Community Property: Wesley Outline 2
COMMUNITY PROPERTY OUTLINE
Prof. Wesley
I.
Introduction.
Community Property. “All
things acquired from the DOM (date of marriage) to the DOS (date of separation)
except by gift, bequest, or devise or decent with rents, issues and profits
thereon.” This includes
assets and liabilities. “When you
get married, you cease to exist – only the community exists.”
We don’t care how the asset is held – we care about when the asset was
acquired. “All things” means
everything – down to vacation time, sick leave, etc.
A.
Terms.
1.
DOM. Defined in the code.
Marriage has to be b/w man and woman with a license and ceremony (see
below). [FLC §300 – Marriage is a personal relation
arising out of a civil contract between a man and a woman, to which the consent
of the parties capable of making that K is necessary.
Consent alone doesn’t constitute marriage.
Consent must be followed by the issuance of a license and solemnization
as authorized by this division…].
(a)
2.
DOS. Not the date of judgment
or divorce. This is more contested.
The system requires us to create one specific date.
[In re Marriage of Bagary – Doctor moves away
in 1971 and in with girlfriend, he goes home and she does his laundry and cooks
for 4 yrs. Spousal support – ½ of
the length of the marriage.]
3.
DOJ – Date of Judgment. The
average dissolution case takes 2+yrs.
Most jurisdictions in this country do not recognize the DOS.
Most jurisdictions run the division of assets from DOM to DOJ, but not
CA. CA uses the DOS.
4.
Exceptions: gift, bequest, devise or decent, with rents issues and
profits thereon. If the separate
property earns money it remains separate.
If the community property makes money, it remains part of the community.
5.
2 main components of family law:
(a)
Dissolution of assets/liabilities
(b)
Custody
6.
No Fault Jurisdiction.
Before you had to show that your spouse had committed a bad act and the Court
would have to decide who was at fault. With the Family Law Act of 1971, we have
a no fault system. We don’t care
why you get divorced – there’s no litigation of fault.
The most common reason for divorce is “irreconcilable differences.”
People can stipulate otherwise, but when it gets to the court, it’s
50/50.
7.
Three methods of dissolution—FLC §310.
(a)
Death of one party;
(b)
Judgment of dissolution of marriage.
(c)
Judgment of nullity or marriage.
8.
3 things to do
when you’re getting separated
(a)
Get pension for
Quadro
(b)
Change everything
from joint tenancy to tenancy in common
(c)
Notify creditors
that you’re only responsible for your own debts.
You’re going to be on the hook if you don’t notify the creditor of your
separation.
B.
Separate v. Community.
1.
Separate. Goes back to the
person who had it before marriage or obtained during as a gift, etc.
(a)
No Jurisdiction. The court
has no jurisdiction over separate property – they can just confirm that it’s
separate property and give it back to the holder.
[Robinson v. Robinson.
The W had conceded that the house was the H’s separate property.
The lower court gave the W a life estate in the house – they allowed her
to live in the house. The appellate
court said the lower court couldn’t do this – no jurisdiction over separate
property.]
2.
Community. [FLC
§2550] Everything else
acquired during marriage. Court
lacks statutory jurisdiction to do anything other than divide 50/50.
This is all the court has subject matter jurisdiction to do; parties can
waive personal jurisdiction but not subject matter jurisdiction.
(a)
Abuse/Stealing/Etc. The
court doesn’t have subject matter jurisdiction over other issues like
compensation for abuse or stealing.
[Hebring.
H and W were separated and W filed for dissolution.
Early in the next year W got a restraining order to stop H from disposing
of W’s separate property – her jewelry.
The court reimbursed W from H’s separate property – they went beyond
their subject matter jurisdiction.
This is an aberration – it’s not the law.
Robinson is the law.]
(b)
Efficiency. Equal division rule
created to deal with the problem of too many divorces; reduces the amount of
time involved.
3.
Assets Side – 3 Ways a Client will come into
your office:
(a)
When that particular asset is either separate
or community.
(i)
First question: what type of asset are we dealing with?
Do this for each asset and then apply appropriate test.
(ii)
Issue: was there a transmutation? [FLC
§852 – during marriage did the parties change that asset to separate or
community?] Transmutation is a
complete and total recharacterization
of the property. If CP is
transmuted at time of divorce, it is separate.
(b)
When there is a separate property contribution
into a community property asset.
[FLC §2640]
§2640 doesn’t apply to separate property asset
(i)
Ex. using separate funds to buy a house
à
house is CP. [FLC
§2581
à
property acquired during marriage in joint form, including property held in
tenancy in common, joint tenancy or tenancy by the entirety or as community
property, is presumed to be community property.
This presumption may be rebutted by (1) a clear statement in the deed or
other documentary evidence of title by which the property is acquired that the
property is separate property, or (2) proof that the parties have made a written
agreement that the property is separate property.
you must have writing to contrary to prevent it from being community.]
(c)
When you have a community property
contribution into a separate property asset. This is more difficult
because it can happen in so many different ways that statutes can’t address all
of them. This is where the
mathematical formulas come in – to back the CP portion out of a separate
property asset. Ex. W has a house before
marriage. No transmutation, H&W
just move into it. The money that
is earned after marriage is community property and it’s used to pay the
mortgage. The mortgage is being
paid with CP money.
(i)
Moore/Marsden doesn’t apply to community property asset.
(d)
Note: Any time there’s separate property house and there’s a
transmutation, you have an aspect of all 3 ways a client can come into your
office - §852, §2640 and Moore/Marsden problem.
(i)
Example of how all 3 of these ways can apply to one fact pattern.
Say a separate property house acquired.
H&W get married. They
transmute the house to community.
They get separated. Then there’s
the date of trial.
(1)
It’s a separate property house
a.
Look at DOM
b.
Look at transmutation
(2)
§2640 issue – anytime you transmute property from separate to community,
you have a built in §2640 issue – separate contribution into a community
property asset.
a.
Any growth in the property from transmutation to DOS will be divided
50/50
(3)
Between DOM and date of transmutation, you have to look at the MM formula
because you have the community paying for the separate property house.
At the date of transmutation, it’s no longer separate property so you no
longer have a MM calculation (divide it 50/50)
a.
So you could get money back from §2640, but have to pay some back into
the community because of the MM formula.
b.
Marsden address pre-marital capital appreciation.
4.
Debts Side. Debts will be
divided 50/50. These are treated
differently from assets. It doesn’t
matter that one party doesn’t receive any benefit from the debt or that one
party didn’t know their partner had/created debt.
II.
Determining Date of Marriage.
There are valid marriages and relationships
short of valid marriages. Ask: what
are we talking about when we’re looking at DOM?
What is the DOM? First see
if there’s a valid DOM, if not, look at the 3 alternatives (Domestic Partnership
Act, quasi-marital property, Marvin Actions.
A.
Valid Marriage —[FLC §300].
1.
Requirements:
(a)
Legal capacity. Both parties
must have this. There can’t be
characteristics of void or voidable marriage below.
(b)
Legal requirements of a valid marriage [FLC
§306]:
(i)
Consent of both parties;
(ii)
License;
(iii)
Solemnization;
(1)
Person authorized to say magic words & must say magic words.
I.e. self-proclaimed priestess.
(2)
No particular form for ceremony required for solemnization.
Parties must declare in presence of person solemnizing and witnesses that
they take each other as H & W. [FLC §420].
(iv)
Authenticated.
(c)
3 things that the petitioner can do:
(i)
Dissolution of Marriage.
CA does not use the term “divorce.”
(1)
Only 2 reasons to file for dissolution of marriage or legal separation:
(a)
Irreconcilable differences.
(b)
Incurable insanity. This
option isn’t realistic because if you’re insane you can’t properly sign the
petition, and if you’re saying the other party is incurably insane, then you’ll
just get the other party mad.
(2)
Family Law Petition – judicial council form that serves as a complaint.
It’s not called a complaint because it’s a no-fault system – it’s
petitioner v. respondent – not plaintiff and defendant.
You can be held in contempt for introducing/arguing fault in court
(ii)
Legal Separation.
This is a judgment issued by the
(iii)
Nullity of Marriage.
These are types of invalid marriages.
This means that the marriage never existed – it was void from the
beginning. There is no date of
marriage in an annulment proceeding.
The problem here is that you might have to amend your tax filings to
single and pay the difference.
Also, by definition there’s fault, so you’re going to have to go in court and
prove what the other person did that was wrong.
(1)
Nullity of Void Marriage. If
there’s an incestuous or bigamous marriage, annulment is mandatory.
(a)
Incestuous marriage [FLC
§2200 – marriages between parents and children, ancestors and descendants of
every degree, and between brothers and sisters of the half as well as the whole
blood, and between uncles and nieces or aunts and nephews, are incestuous and
voice from the beginning, whether the relationship is legitimate or
illegitimate.]
(b)
Bigamous marriage [FLC
§2201 – A subsequent marriage contracted by a person during the life of a former
husband or wife of the person, with a person other than the former husband or
wife, is illegal and void from the beginning, unless:
(i)
Exceptions: the former marriage has been dissolved or nullified before
the date of the subsequent marriage, or the former H or W is absent and not
known to be living for 5 successive years preceding the subsequent marriage, or
is generally reputed or believed to be dead at the time the subsequent marriage
was contracted.] If you think your
spouse is dead—then its just voidable.
(2)
Nullity of Voidable Marriage.
[FLC §2210].
These are voidable up to the court’s discretion.
These are voidable unless the party freely cohabitated with the other as
H & W after the condition ceased.
(a)
Not of age—must be 18 [FLC §301]
Minor must get written consent of 1 parent or guardian for each underage
person [FLC §302]
(b)
Prior existing marriage;
(c)
Unsound mind;
(d)
Fraud;
(e)
Force;
(f)
Physical incapacity.
(3)
Effect of judgment of nullity.
Restore the parties to the status of unmarried persons [FLC
§2212].
B.
Alternatives. If marriage
isn’t proper according to the requirements, then look for an alternative to get
into the CP system: Domestic Partnership Act, Quasi-marital, Marvin Action.
1.
Domestic Partnership Act.
[FLC §297]
This takes into effect in 2005.
This applies to people of same-sex marriages and people in opposite-sex
relationship where one or both of the parties are over the age of 62 (helps
people who avoid the social security cap for married people by being common law
partners, and gives them all the rights of married people – spousal support,
custody, community property, etc.).
It also gives the Superior Court jurisdiction over domestic partners.
(a)
Marriages valid elsewhere [FLC
§308 – A marriage contracted outside this state that would be valid by the laws
of the jurisdiction in which the marriage was contracted is valid in this state].
This includes common law marriages.
CA does not recognize common law marriages within the state, but does
recognize common law marriages validly contracted elsewhere.
Always check whether this is possible argument if parties were married
outside of CA.
(i)
Same Sex Partnership. [FLC
§308.5 – only marriage between a man and a woman is valid or recognized in
2.
Quasi-marital property—putative marriages.
[FLC §2251]
This deals with property acquired when one spouse has a good faith belief
that they are married, but through no fault of their own, they’re not.
Such spouse is the “putative spouse” (or innocent spouse).
The court can invoke the quasi-marital property statute, thereby making
the property community property. If
we didn’t have this code section, then someone in a nullity situation could be
taken advantage of. This was set up
to protect the innocent spouse and address the annulment situation.
(a)
At least one of the parties thinks they were
married. One must have:
(i)
Good faith belief that the marriage was valid;
AND
Courts are in flux on what good faith belief is.
(1)
Southern CA. Requires some
objective determination of good faith belief.
They want to see a solemnization of some sort.
It might not be technically valid, but they want to see that you tried.
(2)
Northern CA. They are more
flexible. They allow subjective
determinations.
(3)
Most CA courts. Look to whether you
have a license, whether you made efforts.
(4)
Some Appellate Cases. Use
subjective determination of good faith.
[Wagner v.
(5)
CA Supreme Court. They
didn’t resolve the conflict among cts of appeal.
Note: if you learn you aren’t married, you lose protected status with
regard to subsequently acquired property.
(ii)
Through no fault of their own, it is not.
Some cases go to extremes to protect the innocent spouse, even if
they weren’t conscientious in determining their partner’s status.
(1)
Monty.
H serves W divorce papers, then makes up with
her and says he was kidding about the divorce.
H never stopped the divorce proceeding.
They live for several years together, when W wants to get a divorce, H
says we are already divorced. The
court employs quasi-marital property, but it was questionable whether W was at
fault in some respect b/c she was served.
(2)
Vasquez.
Vargas lived a double life – had 2 families.
The families didn’t know of each other.
The guy died in a car accident.
The first wife wanted to prevent an equal division of the estate.
Court decided to divide the estate equally even though the marriage to
the 2nd wife was not valid.
The court says that the 2nd wife fits the putative spouse
definition. She thought he was
divorced.
(b)
Divide quasi-marital property like it is CP,
subject to equal division rule.
[FLC §2251 -
“If a determination is made that the marriage was
void or voidable and court finds one or both of parties believed in
good faith that the marriage was valid, the court shall (1) declare the parties
to have status of putative spouse and (2) divide the property that would have
been CP or quasi CP if the union had not been void or voidable.
This property is known as quasi-marital property.”]
(i)
Rationale for quasi-marital property.
Created to address the inequities of annulment (marriage never existed).
If the marriage never existed, then the court couldn’t treat the property
as community property. So they
created quasi-marital to protect the innocent putative spouse.
(c)
Support of putative spouse.
Court may order a party to pay for the support of the other party in the same
manner as if the marriage had not been void or voidable if the party for whose
benefit the order is made is found to be a putative spouse.
[FLC §2254].
3.
Marvin actions.
[Marvin v. Marvin.
H & W aren’t married. H and
W enter into an agreement where W gives up her singing career to be housewife
and H will support her. Demurrer,
but court finds claim under K principles.]
(a)
Parties know they are not married.
(b)
Divide assets according to K principles.
