Marriage of Trivers and Quirk

Filed 10/17/08 Marriage of Trivers and Quirk 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

This appeal arises out of a marital dissolution proceeding between Jodi J. Trivers and Patrick D. Quirk.[1] The parties have been before this court previously.[2] In this appeal, Patrick challenges an October 2006 order setting modified child support and awarding attorney fees. Concerning child support, Patrick principally attacks the percentage-based portions of the award, which the court applied to certain income, including stock option proceeds. We conclude that the trial court erred both in setting child support and in awarding fees. The errors require reversal and remand.

background[3]

Patrick and Jodi were married in 1985. They have three children together: one daughter, born in 1987, and two sons, born in 1989 and 1992 respectively.

In September 1999, the parties separated.

In June 2000, Patrick and Jodi stipulated to two orders for preliminary property distribution. One provided for Patricks purchase of Jodis interest in the family residence. The other divided stock options that had been awarded to Patrick as part of his employment compensation.

November 2000 MSA and Judgment

In November 2000, the trial court entered a judgment dissolving the marriage, which incorporated the parties Marital Settlement Agreement (MSA). It contains a section covering child support. Among other things, that section describes the parties then-current financial circumstances, including their earnings from employment and the value of their stock options. It calls for child support in the amount of $2,400 per month, plus a stated percentage of any bonus received by Patrick (initially 18%, stepped down to 15.5% starting in 2003).[4] And it incorporates the parties understanding that child support could be judicially modified if warranted by changed circumstances. As part of the dissolution judgment, the court ordered child support as set forth in the MSA.

April 2004 Order for Modified Child Support and for Attorney Fees

In October 2002, Jodi filed a notice of motion, seeking modified child support and an award of attorney fees. Patrick filed his response in December 2002.

The matter was heard in March 2004 by Judge Kleinberg. Both parties appeared through counsel and submitted documentary and testimonial evidence. Patricks testimony covered a number of topics, including his stock options at PeopleSoft. After the presentation of evidence, the court entertained oral argument from both parties. It then took the matter under submission.

On April 9, 2004, the court entered its formal order after hearing.

First, the order addressed the child support calculation. The trial court modified child support for each of five specified periods, based on an increase in Patricks salary. The resulting guideline award was $4,595 per month for the relevant period in 2002 and $5,930 per month in 2003. For the period starting in January 2004, the court attached a Dissomaster calculation, noting that Patricks bonus income (not shown on the attached Dissomaster) is to be calculated pursuant to the Marital Settlement Agreement; since there is an apparent disagreement with respect to the correct percentage , the parties are to meet and confer to see if they can agree upon this issue.

Next, the order considered and denied Jodis claim that Patricks unexercised stock options should be considered in calculating child support. On that issue, the court first made an erroneous factual finding that the options are, at this writing, under water, meaning the exercise price is above the current stock price. In light of that circumstance, the court concluded, the options are only a possible, future benefit to the community and cannot serve as a source of income upon which support can be based. In any event, the court determined that there was no persuasive evidence that the children here were deprived of possessions or opportunitiesin any meaningful senseor that [Patrick] was living at a level above that of his children. The court nevertheless ordered: At such time as [Patrick] exercises his PeopleSoft options, or the stock price of PeopleSoft is equal to or above the exercise price of the options, [Patrick] is to immediately advise [Jodi] so that she may take such action as she believes appropriate at the time.

Finally, the order addressed the issue of attorney fees, which both parties had requested. The court found that Jodi had liquid assets in the sum of $955,000 and it concluded that Jodi has the ability to pay her own attorneys fees and costs. Conversely, the court found, Patrick did not have any liquid assets. It ordered Jodi to pay $10,000 of his fees and costs.

The April 2004 order was the subject of the first appeal.[5]

August 2005 Decision on Appeal from the April 2004 Order

On appeal from the April 2004 order, Jodis contentions included claims that the trial court erred in determining child support and attorneys fees. As relevant here, she challenged the courts refusal to consider Patricks stock options in setting child support. On the question of fees, Jodi argued that the court abused its discretion both in granting Patricks request and in refusing hers.

Patrick defended the order, asserting that Jodi failed to demonstrate an abuse of discretion by the trial court on either issue. He argued that the trial court considered the proper factors in setting modified child support. Concerning stock options, Patrick acknowledged that the court made a factual error in characterizing them as under water. Nevertheless, he urged, the courts legal conclusion was correct. As to the fee award, Patrick defended it as within the courts broad discretion.

In our decision, filed in August 2005, we approved the April 2004 order insofar as it addressed child support, but we remanded for the trial court to reconsider its award of attorney fees. As relevant to this appeal, we summarized our conclusions as follows: I. The trial court did not abuse its discretion in modifying child support as it did. The record provides an ample evidentiary basis for the courts child support order as to [Patricks] unexercised stock options. [] II. The trial court did not properly exercise its discretion on the question of attorney fees, as it failed to consider all of the relevant statutory factors. For that reason, remand is required on this question. (Opn., H027545, p. 25.)

January 2005 to March 2006 Further Trial Court Proceedings

In January 2005, while Jodis appeal was pending, Patrick moved to modify child support. In his supporting papers, Patrick declared that his employment with PeopleSoft had been terminated in October 2004, following Oracles hostile takeover of the company. He received a severance package from PeopleSoft giving him six months income.

