Child Support and the High Income Parent: Uses and Misuses of the Good Fortune Trust
The high income parent poses special problems in the determination of child support. Courts are loath to award support that is deemed “excessive,” yet the courts are bound by the strictures of the child support guidelines that set a presumptively correct amount of support.1 Further complicating the matter is economic research that suggests that child support guidelines themselves are flawed in setting support for the high income parent. One study has suggested that the underlying economic data failed to reflect true child-related expenditures in upper income families including such nonconsumer expenditures as principal on home, savings, and trusts for the benefit of children. Thus, the income shares model, predicated on the premise that, as income increases, the percentage of income dedicated to child support decreases, does not accomplish the goal of ensuring that parents, after they break up, continue to spend on their children the same percentage of income that they would have spent if they were together.2
The recent case of Finley v. Scott, 23 Fla. L. Weekly S51, S149 (Fla. Jan. 29, 1998), has focused attention anew on one way in which courts have solved this conundrum: the “good fortune trust.”3 A good fortune trust may be established by the court in the case of the high income parent in which the court deems the child support guidelines’ presumptive award to be “excessive.” In establishing the good fortune trust, the court determines the amount of child support due under the presumptive guidelines, and then further determines the reasonable needs of the child, albeit the reasonable needs of wealthy parents. The court then awards as day-to-day support the reasonable needs of the child, and places the difference between the presumptive award and the daily award into a good fortune trust, to be used by the child for post-majority support. The good fortune trust is a way to ensure that, in upper income families, the child support award more closely duplicates the funds that the parents would have expended on the children in the absence of a divorce.
It. . . follows that if one of the goals of child support guidelines is to most nearly duplicate the “standard of living” a child would have enjoyed had the parents remained married, then in the case of high-income parents, “support” should include principal on the marital home, savings, and trusts for the benefit of children.4
Prior to the decision in Finley v. Scott, the best example of a court embracing the concept of a “good fortune trust” was Boyt v. Romanow, 664 So. 2d 995 (Fla. 2d DCA 1995). In that case, the trial court found that applica-tion of the support guidelines would yield a presumptive award of $2,654.09 per month. The child’s reasonable needs, however, were $1,500 per month. Instead of ordering child support in the amount of $1,500, the court ordered that the father pay $1,500 per month to the custodial mother, and place the excess $1,154 in a “good fortune trust” to be used for the child’s post-minority expenses. The appellate court upheld the creation of the trust, holding that the child has the right to share in the affluence of the parents:
The trial court acted within its authority in attempting to regulate and supervise the amount of child support which the court determined exceeds the child’s needs. The amount of $1,500 per month for the parties’ three-year-old certainly takes into consideration those “extras” this child of an affluent parent needs. In regard to the excess, the court has the inherent power within its sound discretion to safeguard the minor child’s well-being for the present and for the future.5
Finley v. Scott settled the question of the propriety of a good fortune trust in Florida. In that case, the father is professional basketball player Dennis Scott. The child’s stated reasonable needs were $2,000 per month, but application of the guidelines yielded a presumptive award in the amount of $10,000 per month. The trial court ordered day-to-day support in the amount of $2,000, plus $3,000 for the creation of a good fortune trust. The appellate court reversed.
A parent’s high income should only be considered by the court in determining the standard of living that the child should enjoy, and only in that manner should it influence the level of support. Other than Boyt, there appears to be no authority for requiring that a parent’s estate be “shared with the child” in the form of contributions into a trust account. . . . [A]ny state-mandated payment in excess of the amount required to meet this parental obligation exceeds any child support justification. Current law does not appear to authorize a “good fortune” award separate and distinct from adequate child support which maintains the child in the appropriate standard of living.6
The Fifth District Court of Appeal in Finley v. Scott, 687 So. 2d 338 (Fla. 5th DCA 1997), cited case law outside Florida to support its position, but also ignored many cases outside Florida, discussed below, that authorized a good fortune trust. Moreover, the court ignored the very meaning of “income shares model,” the type of child support guideline that Florida uses. The prime creator of the income shares model, Robert Williams, has stated that although the name “income shares” connotes a sharing of the support obligation between the father and mother, the term “shares” is intended to connote a child’s rightful claim on all parental income, as in shares of stock, or shares of ownership in an income-producing real estate unit.7 Finally, the Fifth District Court of Appeal ignored the fact that the guidelines demand that a presumptive award be calculated in accordance with the guidelines. the court’s reasoning, every high income case is a deviation case that must be decided solely on the basis of the child’s reasonable needs, and the guidelines have no bearing.
