Recent Developments in Family Law: Bad Faith Transfer of Business Interests Will Not Allow for Termination of Spousal Support

in Family Law by Stephanie Blum

In In re Marriage of Berman (2017) 15 Cal.App.5th 914, the Second Appellate District, Division Eight found that the trial court did not abuse its discretion in holding that support obligations cannot be terminated after a bad faith business transfer.

In In re Marriage of Berman, the husband requested termination of spousal support after he retired at age 65 and transferred his business to his new wife as her separate property for no consideration. The only evidence that the transfer was in good faith was the husband’s own declarations, stating that he had decided to retire and that he was no longer involved in operating the business. He declared that his new wife had learned the trade and ran the business full time. The husband filed a request for an order terminating further spousal support to his ex-wife. He argued that the business would not continue to generate income as it did when he worked there, and that the court should not impute income from the business to him. But the trial court did not agree. It found that the transfer was not in good faith and that income should be imputed to the husband not as salary and wages, but as income produced from an asset. The trial court reduced spousal support slightly to reflect the husband’s loss of $50,000 in salary upon retirement.

On appeal, the husband first argued that the trial court’s order violated Reynolds, which held that “no one may be compelled to work after the usual retirement age of 65 in order to pay the same level of spousal support as when he was employed.” In re Marriage of Reynolds (1998) 63 Cal.App.4th 1373, 1378. The Court of Appeal did not accept this argument. It found that the husband’s declarations were not sufficient evidence to establish how much of the business’s income was attributable to the husband’s labor as opposed to other sources. The court clarified that it was not holding that “a supporting party may not transfer a business to a relative (even a spouse), just that the supporting party may still be held to his or her obligations if there is a finding, supported by substantial evidence, that the transfer was in bad faith and the supporting party still has access to the business income.” Berman, supra, 15 Cal.App.5th at 923-924.