Community Property: Wesley Outline 1
Community
Property
INTRODUCTION
Definition of Community Property
= “all things acquired from date of marriage (dom) to date of separation (dos),
except by gift, bequest, devise or decent, with rents, issues and profits
thereon.”
Definition Analyzed:
1.
“All Things
Acquired during Marriage” = is
community property. When married, lose identity. Have to think as a “community”.
Money is joined into community. Debts are “acquired” to community as well. Even
if $ put in different bank accounts. Thus, not equitable or fair…it’s just the
law. Family Law Code defines marriage.
2.
“All Things
Acquired from Date of Separation” =
takes 2-3 years to do a divorce. Need ONE date for separation. Is a mathematical
system. This determines what community property is. That is, money taken on day
before “official DOS” is community property. Day after DOS is not! Big Issue is
determining DOS.
3.
“Except by
Gift, Bequest, Devise or Decent” =
gifts, inheritance, etc. taken out of equation and remains your separate
property.
4.
“With Rents,
Issues, and Profits thereon” = this
means that if above earns money, this is yours, but if community property earns
money, must divide 50/50.
Note:
IS MARRIAGE VALID PER §300?
Requirements for a valid marriage:
1.
Consent
2.
License
3.
Solemnization
Must also have:
1.
Legal Capacity:
Prospective H&W must have capacity (can’t already be married)
2.
Marriage can’t
be void (incest/pre-existing
marriage)
§308
= CA must recognize a marriage from another jurisdiction.
Exception (§308.5)
= CA doesn’t have to recognize same sex marriages even if valid in another
jurisdiction.
IF NOT A VALID MARRIAGE, LOOK FOR ALTERNATIVE
WAYS TO GET INTO COURT
1.
Domestic Partnership = FLC §297
a.
Domestic Partnership Act (original)
i.
Limited rights.
Nothing of substance took place under those
b.
Domestic Partnership Act (amended)
i.
Signed into law
last October. Given until Jan. 2005 to take effect.
ii.
DP under old Act
will be grandfathered into new Act
iii.
Coverage:
1.
Same Sex couples
2.
Odd sex relationships
3.
Persons over the age of 62 – they don’t
want to get married for social security reasons.
c.
Benefits
= DPs will have the same benefits as those with a licensed marriage under
§300 – See §299.5
d.
If want to
dissolve DP, need to do it through the
2.
Quasi-Marital Property
a.
Defined
= property acquired when one spouse has a good faith belief they are married and
through no fault of their own, they are not married.
b.
Putative Spouse
= is a spouse meeting above definition. The court can invoke this statute and
invoke CP. Putative means “innocent.”
c.
§2251
“Status of Putative Spouse; Division of
Quasi-Marital Property
i.
This section
falls into the “VOIDABLE MARRIAGES” section under NULLITY.
ii.
Defined
= (a) if a determination is made that a marriage is void or voidable and the
court finds that either party or both parties believed in good faith that the
marriage was valid, the court shall: (1) declare the party or parties to have
the status of a putative spouse. (2) if the division of property is in issue,
divide, in accordance with Division 7, that property acquired during the union
which would have been community property or quasi-community property if the
union had not been void or voidable. This property is known as quasi-marital
property.
iii.
Rationale
= this section was created to deal with situations where have a voidable
marriage but don’t want to shaft the innocent spouse and take advantage of them.
Eg. married to a non-divorced person and relied on pension benefits of other. If
marriage is void, that innocent spouse gets screwed, so this section allows
person to get at CP.
iv.
Requires
“good faith” belief that the
marriage is valid.
v.
If a putative
spouse and invoked §2251, then act is if had a valid marriage for division of
assets purposes.
vi.
Problem
= a “good faith belief” that marriage was valid seems identical to a COMMON LAW
MARRIAGE.
d.
§2254
= not only can assets and liabilities be divided equally, but court has
jurisdiction and authority to order spousal support. That is, once invoked,
there is no difference between quasi-marital and marital property.
Quasi-Marital Property Cases:
1.
Estate of Vargas (437) – Classical Quasi-Marital
Property Case
a.