Acquisitions are separate property unless there is a contrary express or
implied agreement. Try to put you
back in the place you would be if the K was performed (doctrine of quantum
meruit).
(i)
Court’s Role. Court should
inquire into the conduct of the parties to determine `whether there’s an implied
contract, agreement or some other tacit understanding between the parties.
Court said that you can’t get into family court unless you’re married.
But they say that courts should enforce express contracts unless based on sexual
services.
(1)
Contract Claims. Marvin
actions are subject to contractual remedies – not subject to Family Code.
90-95% of Marvin actions go to family courts (even though they’re not
family law cases). Technically the
family law court doesn’t have subject matter jurisdiction to hear contractual
disputes between parties, but these cases are still in family court b/c a
domestic matter is involved. If you
want to keep your Marvin action in civil court, ask for a jury trial because
family law courts only have bench trials.
(2)
Remedies. Remedies are
different – they are not relegated to the equal division rule.
(c)
Factors to determine if there was an implied K or tacit understanding:
(i)
Did they pool their money, file joint tax returns, do
they represent themselves
as a couple to the public, do they have checking accounts where either can sign?
Was there an understanding that the parties would share in the gains of
the relationship?
(1)
Example of implied K situation.
Woman takes in lover, lover repairs the home.
If the court finds that they have an implied K, he would have a right to
a portion of her home.
(2)
Example 2: if she inherits separate
property and he improves it he doesn’t have an interest in the SP.
Inherited property is SP. So
does this mean you can’t have an implied K to share in SP?
(3)
Joint tenants. Means the
person has a right to ½ whether married or not.
Entitled to half of everything you are joint tenant on.
(ii)
Marvin is no longer a blockbuster case b/c it is hard to prove an implied K;
courts don’t want to do this.
(1)
Same Sex
Relationships. Quite often these
cases were brought for same-sex relationships.
This will change with the Domestic Partnership Act.
But it will still apply to those who do not file under the DPA.
(iii)
Arguments for no enforcement:
(1)
Idea that you should be able to stay unmarried.
(2)
Fairness.
(3)
Detrimental reliance.
(4)
Prevent society from having to pay.
(d)
Cohabitation Before Marriage.
Many Marvin actions involve the time of cohabitation before marriage.
When people cohabit before they get married, and
acquire assets during that time, and then marry and then divorce, you’ll have to
do a Marvin action to find out who owns what.
The Marvin action must proceed first, otherwise, you don’t know what was
each party’s property going into the marriage otherwise.
III.
Date of Separation.
What is the DOS? This causes a lot
of problems because it’s a subjective determination: when the marriage is
“irretrievably broken.” This is not
the date you file for your dissolution – it’s before that.
If you’re the lesser earning spouse, you want the marriage to be as long
as possible. If you’re the higher
earning spouse, you want it to be as short as possible.
A.
Definition. When there is a
“total and complete breakdown of the marriage.”
1.
Marriage of Baragry.
[Dr. moves into boat and moves in with girlfriend, but still has dinner
at home and W does laundry. They do
not having marital relations.]
Note, In Baragry, the court chose the DOS as the date W filed for
dissolution, not because it was when W filed for dissolution, but because it was
the date of separation, when their relationship ended.
DOS is not the date that you file for dissolution.
(a)
Held: DOS
is not dependent on when the spouse moved out.
The later date is the DOS b/c the parties weren’t acting as if marriage
was over.
(i)
Important implications for debt, spousal support (short term marriage
less than 10 yrs=support ½ length of marriage)(long term marriage of 10yrs. or
more = support runs indefinitely).
(ii)
Higher earner wants DOS to be close to DOM. Example:
orders to go to
(b)
Intent (mental state) of the parties DOES NOT MATTER.
Look at the objective standard of third party.
The court looks to the conduct of the parties, not their mental state.
The question is how they are conducting their business.
How would a 3rd party looking at these two, determine their
relationship?
(i)
Example: In Baragry, W was
still contributing. A reasonable
man looking at the marriage would have to determine marriage still existing.
(c)
Can live together & have DOS.
People often continue to live together in the residence, but can still
have DOS. But there’s a higher
standard of demonstration to the court that there’s a DOS because they continue
to cohabitate.
(i)
Factors include whether:
(1)
sleep together,
(2)
communicate,
(3)
work together,
(4)
joint checking acct., etc.
(d)
Reconciliation.
There is
only one date of separation and it is
the last conceivable date of separation.
Court ignores the first date of separation.
Therefore, if you separate, and then reconcile (ex. even sexual relations
for one night) the DOS will be pushed to that date.
Even the sending of cards/flowers on an anniversary date could be used to
prove reconciliation. The policy of
family law is to promote reconciliation, but that’s at odds with protecting your
client.
IV.
Jurisdiction.
[FLC §§2550 & 2601]
A.
Subject Matter Jurisdiction.
The subject matter j/x of family law court limited.
There are only two types of property:
CP and SP.
1.
Separate Property. The court
can confirm it.
2.
Community Property. The
court can divide it.
3.
CAN’T do anything else. Can’t award
damages for any other wrongful acts.
Family law court is a no fault system (due to the amt. of people going
through system).
(a)
Exception.
If one of the parties filed a separate civil action and family law court
consolidated [McNeil].
(i)
Example of bad precedent— [In Re Marriage of
Hebring. W gets TRO against H from
disposing of her jewelry and throws it over the
The court ordered SP reimbursement from CP [which FLC 2550 says you can’t do].
Court says that this is not reimbursement for the tort of conversion.
Relies on McNeil, but here no independent action was filed.]
(1)
Equitable relief doesn’t pertain to FL court.
But the court in Hebring talked about unclean hands, which is equitable.
B.
Equal Division of Community Estate— [FLC §2550].
“Divide the community estate of the parties
equally.” Add the properties
on both sides, as long as totals come out same on both, that is equal division.
But, in some cases, you can’t divide the assets that equally.
1.
Situations where the equal division rule doesn’t work:
(a)
Example: house is only asset, dad
is unemployed. 7 kids.
If you divide in ½, everyone gets 250K.
$400/mo.
(b)
Example 2: a family law
practice. If you sell your
practice, you lose the income to pay the spousal support, etc.
2.
Tax Implications. You need
to know the tax implications of a division.
Ex. residence net of $400,000 and rental net of $400K aren’t the same b/c
residences up to $500K are exempt from taxes.
C.
Awarding Assets to One Party to Effect Substantially Equal Division— [FLC
§2601].
“Where economic
circumstances warrant, the court may award an asset of the community estate
to one party on such conditions as the court deems proper to effect a
substantially equal division of the
community estate.”
1.
Equalization Payment. Each
asset doesn’t have to be divided in half.
The court has the ability to make an unequal distribution, but when they
do this, there’s an equalization payment to be made to the other side.
Courts don’t like to do this because it causes other problems.
Usually courts like to sell the asset – so they don’t have to worry about
default, future valuation, future value of money, when payment is going to be
made, how it will be made, etc.
Only when they can’t sell the asset, will they do the equalization payment
method [Marriage of Brigden.
H is CEO & a founder of Logicon, some of the shares were CP, lower court
awarded all the shares to H, having the shares helps him be on board of dirs,
this gets $ for him, the stock 30% increase in value.
Held: the court ordered the
stock be sold; the wife is entitled to an in-kind award.
Economic circumstances don’t warrant here, it is merely helpful to H.]
(a)
Actuary Required. If the
court is going to do an equalization payment, they’re going to have to have it
actuarially analyzed on the payment to include additional monies to demonstrate
future value of money. An actuary
will tell you how much to increase the value of the loan to account for present
value. So the note has to be for
more than ½ of the asset.
(b)
FL Court Jurisdiction. Family court
reserves j/x, so if you don’t pay, back to family court.
Problem: if bankruptcy,
federal law supercedes. But spousal
support isn’t subject to bankruptcy law.
V.
Quasi-community property.
[FLC §125].
Quasi means that we are about to do something we aren’t allowed to do.
This is a protection that most states have.
It allows us to divide property from
other j/x. Quasi-CP is property
that would be CP if located in
A.
QCP defined. [FLC
§125]
1.
all real;
2.
and personal property
wherever situated
is treated like CP (divided 50/50)
B.
Example: H and W live in
1.
Thorton.
Said this is unconstitutional, violates vested property rights.
It was unconstitutional b/c based on the fact that people simply moved to
CA.
2.
FLC §125.
It doesn’t suffer from infirmity of Thorton.
In order for CA to be able to divide the property pursuant to CA
community property law, parties must:
(a)
Be domiciled in the state, AND
(i)
Domicile. You can only have one domicile (where you intend to reside
permanently), but you can have as many residences as you want.
(b)
File for dissolution or legal separation.
[only one party]
But it doesn’t matter who files for divorce.
So this is a weak justification for being different from Thorton.
C.
Property Overseas. CA not
only can get into any other state, but CA has the right to go to
any jurisdiction anywhere in the
world. But it is virtually
impossible to get other countries to recognize this.
So if the party has sufficient assets inside states, you would try to get
those assets awarded to your client as a balance for property overseas.
All that is required for us to recognize is follow that other country’s
due process.
VI.
Valuation.
From the date of separation, the actual trial date could be years later.
So when should an asset be valued?
A.
Valuation Date for Assets & Liabilities— [FLC
§2552(a)]. “Court
shall value the assets and liabilities as near as practicable to the time of
trial.” This is an
incredibly rigid standard.
1.
Many states don’t have this problem b/c they don’t have a date of
separation.
(a)
State of
2.
Time of trial. The
first day that trial is scheduled for.
B.
Exception— [FLC §2552(b)].
Closely held business/corporation, where one of the two parties controls
the business; it’s run by the individual.
1.
Alternative date of valuation---DOS.
This is the only time there is an alternative valuation date.
[In
re Marriage of Green]
(a)
Rationale: CP assets only earned from DOM-DOS.
The value acquired after the DOS is due to the separate property efforts
of the individual running the business.
You can’t divide separate property. Otherwise,
people will destroy their businesses to lessen their value by the time of trial.
This is against public policy.
VII.
Presumptions
A.
Generally.
1.
When Interest in Property Arises.
The character in the property is determined by
the date when the interest in the property arose, not when you receive the
money. CP is about timing,
not what’s equitable. Look to when
rights arise, not to when property is acquired or what is equitable.
(a)
Estate of
(i)
Holding: we have to look at
the exact dates. When Edwin dies,
2.
True Intent.
Family law court in determining whether
SP or CP can look beyond titles to see the true intent of underlying action.
The court will look at the acquisition process – when
and how the property was acquired
à
if it was the result of the community’s effort, then it’s community in nature
and ct will divide it equally.
(a)
Downer v. Bramet.
Man worked from 1943-76, married from 53-71.
He had no retirement program, but in lieu of retirement his boss gives H
property after H’s separation.
There was no requirement for property to be given.
Legally it was in the form of a gift & no obligation to give it.
(i)
Held: W is entitled to
receive a pro rata share of the value of the ranch.
It was something achieved during marriage, not something acquired by
bequeath, devise or decent. Ct says
the gift was given due to work H did – but it wasn’t H’s work, it was the
community’s work. The Ct looked
beyond title and saw that the gift was compensation for the community’s efforts.
Prop was a remunerative gift
for H’s services, so it was CP.
(1)
Rationale: There were no social
obligations b/w the parties, they didn’t golf or go to each other’s homes, so
the court didn’t think this was a gift predicated on being a gift.
B.
Three Presumptions. These
come into play in almost every circumstance.
1.
FLC §760.
All things acquired b/w DOM and DOS are CP (if you don’t have title of
ownership – certificate of title). Except by gift, devise, bequest or decent.
This is a rebuttable presumption.
(a)
Overcoming Presumption—Tracing.
(i)
Example: I have $1,000
before marriage, we get married, take the $1,000 and buy painting that goes up
in value to $100,000.
General presumption is that it is CP, but you can overcome the
presumption by tracing back that the painting was acquired by your own SP.
(b)
Result. 760 resulted with a ton of
litigation. This prompted FLC
§2581.
2.
FLC §2581.
Property acquired during the marriage in joint
form are CP and can’t be overcome by tracing.
This is a rebuttable presumption.
Property can’t be titled in joint form if it doesn’t have title.
i.e. furniture.
(a)
Joint form.
(i)
Joint Tenancy
With Right of Survivorship.
Each person owns 100% of property.
(ii)
Community Property.
(iii)
Tenancy in Common.
Each party owns undivided ½ -- does not automatically go to spouse, as
opposed to joint tenancy with right of survivorship.
(iv)
Tenants in the Entirety.
(1)
Example. If I take 30,000 of
my SP funds, get married, buy car in joint tenancy w/ rights of survivorship.
This goes automatically to the other person.
The car is CP, even though used SP funds.
(b)
Rebutting—can be rebutted only by a
writing to the contrary.
(i)
Writing.
(1) A
clear statement in deed or other documentary evidence of title by which the
property is acquired that the property is separate property and not community
property, or
(2)
Proof that the parties have made a written agreement that the property is
separate property
(c)
Use of FLC §760 vs. FLC §2581.
You have to determine whether the property is owned in joint form or not,
and that will determine which section is used.
Even though same $100k, there’s a significant difference in consequences
depending on whether property held in joint form or not in joint form.
(i)
Example – FLC §760. You have
$100k, get married, buy painting w/money (no certificate of title).
Since property not owned in joint form b/t parties, the burden falls w/in
760. All you would have to do is
show that painting acquired was acquired with separate funds.
You can use any type of evidence
(ii)
Example – FLC §2581. Say
instead of painting you buy a house held in joint tenancy w/ right of
survivorship. The burden falls w/in
2581 since it’s held in joint form.
So you’d need to show written evidence that the intent was to keep property
separate and not community (even though took property in joint form).
3.
Married Woman’s Presumption—FLC §803.
This still applies to property
acquired before
(a)
Rebuttable presumption:
(i)
H must have intended to give to W or to W and TP
(ii)
If H can show through evidence that this was not the intent of the
parties to create separate property, the H can overcome that presumption
(1)
Burden on H.
a.