The dissent by Judge Sharp had the better of the arguments:
The only practical solution to this dilemma is to create a trust fund, which will benefit the child in the future and give her a present higher standard of living. This is not unlike the practice in some wealthy and moderate-income families, who open savings accounts for children as they are born and fund them periodically with the intent of paying for future needs of such children, be it health related or for college education.8
The dissent recognized that “support” includes not just day-to-day expenses, but a shifting of capital from parent to child as well.
The Florida Supreme Court explicitly agreed with the dissent’s reasoning in its January 1998 opinion, in which the court affirmed the creation of the good fortune trust. The court agreed that $2,000 was necessary for the day-to-day expenses for the child, but that an extra $3,000 per month was warranted, given the overall financial circumstances of each parent. The total award was necessary to foster and promote an appropriate lifestyle for the child. The court further held that, when a good fortune trust is created, the appropriate manner is to have a guardian of the property of the child rather than a guardian ad litem when it is necessary to supervise the funds through the probate court.
Other cases in other jurisdictions have also propounded the use of the good fortune trust. In In re J.T. (K.D.), 16 Fam. L. Rep. (BNA) 1046 (N.Y. Fam. Ct. 1989), the father was Major League Baseball player Kal Daniels, who played with the Los Angeles Dodgers, earning $350,000 per year, or close to $30,000 per month. The court set child support at $60,000 per year, or $5,000 per month. Part of the support was to be paid for the child’s current needs and expenses, and part was to be earmarked for the child’s future educa-tional needs and placed in an account requiring both parents’ signatures for withdrawal. This was especially appro-priate, the court reasoned, in the case of a professional athlete where it is likely that the father’s income will remain high for a few years, but will decline by the time the child reaches college. Future hardship should be avoided, the court concluded, by provid-ing for the child’s future educational needs out of the father’s present income while it is available. Thus, because as a professional athlete the father’s long-range future earning potential was very limited in comparison to his present salary, the court ordered support based on the father’s current salary, considered the fact that in the future the father would cease to earn what he was then earning, and ordered reasonable support for the child, plus an amount to be placed in a trust fund for the child, for the time when the father would no longer be earning such a high income.
Likewise, in In re Paternity of Tukker M.O., 199 Wis. 2d 186, 544 N.W.2d 417 (1996), the father also was a professional athlete, in this case a punter in the NFL, earning $430,000 per year. In that case, the trial court awarded support according to the child support guidelines, which was equivalent to 17 percent of his income. The court further ordered the establishment of a trust for the child’s post-minority educational expenses, to be funded by the difference between the child’s needs, $1,500 per month, and the total support paid. The Supreme Court affirmed the award, holding that the 17 percent dictated by the guidelines was not unfair or excessive, in light of the fact that the father would likely suffer a diminution in earnings due to the short-lived nature of his career. It was not error, the Supreme Court held, for the trial court to use the guidelines standards as a means to accomplish the goal of setting aside money for the future support of a child.9
The use of a good fortune trust also is authorized explicitly in at least one child support guideline. Tenn. Comp. R. & Regs. Dep’t Human Services §§1240-2-4-.049(a) (1994) provides:
The court must order child support based upon the appropriate percentage of all net income of the obligor as defined according to 1240-2-4.03 of this rule but alternative payment arrangements may be made for the award from that portion of net income which exceeds $6,250 [per month]. When the net income of the obligor exceeds $6,250 per month, the court may establish educational or other trust funds for the benefit of the child(ren) or make other provisions in the child(ren)’s best interest; however, all of the support award amount based on net income up through $6,250 must be paid to the custodial parent.
This provision was applied in Nash v. Mulle, 846 S.W.2d 803 (Tenn. 1993). In that case, the father earned approximately $260,000 per year. The trial court ordered the father to pay $3,092.62 per month in support, with $1,780.17 reserved for a trust fund established for the child’s college education. The Tennessee Supreme Court held that this was appropriate, because limiting a child to support that covers everyday expenses may be neither appropriate, nor equitable:
Such an automatic limit fails to take into consideration the extremely high standard of living of a parent such as [the father], and thus fails to reflect one of the primary goals of the guidelines, i.e., to allow the child of a well-to-do parent to share in that very high standard of living.10
Further, while child support payments themselves may not extend beyond minority, the benefits from such payments certainly can. Thus, funds can be accumulated during minority, pursuant to the guidelines, to be used after minority.
The approach of these cases, in establishing a good fortune trust, is essentially sound. Children should not be deprived of funds that they otherwise would have received had the marriage remained intact, merely because these funds do not pay for everyday living expenses, but fund such items as trusts, savings, and education. Therefore, in high income support cases, the courts should be willing to apply a more elastic definition of what constitutes support.