Jodi filed a response to the motion, in which she consented to guideline child support. She also sought an accounting of Patricks bonuses and stock options, as well as attorney fees and costs.

The trial court conducted a hearing on the motion over the course of three court days in January, February, and March 2006, with Judge Poch presiding. Both parties submitted pretrial briefs. Both parties also presented evidence at the hearing.

Some of Patricks evidence concerned his PeopleSoft stock options. Via electronic mail on April 14, 2004, Patrick informed Jodi that the value of the stock had risen above the option strike price but that he had elected not to purchase the stock at that time. In November 2004, Patrick exercised options for 137,500 shares of PeopleSoft stock, which he immediately sold, grossing over $3 million. Patrick gave Jodi no notice of this transaction.

Patrick also testified about his new employment with Keynote Systems, Inc., which began in April 2005. Patrick received options for 600,000 shares of Keynote stock. At the time of the hearing, the trading price of the stock was higher than the strike price. In the summer and fall of 2005, Patrick received bonuses from Keynote; he paid the agreed percentage of those bonuses to Jodi as additional child support.

In April 2005, based on his new lower salary at Keynote, Patrick unilaterally reduced his child support payment to $3,505 per month, the figure derived from a Dissomaster calculation prepared by his attorney. Later that year, when his daughter turned 18, Patrick further reduced his child support payment by 20 percent, again unilaterally, based on the parties prior stipulation concerning allocation of support among the children. Jodi testified that she never agreed to either reduction.

After the presentation of evidence, the court took the matter under submission including both child support and fees subject to further briefing by the parties.

August 2006 Statement of Decision

The trial court issued a detailed statement of decision on August 22, 2006, which dealt with numerous issues.

Jurisdiction

The court first rejected Patricks contention that it lacked jurisdiction to consider his failure to comply with the provision of the April 2004 order requiring notice to Jodi about his PeopleSoft options. Concluding that there was no need for a motion to enforce prior orders for child support computations, the court found those issues necessarily raised in Jodis responsive papers.

Attorney Fees

The trial court also addressed the question of attorney fees, starting with the April 2004 award remanded in the first appeal. Having found that Jodi had far greater need, while Patrick had far more income and assets as well as greater ability to pay and to borrow, the court (1) ordered Patrick to repay the $10,000 in attorney fees that Jodi had paid pursuant to the April 2004 order, which was the subject of this courts remand, (2) denied Patricks request for fees, and (3) awarded $20,000 in fees to Jodi.

Later in the statement of decision, the court took up the issue of additional attorney fees incurred since April 2004. After describing Patricks conduct, as well as the parties respective income and assets, the court ordered Patrick to pay an additional $25,000 in need-based fees for that period.

Child Support

The court also considered the question of child support modification. As relevant to this appeal, it addressed several sets of issues.

One cluster of issues arose from Patricks stock options. The court concluded that Patrick violated the April 2004 order by failing to notify Jodi when he exercised his PeopleSoft options and sold the stock at a profit. The court determined that child support should be recalculated retroactive to November 2004, the date of that exercise and sale. It treated the entire pre-tax proceeds as bonus income, applying the 18 percent multiplier from section 6.2 of the MSA. Based on that calculation, the court determined that Patrick owed $227,115 in child support based on the PeopleSoft option exercise. Going forward, the court decided that Patrick would owe additional child support of 19.4 percent of any pre-tax income realized on his future exercise of Keynote stock options.

Another set of issues arose from other changes in the parties circumstances. The court determined that monthly child support should be recalculated to reflect these changes: an increase in Patricks salary, including a raise in September 2005; Patricks receipt of cash bonuses in 2005; the emancipation of the parties daughter in August 2005; asserted increases in Patricks mortgage interest deductions; and an expected increase in Jodis self-employment income for 2006 and forward. Taking account of these factors, the court set monthly child support for five different time periods, starting in November 2004.

September 2006 Objections and Response

In September 2006, Patrick filed objections to the statement of decision. He took issue with the courts determinations concerning jurisdiction and attorney fees. Patrick also registered several complaints concerning child support. For one thing, he pointed out that the court had erroneously applied the 18 percent multiplier from section 6.2 of the MSA rather than the then-applicable, stepped-down multiplier of 15.5 percent. For another thing, he objected that the court had completely ignored the ongoing distinction made in this case concerning the different treatment to be accorded bonus income and stock options and he argued that the court could not simply equate stock options with bonus income. In his view, Jodi, who already receives a monthly child support award and a percentage of bonus income, cannot simply receive a percentage of stock option income without the court first determining whether or not the percentage of the additional stock option would exceed the childrens needs.

Jodi filed an extensive response, generally disputing all of Patricks objections. However, she did agree that the MSAs stepped-down percentage of 15.5 percent applied, rather than the 18 percent figure used by the court.

Patrick requested a hearing on his objections, which the court denied.

October 2006 Order for Modified Child Support and for Attorney Fees

On October 2, 2006, the trial court filed its formal order after hearing. Although much briefer than the statement of decision, the order largely incorporates its determinations (though corrected by applying the MSAs 15.5% multiplier to the stock option income). The order addresses child support and attorney fees, as summarized below.

Child Support

The order requires Patrick to pay $195,571 as additional child support arising from the November 2004 exercise of his PeopleSoft options and his profitable sale of the stock. (This represents a reduction from the corresponding figure reflected in the statement of decision, which was $227,115.)