Husband was
leading a double life with “two marriages.” W2 didn’t know about W1 and thought
she was married to H only. W2 deemed a putative spouse.
b.
Holding
= invoke §2251 – quasi-marital
property statute. Divided estate equally between two spouses.
2.
In Re Marriage of Monti – Next Step in
Quasi-Marital Property Development
a.
W and H married
in
b.
Issue
= H never had lawyer stop proceedings continued without his knowing. What
result?
c.
Holding
= Court invoked §2251, W had a good
faith belief she was married and through no fault of her own, it turns out she
was not married.
d.
Point
= not same facts as Vargas, but court took same language and extended section of
§2251 to find good faith and “no
fault” of her own.
3.
Wagner v.
a.
H and W never
“solemnized” marriage, but exchanged “personal marriage vows” and held
themselves out as a married couple. Practically, not much different than a
“common law marriage.”
b.
Holding
= “Solemnization” is evidence of good faith but NOT necessary. Just have to have
“good faith.”
c.
Point
= Right back to COMMON LAW MARRIAGE (in practical terms).
d.
CA Ambiguity
1.
3.
Marvin Actions
– Contracts that allow you to get
into
4.
Complete the Marvin action before you go into the dissolution.
Really, it is a two step process, do the Marvin action, resolve it, then
go back regroup and do calculations based on what happens between DOM and DOS so
that you can resolve all assets acquired.
5.
I.e. this applies to people who live together, then get married, then separate.
Cases:
DATE OF SEPARATION (DOS)
Overview:
1.
Defined
= date when marriage is irretrievably broken
2.
Causes a lot of
problems because not as clear as DOM.
3.
Subjective
determination between parties as to when breakdown will occur.
4.
Very contested
because parties will have different reasons for establishing date. E.g. if
bigger earner, than want date earlier because will have to give up less money.
5.
Marriages of 10
years or longer require indefinite spousal support. If less than 10 years,
spousal support is one-half the marriage.
6.
Tough
determination because court is not involved. Also, Date of Judgment (DOJ) is
usually 2-3 years after DOS. Thus, CA uses DOS.
7.
Keep in mind that if the parties separate and get back together and reconcile
and then split up, the DOS is the latter date and there is only 1 DOS!!!
This means that by reconciling you potentially lose a
a.
Clients will say that they were separated between this date and that date so it
is their money, but this is not true if they have reconciled since their
previous separation.
**DOS Determined by an OBJECTIVE STANDARD**
In re Marriage of Baragry – Objective Standard
1.
H was enjoying
two relationships. H would still go home to W to have dinner and laundry done. H
and W still held themselves out as a married couple. H ceased having sex with W.
This went on for four years. 1971-1975.
2.
Issue
= What is DOS?
3.
Holding
= DOS is later date of 1975. If there is an “ongoing relationship” then no date
of separation. Objective standard.
See Below.
4.
Note
= 1975 is not the date W filed a dissolution of marriage.
5.
Point
= DOS is the last day that “objectively”
together. Also, any reconciliation will move the DOS to a later date. This can
even be in the form of an anniversary card and flowers.
In re
Marriage of Manfer – Objective and Subjective Standard
1.
H and W had an argument and separated, living in separate residences.
They decided that for the benefit of their daughters that they would hide
their circumstances from family and friends until after the holidays.
2.
Addresses problem of when parties conceal relationship.
3.
Manfer sets up a 2 prong test:
a.
Look at the subjective intent of the parties.
b.
Objective factors, do they bespeak of their subject intent, do their actions
demonstrate that subjective intent was being carried out.
4.
Professor: this just creates more confusion in this area.
Prof.’s case – Objective Standard
1.
W was a navy
nurse. 2 weeks before going to ship out she found out H was having an affair.
What W did to protect herself was to take H with her and protected secret. She
did this so wouldn’t get shafted in court. But, the whole time abroad, she
intended to divorce H. When came back, she served H.
2.
Issue
= DOS?
3.
Holding
= Don’t care what people were thinking – don’t use subjective intent. Therefore,
didn’t matter that W intended to divorce H. Look to the conduct of the parties,
not to mental state – OBJECTIVE STANDARD. How would a 3rd party
determine relationship?