Clear and convincing for real property
b.
Preponderance of evidence for personal property
4.
Irrebutable Presumption. One yr
after birth of child, H becomes father, even if not biological father.
This is an irrebuttable presumption.
Dividing Assets.
By following these three rules, you can resolve any question for the bar.
Take each asset individually and apply.
How have the parties handled the asset during this period of time (only 3
ways)?
VIII.
Transmutations—FLC
§§852 & 852(c).
An asset comes into the marriage as either SP or CP, but it is changed
during the marriage. You can
transmute CP into SP, SP into CP, SP of one into SP other.
This is a complete changing of the asset, a complete transfer – not
talking about making a contribution to the asset.
Did they transmute property during the marriage?
If it was, from the date of the transmutation, then you proceed with the
property as though it was under it’s new claim (community or separate).
Example: SP house transmuted
is 100% CP at divorce.
A.
Transmutations before
1.
Rule:
Any substantial evidence that
indicated a transmutation was sufficient.
(a)
Substantial evidence. Changing
standard with the mores of society…1920s what constitutes substantial evidence
was a lot less than when we moved toward 1985.
Wedding toast in 1930 was substantial evidence.
The husband could just say that this is “our house and we’re going to
live here forever.”
(i)
Testimony of oral agreement could be enough?? Income tax returns showing
that income split b/w parties can be proof of transmutation.
[Estate of Raphael]
B
Transmutations on or after
1.
FLC §852—Estate
of MacDonald. Transmutations
must be:
(a)
In writing; AND
(b)
Must be an express intent in that writing to transmute.
Must be made, joined in, consented to,
or accepted by the spouse whose interest is adversely effected.
(i)
Estate of MacDonald is a probate case, but uses
852 to define what is a transmutation.
(W is terminally ill. W
signs consent to designation of the trust as beneficiary.
If you want beneficiary to be someone other than a beneficiary you have
to sign a waiver—to transfer to trust)
(1) A
writing signed by the adversely affected spouse is not an “express declaration”
unless it contains language which expressly states that the characterization of
the ownership of the property is being changed.
But the word “transmutation” or other similar language is not required.
(2) Held:
no effective transmutation.
Adoption agreement didn’t satisfy 852(a).
Issue was whether there was an express declaration of intent to transmute
in the writing. It was W’s intent,
and everyone knew it, but it wasn’t stated in the writing so the court didn’t
allow it. The only thing that W did
was waive her right as a beneficiary if H died.
It wasn’t a transmutation.
(a)
Rationale: Avoid accidental
transmutations of property and prevent litigation by making a clear and strong
expression what the strict requirements needed to transmute.
(b)
Refinances often create transmutations.
Ex. If a house is in separate property and you go to refinance, the
escrow people are going to add your spouse to the writing.
They want another person responsible for the loan.
This would be an accidental transmutation
(i)
Fiduciary Duty (see below).
To circumvent that, the court is now taking a look under the fiduciary
responsibilities. Cases: Haynes and
Delaney – Presumption of undue influence anytime there’s a transmutation. This
is a rebuttable presumption, but the person benefiting from the transmutation
must overcome this
(ii)
FLC §852(c) –
Exception to Writing Requirement.
852 alone would require a statement that “I intent to transmute” diamond
earrings for V-day. Realization
that Hs & Ws don’t actually act as business partners.
(1)
Gifts.
Writing section doesn’t apply to a
gift b/w spouses of clothing,
jewelry or other tangible items of a personal nature used solely or
principally used by the spouse to which the gift is made that is not
substantial in value taking into account the circumstances of the marriage.
(a)
What does this mean?
(i)
This could be a car, even.
(ii)
Some courts look at the circumstances of the parties, some look at the
item.
(b)
If the gift is from SP, it is a
regular gift. If the gift is from
CP, you deal with it as a transmutation
2.
Relation to Fiduciary Duties.
FLC §721 says that in any
transaction between themselves, H and W are governed by fiduciary
relationship rules. They have a
duty of the highest good faith. H
and W are fiduciaries to each other and cannot take unfair advantage with each
other. They have to proceed with
each other like business partners.
(a)
Presumption.
Any time there is a transmutation, there’s a rebuttable
presumption of undue influence.
The other person has the burden of proving benefit of transmutation –
evidence to overcome the presumption can come in any form (doesn’t have to be in
writing, etc.). The court wants
evidence that the spouse giving away benefit received something in return or
understood that they’re giving away rights.
(i)
Burden. Need clear and
convincing evidence (75%)
(ii)
2 prong test:
(1)
Did the person receive economic benefit from
the transmutation?
(2)
The party didn’t know they were transmuting
their property.
3.
Note on Transmutation. §852
transmutations turn SP into CP or CP into SP.
100% character of asset changed.
In every transmutation §2640 applies b/c it is SP into CP.
If asset transmuted is now worth 800k, automatically §2640 will allow me
to get my SP 300K contribution back.
Most transmutation problems are addressed by §852.
C.
Analysis of Transmutations. Any
transmutations of real property always involve 3 questions:
Buy SP
house-----transmute-------DOS
1980
1990
2000
1.
FLC §852.
Is there a transmutation? Is
there a transmutation under §852 [McDonald]?
2.
FLC §2640 problem—SP contribution into CP asset (see
below). Any time you have a
transmutation, you’ll probably will have a §2640 problem – these work hand-in
hand. If you’re transmuting from
separate to community, and if the asset has any equity in it, you’re making a
separate property contribution into community asset.
(a)
Example. If you have a house and you transmute, on date of transmutation,
there’s $100K equity in the house (equity = fmv – that owed).
On the date of transmutation, that $100K
becomes a §2640 claim. You’ve made
a separate property contribution (the equity) into a community property asset.
3.
CP contribution into SP asset.
From 1980 until the transmutation, if the community is making the
payments, there is a
IX.
SP contribution into CP asset—FLC
§2640.
Here it retains its character, it is CP with a portion of SP.
Need to first delineate whether it’s a separate property asset or
community property asset. If you
determine that it’s community, §2640 applies.
If it’s separate, then §2640 doesn’t apply.
A.
Issue. The question is
whether the separate property is going to be reimbursed, and if so, how much is
going to be reimbursed? This is
going to happen in almost every CP case you have.
1.
Example: H& W married, and W inherits 100,000 from grandma (this is her
SP). W uses that money to help buy
house for 300,000. H&W take the
house as joint tenancy with rights of survivorship.
Now house is worth 700K when the parties divorce.
(a)
Presumption of CP. When
property is taken in joint form, there is a presumption that CP, except when
writing to contrary.
So the house is CP, but it has a SP component to it. How do we
back the SP out?
At what level do we back the SP out?
B.
Applicable Law. Two sets of laws
depend on when transfer from SP to CP took place:
1.
Transfers before
(a)
Rule.
When you put SP funds into a “joint” (community) asset, you have
to have a writing to overcome the presumption that it is community.
Without a writing, it’s presumed to be a
gift to community and is not reimbursable.
[same as 2581 presumption]
(i)
Asset not in joint form. If
the asset didn’t have a joint form (no title i.e. a painting, etc.) then tracing
would apply and you get your money back.
(ii)
Application. This holding is
still in effect with regard to property acquired before 1984.
2.
Transfers on or after
(a)
Note: There wasn’t a family
law code until about 12 years ago, book refers to civil code.
(b)
Rule—FLC §2640.
SP contributions to the acquisition of property (down payments,
improvements, payments on
principal of the loan).
Without a written waiver of reimbursement, the party shall be reimbursed
for their SP contribution.
This applies to all assets.
(i)
Reimbursement.
If you make a separate property contribution into a
community asset, you get back dollar-for-dollar back off the top to the extent
that the separate property was for the
acquisition or improvement of the
community asset. No
subjectivity allowed in this analysis – just dollar-for-dollar off the top.
(1)
Example. W & H own a house.
They owe 90K. House worth
300K. W had 60K SP.
Offers 60K to wipe out 90K note.
Prof. argued that she reduced the principal 90K & saved community $.
No matter what you do, all you can get is dollar for dollar off the
top. So only 60K.
(2)
Assets that Decline in Value. This
section applies to all assets – even those that decline in value, like cars.
Dollar for dollar means off the balance of the asset.
Ex. You buy a 40K car, and
put in 20K SP. The car is now only
worth 15K. So you get 15K back as
SP. You lose 5K (you can’t trace it
into another asset), community gets nothing.
(3)
Note – Tracing. You can
trace the money into subsequent assets.
Ex. if you contribute $25K into house1, and then sell it and roll over
the money to house2, and then house3, you can trace the money into the
subsequent houses. You have to be
able to show that it is those dollars that went into the acquisition.
So if all money is rolled over, you can trace.
(If not all rolled over, perhaps you can’t trace.)
(4)
Improvements. 150K SP funds
for improvements but it only increased value 50K.
§2640 it doesn’t say that this
stops at the date of separation.
This is a hole in the law.
Fiduciary duty to the H.
(ii)
Not Reimbursed. You aren’t
getting back capital appreciation, interest, insurance, maintenance payments, or
taxation. “The amount reimbursed
shall be without interest or adjustment for change in monetary values and shall
not exceed the net value of the property at the time of the division.
Ex. for a 30 years fixed mortgage, for the beginning years most of the
mortgage is interest. So if you are
using your SP $ to pay beginning mortgage payments, you won’t get reimbursed.
X.
CP contribution into SP.
Here it retains its character, it is SP with a
portion as CP. So the purpose here is to back community contribution out of
separate property asset. If it’s
not a separate property asset, all the formulas do not apply.
There are no code sections for this part, so it is more difficult.
There are no code sections because there are so many types of SP that
it’s too diverse. It’s also
difficult because we’re not just dealing with dollars.
§852 and §2460 involve money, but this section doesn’t necessarily have
to involve money. Ex. you have law
practice, you get married, and you continue to work there during the marriage.
There’s a community contribution into a separate asset.
A.
Types of Assets Involved.
Each of these assets has a different formula because each as a different set of
values.
1.
Businesses (Periera & Van Kamp)
2.
Retirement (Brown & Gilmore)
3.
Stock options (Hugg & Nelson)
Just a variation on the Brown formula.
4.
Real Property (Moore/Marsden)
B.
Business.
SP business where there are community efforts.
If the practice is yours before marriage, it is SP.
But, efforts during marriage are CP.
Your spouse could also put their efforts into the practice and work
there; that is more community property.
Businesses don’t all fall in a generic form – there are many different
forms of businesses. [Beam
v. B of A. H gets inheritance and
builds hotels before marriage. H&W
get divorced. During marriage, the
hotels only go up in value 0.001%.
Court said that there was nothing left for the community because after they took
the reasonable rate of return, it was higher than the value of the hotels.
Under either approach, Ms. Beam gets nothing.]
1.
Two questions:
(a)
Is it a business?
(b)
What formula do you apply?
The court chooses the formula it believes is appropriate for the case.
There are 2 separate formulas to back out the community portion.
The court can vary from the formulas and come up with alternatives, but
they usually don’t vary from the formulas because they don’t want to be
overturned on appeal. These
formulas can result in dramatically different outcomes even with similar facts.
[Gilmore.
H owned car dealerships that increased in value from 182K to 786K because
of wartime. H&W divorced.
W wanted Court to use Periera analysis, but Court applied the Van Camp
analysis because the dealership didn’t go up in value because of H’s efforts,
but because of the post-war situation (after WWII) and the greater need/desire
for cars.]
(i)
Periera Analysis. Apply this
when there is a
labor-intensive business,
like a law firm, dentist, doctor’s office – where the business is earned off
your physical labor. This analysis
favors CP.
(1)
Step 1.
What is the fair market value of the business at the date of marriage?
(this can be difficult; use an expert, i.e. $100,000)
(2)
Step 2.
Assign to that value a reasonable rate of return for each year of
marriage. This is compounded
on an annual basis.
a.
Reasonable rate of return.
This rate changes so you have to look at the rate each year.
If counsel doesn’t provide the info regarding what the reasonable rate of
return is, then use the legal rate of return, which is 10%.
But the reasonable rate now is probably about 3% (the normal CD rate)
b.
Calculating
Separate Property Portion:
value at DOM
+
reasonable rate of return for first year (compound annually)
+
reasonable rate of return for 2nd year, and so on.
Balance is the SP portion (everything beyond this value is community)
Community Property Portion:
DOJ or DOS value – SP portion (from above) = CP portion (Divided equally - each
party gets ½ of what is left)
* Note: Majority of cases the court
uses the valuation at the date of separation rather than the date of trial
(valuation at the date of separation is for closely-held businesses, and most
businesses are closely-held)
c.
Favors the Community. Note:
most businesses do better than the rate of return, which is why
most of the time you end up favoring the community b/c business will grow at
8-10% while reasonable rate of return is about 2-3%.
(ii)
VanCamp Analysis. Apply this
when there is a
capital-intensive business –
one that makes money b/c of capital not because of your own efforts — like
Seau’s (he owns the restaurant but isn’t there everyday).
This favors separate property.
(1)
Step 1.
What is the reasonable value of the services rendered?
What would you have to pay someone to come in and do those
services? This is the CP portion.
Everything else is separate.
(2)
Step 2. Subtract funds
already received. You’re
going to have to subtract out what the community received out of the reasonable
value of your services. This
decreases the amount considerably.
(a)
Calculating VanCamp:
Community Property Portion
Reasonable value services per year.
-
Actual compensation/money received per year [taken out for CP*]
Balance is the CP portion, so ½ goes to each party.
Multiply this by the # of years of marriage.
Separate Property Portion
Value of Business at Separation (for closely held businesses)
-
Community share (from above)
Balance is the SP portion.
(b)
Note: if the H gets paid
more than the value of his services, this is considered a gift to the community.
2.
Valuation.
Before we can utilize the different approaches, we need to do valuation.
Determining the value of a business is done differently than accounting
procedures.
(a)
Generally.
