), because the sanction is similar to that imposed under section 271 as well as similar to a sanction for civil discovery abuses (which are reviewed for abuse of discretion), we will apply an abuse of discretion standard to an order for sanctions under section 2107, subdivision (c). [Citation.]” (Feldman, supra, 153 Cal.App.4th at p. 1478, fn. omitted.)

“To the extent that we are called upon to interpret the statutes relied on by the trial court to impose sanctions, we apply a de novo standard of review.” (Feldman, supra, 153 Cal.App.4th at p. 1479.) “We review any findings of fact that formed the basis for the award of sanctions under a substantial evidence standard of review. [Citation.]” (Ibid.)

3. Analysis

a. The trial court erred in determining that Joseph owed Maryanne a continuing fiduciary duty under section 2102, subdivision (c)

Joseph contends that the trial court erred in interpreting section 2102, subdivision (c) as requiring a continuing duty between divorced parents to make “immediate, full, and accurate disclosure of all material facts and information regarding the income or expenses of the party,” beyond the entry of a final judgment in a dissolution action, as long as there is a child for whom a support order remains in effect.

“ ‘Our task in construing a statute is to ascertain the legislative intent so as to effectuate the purpose of law. [Citation.] The statutory language ordinarily is the most reliable indicator of legislative intent. [Citation.] We give the words of the statute their ordinary and usual meaning and construe them in the context of the statute as a whole and the entire scheme of law of which it is a part. [Citation.] If the language is clear and a literal construction would not result in absurd consequences that the Legislature did not intend, the plain meaning governs. [Citation.] If the language is ambiguous, we may consider a variety of extrinsic aids, including the purpose of the statute, legislative history, and public policy. [Citation.]’ [Citation.]” (In re Marriage of Fong (2011) 193 Cal.App.4th 278, 288 [123 Cal.Rptr.3d 260].)

The trial court noted that section 2100 et seq. does not define the words “ ‘valid, enforceable, and binding resolution’ of all issues relating to child or spousal support and professional fees,” and, therefore, determined that it should “look[] elsewhere for guidance as to the objectives of the statute and the legislative intent.” After citing the objective of the child support disclosure statutes as being the fashioning of fair and sufficient child support awards and fostering full disclosure and cooperative discovery, the trial court noted that not all disputes concerning child support involve married (or once married) parents. The trial court proceeded to conclude that if it were to agree with Joseph’s argument that the Wyoming divorce decree constituted a “valid, enforceable and binding resolution” of the child support issue, then the result would be that the fiduciary duties would be “available only to parents who are still married but not to parents who were never married or who are no longer married.”

According to the trial court, Joseph’s argument would result in a two-class system of parents: “One class of parents would be able to effectively obtain or modify child support orders fairly, efficiently, accurately and economically where the others would have to resort to formal discovery which can have the opposite effect.” Determining that the Legislature would not “create such a two-class system,” the court concluded that “[t]he fiduciary duties must be available for all parents for the same duration,” and “[t]o accomplish that result, [section] 2102[, subdivision] (c) must be interpreted to apply until the court loses jurisdiction to make a child support order because the order for child support ‘(1) is terminated by the court or (2) terminates by operation of law pursuant to Sections 3900, 3901, 4007, and 4013.’ ”

Noting that “child support remains at issue long after the entry of a judgment of dissolution,” the trial court was of the view that there was no “valid, enforceable and binding resolution of all issues relating to child or spousal support and professional fees” under section 2102, subdivision (c) until all support obligations terminated. The trial court concluded that “to ensure fair support orders and foster full disclosure and cooperative discovery in all cases in which child support is pending, either before or after judgment, the fiduciary duties called for in [section] 2100 et seq[.] must continue as long as the issue of child support is pending, not final, or, in short, until the court’s jurisdiction to order child support ends.”

We disagree with the trial court’s interpretation of section 2102, subdivision (c), and conclude that this subdivision does not impose on divorced parties a continuing fiduciary duty to disclose all material facts regarding a party’s income after a final custody and support order has been entered.

The relevant language of section 2102, subdivision (c) states that the duty of immediate, accurate and full disclosure of material facts regarding income and expenses is owed “[f]rom the date of separation to the date of a valid, enforceable, and binding resolution of all issues relating to child or spousal support and professional fees.”

The terms “valid,” “enforceable,” and “binding” all refer to the legal strength or force of the “resolution” at issue. The definition of “resolution” that seems most applicable here is “the act of determining.” (See Webster’s 3d New Internat. Dict. (2002) p. 1933, col. 1.) Thus, the statute essentially requires that there be a final determination of all issues relating to child support before the parties’ fiduciary duties to one another regarding disclosure of income will end. The most reasonable interpretation of what would constitute a legally effective determination of all the issues relating to child support is a final, as opposed to interim, temporary, or pendente lite, child support order. In other words, a child support order that the parties and/or the court have indicated is intended to be a final, permanent determination of child support represents a “valid, enforceable, and binding resolution of all issues relating to child . . . support.”

In making this determination, we take guidance from the distinct