Other courts, however, do not agree. In In re Marriage of Sewell, 817 P.2d 594 (Colo. Ct. App. 1991), the father also was a professional football player. The trial court ordered the father to fund a $25,000 educational trust for the parties’ 16-month-old son. The Colorado Court of Appeals held that the trial court exceeded its authority in ordering the creation of a trust for post-minority support. Similarly, in Stringer v. Brandt, 128 Or. App. 502, 877 P.2d 100 (1994), although the father earned $39,000 per month, the court declined to award support in excess of the child’s stated needs. As to the establishment of a trust, the Oregon Court of Appeals stated that the guidelines contained no provision for the creation of a trust out of a child support award.11 Because the courts in these states interpreted their respective child support guidelines as authorizing support only for the day-to-day needs of a child of a high income parent, the courts held that the creation of a trust was beyond their power.
Particularly noteworthy are two recent cases in which the court declined to establish a good fortune trust. In W.S. (W.R.) v. X.Y., 290 N.J. Super. 534, 676 A.2d 179 (App. Div. 1996), at the time of the original hearing on the father’s support obligation, the father earned $150,000 per year as the chief executive officer of a sport promotion company. He then signed two one-year contracts worth $2.25 million per year with a professional sports team, and received a signing bonus of $550,000. Although the appellate court upheld the child’s right to “share in his good fortune,” the New Jersey appellate court held that the trial court judge did not err by refusing to order that a trust be created for the child’s benefit, even though the father’s two other children enjoyed such a trust. The appellate court held that such a remedy would be too “intrusive” in the father’s financial affairs. This decision seems to ignore that one of the factors in setting child support in the case of the high income parent is the standard of living that the child would have enjoyed had the marriage not dissolved. Clearly, that standard in this case would have included a trust, as evidenced by the fact that the father’s other two children had such a trust. When viewed in this light, this decision is not as well-reasoned as it could have been.
The problem of having differing approaches in different states can be illustrated by the recent case of Frazer v. Daniels, 1197 WL 78604 (Ohio App. 1st Dist., Feb. 26, 1997). In that case, the father of the child at issue was Kal Daniels, the same professional baseball player who was the father in In re J.T., discussed above. In the Ohio case, the court held that the creation of a good fortune trust was error, as it was beyond the authority of the court. Consequently, Mr. Daniels had to create a trust for his child in New York, but not for his child in Ohio.
The time is ripe for the child support guidelines themselves to speak to this issue. q
1 Laura W. Morgan, Child Support Guidelines: Interpretation and Application §4.07[b] (Supp. 1998).
2 Nancy Polikoff, Looking for Policy Choices Within an Economic Methodology: A Critique of the Income Shares Model, Essentials of Child Support Guidelines Development: Economic Issues and Policy Considerations (1987).
3 See generally Carlton D. Stansbury, Deviating From Child Support Guidelines in High-Income Cases §1.11, 1997 Wiley Family Law Update.
4 Laura W. Morgan, Child Support and the Anomalous Cases of the High-Income and Low-Income Parent: The Need to Reconsider What Constitutes “Support” in the American and Canadian Child Support Guidelines Models, 13 Canadian J. Fam. Law 161, 200 (1996).
5 Boyt v. Romanow, 664 So. 2d 995, 998 (Fla. 2d D.C.A. 1995).
6 Finley v. Scott, 687 So. 2d 338, 343 (Fla. 5th D.C.A. 1997).
7 Robert Williams, Development of Guidelines for Child Support Orders: Advisory Panel Recommendations and Final Report, at II-67, n. 77 (U.S. Dept. of Health and Human Services, Office of Child Support Enforcement, 1987).
8 Finley v. Scott, 687 So. 2d at 346.
9 See also Branch v. Jackson, 427 Pa. Super. 417, 629 A.2d 170 (court affirming, without discussion, establishment of trust of child of Major League Baseball player where father was to pay into trust $3,000 per month for child’s future expenses).
10 Nash v. Mulle, 846 S.W.2d at 805.
11 Accord, Pratt v. McCullough, 100 Ohio App. 3d 479, 654 N.E.2d 372 (1995) (although father’s income was $307,692.30, and award of $31,215.38 per year in child support was sustained, trial court lacked jurisdiction to order father to deposit $10,000 out of total support obligation into trust fund).
Laura W. Morgan, an attorney at the National Legal Research Group in Charlottesville, Virginia, concentrating in family law, is currently chair of the Child Support Committee of the Family Law Section of the American Bar Association. She is the author of “Child Support Guidelines: Interpretation and Application” and is the executive editor of the family law periodical, “Divorce Litigation.”
This column is submitted on behalf of the General Practice, Solo and Small Firm Section, L. Michael Roffino, chair, and David A. Donet, editor.