(i)
Ignore Variations in Value.
CA ignores variation in value of business in between DOM and DOS.
Variances are only looked at when the business has gone bankrupt.
[Cord v. Neuhoff]
(ii)
FLC §2552.
A closely held biz is valued at DOS.
(b)
Basic Assets. These are the
basic assets we look at when dividing a business (1st 3 are simple).
(i)
Tangible & Intangible assets.
The tangible asset is the physical plant that you have.
In a law practice, this isn’t much i.e. copiers, furniture.
For intangible assets, examples would be intellectual property like
copyrights, patents, liquor licenses, etc.
(1)
Divide these according to their FMV—what you
could sell it for. We don’t
deal with depreciation (whereas an accountant would).
(ii)
Accounts receivable/payable.
How much money does the business owe & how much is the business owed?
(1)
Difficult from a practical standpoint.
You will need to examine every single file.
Ex. For a personal injury
attorney, you sign the client in 1998, settle in 2000, settlement issued in
2004. If you are married b/w
1998-2000 part of $ is CP, part SP.
You also have issues with contingency cases and when you have partners in the
firm.
a.
In re Marriage of Schnovel.
CP takes priority over any kind of privilege that exists.
(iii)
Goodwill.
CP requires that in every business there be a determination of goodwill.
Goodwill is a determination of how much money
(anticipated future business) you are going to bring in because of your
reputation and standing the community.
When you build the reputation while you are married, it is CP.
This is often difficult to quantify.
Goodwill will be the largest part of any business valuation.
Courts don’t have to find goodwill, but they have to at least
consider it.
Two types of goodwill:
(1)
Business goodwill. If it’s a
type of business that can be sold, then the problem won’t be so hard.
There’s an open market for the business and whatever the market is
willing to pay for it, then that’s its fair market value.
Ex. You can sell your McDonalds franchise & no one will know or care that
you are the owner.
a.
Use market value.
Market value tells you what it is worth.
Goodwill is how much the market value exceeds tangible, intangible &
accts receivable.
(2)
Professional goodwill. For this
business, it can’t go to a third party and find use the FMV because it’s a
personal biz and it’s not worth the same without the owner.
Ex. Bob’s law practice, people come because of the person.
Here it’s hard to assign a value to the fact that your reputation grew
during the marriage.
a.
Use excess capitalization method.
For professional goodwill.
[adopted by CA in In Re Marriage of Foster]
You can’t just look at market value b/c the person would be taken out of
the equation (if the business was sold).
1.
What would you pay a fungible person to
do your job?
If you went out to start a law practice right now, how would that
compare to a practice that’s been around for 25 years.
The attorney has practiced longer, so she’s making more money.
Ex. the difference between an experienced attorney’s practice at $250K
and a new attorney’s practice at $100K is $150K (explained by reputation in
community). The $150K is the excess
capitalization. The court usually
will look at last 36mos.
(a)
But, you can’t stop here b/c that is only the
difference for one year. But
your reputation is going to affect the future. Community
will share in years after DOS because reputation is due to time during marriage
and it’s going to grow.
2.
Multiplier.
Multiply excess cap. for the one year (here 225K) times a factor
(capitalization rate) that allows the community to be reimbursed for all of the
additional years that they will benefit for the time they were married.
(a)
Multipliers vary depending on your expert/community standards.
The cap. rates range from 2-10.
The key to excess capitalization is the cap. rate, and the hard part is
determining what it should be. Ex.
$150K is then multiplied by say 2 to get the total amount due.
(b)
Factors include:
(i)
Size of practice;
(ii)
Age of professional;
(iii)
Market conditions;
(iv)
anticipated future for the business;
(v)
length of the marriage.
b.
Two bites at the apple? You
give 250K b/c business is valued at 500K.
But your income will still be the basis for your spousal and child
support.
C.
Deferred Compensation and Retirement Programs.
SP Retirements with CP component.
Issue: How do you deal with the problem where there’s community and separate
property contributed to these programs – how do you back out the community
property?
1.
2 Types of Programs.
Both of these are “qualified” plans, meaning they’re tax
deductible now – taxes deferred until retirement (so the tax rate won’t be as
high and there will be a tax benefit).
They come out of your gross income off the top; you aren’t taxed until
you take out the money. Anything
contributed by the employer or the employee b/w the date of marriage and the
date of separation is community.
(a)
Defined
contribution plans. Ex.
401K, 403B, Employee stock option programs (ESOPs).
(i)
Arrangement in Employment K.
Employer and employee in some combination contribute each month to the plan;
some kind of arrangement specified in employment contract.
Usually the employer will match up to 5% of your income.
Ex. ER matches a dollar for
every dollar you put in.
(b)
Defined benefit
plans.
These are used by public employees, federal government, some large
corporations.
(i)
Promise to Pay. There was no
money contributed during the time of marriage – it was just a promise to pay.
The date of maturity is the date that you can get the money.
Issue: how do you divide the pension when it’s not going to mature and
it’s not going to be divisible until much later (like after the DOS)?
How do you know at the DOS what the pension is going to be worth much
later? This is payable for life, so
it’s a huge asset.
(1)
Examples. You work for an ER for
X years, when you reach a certain age, ER will pay EE based on a formula, for
the rest of the EE’s life. Say you
work for Prof. for 30 yrs. & when you reach age 60, I will pay you 50% of the
average last 3 years salary for life.
Or in the military if you stay in for 20 yrs. you get 50% of your base
pay.
(ii)
In Re Marriage of Brown.
H’s pension was close to vesting, but hadn’t at the time of separation.
(1)
Overruled French.
Before Brown, we were under the French rule that stated if a retirement
plan had not vested, then it couldn’t be community property.
Until vesting, there was nothing to divide because it was a mere
expectancy.
a.
Terms:
i.
Vested. When you can’t lose
it i.e. by getting fired or quitting.
When they can’t take it away from you.
ii.
Mature. When you
actually receive it.
(2)
Brown Rule.
Overrules French. French
doesn’t make sense under CA CP law which views you as “the community” while you
are married. Holding:
It doesn’t matter if the asset vested/matured, it can still be divided –
what matters is that community property went into it.
The pension is a property right or contractual obligation that the ER
can’t just take away from you; it’s not just a mere expectancy (like in
French)
(iii)
2 Ways to Divide Defined Benefit Programs:
(1)
Brown Timeline Rule.
Total number of months married
while employed
= CP%
Total number of months
employed
a.
120 =
50%
240
Thus, CP gets 1,000 of the 2,000/mo.
So, unemployed spouse
gets ½ of CP 1,000 ($500) and employed spouse gets $1,500.
b.
Denominator Uncertain. At
the time of trial you’ll know what the numerator is, but you won’t know what the
denominator is because you don’t know when they’re going to stop working.
So the court will just deal with the numerator.
c.
Note: Parties upset because they have to pay out even if they were
married for a very short time.
Parties view it as support, but it’s really a division of the assets.
Unlike support it doesn’t matter if the client gets remarried.
d.
CA Unique – Date of Maturity.
CA takes the pension as valued at the date of maturity. Most states take
what the value of the pension at the date of separation.
(2)
Alternative – Actuary. Hire
an actuary, who makes predictions based on your characteristics; life
expectancy, insurance premiums, etc.
a.
Short Marriages. Actuaries
work fine if the marriage is a short marriage.
But anything beyond a couple years, it’s unworkable because actuaries are
likely going to come up with a large amount – based on averages.
(iv)
In Re Marriage of Gillmore.
W entitled to $177.00 a month according to pension.
She was upset that he didn’t retire at the earliest opportunity.
The pension had matured, but he kept working.
W wanted him to start paying now.
It’s her property right and she’s being deprived of her share of it until
he unilaterally decides to retire.
(1)
Holding.
W has a unilateral right to get H to pay her her portion of the pension
anywhere between the date of maturity and actual retirement.
H can’t prevent W from getting her share.
This isn’t support; it is a division of the assets.
The money will have to come out of H’s pocket because the company hasn’t
paid him yet.
a.
Rationale: preventing W from
her share creates an unequal distribution of the assets.
H’s argument that this is forced retirement fails.
b.
CA Only.
We are the only state that has approached this issue.
Gillmore election is an invention of the CA
courts. But the federal
govt. does not recognize the Gillmore election.
Use the same formula above in
Brown. A majority of the states
divide the pension based on what the pension was worth between the DOM and DOS
(even if W was an assistant during marriage and became president after DOS – the
value of the pension used will be while W was an assistant).
CA doesn’t do it this way – you don’t get to be the president without
first being the assistant.
1.
In re Marriage of Gowan.
H&W married in 1957. H
worked at company from 1960-1974.
He quit and then got employment with the same company from 1989 to 1994.
DOS was 1979. H argued that
the second period of employment was unrelated to marriage because he got
additional experience. H had to pay
W ½ of his entire pension plan even though there was broken service.
The broken service is added together to make the denominator.
If the second period of employment was with another employer there would
be no case.
60-74
60-74 & 89-94
The problem
with this case is that it doesn’t work well with the rationale that you have to
work yourself up the chain and this is in part due to community efforts because
here the new employment wasn’t the result of the efforts made during the
employment, it was because of education and training achieved separately
(2)
Effect on Brown scenario.
This formula changes the Brown timeline formula.
The same numerator is used, but there’s a different denominator.
Total # of months
married while employed
=
CP%
Total # of months employed until the Gillmore election
(3)
Attorney decides what yields more.
a.
Gilmore Election – Higher CP%.
Every time you do a Gilmore election you’re going to get a higher
community property percentage. But
the thing is that the denominator at the election will be smaller than at
retirement. When you do a Gilmore
election, you’ll have a larger percentage of a smaller pie.
b.
Forego Election – Wait For Retirement.
If using the Gilmore election, you won’t get any of the growth of the
pension after you make the election.
A spouse might want to forgo a Gillmore election because he/she gets
locked into that value of the pension at that time, and loses any change in the
value of the retirement account after the election.
At retirement, you’ll have a smaller
percentage of a bigger pie, but this could be a larger amount than doing the
Gilmore election (which is a larger % of a smaller pie).
This will be a problem you have to consider – you won’t know how much the
pension is going to grow. Example:
DOE – 1980, DOM was 1990, DOS was 2000, Date of Maturity is 2010, and the actual
retirement was 2020. If W exercised
her Gilmore election at 2010 – she gets her share based on that date.
She will lose out on any growth between the date of maturity and the
actual retirement. She locks
herself into the size of the pension to the date she exercises the election.
(4)
Procedural aspects of Gillmore election.
a.
Don’t have to go to court; all spouse has
to do is write a certified letter requesting her share of the pension now.
b.
How to shift tax liability.
The federal govt. doesn’t recognize the Gillmore election.
But earner’s W-2 doesn’t reflect the fact that some of the retirement is
going to the spouse. You could try
to stipulate that it’s additional spousal support – it’s the only way to shift
that tax liability over to the other side.
You could attach the court order and schedule, but that would trigger an
audit.
c.
A person must knowingly waive their Gilmore
election. [In
Re Marriage of Crook].
2.
Length of the payments to spouse.
(a)
Terminable interest rule. When
employed spouse dies, the duty to pay ceases.
Federal govt. doesn’t like this.
This rule was banned.
(b)
New rule. Pensions run until
both persons are deceased.
(i)
Non-Employed Spouse. If
non-employed spouse predeceases, her share goes to her heirs.
(1)
Rationale: This is not support, it is division of a community asset.
(ii)
Employed Spouse. If the non-pension
earning spouse dies before the pension-earning spouse, it becomes part of the
spouse’s estate. If employed spouse
predeceases, surviving spouse gets payment until their death.
The pension continues to flow until both
parties are deceased.
(1)
ERISA
– any defined benefit plan pension offered must offer a survivor benefit
plan (S.B.P.) by law (which covers the unemployed spouse from the date of death
of EE spouse to the death of unemployed spouse) & BOTH parties must
waive. The premiums for the
survivor benefit come off the top [before the Gillmore].
These SBPs have a monthly premium (which varies) that will be taken out
of the retirement. You have 30 days
from the date of actual retirement to opt out of the survivor benefit plan.
If you don’t opt out the company is going to automatically put you in the
survivor benefit plan. You don’t
have to opt-into an SBP
(2)
Dividing Between Spouses. How do you divide the pension between multiple
spouses? ERISA does not require
company to pay to anyone EXCEPT the FIRST spouse. SBP goes to ex spouse only.
ERISA does NOT require SBP to be paid out to multiple ex spouses, so
subsequent ex spouses will have to sue the first ex spouse to get their share.
(3)
Very
Expensive. Only the govt. and major
corps offer S.B.P.s. because the premiums for survivor benefits are so high.
Think 20 yr. old wife.
3.
QDRO (Qualified Domestic Relations Order).
How do we protect a client for a retirement that is not going to take
place until far into the future?
Use a QDRO. 29 USC §1001 tells us
how to deal with defined benefit plans.
(a)
Tasks When Client Wants Divorce.
When a client comes into your office for a divorce there are certain
things you do automatically:
(i)
Terminate Any Joint Tenancies
(ii)
Notify Creditors. Notify all
creditors that the client isn’t going to be responsible for debts incurred by
the other spouse.
(iii)
Join the Pension Plan into the Dissolution Action.
(1)
Indispensable Party. You
must prove to court that party to be joined is an indispensable party
(2)
Per se Indispensable. This
is considered to be per se indispensable – so you don’t have to go through a
court hearing to do so, you just fill out a form, file it and serve it on the
pension plan. You don’t need the
court’s permission to join.
(3)
Restraining Order. Once
joined, there’s a restraining order from releasing funds from pension plans.
(iv)
Create Domestic Relations Order.
This is a family court order which defines how the pension plan is going
to be divided – Gilmore or Brown (at this point we won’t know what the
denominator is).
(1)
Inform the Company. We will
tell the company that when the person retires or when a Gilmore election is made
that the company will do the calculations – the pension plan is now under orders
from the court to do these calculations.
(2)
Order Gets Entered into as QDRO.