Problem
= will have a case (esp. in CA) where both spouses need to contribute to
mortgage payments during the divorce proceedings. Therefore, both will live in
the house. How find DOS in this situation? Can still find a DOS but have a
higher standard to demonstrate to court DOS.
Solution =
Will have to demonstrate all kinds of things,
such as severed bank accounts, separate bedrooms, split bills, total economic
severance between the two.
JURISDICTION OF THE COURT [§2550]
Rule
SP = Court has NO SMJ over
separate property. Can only confirm SP back to owner.
CP = can divide 50/50.
Robinson v. Robinson
W conceded that house was
H’s separate property. Despite stipulation that H owned property, t. ct. gave W
a life estate.
Holding
= reversed trial court’s decision. The court has no subject matter jurisdiction
to dispose of the SP of one of the parties, nor to carve out a life estate.
In re
Marriage of Hebbring - NOT GOOD LAW
H tossed wife’s jewelry
into ocean. This was stipulated
Holding
= court reimbursed W value of jewelry with a portion of H’s CP. Law says can’t
do this. But court uses “Equitable principles” to base decision. Prof. = there
is NO EQUITY in
Point
= Not Good Law! Court went well beyond subject matter jurisdiction and injected
fault into system. Can only divide CP 50/50. That’s it. Can’t carve into this
amount.
Note: Every time the court tries to
do equity, they are bringing fault back into the community property system.
Equal Division Requirement (§2550)
1.
The general rule
is that we must divide community assets equally, unless a written agreement or
in court oral stipulation to the contrary.
2.
This does not
mean that everything must literally be divided in half. Rather, both parties
must get equal shares of the assets in the end.
They both have to end up with the same amount.
3.
If the two sides
don't end up equal, the party with more has to make a payment to the other side
to make it equal.
4.
There are times
when it is difficult to divide the assets equally.
5.
Hypo:
H and W have 7 children. The only
asset they had was a house in
6.
FC § 2601
- passed to deal with cases where equal division would be difficult.
Exception to the Equal Division Requirement
(“In-Kind Division”) [§2600 + §2601]
§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.
In re Marriage of Brigden
Issue
= should make an equal division of stock (per §2550) or not?
1.
Court has ability
per §2601 to act with discretion in dividing assets.
2.
Court very
HESISTANT to invoke §2601.
3.
Court’s first
goal is to “equalize out assets”. H wants to make “equalization payments” to W
instead of dividing stock. However, dividing stock equally and selling it is
preferred option because cleaner and don’t have to worry about other factors.
Tammer Case
If going to do an
“equalization payment” have to give extra money to account for future value
(inflation) because $ will be worth less down the road.
Holding
= Divide equally: economic circumstances do not warrant the award of the entire
block to one spouse.
Point
= will usually only invoke
§2601 if have to such in a case
where have a business like a law practice.
VALUATION DATE (§2552)
§2552: Valuation date for assets and liabilities
Rule
= will value assets as close to the DOT
as possible with exception of
closely held businesses.
Valuation Issue
= DOM-DOS--------------------------------(x)-->DOT; at which date do we value
the asset?
Example:
Get married in 1980. Bought
house in 1981 for $100k. In 1982, H leaves until 2004. W takes care of house and
makes all payments during time H is gone. W doesn’t file divorce because figures
H is gone. 2004 house is worth $800k. H returns and asks for a divorce and ½ of
value of house.
Issue
= when value the house? DOS (1982) or DOT (2004)?
Holding
= per §2552, “the court shall value the assets and liabilities as near as
practicable to the time of trial.” Therefore, with one (1) exception, will use
the DOT! So, H gets ½ value of house.
Point
= this has effects on how appraise things. Will be value house or stock right up
until 5 min. before trial! This can be a problem when have 30 different assets!
Strategy:
This can lead to a lot of game playing.