The order sets monthly child support in differing amounts for five different time periods, starting in November 2004.

In addition, starting in 2005, the order requires Patrick to pay a percentage of his entire gross income over $221,796 (excluding proceeds from the sale of his personal residence). For 2005, the percentage is 19.3 percent. Thereafter, the percentage is 19.4 percent, with provisions for reduction to 12.1 percent on the middle childs emancipation.[6] The order further states: Percentage support applies to income from any source, including but not limited to stock options.

Attorney Fees

As for attorney fees, the order likewise tracks the statement of decision. First, in connection with the April 2004 award, which was remanded in the first appeal, the order requires Patrick (1) to refund the $10,000 award paid by Jodi, and (2) to pay her $20,000 for the original [2004] motion for fees incurred in the trial court. The order denies both parties requests for appellate fees from the first appeal. Next, in connection with the 2006 proceedings, the order requires Patrick to pay Jodi $25,000 for the present motion.

Current Appeal

In November 2006, Patrick instituted this timely appeal.

ISSUES

Patrick challenges various aspects of the October 2006 order. His challenges concern both child support and attorney fees.

I. Child Support

Patrick makes five substantive claims of error concerning child support, which may be fairly categorized into the following three groups:

A. Patrick cites two mathematical errors in the order. The first relates to the calculation of Patricks monthly income for 2004. In making that calculation, the trial court failed to credit him with having paid a percentage of his bonuses, as required by the MSA. The second concerns the application of federal tax law, with the trial court charging Patrick with mortgage interest deductions that exceed the allowable maximum. Jodi concedes both errors.

B. Patrick also targets the provision ordering a lump sum payment of additional child support based on his 2004 sale of PeopleSoft stock. Patrick attacks that provision on the ground that it is impermissibly retroactive. He asserts that the courts prior orders cannot justify retroactive support. He further contends that there was no showing of changed circumstances in support of this award. Jodi disputes those arguments.

C. Patrick further attacks the provisions of the order that require him to pay uncapped, pre-tax percentages of his current and future bonus and option income as additional child support. He characterizes those provisions of the order as a departure from guideline support, made without the necessary findings. He also contends that they lack evidentiary support concerning the childrens needs and that they ignore the prior April 2004 order. In her appellate brief, Jodi disputes these contentions, but she nevertheless states that she would stipulate to modify pertinent portions of the order, as applied to any future profits [Patrick] may realize from the exercise of Keynote stock options and sale of the stock, to specify that child support could not be set at a level exceeding the childrens needs. By letter to this court, dated October 16, 2007, Jodi advises that the parties entered a stipulation in September 2007, which provides in part that Patrick shall pay Jodi a specified percentage of his gross income over $225,000 per year. She asserts that the foregoing agreement resolves the parties appellate dispute over the percentage award. By his responsive letter to this court, dated October 17, 2007, Patrick disagrees that the stipulation resolves the dispute.

As we explain infra, analysis of the two sets of contested child support issues hinges on whether stock options proceeds fall within the bonus provision of the marital settlement agreement, section 6.2 of the MSA.[7] Because that threshold question has not yet been properly resolved, remand is required. Determination of that question will be a necessary first step in any rehearing on Patricks motion for modification of child support.

II. Attorney Fees

Regarding attorney fees, Patrick challenges both aspects of the courts decision, the remanded (2004) award and the current (2006) award. Jodi defends each.

A. Patrick first attacks the courts determination of the April 2004 award on remand, which requires him to pay Jodi a total of $30,000 in fees ($10,000 representing reimbursement of Jodis payment plus $20,000 constituting a new award). Concerning this aspect of the fee order, Patrick asserts that the trial court failed to adequately consider the relevant factors, particularly the parties respective financial circumstances.

B. Patrick next challenges the $25,000 in trial court fees awarded in connection with the 2006 modification motion. Patrick contends that the courts errors in setting support, particularly with regard to its treatment of the option exercise, taint that award.

Patricks challenges to the two aspects of the fee award present distinct issues. As explained in our discussion below, as to the first issue, which concerns attorney fees on remand from the first appeal, it is not clear that the trial court reconsidered the fee award as of the relevant time frame. Concerning the second issue, the trial courts errors in calculating child support warrant remand for reconsideration of the fee award.

DISCUSSION

In order to establish the proper framework for our analysis of these issues, we first describe the pertinent legal principles. We then apply them to the case at hand.

I. Child Support

A. General Principles

We begin by summarizing the pertinent legal principles that govern the making, modification, and review of child support orders.

1. Support Award

The trial court is authorized to order permanent child support by Family Code section 4001.[8] California has a strong public policy in favor of adequate child support. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 283.) To implement that policy, the trial court must calculate child support based on the guideline formula set forth in the statute. (Id. at p. 284; In re Marriage of Laudeman (2001) 92 Cal.App.4th 1009, 1013.) Though the result of the computation is called a guideline, it represents a presumptively correct amount of child support. ( 4053, subd. (k); In re Marriage of Laudeman, at p. 1013, fn. 2; In re Marriage of Schlafly (2007) 149 Cal.App.4th 747, 753.) The trial court may depart from the guideline only as provided by statute and only as consistent with the best interests of the child. ( 4056; In re Marriage of Hall (2000) 81 Cal.App.4th 313, 318.)