You will turn all of this into a QDRO – this means you have drafted a
special order on how the pension division is going to be handled.
Judge signs it and then you serve it on the employer and you are done.
When the spouse retires the unemployed spouse doesn’t have to do
anything, the company will do it all automatically – the company will do the
calculation, enter the unemployed spouse in an SBP and take the premiums off the
top.
(3)
One Year Limit. Have 1 year
after the date of family law judgment to enter QDRO
4.
(a)
Marriage of Poppe.
H retired from the Navy with a total of 5002 points; more than 3000
during active duty prior to marriage. The number of points accumulated during
marriage is 1632. Here, the amount
of H’s pension is NOT substantially related to the number of years he served in
the Naval Reserve. Thus the number
of years in service during marriage is NOT a fair gauge of the community
contribution; and the courts apportionment of the pension on the basis of the
number of “qualifying years” served as compared to the number of years of
service during marriage must be said to be unreasonable arbitrary and an abuse
of discretion.
(b)
Calculation. Under the time
rule, the community is allocated a fraction of the benefits:
Length of
service during marriage but before separation
x
Final plan benefit = CP interest
Total length
of service by the employee spouse.
(c)
Not-continuous Pension. Even
where an employee’s service is NOT continuous, a pension based upon the total
service years may be divided according to the time rule.
The time rule fairly accounts for both the marital and post
marital years of service because it assigns to the community only a portion of
the pension corresponding to the portion of service during marriage and before
separation. [Marriage
of Gowan. H was employed by ER and
earned around 30K a year. He then
divorced his W. H was hired again
by same ER, with a salary of over 100K. After he retired, both of employment
periods were added together for a total service credit of more than 18 years.
W filed a motion seeking enforcement of the pension division arguing that
because H’s pension benefit was based upon 18 years of service (14 during
marriage), 72.95 percent of the pension is CP, and she was entitled to ½ CP
(36.475 percent) of the pension.
The court is persuaded that the community contribution to James’s pension –
approximately 14 years – was crucial to its final value and to the amount
received by James]
(d)
Court’s Discretion. When a
trial court concludes that property contains both separate and community
interests, the court has very broad
discretion to fashion an apportionment of interests that is equitable under
the circumstances of the case. The disposition of marital property is within the
trial court's discretion, by whatever method or formula will achieve substantial
justice between the parties.
5.
Right to Reinstate Pension.
In a marital dissolution proceeding, a spouse is not entitled to share in the
right of the other spouse to reinstate his or her federal civil service
retirement benefits where such a pension asset not only was unvested, but is, in
fact, nonexistent, since its existence is subject to a condition precedent of
the spouse’s ability to reinstate withdrawn contributions.
(a)
Marriage of
(b)
Increase in Retirement Benefits Generated by Redeposit.
In a marital dissolution suit, a spouse has the right to elect to share
in the increase retirement benefits generated by the other spouse’s redeposit of
previously withdrawn retirement contributions upon payment of a prorata share of
the redeposit of the contributions previously withdrawn from the other spouse’s
retirement fund. [Marriage
of Lucero]
6.
Enhanced Pension Plans.
(a)
Lehman.
Company trying to get rid of people and offers H an enhanced pension plan
if he retires early. H does so.
W trying to benefit from H’s enhanced pension plan.
120 total # of months married while employed
Total # months employed
Enhancement
204
36
Making the denominator a total of 240 months
(b)
Held. The court considers
the enhancement as community property.
The problem here is that the enhancement is a fiction – H didn’t really
work for those extra 36 months. The
court doesn’t add the months on to the denominator.
But they’re going to take the total amount of the pension and split that.
7.
Residual retirement issues.
(a)
Disability.
Remember: disability is tax free.
(i)
Pure Disability. If there is no
vested pension involved (non-vested pension) and it’s pure disability, it’s the
disabled party’s separate property depending on whether it’s post-separation or
before separation. [In
re Marriage of Jones. H got all the
disability pay; none for wife.
Purpose of disability is to compensate for lost wages and for pain and
suffering. It’s critical in this
case that there was no vested pension; this is what distinguishes this case from
Steinquist.]
(1)
Post-separation. The payment
is separate property, not community property.
(2)
Before separation. The
payment is community.
(ii)
Vested Pension + Disability.
When you have a vested pension, you can’t unilaterally
extinguish the CP interest in it.
SP is only the amount disability benefits exceed
vested retirement benefits.
[Marriage of Stenquist.
Mr. S was in military, could have taken disability early on, 100% SP.
But he stayed for 20 yrs. and qualified for both longevity and disability
benefits. Disability gave 75% of
base pay, longevity would have given him 65% of base pay.
H argued that these payments were all his SP b/c it was disability, but
the court held that only 10% (the difference between the longevity benefits and
the disability benefits) is his SP, he has to share the 65 portion.]
(1)
Note: Stenquist I involved
military personnel, but this is no longer the rule for military (see below).
(iii)
Military personnel. USSC
reinterprets 10 USC 1408. Military
people do not subject themselves to CA law voluntarily.
For military personnel, they do not have to share their disability—all of
it is SP. [Stenquist II]
(b)
Severance pay.
Severance pay is not CP.
[Marriage of Wright.
H works in hospital, W and her father who works in the same hospital come
after him after H&W separate.
Hospital offers H severance pay of $24,208.
W argued that the severance pay was community because it was acquired
during marriage. If he hadn’t worked there during marriage, they wouldn’t have
given him the money].
(i)
Rationale. The rationale is
the same as disability. It isn’t to
pay you for past services, it is to compensate you for loss of future earnings.
(ii)
Court has the ability to look underneath.
So if the company frames as severance, but really retirement buy out,
court can decide not treat the payment as a severance.
This is the like Downer v. Dramai.
D.
Stock options.
This is an alternative option to retirement plans that smaller
corporations are turning to because defined benefit plans are too expense for
anyone other than government agencies.
1.
How Stock Options Work.
(a)
Date of Granting. This is
the date at which the company grants stock options to the EE.
They do this on a yearly basis.
(b)
Date of Exercisability/Vesting.
This is the date that you can actually go and buy the stock.
This is usually 2-3 years out after you’ve been employed with the
company.
(c)
Example. Company grants you
10,000 shares at $1 a share in 2000, and you can exercise it in 2002.
If the stock is worth $10 when you sell the stock, then you’ll make
$90,000. If you don’t exercise the
option, you’ll lose it. You can
only exercise it if you’re still employed at that date – incentive to stay with
the company (golden handcuffs). You
only make money if the company makes money.
(d)
Issues. Through the DOM and
DOS, you’re going to have exercisability all the way through.
How do you determine which portion is community and which is separate?
Before or after the marriage, it’s no problem.
But what if the granting is during marriage, but the exercising is after
the marriage?
2.
Separating CP and SP From Stock Options.
There are two different approaches.
To determine which formula you use, you have to
look at the reasons why the stock option was granted – as an inducement to come,
or as a reward for work you’ve done once you’ve arrived.
You have to do the analysis for every year.
Each stock option is going to have a different granting and
exercisability date. You have to do
an analysis of each stock option that’s granted.
Ex. if you have 1000 stock option and 80% of them are community, next
year granted another 1000 stock option, then 60% are community.
Options granted later will prove to have smaller community %.
(a)
Hugg Formula.
If you were hired with the stock option as an incentive to come and work
for the ER, then your efforts that played into it were accomplished
beforehand/elsewhere, so the Hugg Formula would be used.
Using this formula would result in a
higher community property percentage than Nelson.
[Marriage of
Hugg.
Hug was given the stock option immediately – given the
option for pre-employment efforts]
(i)
Formula:
Date of employment to DOS
= CP%
Date of employment to date of exercisability
Example.
70 – 90
= 80% CP
70 – 95
(ii)
Same as Brown. The Hug
formula is the same as the Brown formula – pro rata share of what was earned
during marriage over the pro rata share of the whole value of the pension.
(iii)
When option is exercised.
Exercisability/vesting date is the first day you can exercise the option; there
is usually a vesting period of 3-4 years where you can exercise.
You must pro-rate the option in that
case.
(1)
Unilateral action. Employee has a
fiduciary duty until the asset is divided; you must act in concert with the
other party to decide when to sell.
(2)
Quit
prior to the date of vesting. There
is no harm, you can do this. But
usually people aren’t dumb enough to forfeit their part.
(b)
Nelson Formula.
This is a similar formula, but Nelson starts at date of granting which
can be significantly different later than the date of employment.
This formula would be used where a person was granted the stock option
because of the work they did while they were employed.
Rationale was that the options in that case were not designed to attract
new employees or reward past services, they were only to reward future
productivity. This formula is less
favorable to the community. [Marriage
of Nelson]
(i)
Formula:
Date of granting to DOS
Date of granting to date of exercisability
Example:
80 – 90
= 66.7% CP
80 – 95
E.
Real
property.
1.
Moore/Marsden Formula.
This formula only applies if the property is separate
with a community property contribution into it.
If the asset is community, don’t do the formula.
So you have to first determine if the asset is community or separate.
[Marriage of
(a)
Extension of Moore/Marsden. Moore
and Marsden has been extended to virtually all real property (not just
residential property).
(i)
Rental property. [Higgenbaum]
(ii)
Improvements to SP. [Bono
v.
(iii)
Note – Refinancing. [Walrath]
If the house is refinanced and money is pulled out and used for CP
purposes (this increases the principal), we’re going to ignore it for the MM
share, and reduce the community share if possible.
(b)
No
Equitable Remedy. The MM formula is
the sole and exclusive remedy in determining the community portion of the
separate property. There isn’t an
equitable remedy. Ex.
If there’s truly negative rental property and it’s losing value, that
loss isn’t reimbursable to the community.
If there’s no capital appreciation, there’s no
MM formula.
(i)
Only for Increases in Property Value.
This whole formula is predicated on the premise that property values go
up in value. This formula doesn’t
compensate for those periods where we go through a recession and the property
values go down. If the value
doesn’t go up, the equation doesn’t work because there’s no capital appreciation
to multiply the separate property and community property values by.
If the property value goes down, the contribution is zero.
(c)
Principal Reduction Only.
The biggest point in this
(i)
Ignores interest. We’re not
going to back out insurance, property taxes, etc.
Interest and taxes cannot be included in calculating the CP contribution.
Court is trying to give a pro rata share of the capital appreciation.
Appreciation is not a result of individual efforts, it is b/c of the market.
(ii)
Results Depend on Where you are in the Loan.
When you’re paying back a loan, every month the principal goes up a
little bit and the interest goes down a bit.
If you married someone in the first 10 years, the
(1)
Example: In a 30 year fixed loan (where monthly payment remains the same
over that period of time). If your
payment is $1000 a month, the principal reduction is $30-40 (virtually nothing).
As the years progress, the number will reverse and there will be about
$900 principal and $100 interest.
It’s the same 1000/month you’re paying, but the principal reduction drastically
changes from the beginning to the end.
(d)
Calculation:
Principle/Purchase price – what CP paid down
= SP%
Principle/Purchase price
100% - SP% =
CP%
SP% x
capital appreciation + SP
contributions/pay down =
SP
(SP gets any mortgage balance)
CP% x
capital appreciation + CP
contributions/pay down =
CP
(Remember CP must be divided in half)
Check your work: SP + CP +
Still owed =
FMV
Example:
Purchase price = $200,000
Current Value = $600,000
Capital Appreciation = $400,000 (current purchase price)
SP pay down = $60,000
CP pay down = $40,000
Balance owed = $100,000
Principle Price –
Community Pay Down
$200,000 - $40,000 = $160,000
$160,000 =
80% SP
So
CP = 20%
$200,000
Separate share of capital appreciation = 80% x $400,000 = $320,000
$320,000 + $60,000 (SP pay down) =
$380,000
Community share of capital appreciation = 20% x $400,000 = $80,000
$80,000 + $40,000 (CP pay down) =
$120,000
Check work = 380,000 + 120,000 + $100,000 = $600,000
(e)
Marsden Modification.
In
(i)
How do you value the house at the DOM?
Use comparable statistics that have some validity, but they aren’t
entirely valid (because it’s not a description of your particular house).
They’re the best we can do.
(f)
Example. Say there’s: DOM,
transmutation, and then DOS.
(i)
Between the DOM and Transmutation, you would do a MM calculation.
Say at transmutation there’s equity of $200,000 in the house.
Both parties would be entitled to their SP and CP contributions to that
house. You’d have to back out the
CP contribution to the SP.
(ii)
Between the Transmutation and the DOS, you would do an equal division
(50/50) of the value. If at DOS the
house is worth $600K, you would back out the $200K equity and there would be a
balance of $400K. Of that amount,
$200K would be CP, and $200K would be separate.
XI.
Credits.
There are 2 credits that CA Community Property
sets up. These accumulate between
the date of separation and the date of trial.
These credits can work together – they don’t have to be separate.
A.
Epstein Credit.
When a community debt exists at the date of separation, and one party
pays on that debt between the date of separation and the date of trial, then
that party is entitled to reimbursement of 50% of all they paid.
They’re only entitled to half because they owed half of that debt.
1.
Exception: if you are utilizing the asset that the debt is on, then
you’re not entitled to the Epstein credit.
(a)
Unfair Situation. A time
when this isn’t fair is if you choose to stay in the house, but the other party
pays for the house payments. That’s
when the other party is entitled to the credit.
But they only get 50% of the payment.
This doesn’t seem fair, but the credit only allows 50% because it’s a
community debt.
2.
Codified in Statute. This
credit is codified in statute, so it as more weight than the Watts Credit.
3.
Different from §2640. This
is not the same as §2640 (where you only get back principal reduction from DOM
to DOS). Here you get 50% of all
you pay, including interest. Most
divorces take 3-4 years to do, so this is a substantial amount of money for the
credit.
This credit has more
weight because it’s codified in statute, so it takes the power away from the
court
B.
1.
Case Law. This credit is
from case law, and isn’t codified in statute like the Epstein credit.