For example, if the real estate market is plummeting, you may want to
hold onto the property for as long as possible by using procedural means to
stall. The opposite is also true,
if the real estate is appreciating rapidly, you would want to get rid of it as
soon as possible in order to reduce the amount you pay to your spouse (assuming
you are keeping the house in the divorce…)
CLOSELY
HELD BUSINESS = Exception to Rule [§2552(b)]
In Re Marriage of Green
= closely held business is defined as a business that will be controlled by only
one party post separation/divorce. Business will be valued at the “alternative
valuation date”: DOS. All other assets will be valued at the DOT.
Rationale:
QUASI COMMUNITY PROPERTY (§125)
Basic Definition
= Quasi Community Property is property that would be CP if located in CA but it
is not.
§125 - Quasi-community property
"Quasi-community property"
means all real or personal property, wherever situated, acquired before or after
the operative date of this code in any of the following ways:
(a)
By either spouse while domiciled elsewhere which would have been community
property if the spouse who acquired the property had been domiciled in this
state at the time of its acquisition.
(b)
In exchange for real or personal property, wherever situated, which would have
been community property if the spouse who acquired the property so exchanged had
been domiciled in this state at the time of its acquisition.
§125 Has Two (2) Elements
(to give CA jurisdiction to divide assets
pursuant to CA CP Laws):
a.
By taking the second step, the parties consent
to application of CA law
Jurisdiction of Quasi Community Property
Once determine that asset
is Quasi Community Property will divide it 50/50. This is the only jurisdiction
that court has. Will drop the term “quasi” and treat it as traditional community
property.
Example
1.
H and W living in
2.
Issue
= can divide pension?
3.
Holding
= use §125 to deal with this situation. Treats pension as quasi CP and treats as
if it had been earned here.
Point
= Quasi CP statute allows CA to go into another jurisdiction to reach assets.
That is, gives CA right to divide assets even though not earned here and not
domiciled here when earned. Also, can go anywhere in the world to divide
property that was acquired during marriage.
Problem =
when dealing with assets in other countries.
Most of the other countries don’t care what CA says and will tell you to take a
hike.
Point:
All you must show is that if it was in CA, it would be community property.
Quasi community property is the same as community property. All the
statutes that apply to community property, apply to quasi-community property.
Cases:
PRESUMPTIONS
Three Presumptions in Family Law Code:
1.
§803
2.
§760
3.
§2581
§803 “Married Woman’s Presumption”
1.
Effective for
property acquired BEFORE 1975.
2.
Defined
= A property that is held (1) in a married woman’s name alone or in (2) her name
and a 3rd party, regardless of where it came from, presumption is
that it’s her separate property.
3.
Rationale
= In past, H had control over assets. If the man was the one who owned and
controlled the property, then if placed property in W’s name alone or in W name
and a 3rd party’s, it must be that he intended to make it that way –
that he gifted it to her.
4.
Rebuttable Presumption
= burden on H is to bring forth evidence countering the presumption. Eg. that
property is in W name BUT did it for reasons XYZ. Burden depends on what asset
is at stake. If property will have a higher burden (clear and convincing).
§760 Community Property Presumption
1.
Defined
= All property, real or personal, wherever situated, acquired by a married
person during the marriage while domiciled in this state is CP.
2.
Rebuttable
Presumption
§2581 CP Presumption for Property Held in Joint
Form
Property acquired by the
parties during marriage in joint form, including property held in TIC, JT, or
TBE, or as CP, is presumed to be CP.
Presumption may be rebutted by:
Point
= Essence is that property held in joint form is presumed CP unless SOF
exception met.
1.
Below three (3)
are different ways to hold property. §2581 only cares that property in “joint
form” and not which type of joint holding. Only way to avoid it is in two
exceptions below.
a.
Joint Tenancy
= legal fiction that H owns 100% and W owns 100% so if one dies, then other get
survivorship rights or 100% ownership of house – to avoid probate.
b.
Tenants in
Common = each party owns an undivided
half or property. Difference is that TIC will have to go through probate. Also,
you can “will” it away or leave it to other people.
c.
Community
Property = there is a tax advantage
to this – can avoid capital gains tax.
2.
Two Ways to Overcome CP presumption (SOF)
a.
(a) clear
statement in deed of documentary evidence of title that property is SP
b.