One key component of the guideline child support calculation is the parents income. ( 4055, subd. (b)(1)(B).) Under California law, income is broadly defined for purposes of child support. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 285; see 4058, subd. (a).) As pertinent here, income includes stock options granted as part of a parents compensation. (In re Marriage of Cheriton, at p. 286, fn. omitted, citing In re Marriage of Kerr (1999) 77 Cal.App.4th 87, 96.) Thus, a parents option income may be considered in calculating child support, provided that the amount ordered would not exceed the childrens needs. (In re Marriage of Kerr,at p. 97.)

As reflected in the guidelines, the support amount is based on conditions existing at the time the order is made. (See Primm v. Primm (1956) 46 Cal.2d 690, 694; In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 298.) Parents are required to provide child support according to their ability, their circumstances and station in life, and their standard of living. ( 4053, subds. (d), (a), (f); In re Marriage of Cheriton, at p. 283; In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 96.)

2. Modification

Generally speaking, a permanent child support order may be modified or terminated at any time as the court determines to be necessary. ( 3651, subd. (a); In re Marriage of Williams (2007) 150 Cal.App.4th 1221, 1234.) The ultimate determination of whether the individual facts of the case warrant modification of support is within the discretion of the trial court. (In re Marriage of Leonard (2004) 119 Cal.App.4th 546, 556.) A prerequisite to modification is evidence of changed circumstances affecting a partys financial status. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 298; In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1015.) Support modification may be made retroactive to the filing date of the motion, but no earlier. (In re Marriage of Cheriton, at p. 300; 3653.)

3. Appellate Review

Broadly speaking, child support orders are reviewed for an abuse of discretion. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at pp. 282-283.) We examine the trial courts exercise of discretion with due consideration for both the factual context and the applicable statutory parameters.

As to the factual context, the trial courts exercise of discretion will be upheld as long as its determination is within the range of the evidence presented. (In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 670 [valuation of community assets]; see also, e.g., In re Marriage of de Guigne (2002) 97 Cal.App.4th 1353, 1360 [child support].)

As to the statutory context, the trial courts exercise of discretion will be upheld to the extent permitted by the child support statutes. (In re Marriage of Fini (1994) 26 Cal.App.4th 1033, 1044.) Put another way, a trial courts failure to follow the law in setting support constitutes an abuse of its discretion. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 283.) But we uphold the exercise of discretion as broadly as possible under the statute. (In re Marriage of Fini,at p. 1043.)

B. Analysis

Applying the foregoing principles, we now address the two sets of contested arguments that Patrick asserts on appeal.[9] As noted above, the first category concerns the order for a lump-sum child support payment based on Patricks receipt, exercise, and sale of PeopleSoft stock option proceeds in November 2004. The second set of contested arguments challenges the validity of using uncapped percentages of Patricks bonus and option income as additional child support for 2005 forward.

1. Threshold Issue

To properly analyze both sets of claims, we first examine this threshold question: Do stock option proceeds constitute bonus income under the MSA?

According to Patrick, the MSA treated stock options as assets not as income. He thus asserts that the MSA did not control the disposition of Patricks PeopleSoft stock option proceeds. Moreover, Patrick contends, to the extent that the bonus percentage of the MSA could be said to apply to stock option proceeds, the April 2004 order modified the MSA.

Jodi disagrees. She acknowledges that the MSA and Judgment did not specifically define the term bonus income. Nevertheless, she asserts, the stock option proceeds fell squarely within that category. Moreover, Jodi states, the courts have recognized that stock options are included within the meaning of bonus.

As a necessary first step in assessing whether Patricks stock option proceeds constitute bonus income under the MSA, we consider whether the question has been definitively resolved in this case. We conclude that it has not.

a. The trial court did not decide the question in 2004.

The April 2004 order resulted from a request for modification of child support, which Jodi filed in 2002. In her notice of motion, Jodi declared that there had been a material change in Patricks income since the MSA and judgment. Her arguments urged the inclusion of stock options in Patricks income, though not specifically under the MSA percentage provision. As described by Judge Kleinberg in his April 2004 order, Jodis position was that Patricks stock options should be added to his annual gross income under Family Code 4058. That is apparently how Patrick understood Jodis claim, too, as indicated by his hearing brief. In the same vein, in her hearing brief, Jodi stated her position that stock options are part of income. (It is true that Jodis hearing brief refers to an exhibit 6, described as the Dissomaster percentage schedules attached to the stock options of husband. But that exhibit is not part of the record in the first appeal, and thus there is no way to ascertain whether it is based on the percentage provision in the MSA.) In closing oral arguments, Jodis counsel addressed the bonus income and the stock options as separate points. In short, so far as the appellate record reflects, Jodi never expressly asserted that stock options fall within the bonus provision of the MSA. The question thus was not squarely presented.

Furthermore, in crafting the order, Judge Kleinberg was dealing solely with the impact of unexercised stock options on child support, which he mistakenly characterized as being under water and thus valueless. Judge Kleinberg nevertheless made the following finding, apparently lifted verbatim from Patricks hearing brief: An uncapped fixed percentage of realized income from the exercise of stock options cannot be used since it could result in an amount of support exceeding the childs needs. In the factual context before him, that statement plainly is dictum. In any event, the judge found no persuasive evidence that the childrens needs were not being met. The only intimation that even suggests Judge Kleinbergs consideration of stock options as bonus income under the MSA comes from his placement of a footnote.[10] The order contains no express or implied holding on the point.

b. This court did not decide the issue in the first appeal in 2005.