2.
Example. Say there’s a DOS
and H remains in house until DOT.
The house has FMV of $5K a month (that’s what you could rent it for).
But H&W bought the house 20 years ago.
The costs run about $2K/month, so there’s a profit of $3K.
Because H chose to stay in the house, H is costing the community $3K a
month. It’s a usage credit because
H is using the house.
XII.
Exceptions to the Equal Division Rule.
Subject matter jurisdiction can’t be waived, so the court can’t get away
from the equal division rule, unless there’s a statute by legislature that
allows them to do so. The
Legislature provided two exceptions to the equal division rule.
Note: you can also K around
the equal division rule.
A.
FLC §2641.
Educational Degrees and Training.
These are exempt from being treated as CP asset.
Educational degrees are simply not community, even if acquired during
marriage.
1.
Reimbursement to Spouse.
There are 2 potential and exclusive remedies for the spouse who didn’t obtain
the degree:
(a)
Sullivan Credits.
[In re Marriage of Sullivan – P argued that she
should be compensated for her economic sacrifices which enabled her H to obtain
a medical education. Court said she
is entitled to compensation for her contribution upon the dissolution of
marriage.] §2641 came down
while this case was on appeal. If
the community spent money obtaining that education degree, the community is
entitled to reimbursement. But now
these reimbursements are virtually negligible today.
So basically the only reimbursement you will ever see is the SP
delegation of student loans.
(i)
Expenses Spent on Education.
What we mean by expenses spent on attaining the education is restricted to books
and tuition. The community isn’t
entitled to reimbursement for other things.
The spouse was going to incur the other expenses (ex. food, shelter,
etc.) regardless of whether he/she was going to school or not.
(1)
Student Loans – FLC §2641(b)(2).
Any student loans that are incurred for tuition and books, that are still
owing at the date of separation, become the separate property of the student.
To the extent that it went towards house payments, car, etc. it is
community debt.
(ii)
Enhances Earning Capacity – FLC §2641(b)(1).
To seek community reimbursement for expenses spent on the education, it
has to be education that substantially enhances the earning capacity of the
party.
(b)
Reducing or Modifying Reimbursement.
(i)
Presumption of 10 Year SOL – FLC §2641(c)(1).
If the community contribution to obtaining the education took place over
10 years ago, it is presumed that the community has already benefited from the
education and the community isn’t entitled to reimbursement.
Payments made within that 10 years, you can get reimbursed for.
Anything outside of those 10 years, is not reimbursable.
(ii)
Education or Training – FLC §2641(c)(2).
The education received by the party is offset by the education or
training received by the other party for which community contributions have been
made.
(iii)
Gainful Employment – FLC §2641(c)(3).
The education or training enables the party receiving the education or
training to engage in gainful employment that substantially reduces the need of
the party for support that would otherwise be required.
(c)
Spousal Support (equivalent to
“alimony”) – FLC §4320.
While the reimbursement is the primary avenue you have, nothing prevents
the court from using spousal support to help the party that didn’t obtain the
degree. The court can take the
educational degree into consideration when determining spousal support, but only
to the extent to which the earning capacity of each party is sufficient to
maintain the standard of living established during the marriage.
It’s violative of public policy for courts to give spousal support in a
way that would give you a higher standard of living than while married – you
can’t benefit from dissolution.
(i)
Lifestyle as One Factor. Before,
courts would look at lifestyle as one of the §4320 factors in determining
spousal support. They could look to
the anticipated lifestyle in determining the amount.
In re Marriage of Watt.
H&W married for 9 ½ years and H was a full-time student for the entire
time. He was making $14K and had
loans. W contributed $66K.
H&W got divorced. This court
says that while W didn’t give money to tuition or books, she contributed to the
attainment of the degree. They
deliberately maintained a lower level lifestyle during the marriage so she could
be compensated for it. Lifestyle
was one of the §4320 factors that the court had to consider.
Court said you should look to an anticipated lifestyle when determining
spousal support. They give W the
amount of money to achieve the lifestyle they anticipate achieving after
graduating from school
(1)
Legislature’s Response – Standard of Living as Overriding Factor.
Legislature amended §4320, to make the standard of living established during the
marriage an overreaching reference point in which the court assessed the other
spousal support factors.
They made “lifestyle” the overriding factor, not just
one of the factors. Now spousal
support cannot be higher than the amount necessary to return you to the
lifestyle you enjoyed during marriage.
(ii)
Example [Green]:
H goes to dental school, divorces after school done making 100K yr by
trial, W made 35K at time of sep 38K time of trial.
W wants spousal support.
However, she can only get the amount that would return her to the previous
standard of living. Her standard of
living at the time of trial was higher than at the time of separation b/c she is
making more money and also b/c doesn’t have to support H anymore.
So ct can’t give spousal support.
W tried to argue anticipated standard of living, but the code says
standard of living during marriage.
B.
FLC §2603—Personal Injury Awards/Damages.
What matters is when the injury took place, not when the money
received on judgment made. It is
presumed that all the damages from the personal injury will go to the injured
spouse. But this presumption can be
overcome.
1.
§2603 says:
(a)
Damages given to person who suffered injury unless
(i)
Court determines that the interest of justice requires another disposition.
(1)
Then
it can be assigned to the parties as the court deems just.
(2)
But
the injured party must receive at least half of the damages.
a.
Court’s Discretion. Courts
have discretion to determine the equitable result.
Note that giving the court such discretion is very unusual in family law
because it leads to more litigation.
b.
Factors. Court takes into
account the economic condition and needs of each party, the time that has
elapsed since the recovery of the damages or the accrual of the cause of action,
and all other facts of the case.
c.
Example. So in situations
where the W stays home and quits job to take care of the injured spouse, the ct
can give half to the W.
(b)
CP
injury damages means that all money or property received even if part of the
damages was for loss of consortium, it is part of the community estate damages
under 2603.
XIII.
Tracing.
What happens when people co-mingle funds?
i.e. bring $ into the marriage – open up checking & go and buy something
during marriage. When property is
acquired between DOM and DOS, how is the separate property going to be traced
back?
A.
Presumption of Community Property – FLC
§760.
If acquired between DOM and DOS, asset presumed to be community
1.
Overcoming the presumption.
The burden is on the party trying to prove the asset is SP.
The party would need to trace the asset back to separate property, so you
would need to show records proving the tracing.
If you don’t overcome the presumption, it’s community.
(a)
Records Destroyed. The court
is more lenient to you if somehow your records were destroyed without any of
your doing (ex. spouse deliberately destroys records).
B.
2 Times You Use Tracing.
1.
Asset is in your name OR asset is without certificate of title
2.
FLC §2581 problem where the property is
held in joint form between the parties
C.
Different Methods of Tracing
1.
Family Expense Method.
Based on presumption that family expenses are
paid from community funds – or in other words, CP income pays for CP expenses.
At the date of purchase of the SP all CP income in the account has been
exhausted by family expenses, then all the funds remaining are necessarily SP.
Commingling of money doesn’t in and of itself transmute money.
You don’t change the nature of the status of the property.
(a)
Calculation. Add up the CP
put in and minus the CP expenses to figure out what is left – that’s SP.
(i)
Date of Acquisition.
We have to do the calculation at the date of
acquisition, not at date of dissolution.
[In Re Marriage of See.
H&W married for 21 yrs., makes deposits from SP account “the security
account” into “Account 3” which contains salary and pays CP expenses- they
bought stocks & real property during the marriage.
H wanted to look at all of the money at the end of the marriage.
The presumption is that normal living expenses are paid first from CP
earnings. This court disagreed and
said the analysis must be done at the date of acquisition, not at the end of the
marriage.]
(ii)
Example. Say we put in $20K
CP in a joint account.
$15K SP
$5K CP
$5K SP
$15K Medical expense
$10K Vacation expense
$15K investment in equities
CP put in $25K ($20K and $5K), and the expenses were also $25K (med and vacation
expenses). So everything else left
in the account is separate property.
The client could prove that the $15K equity/stocks were from separate
property.
2.
Direct Tracing Method.
Under the direct tracing method (which is much simpler), you can
commingle money and trace it back directly, not using the family expense method.
If you can show that separate property went into
the account and came out in a short period of time (usually 30 days), and the
money that came out corresponded with the money that went in, then it’s separate
property (it’s going to have to be a close/similar amount).
Ex. you have $50K and put it in joint account and then purchase an asset
for 50K.
(a)
Need Accurate Records. The
party trying to prove the asset is separate property has the burden of doing so.
You generally need to keep accurate records, but the court may be lenient
with you and allow you to use testimony.
[In Re Marriage of Mix.
W was a lawyer and was married to a bum.
When she wanted to buy something, she would put money into the account
and then purchase it. She didn’t
have adequate records to prove it.
Court said that her paperwork was insufficient but that since she went up and
testified that her schedule she created was correct, it was ok.
This case is absurd – court was lenient
because she was a lawyer.]
XIV.
Debts.
When you look at the
definition of CP, it is all things acquired from DOM to DOS.
This includes debt. Without
a DOS, you are going to continue to get debts.
[FLC §910]
A.
2 exceptions to the equal division rule:
1.
Truly negative estate –
FLC §2622(b).
When you have a truly negative estate (debts outweigh the assets), the
court has the discretion to award that debt to whomever equity demands.
The factor the court should consider: who is most able to pay it.
Even with debt that’s accumulated behind your back, if you’re able to pay
for it, you would be responsible for it.
This doesn’t make sense, but it’s a creditor statute designed to protect
creditors (who have a lot of influence in the legislature).
(a)
Example. Debts =500k
Assets=300K
Negative estate in amt.
of 200K. Up to the $300K of assets,
we have to divide that equally. For
the $200K negative value, the court doesn’t have to divide this equally.
Code section says ct. should award the debt to the person most
able to pay.
2.
Constitutional protection.
Even though family law court awards the debt to one party, that doesn’t
prevent the 3rd party creditor from seeking relief from both.
It’s unconstitutional for the court to make an order that would divest a
creditor of their rights. Ex.
There’s $10K in assets and $10K in debts, thereby equally it to 0, so the
other side gets 0. The creditor
still has right to go after either spouse to satisfy their debt.
If a party refuses to pay, the creditor can go after either party
(a)
Problem: H could say that he will
agree to take the debts, if W will waive spousal support.
After W agrees, H could then file for bankruptcy or just fail to pay.
Then the W would still be responsible for the debt and the creditor can
go after her.
(i)
Bankruptcy is a federal right.
Often one side takes all the debts, then files for bankruptcy – the other party
can’t file for bankruptcy. When you
are a stockbroker, etc. you can’t file bankruptcy; you can’t have a security
clearance in military, or you are in a business that needs cash flow.
(ii)
In practice: if there is any way to
pay off the debts, it should be done.
B.
Three different time frames when debt can occur:
Look at 3 different time rules and take debts as they come.
1.
Before marriage.
When you marry someone, you marry their debts.
(a)
FLC §910.
The community is liable for debts incurred
before or during marriage.
The community is also liable for SP debts.
(i)
Exception – FLC §911(a).
The community estate is responsible for separate property debts.
However, as long as the non-debting spouse takes their SP earnings and
keeps them in an account which the other person is not authorized to withdraw
from, they can prevent those funds from being taken by the creditor.
But as soon as they take their earnings and they put it into any sort of
asset that’s held jointly between the parties, then that asset becomes fair game
for the creditors to come after them.
(b)
Balance of Debt at DOS. The
community becomes responsible for SP debt at DOM through DOS.
Any balance of that debt at the DOS, it reverts back to separate
property.
(c)
Limited Reimbursement – FLC §920.
The community is entitled to limited reimbursements at time of divorce,
if separate property is used to pay separate debts (regardless of whether the
it’s done voluntarily or involuntarily and regardless of whether the debt to
which the funds are applied is satisfied in whole or in part).
The right is subject to an express written waiver of the right by the
spouse in whose favor the right arises.
The measure of reimbursement is the value of the property or interest in
property at the time the right arises.
(i)
FLC §920(c)(1) – You have 3 years from
the time the last payment on the debt was made, to seek reimbursement.
The 3 year SOL is not tolled by the fact that the marriage is continuing
to proceed. You’re not likely to
sue your spouse during marriage, so it’s rare for the community to get
reimbursed whatsoever for separate property debts being paid.
(1)
Example. H brought a car during
the marriage and still has to pay for that car for 3 years.
After it’s paid off you’re married for another 3 years.
W would lose right to reimbursement if she didn’t sue by that time (while
they were still married).
(2)
Note – Educational Debts. In
§2641we’re talking about education debts incurred during marriage.
If you have a student loan created before marriage, you deal with it in
the same way as other debts. The 3
yr. SOL doesn’t apply there. But if
student loans were created before the DOM, then the 3 year SOL applies.
(d)
Limited Reimbursement for Child or Spousal Support.
The community’s right of reimbursement is even more limited for CP funds
paid for child support. There’s not
only a 3 year SOL, but there’s additional language that makes reimbursement
almost impossible.
(i)
FLC §915(b) – When the community pays
for separate property child or spousal
support, the only time that there’s a community reimbursement
entitlement, is if at the time the payment is made,
there’s separate property income in an
amount sufficient to have paid that debt.
Separate property income during marriage is an oxymoron – it’s virtually
non-existent. Few people have SP
earnings during marriage.
(1)
Examples of Separate Property Income During Marriage: Income from an
asset you held separately before marriage – like a pension plan or trust fund,
rental property from before that produced income, portfolio that produced
dividends, etc.
a.
Income vs. Asset. It needs
to be income, not an asset. Ex. If
I inherit 100 million, that’s an asset, but interest from that amount in bank
account is income.
b.
Sufficient Amount. But that
separate property income still needs to be a large enough amount to have paid
the debt (for the person that owes the child support).
2.
During marriage.
These debts are presumed to be community and should be shared equally
between the parties. There are
3 recognized exemptions
where you can overcome the presumption that the debt is CP.
Only one is codified. There
could be other ways that you could come up with.