(b) written
agreement that property is SP
Examples of difference between §760 and §2581
presumptions
§760 Example
= say have 100k in SP. Get married and take 100k and by a painting. Can’t hold
this in “joint form”. Therefore, since not joint form only have the burden under
§760 to overcome the presumption. All you have to do is trace back that
painting was acquired per $ that had SP. That is, can overcome presumption of
§760 (CP presumption) by showing that was your SP that bought the painting.
Thus, at DOS, will get all $ gained in value of painting.
§2581 Example
= say you buy a 100k house. Escrow will put ownership in joint tenancy (thus per
§2581 meets the “joint form” qualification). Difference between this and Monet
painting is that can’t overcome the presumption because held in JT by both
parties. To overcome this presumption, will have to overcome qualifications of
§2581 – need a writing saying despite JT, is H’s SP. That is, house will be
considered to have been bought in CP unless have writing, even though it is the
same 100k that bought the Monet painting.
Point
= Use §760 presumptions for all assets EXCEPT those held in certificates
of title in JOINT FORM, in which case use §2581 that has a SOF provision
which requires a clear writing to overcome presumption. VERY HARD TO DO.
Downer v. Bramet
H works for employer
from’43 to ’76. Married from ’53 to ’71. No retirement program through employer.
Employer gives 3 employees including H a piece of property worth 1.3M dollars.
Employer says that don’t have an obligation to give employees this property,
thus it is a GIFT per employer.
1.
Issue
= Does FLC have to look beyond title of gift and
see reasons for “gift”?
2.
Holding =
Yes.
FLC looks beyond the title and finds reasons for gift – that this was given for
efforts of the “community” because during marriage H and W seen as one.
3.
Point
= what is important is not the name or label of title of gift but whether
“community” earned or did not earn it. “Community” will earn something if done
by H or W during marriage before DOS. Consequently, court will divide it 50/50.
Point
= Use §760 presumptions for all assets EXCEPT those held in certificates
of title in JOINT FORM, in which case use §2581 that has a SOF provision
that requires a clear writing to overcome presumption. VERY HARD TO DO.
Estate of
Major Clark gave land to
his 3 kids. Oldest son dies and
leaves property to 3rd party, but
Holding
= Clark got inchoate right to sue when son died (two weeks before H
married W); thus, since right to sue occurred before
Note
= if H had married W one (1) day before son died, would have been a CP
Point
= demonstrates how Community Property works – that there is NO EQUITY – rather
just a mathematical determination.
ONLY
*Each asset has to be
analyzed according to following rules
1.
Transmutation
a.
Clear that asset
is either CP or SP but issue is whether there was a Transmutation? This means
that the asset (e.g. house) is clearly H’s SP, for example, but there is an
issue of whether he transmuted it into CP during marriage.
b.
Definition =
a total and complete re-characterization of the
property
c.
FLC §852
d.
SP =>CP; or CP
=>SP (not SP => SP)
2.
SP contribution into CP [SP =>CP]
a.
Difference from
above is that never changed characteristics
b.
FLC §2640
3.
CP contribution into SP [CP => SP]
(1) TRANSMUTATION
*First Step: Do §852
Analysis
Second Step: Do §721
Analysis (Did overcome presumption of undue influence?)
Two Sets of Laws
(Changed in 1985):
Prior to 1/1/1985:
1.
Law wanted
parties to own property together. Frowned on owning SP.
2.
To show
transmutation, all had to do was have
substantial evidence of
transmutation.
3.
Example
= H owned house before marriage (been in his family for 3 generations). H
invites friend over to house and declares “welcome to our house – we shall
reside together forever.” This was the “substantial
evidence” of transmutation.
4.
Point
= public policy supported transmutation.
5.
However,
paternalistic attitude changed over time to become egalitarian.
6.
Culminated in
1985
IMPORTANT
= Laws are NOT RETROACTICE. Therefore, property transmuted before 1985 will be
subject to old rule.
Post 1/1/1985:
§852 controls
ELEMENTS:
1.
There must be a
writing
2.