Patrick asserts that this courts decision approving the April 2004 child support order is final and law of the case. In making that assertion, he focuses on Judge Kleinbergs dictum rejecting the use of an uncapped fixed percentage of realized income from the exercise of stock options because it could result in an amount of support exceeding the childs needs. This assertion cannot be supported.

The law of the case doctrine precludes a party from obtaining appellate review of the same issue more than once in a single action. When a reviewing court states in its opinion a principle or rule of law necessary to the decision, that principle or rule becomes the law of the case and must be adhered to throughout its subsequent progress, both in the lower court and upon subsequent appeal. (Tally v. Ganahl (1907) 151 Cal. 418, 421.) For the doctrine to apply, the ruling must have been a ground of the decision in the prior appeal. (Morohoshi v. Pacific Home (2004) 34 Cal.4th 482, 492.)

In our 2005 opinion in the first appeal, we observed that Patricks stock options are both income (being part of his compensation package) and assets (potentially contributing to his wealth). (Opn. in H027545, p. 15.) Significantly, however, only unexercised stock options were before us. We noted that Jodi sought to include the value of [Patricks] unexercised stock options in calculating his income. (Id. at p. 16.) We observed that the appeal did not require us to resolve the interesting question of whether unexercised stock options must be included in [Patricks] income as we were able to uphold the trial courts child support determination without reaching the issue. (Ibid.) We found a sufficient factual and legal basis for the courts exclusion of the options from the income calculation. (Id. at p. 17.) As for factual support, we cited the trial court findings (1) that Patrick lacked the financial ability to exercise the options and (2) that the childrens reasonable needs were being met by guideline support, even without considering the unexercised stock options. (Ibid.)

To sum up, in the first appeal, we did not consider the impact of exercised stock options on child support, much less decide whether the resulting proceeds of sale would qualify as bonuses under section 6.2 of the parties MSA. Thus, that question remained open following our decision in the first appeal.

The trial court apparently decided the question thereafter, in the 2006 proceedings at issue in this appeal. But as we now explain, its conclusion on that point cannot be supported.

c. On this record, we cannot agree with the trial courts 2006 determination that stock option proceeds are subject to the bonus provision of the MSA.

In the August 2006 statement of decision, as part of his discussion of retroactivity, Judge Poch concluded that the percentage provision of the MSA governing bonuses also applies to stock options. He stated that the existing percentage order of 18% [sic, 15.5%] contained in the Judgment certainly remains in effect until the court decides otherwise. The prior order of 2004 of this court remains in effect until the court orders a new percentage or the parties agree. Since such an agreement or order never occurred, the question arises whether the percentage applies to the stock option receipts in November 2004. Citing and quoting the July 2004 order (made after Jodi perfected the first appeal, and later vacated), Judge Poch read into it a clear indication that bonus and stock options may be considered one and the same percentage issue[.] Given the forfeiture aspects of the PeopleSoft options, Judge Poch reasoned, the stock option is simply a bonus with a different label, but with more control to the employee. He concluded: The 18% [sic, 15.5%] applies to the exercise of stock option or bonus because the order was in effect at all times, thus resolving any issue of retroactivity on the stock option.

We find no basis for this interpretation.

First, as Patrick observes, it was improper for the judge to rely on the July 2004 order, which was later vacated because of Jodis pending appeal of the April 2004 order. (See Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 189 [trial court may not interfere with appellate courts jurisdiction by altering the appealed judgment or order by conducting other proceedings that may affect it ].)

Moreover, there is nothing in the record to support an interpretation of the bonus provision of the MSA as including stock option proceeds (or, for that matter, to refute such a construction).

Marital settlement agreements incorporated into a dissolution judgment are construed under the statutory rules governing the interpretations of contracts generally. (In re Marriage of Iberti (1997) 55 Cal.App.4th 1434, 1439.) The primary goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. (Civ. Code, 1636; Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18; Barham v. Barham (1949) 33 Cal.2d 416, 425.) Provided it supports a meaning to which the language is reasonably susceptible, extrinsic evidence is admissible to prove the parties intent as to ambiguous terms in a marital settlement agreement. (In re Marriage of Iberti, at p. 1439.) Extrinsic evidence can be offered where it is obvious that a contract term is ambiguous, but also to expose a latent ambiguity. (Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999) 74 Cal.App.4th 1232, 1241.)

Here, the meaning of the bonus provision of the MSA was not litigated below, either by the proffer of extrinsic evidence or by argument on the point. (Cf., e.g., In re Marriage of Sherman (1984) 162 Cal.App.3d 1132, 1138-1139 [extrinsic evidence confirmed interpretation of MSA provision for spousal support].) In her pretrial brief, Jodi did not argue for the interpretation that she advances here. Rather, she discussed legal authority for setting support at the wealthiest parents living standard, and she referred the court to the April 2004 order, particularly the provision requiring Patrick to give her notice concerning the PeopleSoft options. Jodi then stated: Because the last court order has failed as an effective tool for allocating stock options, we request the court order a percentage of stock options be made available to mother with a Smith/Ostler calculation.[11] In effect, by framing her request for a percentage of stock proceeds in this way, Jodi was attempting to deploy an enforcement tool rather than asserting a contractual entitlement under the MSA.