(a)
Debts created in anticipation of dissolution.
You look at the proximity of the debt to the date of separation.
The closer it is to DOS, the better chance you have to overcome the
presumption. This used to be
obvious: did they borrow 10K before filing; usually took place in short period
of time before dissolution. Now
people start borrowing the money 2-3 yrs. before separation and stash it away.
(i)
Problem: non-debtors burden of showing it was created in anticipation of
dissolution.
(b)
When a debt is created not for the
benefit of the community it is SP debt of the person incurring the debt
[FLC §2625].
(i)
Benefit of Third Party. What is for
the benefit of the community? We’re
talking about a situation where a debt is created for the benefit of a 3rd
party (ex. paramour, or even paying for sister’s tuition).
It’s an easier situation when dealing with a paramour, but it’s more
difficult when it’s involving a sick relative or friend.
This isn’t what the statute is about, but it applies.
This doesn’t apply if H plays blackjack etc. this remains a CP debt.
(ii)
Without Spouse’s Knowledge.
The debt created has to be without the spouse’s knowledge.
If spouse knows about it, then the exception doesn’t apply.
(1)
Objection from Spouse. If you
knew about it, but objected to it, the court will see if the spouse who spent
the money had control/management of the money and therefore breached their
fiduciary duty to you, then the presumption can be overcome.
But if the objecting spouse had the control/management of the money, then
the presumption isn’t overcome.
(iii)
Children. If the money is
for a child from this marriage, it’s for the benefit of the community and the
presumption will not be overcome.
But if it s a child from another marriage, the court will look at it harder and
will be more likely to overcome the presumption
(c)
Debts created as a result of an
intentional wrongful act.
The court can determine that this is SP debt of person incurring.
If it’s merely negligence, then the debt
is community. It only includes
unlawful acts – not just moral wrongs.
The exception has been found in criminal and civil cases.
If there’s no conviction in the case, you could still try to prove it to
the family law court for family law purposes.
Ex. This happens a lot with DUI cases.
DUIs are an intentional wrongful act.
(i)
Example: Mayor’s H criminally
prosecuted for embezzlement, and needed to take out home equity line to pay for
criminal defense lawyer. H was
convicted and H&W divorced. W
argued she wasn’t responsible for that debt.
H tried to argue that W benefited from embezzlement in their lifestyle.
Ct said that it was an intentionally wrongful act, and since H was
criminally convicted, it was his sole and separate debt.
(ii)
Wide discretion as to what is intentionally wrongful
act. Example:
H thinks unconst. to tax, doesn’t pay taxes for 3 yrs.
Interest & penalties, atty fees 92K bill.
Held: the man didn’t do
anything intentionally wrong.
(1)
courts can interpret this any way they want.
3.
After marriage [DOS-DOJ].
(a)
Debts created for the necessities of life.
[FLC §914]
Court can find this to be a CP debt,
even though created post-separation.
It applies whether the spouses are living together or not.
This is scary because the average divorce takes years.
This potentially extends liability all the way to DOJ – this could be a
long time for people, especially if they don’t decide to have a divorce for
awhile. Often parties will never
get to DOJ because they think that by living separate and apart, they have
relieved themselves of liability.
(i)
What are necessities of life?
Could be shelter, food, clothing.
BUT courts have never stretched it that far.
(1)
Published cases. Only refer to
medical care. We’re talking about
medical coverage, medical care that has been extended to an individual between
the DOS and DOJ.
XV.
Fiduciary
Responsibility.
A.
Up until 1975, under FLC 803, the man had dominion and control over all the
community assets. Married woman’s
presumption. If held in woman’s
name, it was W’s SP even if purchased with community assets.
H decided how to spend CP assets.
B.
On or after
1.
FLC §721.
Under CA law, this code established that H and W are fiduciaries to each
other. The parties occupying
confidential relationships to each other imposes a duty of the highest good
faith and fair dealing. No one
should take an unfair advantage of each other.
You have the same (fiduciary) duties with your spouse as you would with a
business partner. Example:
day trader, you lose 400K.
(a)
Three sections that deal with fiduciary duty:
(i)
FLC §1100—Personal Property.
You don’t need your spouse’s permission to
sell/transfer personal property (not a breach of fiduciary duty) if you get
FMV.
If it’s a gift or you don’t get FMV, you need the written consent of the
other party – unless the gift is mutually given by both spouses or one spouse to
other.
(1)
Personal Property Used in the Family Dwelling.
A spouse may not sell, convey or encumber community personal property
used in the family dwelling, or the furniture, furnishings, or fittings of the
home, or the clothing or wearing apparel of the other spouse or minor children
which is CP without the written consent of the other party – FMV doesn’t matter.
(2)
Marriage of
a.
Compare – Marriage of Beltran.
H had a military retirement.
After the DOS, he committed some criminal acts which resulted in him losing his
vested property pension right.
Court held that that was a breach of the FD and that the intentional wrongful
act (lewd conduct on a minor child) cost the community asset of the pension.
So consequently, that was a breach of FD.
They valued the pension and awarded W ½ of the difference.
(ii)
FLC §1101—Remedies in a Breach of FD.
Even if someone breaches fiduciary
responsibilities, the only remedy is to divide the undisclosed or transferred
asset 50/50 (+ atty fees & ct costs).
The value of the asset shall be determined to be its highest value
at the date of the breach of the FD, the date of the sale or disposition of the
asset, or the date of the award by the court.
(1)
FLC §1101(h).
If there was any fraud, malice, or oppression
(within definition in Civil Code §3294) in the breach of FD, then the court must
award at least 100% of the missed asset to the non offending spouse.
a.
Presumption. If you omit
information from declaration of disclosure, there is a presumption of fraud.
i.
Example. W didn’t disclose
millions of dollars that she won in the lottery.
H saw her picture in the newspaper.
The court found that she had failed to disclose it through fraud, so they
ordered that H receive the entire lottery winnings
(iii)
FLC §1102—Real Property.
Written consent from both parties is required
when we’re going to transfer/dispose of community real property.
If you find out the spouse has divested real property, you have one year
from the date that the document was filed at the recorder’s office, to have that
transaction set aside by the court.
(1)
Note:
this doesn’t affect the party’s ability to encumber their interest in
community real property to pay attorney’s fees or maintain counsel.
(2)
Creditors’ Rights. When lien is set
aside, this does not alter creditors’ right to look to community assets to
satisfy their judgments.
a.
Lenzine v. Security Pacific.
H forges W’s signature and borrows money against the property for items
not for community benefit. H gives
the bank security interest in the house and he gets $200K.
§1102 set aside is granted.
Setting aside the security lien on the house doesn’t prevent the creditor from
going after the debt – H still has the money.
The exceptions to the debt presumption only go between the H & W, but it
doesn’t apply to the 3rd party creditor.
W can sue H, but that doesn’t preclude the creditor from suing the W.
The problem is that W couldn’t find him.
2.
FLC §2102.
§721 only talked about duties owned from DOM to DOS.
§2102 extended it from DOS-DOJ, until the distribution of the assets,
whenever that may be.
Fiduciary duty exceeds DOS & lasts until DOJ.
You have to look at the fiduciary breach from DOM to DOS, and then
from DOS to DOJ.
3.
Declaration of Disclosure Act – FLC §2104 and
§2105. You have to issue
declarations of disclosure (DOD) to the other side affirmatively.
You are required to sign under penalty of perjury.
(a)
Must
affirmatively disclose. Include
all info re: earnings, investment opportunities, information concerning
assets & debts. Example.
Somps v. Somps.
During the marriage, H was given the opportunity to invest his money into
a piece of development property. H
chose to utilize SP funds instead of CP funds.
He was able to trace it back and show that it was separate property.
But §2102 says that you must disclose all investment opportunities to the
community. The court said H didn’t
breach his FD – H was just exercising his right to invest.
Prof. disagrees with this case.
(i)
Requirements: Each party shall serve on the other party, a preliminary DOD [FLC
§2104] and a final DOD [FLC §2105],
unless service of the final DOD is waived.
Proof of service needs to be filed with the court.
(1)
In writing. If you don’t
disclose it in writing, you’re considered to have not disclosed the asset.
(2)
Preliminary DOD. This needs
to be served to the other party after or concurrently with the petition for
dissolution or nullity of marriage or legal separation.
a.
Inclusions. This DOD shall
set for with sufficient particularity,
all assets and all liabilities – regardless of whether it is community,
quasi-community or separate. The
D’s percentage of ownership in each asset and liability needs to be declared.
b.
Amendments. Declarant can
amend this without leave of court.
c.
Completed Income and Expense Declaration.
Along with the preliminary DOD, each party needs to provide the other
party with a completed income and expense declaration unless it has already been
provided and is current and valid.
(3)
Final DOD. This needs to be
served at or about the time of judgment, and needs to include a current income
and expense declaration
a.
Inclusions: all assets and liabilities, valuation of all CP assets,
amounts of CP debts, and info regarding earnings and expenses (income and
expense declaration)
b.
Waiver. The parties can have
a mutual waiver to the filing of final DODs if they have complied with the
preliminary DODs, if the waiver if knowingly, intelligently and voluntarily
entered into, and if both parties understand that the court still has the
jurisdiction to review compliance and possibly set aside the judgment if
disclosure is improper.
(4)
Material Change. You need to do a
declaration anytime in-between when there’s a material change in assets or
liabilities.
(ii)
All info. All information will have
to be disclosed (even info you got in preparation for trial).
So any appraiser’s finding regarding value will have to be disclosed to
the other side.
(1)
Example. Say you have a law
practice and you know you have to give your spouse ½ of that practice.
Then you call someone to appraise the property.
You get someone that is an idiot who says that it’s worth $4 million.
Then you get someone else to do it and they come up with another number.
You can’t just throw away the first appraisal.
The duty requires you to expose the information.
(iii)
Court’s Jurisdiction. Court
retains jurisdiction indefinitely over the divorce and can go back 10, 20, etc.
years from now and find that you failed affirmatively to disclose all the facts
that you knew, in a dissolution case.
4.
Fiduciary responsibility hypo.
(parties separated, W remains in house, W buys rental property, gets home loan
for 136K against CP residence.
Rental prop goes up in value. H
claims W breached by not disclosing.
W argues H benefit (he will have to pay less support).
(a)
Prob.
important that she didn’t take out more than her ½ asset.
(b)
Three options:
(i)
Let W keep equity.
(ii)
Split the capital appreciation in ½.
(iii)
Employ 3294. Did it behind
his back via fraud, malice or oppression.
FLC 2104.
Either party must share with the others all opportunities.
5.
Pre-separation
breaches of FD? The current case
law seems to be saying that if it’s just an innocent mistake as opposed to an
intentional act, then the court will consider that.
Since spouses are fiduciaries to each other, they can go back and
scrutinize any financial decisions the other spouse makes.
Ex. Making bad investments.
XVI.
Premarital
Agreements
“Permanency is no longer
a characteristic of marriage.”
[Bonds]. We want prenups to be
enforceable, because it’s one way to get people out of the crowded system.
A.
History.
1.
Prior to
2.
Post
(a)
Family law court now has sole & exclusive jurisdiction to deal with prenups.
Effect of this:
(i)
No longer subject to K defenses.
(ii)
No jury. Only the judge decides.
Note: courts want the
prenups to be valid.
(b)
CPAA (
B.
What can & cannot do.
1.
Items From Before Marriage. Prenups
don’t protect things you had before marriage.
You don’t need to protect these via a prenuptial agreement b/c the law
already protects it – those assets are by definition separate.
2.
You can address: [FLC
§1612]
(a)
Property. As long as dealing with
property, you can do pretty much anything you want:
(i)
You have the right to redefine CA CP stats.
3.
In CA, you can’t address:
(a)
Child support; or
(b)
Child custody.
(i)
If you attempt to address either of these in an agreement, it makes the rest of
the agreement invalid.
(c)
Cannot create any portion of a prenuptial
agreement that violates public policy (promotes dissolution).
Only agreements that promote dissolution violate public policy.
(i)
Waiver of spousal support no longer violates public policy.
[Pendleton] What violates public policy
is determined by the courts, so it can change.
(ii)
What promotes dissolution of the marriage?
Prof argues that all prenups promote dissolution; yet the law doesn’t
treat them all that way. Example:
if marriage lasts 1 yr, you get 50K, if 10yrs 150K, 15yrs. null & void
5M. This has been held to be valid
time and time again. More likely to
divorce early to avoid more $.
(1)
In re Marriage of Noghrey.
H pulls aside W’s family & says wants to give her if they get divorced
his house + 500K or ½ of estate, whichever greater, marriage lasts 7 mos.
Held: agreement promotes dissolution and
is invalid, violates public policy.
(2)
Question of Fact. Where the line is
between invalidity (violative of public policy) and validity (ok agreement) is a
question of fact for the court to find.
C.
Requirements for valid prenuptial agreement:
1.
In writing;
2.
Full disclosure of all assets and
liabilities.
Don’t just say you have a house, etc.—say how much they are worth.
(a)
Alternative: waiver of
disclosure in writing.
(i)
Prof. wouldn’t use a waiver; some judges are willing to say failure to disclose
effects the knowing, intelligent, voluntary requirement (see below).
3.
Agreement must be entered into voluntarily & knowingly/intelligently (without
fraud or coercion).
Each party isn’t required to have an attorney, but it may be smart for both to
have attorney to clearly show voluntariness.
Need to make sure that the person entering into prenup is doing so in
arms-length transaction and understands what they are entering into.
(a)
Fiduciary duty only applies to spouses.
Parties that aren’t married yet, do not have a FD to each other.
Therefore, you are held to the same standard as any other parties
entering into a K. [Bonds
case. Bond’s wife is not primarily
English speaking. 2 days before
their marriage they were leaving to Vegas and they stopped at attorney’s office.
There were 2-3 attorneys there and they handed her a prenup.
They told her she didn’t have to sign it, and if she wanted a lawyer,
tell them now because had to call airport to shut plane down.
They got divorced and the issue was whether the prenup was entered into
voluntarily. Court finds the
prenuptial agreement to be valid.
Voluntariness falls between commercial
К
and those in married position. To
make part of fid duty between fiancées, would shift burden from person seeking
enforcement to person defending enforcement.
Burden on proving that it was involuntary is on person seeking to set
aside prenup. In this case, W.
Since there’s no requirement to have attorney, since the document
disclosed assets, and since no one forced her to sign it, the prenup was ok.]
(i)
Legislature’s Action. The CA
Supreme Court goes so overboard with Bonds and Pendleton (after ban on waiver of
spousal support was lifted in these cases, it became free season regarding what
you could get away with in pre-marital agreements), that legislature had to
rewrite the criteria for prenups.
Bonds along with Pendleton makes any prenup able to stand.
There are now specific additional requirements below (also see spousal
support).
4.
Not unconscionable at time of execution.
At the time of execution is critical – it’s not at time of enforcement
5.
Agreement must be created in a language
that the parties are fluent in.
(a)
Need Independent Counsel For This.
If you don’t have counsel, fiancé’s attn can’t do this because
it’s a conflict of interest. A lay
person can’t do it either because they’d be practicing law w/o license
6.
Premarital agreement must be given to
the other party 7 calendar days before signature.
7.
If there is no attorney on your side,
you must be given notice that you have right to independent counsel, and there
must be a waiver of counsel in writing.
(a)
If waiving counsel, you must sign the waiver 7 days prior to signing of
the agreement.
(b)
If no counsel, a 3rd person must explain in writing
your rights and obligations, and that 3rd person must sign the
document.
(i)
Any lay person who signs is practicing law without a license.
The person who wants the prenup’s attorney won’t do it, so in effect this
requires everyone to have an attorney.
D.
Spousal support.
1.
History.
(a)
Current rule. You can never include
child support or child custody or anything that violates public policy.
(b)
Courts retain the jurisdiction to readdress from time to time what violates
public policy.
(1)
Up
until 2001, when Pendleton case came out:
(i)
Anything promoting divorce; or
(ii)
Waiver of spousal support
(2)
Now
waiver of spousal support is legitimate in CA.
Moved away from paternalistic, now H & W are treated like business
partners; they can waive support.
2.
Wavier of spousal support—FLC 1612(c).
You can waive spousal support,
but must meet extra certain criteria:
(a)
Must have independent counsel, or waiver
is invalid. If there is a
waiver of spousal support, there is a requirement of independent counsel at the
time the agreement containing the provision was signed.
You cannot waive counsel or merely have notice of counsel – there must
have independent counsel. An
otherwise unenforceable provision regarding spousal support may not become
enforceable solely because the party against whom enforcement is sought was
represented by independent counsel.
(b)
At the time of enforcement, if the waiver
is unconscionable, the court has the ability to throw the waiver out.
Example: if one spouse loses
his job, etc. All other prenup
provisions will still stand.
(i)
Unconscionable. There are spousal
support suggested guidelines. If
spousal support is significant i.e. over 200-300/mo, the judge will probably
throw it out.
(1)
Prof:
Tell clients that there is no point to get a spousal support waiver.
(ii)
What can be included? If you have
significant estate, court can assign a reasonable rate of return to that—this
can be assigned to a party as income.
So you are applying what they received in the division of assets in
determining income, spousal support.
3.
Family law court is not constrained by the equal division rule for prenuptials.
(a)
No
fiduciary duty. You can negotiate
any type of agreement you want.
Since this is before the marriage, there is no fiduciary duty [Bonds].
(b)
Premarital agreements. Set
up three accounts:
(i)
Hs account. All the funds from Hs
earnings go into this account.
(ii)
Ws account. All the funds from Ws
earnings go into this account.
(iii)
CP
account.
(1)
Bills
w/o ongoing value. Utility bill,
trash bill, car insurance, etc.
Parties can change the amount put in that account by oral agreement.
a.
Ex. H puts in 1K, W puts in 2K.
(2)
Bills
with ongoing value. Investments,
mortgages, car payments all come out of one separate account.
The party paying these bills will frequently give the other party support
i.e. 5K for 5 yrs.
(3)
Records must be kept precisely. But
they can save huge amounts of attorney fees.
It will be easy to divide.
(4)
If
the court finds your prenuptial invalid, that is malpractice per se.
The purpose of the UPAA. The
conditions/restrictions are not that hard to do.
E.
Premarital agreements possibilities.
Remember you can’t promote dissolution.
1.
Can waive just one asset.
Ex., pension can’t become community; house can’t become community; spouse can’t
become partner in law firm
2.
Create separate accounts.
Anything that has no value once purchased, that’s only thing that comes out of
community acct. Ex. gas bill, phone
bill, etc. H’s salary goes into H’s
account; W’s into W’s
(a)
Ex. own home, want spouse to inherit
upon death, so hold in joint tenancy, but prenup says will remain separate
property during marriage
3.
Can negotiate different division of assets other than 50/50
XVII.
Domestic partnerships.
A.
FLC §297—Requirements for Domestic Partnership.
1.
Domestic partners are 2 adults who have intimate committed relationship.
2.
Domestic partnership established in CA when:
(a)
Common residence.
(b)
Both agree to be jointly responsible for basic living expenses during DP.
(i)
Shelter, utilities, and all other costs maintain household.
Medical care if some of the cost is paid as a benefit b/c a person is
another person’s domestic partner.
(c)
Neither person married/member of another DP.
(d)
Not related by blood.
(e)
Both at least 18.
(f)
Either of the following:
(i)
Both persons are members of the same sex.
(ii)
Persons of opposite sex over age 62. (meet qualifications for old age social
security benefits).
(g)
Both capable of consenting.
(h)
Neither has previously filed certificate DP that has not been terminated.
(i)
Both file declaration of DP with Secretary of State.
B.
AB 205(?).
FLC 299.1.
Domestic Partnership Act goes into effect
1.
The domestic partnership act will give domestic partners all of the same rights
upon divorce and death.
(a)
Except for income tax, no distinction b/w same sex domestic partners.
(b)
Before this same sex couples had to do Marvin action.
Remedies under K are not equal division, remedy is to put them back in
the place they would have been if the K was not violated.
2.
Family law court has exclusive jurisdiction to dissolve issues in same
sex relationships.
(a)
Must utilize family court unless:
1.
Relationship less than 5 yrs.
2.
No kids
3.
No real property
4.
Debts less than 4,000.
5.
Assets less than 32,000 (joint).
6.
Assets less than 32,000 (SP)
7.
Waiver of spousal support.
3.
Tax Consequences of DPA. Fed
gov’t rejects statutes applicability to same sex relationships (passage of
“Defense of Marriage Act”). DPA
states that all tax laws which apply to marriages apply to domestic partners.
But most tax laws are federal, so w/ DOMA, not going to apply to same-sex
relationships
(a)
Spousal Support. Normally
for spousal support, it’s taxable to the recipient and deductible for giver.
This is not same for domestic partners
(b)
QUADROs doesn’t apply to domestic partners b/c ERISA is fed statute
(c)
This makes DPA unenforceable to most things
XVIII.
Tax.
Whether
it is an equal asset will depend on tax ramifications.
For example, a savings account with $100K is not taxed, but $100K in a
401k, will be taxed, and the amount will be $85K, so this is not an equal
division of the assets.
A.
What to consider:
1.
Transfers b/t spouses
2.
Sale/transfer to TP
B.
Domestic Relations Tax Reform Act of 1984.
All transactions b/t spouses are going to be
tax-free events – no tax consequences.
Problem is, they aren’t really tax free events.
We aren’t selling an asset to a 3rd person, we are
transferring between the two parties.
BUT the party keeping the asset will realize the gain on all of it when
they sell.
1.
Example. IRA has value of
500k. If spouse can buy you out,
they owe 250k. It looks like equal
division, but it really isn’t. The
IRA is not tax-free event – have will pay taxes once money is taken out.
So when spouse pays 250k, getting
greater value than ½ b/c not going to be tax-free when removed from IRA.
2.
Example. A house worth 800k;
bought for 200k; can buy-out for 300k (600k / 2); since transferred b/t spouses,
tax-free. But when it is sold in 5
yrs, the party will pay capital gains tax on 600k.
All the tax is borne by person who buys other side out.
So while at time of divorce there is not tax consequences, there will
always be tax consequences down the road
C.
Tax Consequences Need to be Immediate and Specific.
If the tax consequences are not immediate and
specific at the time of dissolution, the court is not going to consider it.
Otherwise, it’s too speculative, and you don’t know what the tax rate
will be later. [In
Re Marriage of Fonstein. H is
partner in law practice. H argued that the court can’t value the practice at
400,000 b/c when he sells it, he will have to pay taxes.
He wanted a discount].
Only taxes that are direct consequences pursuant to court’s order can be
considered [In Re Marriage of Epstein]
1.
It is all up to the attorney to understand what they are doing so as not
to simply divide assets equally.
(a)
Can
encourage settlement. Court can’t
force you to take an asset you don’t want (can’t force you to take your practice
and give wife the house).
(b)
Example: Rental property—all
capital gains taxed. If you sell,
it will cost you about 7-10% to sell the property.
400k rental property not same as 400k house.
With a house, you get an automatic 250k exemption, so you only paid 150k.
If the spouse lives in it for 2 yrs, you get a 500k exemption.
But with a rental, there’s no exemption.
You shouldn’t divide this equally.
The court won’t help you, they’ll just do it 50/50.
(c)
Example: Stock purchased in
the early years are worth less than in later years because your basis is less
and thus your tax is more.
XVIII.
Federal govt.
Federal govt. is not a CP jurisdiction.
Federal gov’t benefits are not necessarily available in family law court.
Supremacy Clause prevents state from addressing federal benefits unless
Congress tells us we have that right (passes enabling legislation).
Without enabling statute, CA doesn’t have subject matter jurisdiction to
divide. The court can’t compensate
for this by giving more CP to one party.
With every federal benefit, you have to see how the federal government
deals with that particular asset.
Ex. social security.
A.
Federal Law Controls. Whenever the
state law runs into conflict with the federal law, then the federal law will
control – and CP law won’t have any effect.
[Boggs v. Boggs – H marries first wife.
She dies. H remarries and
names his second wife the beneficiary of his pension.
When the 2nd wife dies, the children of his first wife want
part of the pension because it was earned in part with community property.
Court says ERISA (a federal act that tells us how to divide pensions)
controlled and that the second wife took the entire pension because the federal
statute overruled the state law.]
1.
Congress has right to:
(a)
Pass enabling statute or not; and
(b)
Have
specific jurisdictional requirements.
In CA, gave power on one hand, but also made it difficult b/c the three
criteria are almost impossible to meet.
2.
Note – Steinquist. This was
the CA case said that when you qualify for both longevity and disability
retirement, to the extent that you’re opting out of the longevity, that portion
remains community and is divisible between the parties. You can’t opt out of
your spousal share of CP. This law
is still good as it applies to non-federal employees, but it’s no longer good as
it applies to federal EEs.
(a)
Federal disability – Mansell (came after
Steinquist). Congress has never
passed an enabling statute that allows states to divide federal disability.
The state doesn’t have the ability to divide federal disability under any
circumstances. The enabling statute
under 10 USC 1408 does not authorize state law distribution of military
disability pay. Even if you
take disability over longevity, CA has no jurisdiction to address that federal
retirement. So Mr. Steinquist,
being in the military, could opt out of longevity and take federal disability –
thereby opting the spouse out.
B.
Federal Pensions
1.
Before 1981. We divided
pensions based on CA community property as if we had a right to.
2.
In Re Marriage of McCarty.
In this case, U.S. Supreme Court said that there was no enabling statute,
so no state could address federal retirement.
Examples where Congress hasn’t acted [and thus CA has no j/x to address]:
(a)
Social security.
(b)
Federal insurance programs.
(c)
Federal disability.
(d)
U.S. Savings bonds.
(e)
Federal retirement. This is
the biggest.
3..
Response to McCarty.
10 U.S.C 1408.
Congress passed an enabling statute that addressed federal retirement.
This
allowed states to divide federal pensions.
They made this statute retroactive to the date of the holding in McCarty.
(a)
Divided pensions into 2 categories
(i)
Federal civil service. The
statute lets states divide these pensions like any other pension.
As along as states divide these pensions in accordance with state law,
they can divide it. In CA, it would
be the Brown timeline formula
(ii)
Military. Congress said that this
is different because you don’t have the right to just quit and move to another
state that divides pensions differently
a.
Special Requirements by Congress.
This statute lets states divide the pensions, but they want to protect military
personnel so they set up special criteria.
i.
3 Prong Test: state has to meet one of the 3 prongs to be able to divide the
pension.
1.
Consent.
Does the military member consent to the division?
This is rare since most people won’t consent.
OR
2.
If the military member is domiciled in the state.
Military can be domiciled in a state you’ve never been in.
This choice is also rare because you don’t get many military people
domiciled in the state of CA.
Usually military are domiciled in TX of FL where there is no income tax OR
3.
Purposeful availment test.
Did the military member commit acts greater than necessary as a result of
military obligation?
a.
In re marriage of Tucker – T was stationed in CA but was domiciled in CA.
T owned a house in CA and had a CA driver’s license.
T worked in a civilian worker in CA and had a special needs child that CA
was paying money to. The judge was
a naval academy graduate. Judge
said that everything T did was part of his military obligation.
He was stationed in CA, which is why he did all those things.
Judge pretty much tied everything to T’s military obligation.
b.
Register to Vote or State Domicile.
If you register and vote and state that you’re domiciled in the state, then you
might be able to meet this test.
Essentially the person has to make a mistake
ii.
Virtually Impossible to Divide Military Pensions.
It has become almost impossible to divide a military retirement in CA.
If the military member is in active duty, it is almost impossible.
Exam:
2 hr
2 essay racehorse
don’t have time to do
complete analysis on every single issue
closed book
open calculator