As a matter of appellate practice, since the meaning of the bonus provision in the MSA was not adjudicated below, we shall not address it here. Doing so would offend the principle that appeals should be decided solely on theories advanced in the trial court. (Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316 [as a general rule, parties on appeal must adhere to the theory on which a case was tried]; Bardis v. Oates (2004) 119 Cal.App.4th 1, 13, fn. 6 [rule applies to new theories of defense as well as new theories of liability]; cf. Ward v. Taggart (1959) 51 Cal.2d 736, 742 [a change in theory is permitted on appeal when a question of law only is presented on the facts appearing in the record ]; Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 24 [same].)

Furthermore, as a general rule, the trial court is the proper venue to explore a contracts ambiguity in the first instance. Where the meaning of the words used in a contract is disputed, the trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning. (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912, citing Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 39-40; see also, e.g., Jacobson v. Jacobson (1963) 211 Cal.App.2d 580, 585 [order reversed where trial court declined to consider extrinsic evidence concerning the meaning of the marital settlement agreement, since appellant has not yet had his day in court]; cf. Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 340 [referring to prior appellate court determination that commercial contract was unambiguous as a matter of law].)

Although we express no opinion on the threshold question of whether the MSAs bonus provision is ambiguous, we observe that the parties disagree about its reach. The fact that both parties in good faith question the true meaning of the words and phrases they have used in their agreement is of itself some evidence that the agreement is ambiguous. (Jacobson v. Jacobson, supra, 211 Cal.App.2d at p. 583; see In re Marriage of Williams (1972) 29 Cal.App.3d 368, 378.) In Patricks view, the MSA does not control his PeopleSoft stock option proceeds since it treated stock options as assets not as income. (See MSA, 2.3 [division of stock options], 12.5 [payment of taxes on exercise], Exhibit F [allocation].) Jodi disagrees, citing cases that seem to equate bonuses and stock options. (See In re Marriage of Steinberger (2001) 91 Cal.App.4th 1449, 1459 [noting that wife received stock options as part of her executive bonus package during her employment]; DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal.App.4th 629, 635 [describing stock options and other employee benefits under the rubric of such bonuses]; Newberger v. Rifkind (1972) 28 Cal.App.3d 1070, 1073 [defining bonus in a case involving stock option grants].) But the precedential value of those cases may be dubious, since the question of whether stock option grants equate with bonus compensation was neither presented nor decided. (Dyer v. Superior Court (1997) 56 Cal.App.4th 61, 66 [opinions are not authority for propositions not considered therein].) And other authority suggests that there are distinctions between stock options and bonuses. (See, e.g., In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 96 [husband had substantial income in addition to his salary and bonuses in the form of stock options]; see also, Advising California Employers and Employees (Cont.Ed.Bar 2008) Employment Contracts and Executive Compensation, 2.103-2.115, pp. 179-197 [distinguishing cash compensation, including salary and bonuses, from equity or equity-related compensation such as stock options].)

If the parties wish to litigate or otherwise resolve the interpretation of the bonus provision of the MSA as including or excluding stock option proceeds, they may do so in trial court proceedings following remand. Nothing in this opinion or in our prior opinion prevents the parties from doing so. But we shall not decide the question in this appeal. As will become apparent, however, the uncertainty surrounding this question affects other parts of the analysis.

2. Support Based on Exercised Stock Options

As one of his central claims on appeal, Patrick asserts that the October 2006 order for additional child support based on his PeopleSoft option income cannot stand, both because it is impermissibly retroactive and because Jodi failed to show changed circumstances justifying the additional award.

As we now explain, resolution of Patricks two challenges to the 2004 lump-sum child support award must await determination of the threshold question concerning the reach of the MSA.

a. The retroactivity issue is not ripe.

If the MSA bonus provision controls stock option proceeds, there would be no retroactivity problem: an award of child support under that provision would simply constitute enforcement of the November 2000 MSA and judgment. (See 290; cf. In re Marriage of Everett (1990) 220 Cal.App.3d 846, 854 [no retroactivity issue in enforcing stipulated support arrearages].) If not, Patricks retroactivity claims may be valid.

Because construction of the MSA may resolve the retroactivity issue, we decline to consider it now. In the same vein, we need not address whether Patrick violated the April 2004 order, which was one reason cited by the trial court in support of reaching back to the stock transaction date.

b. The changed circumstances issue is not ripe.

If the MSA controls, and if it set child support at an amount below the guideline, there would be no need to demonstrate changed circumstances. If the parties to a stipulated agreement stipulate to a child support order below the amount established by the statewide uniform guideline, no change of circumstances need be demonstrated to obtain a modification of the child support order to the applicable guideline level or above. ( 4065, subd. (d); In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1015.) Here, the record does not reflect whether the parties stipulated to below-guideline support in 2000. The MSA states only that they agreed on a compromise figure for child support as set forth in Section 6.1 of this Agreement.

On remand, the parties can resolve the threshold issue of treatment of stock option proceeds by litigation or stipulation. Upon determination of that issue, the court can rehear Patricks modification motion and Jodis responsive request for an accounting.

3. Support Based on an Uncapped Percentage of Income

In his other set of contested child support claims on appeal, Patrick targets the provisions of the October 2006 order that require him to pay amounts based on uncapped percentages of bonus and option income as additional child support. As noted above, in Patricks view, those provisions constitute a deviation from guideline support, made without the necessary findings and without the requisite evidence of the childrens needs. Though Jodi disputes these claims, she would stipulate to modify the order to limit child support based on any realized Keynote stock option proceeds, so that the amount ordered would not exceed the childrens needs. In post-briefing letters, the parties acknowledge their September 2007 stipulation, which includes a provision for child support based on a percentage of Patricks income, but they disagree about whether that stipulation resolves this appellate dispute.

As we now explain, in light of the applicable legal principles, Patricks arguments have merit. However, because it remains an open question whether the MSA or section 4058 governs stock options proceeds, remand is required concerning this portion of the order as well.

a. To the extent that the parties stipulated to child support based on a percentage multiplier, the agreement may be upheld.

Unless prohibited by applicable federal law, the parties may stipulate to a child support amount subject to approval of the court. ( 4065, subd. (a); see also 4057, subd. (b)(1).) Indeed, stipulated child support is entirely consistent with the underlying guideline objectives, which are to encourage fair and efficient settlements of conflicts between parents and to minimize the need for litigation. (In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1013, quoting 4053, subd. (j).) This is true even where the stipulation is based on a fixed percentage of predictable income. (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2007) 6:249.2, p. 6-109.) As one commentator explains, it is error to deviate from the guideline formula by awarding a fixed percentage of [predictable bonuses, dividend or interest income] in addition to a base amount of support (effectively making a 4060 adjustment) unless the parties have stipulated to the award or the court makes a Fam. C. 4057(b) formula support rebuttal adjustment accompanied by the mandatory 4056(a) findings. (Ibid.)

In this case, by their court-approved November 2000 MSA, the parties stipulated to an award of child support that included an uncapped percentage of Patricks bonuses (15.5% in 2003 and thereafter). The MSA includes statutory declarations. ( 4065; see In re Marriage of Laudeman, supra, 92 Cal.App.4th at pp. 1013-1014.) But whether the parties stipulation concerning bonus income also covers stock option proceeds remains an open question.

In any event, the agreement remains subject to the trial courts continuing jurisdiction to modify child support. (In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1015; see also, e.g., In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 294.)

b. Where the use of an uncapped percentage multiplier results in a departure from guideline support, findings are required.

The use of percentage multipliers to calculate support can serve to obviate the need for further litigation with its attendant costs, and oftentimes, emotional upheaval. (In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 95.) Nevertheless, child support orders must reflect the parties actual, current circumstances. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 298.) Furthermore, as explained below, there are statutory constraints on the use of percentages in setting support. (See 4056, 4057.)

A child support order requiring an arbitrary percentage of one parents income above a certain level without regard to fluctuations in the other parents income differs on its face from the formula guideline set forth in Family Code section 4055. (In re Marriage of Hall, supra, 81 Cal.App.4th at pp. 314-315, fn. omitted; see id. at p. 317.)

Now, of course, a court can differ from the guideline formula. Section 4057, subdivision (b) expressly permits the court to make an order where application of the guideline formula is unjust or inappropriate in the particular case. (In re Marriage of Hall, supra, 81 Cal.App.4th at p. 318.) One relevant situation allowing deviation from guideline is when the supporting parent has such extraordinarily high income that the guideline amount would exceed the childs needs. (In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 96, citing 4057, subd. (b)(3).) Another is where the parents have stipulated to a different amount of child support under subdivision (a) of Section 4065. ( 4057, subd. (b)(1).)

If the trial court does depart from guideline support, it must comply with the requirement in section 4056 that any deviation from the formula amount be justified either in writing or on the record. (In re Marriage of Hall, supra, 81 Cal.App.4th at p. 318.) To satisfy the statutory requirement, the court must state (1) the amount of support that would have been ordered under the guideline formula; (2) the reasons the ordered amount of support differs from the guideline formula amount; and (3) the reasons the ordered amount of support is consistent with the best interests of the children. (In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1014, citing 4056, subd. (a)(1)-(3).) The court has a sua sponte duty to make the required findings. (Ibid.; In re Marriage of Williams, supra, 150 Cal.App.4th at p. 1235; Rojas v. Mitchell (1996) 50 Cal.App.4th 1445, 1452.) This is true whenever there is a deviation from guideline support, whether higher or lower, and whether based on a stipulation or on findings made after a contested hearing. (In re Marriage of Laudeman, at p. 1014.)

Generally speaking, in the absence of sufficient findings, reversal is required. (In re Marriage of Brinkman (2003) 111 Cal.App.4th 1281, 1293; In re Marriage of Hall, supra, 81 Cal.App.4th at p. 318.) On the other hand, the failure to make a material finding on an issue supported by the pleadings and substantial evidence is harmless when the missing finding may reasonably be found to be implicit in other findings. (Rojas v. Mitchell, supra, 50 Cal.App.4th at p. 1450.) The courts failure to make findings is also harmless when, under the facts of the case, the finding would necessarily have been adverse to the appellant. (Ibid.)

c. The findings in this case are inadequate.

As noted above, Judge Poch ordered Patrick to pay Jodi additional child support, calculated as a percentage of his entire gross income over $221,760 (not including proceeds from the sale of his personal residence). The order applies to income from any source, including but not limited to stock options. For 2005, the percentage is 19.3 percent. Thereafter, the percentage is 19.4 percent, with provisions for a reduction to 12.1 percent on the middle childs emancipation.

Apparently, the judge viewed those awards of additional child support as a deviation from the guideline. That inference may be drawn from his use of Dissomaster calculations for discrete time periods, attached to the statement of decision, which do not purport to include income either from bonuses or from stock proceeds. We agree that the percentage award is a departure from the guideline. (In re Marriage of Hall, supra, 81 Cal.App.4th at p. 317.)

As just explained, when a court deviates from the guideline, it is required to state: (1) the amount of guideline child support; (2) its reasons for deviating from that amount; and (3) its determination that the ordered support serves the childrens best interests. ( 4056, subd. (a)(1)-(3); In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1014.)

We examine the courts August 2006 statement of decision and its October 2006 order to determine whether the courts findings meet the three requirements of section 4056, subdivision (a).

(1) Guideline Amount: In this case, the court calculated monthly support based on guideline factors, including Patricks base salary. The court carefully explained those factors and the evidence supporting them. But there is no evidence that it ran guideline calculations using Patricks income from bonuses or from stock option proceeds, which fall within the broad definition of income under the child support statutes.

Family Code section 4055 provides a formula for determining the amount of child support based on the net disposable incomes of the parents. The court must calculate the annual gross income of the parent, defined in section 4058 as income from whatever source derived, except as specified, including but not limited to wages and bonuses. From this is derived the parents monthly net disposable income. (County of Placer v. Andrade (1997) 55 Cal.App.4th 1393, 1395-1396, fn. omitted.) The fact that income may be sporadic does not justify excluding it from the guideline support calculation. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 287.) The statutes provide for situations where income fluctuates. ( 4060, 4064; In re Marriage of Riddle (2005) 125 Cal.App.4th 1075, 1081.)

Bonuses are specifically included in the definition of annual gross income. (County of Placer v. Andrade, supra, 55 Cal.App.4th at p. 1396.) Although not explicitly mentioned in the statute, income includes stock options granted as part of a parents compensation. (In re Marriage of Cheriton, supra, 92 Cal.App.4th at p. 286, fn. omitted.) With stock options, at the latest, income is realized when the underlying stock is sold for a gain. (Id. at p. 288.)

Where a parent has substantial income in addition to his salary and bonuses in the form of stock options that additional income is part of his overall employment compensation and must be used to calculate child support. (In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 96.) And before a court may exercise its discretion to determine that a deviation from the guideline is warranted under the circumstances, it must first calculate the amount of support required by strict adherence to the guideline. (In re Marriage of Hubner (2001) 94 Cal.App.4th 175, 184.) Here, by excluding bonuses and stock option proceeds in its basic guideline calculations, the court failed to do so.

(2) Reasons: Although the court explained why it made a lump-sum percentage award based on Patricks 2004 PeopleSoft option proceeds, it offered no reasons for ordering percentage-based support for 2005 and beyond. In the context of the 2004 lump-sum award, the court found, not only did [Patrick] fail to present any evidence on the needs of his children during this time, but [his] testimony shows he has a high lifestyle for himself. This is not an adequate explanation for the courts departure from guideline support. (Cf. Rojas v. Mitchell, supra, 50 Cal.App.4th at pp. 1450-1451 [court expressly found that a $5,500 monthly child support award met the reasonable needs of the child but it did not give the reasons for this finding]; McGinley v. Herman (1996) 50 Cal.App.4th 936, 945 [trial courts conclusionary finding falls far short of providing reasons why the level of support that the trial court awarded is consistent with the childs interests].) Unfortunately, the error cannot be considered harmless since the missing reasons cannot be implied in the courts express findings and we cannot conclude that the missing information would necessarily have been adverse to appellant. (Rojas v. Mitchell, at p. 1451.)

(3) Childrens Best Interests: The court did not explain why the percentage-based award was in the childrens best interests. Such a statement may be unnecessary when there is an upward departure from guideline support. Where the order is for more rather than less, the reasons for the deviation are plainly irrelevant. (In re Marriage of Laudeman, supra, 92 Cal.App.4th at p. 1014.) In such cases, it seems apparent that the higher amount is in the best interests of the children. (Ibid.) In this case, however, as explained above, the courts basic guideline calculations did not include either bonuses or stock option proceeds. Thus, it is possible that the use of a percentage-based support calculation resulted in a downward deviation here. The court is therefore obliged to explain why the amount of support ordered is consistent with the best interests of the children. ( 4056, subd. (a)(3).) It did not do so.

d. The trial court did not properly consider Patricks high earnings in relation to the childrens needs.

Under section 4058, bonuses are included as gross income. (County of Placer v. Andrade, supra, 55 Cal.App.4th at p. 1396.) Stock option proceeds also constitute gross income under section 4058, either independently or under the MSAs percentage provision. (See In re Marriage of Cheriton, supra, 92 Cal.App.4th at pp. 288, 289; In re Marriage of Kerr, supra, 77 Cal.App.4th at p. 96.)

Where income from these sources represents an extremely high dollar amount, application of the guideline may be inappropriate if the resulting support award would exceed the childrens needs. (In re Marriage of Kerr, at p. 97.) In that case, the high earner