Express intent
to transmute
Exception: §852(c) =
“This section does not apply to a gift between
the spouses of clothing, wearing apparel, jewelry, or other tangible articles of
a personal nature that is used solely or principally by the spouse to whom the
gift is made and that is not substantial in value taking into account the
circumstances of the marriage.”
1.
When spouse buys
spouse gift, you are transmuting. That is, taking CP and turning it into SP. So,
§852(c) is the exception because
would, in practical terms, be stupid to have to have a writing in gift
situations.
2.
Example
= H buys W a ring, he doesn’t have to put an express statement to transmute
3.
Court won’t buy
it if H says the ring was an investment – that is, bought diamond ring as an
investment and not as a gift.
4.
What about
“tangible articles of a personal nature…”? Example: a car with a
personalized license plate used exclusively by a person which was a birthday
present. “Not substantial in nature” because car was cheap.
5.
No cases that
have discussed “tangible articles of a personal nature”.
Estate of MacDonald
H and W married and both
had separate children. W has terminal cancer. Decide to give property to
children from prior marriage. They divided it up equally. One asset didn’t
address: H had earned a pension – a defined benefit plan. No doubt that portion
of plan was community in nature. He rolled by into an I.R.A. You have to list a
beneficiary of the I.R.A. In CA, spouse automatically becomes beneficiary of
IRA. H and W go into bank and declare beneficiary to be the trust which trust
leaves to his children. W signs waiver.
Issue
= is this waiver of beneficiary a sufficient (1) writing with (2)
express intent to transmute?
Holding = No.
There was a writing and everyone knew it was W’s intent to transmute the
property. The court said no, however, because the intent to transmute was NOT
EXPRESS – that is, must be explicit in writing.
Rationale
= reasons why FLC exists is to prevent litigation. §852 was intended to prevent
litigation by making a very clear expression of what transmutation would
require. Parol Evidence is NOT available.
Language required under §852
= very specific. See “Quit Claim Deed” – has a paragraph with language such as
“I hereby transfer, give away, etc.” Thus, you don’t have to say transmute but
must be VERY CLEAR from expression that is what parties intended. This is
because court will ONLY look at this document and not surrounding circumstances.
Problem of Accidental Transmutation
= Accidental transmutations caused by 3rd parties. Ex. have a SP
house. Recently refinanced house. Problem occurs when lending institution adds
spouses name to house. There is a “writing here” because all magic words will be
stated (they want it to be CP b/c want second person to be responsible for
loan).
FLC §721
= H and W are fiduciaries to each other. We can’t take unfair advantage of each
other. Proceed as business partners, which requires good faith and fair dealing.
Hanes case & Delaney case
(created presumption as solution to accidental transmutations)
1.
Used
§721 (“neither shall take any unfair advantage of the other) to create a
presumption of undue influence to deal with accidental transmutations
(see below).
2.
Any time there is
a transmutation, there is a “presumption
of undue influence.” If one spouse gets other to transmute property,
there is a rebuttable presumption of undue influence. Therefore, person who wins
out has a burden to bring evidence that spouse was compensated or fully
understood that they were giving away rights. That is, per §721, there is a
requirement of good faith and fair dealing.
Test
(to overcome presumption of undue influence)
1.
Benefit was given
2.
Understood fully
that gave away benefit (can be in any form)
(2) SP CONTRIBUTION INTO CP ASSET
Difference between Transmutation and SP into CP:
When have a CP asset in
this case it was never changed from CP to SP or SP to CP. That is, it has ALWAYS
remained a CP asset from DOM to DOS. Therefore, issue is how do we back the SP
out of the CP that was used during marriage?
Two Ways to Back SP out of CP:
1.
Lucas Case (before 1984)
= If you put SP into a joint asset, it’s presumed to be a gift to CP.
The only way to overcome this presumption is a writing to the contrary
(§2581).
2.
§2640 Anti-Lucas Legislation (after 1984)
a.
Law doesn’t
apply retroactively, so pre-1/1/1984,
Lucas is law
b.
Rule
(§2640): You will get dollar for dollar (very objective and formulaic) back off
the top to the extent that the SP was for the
acquisition,
principle reduction, or
improvements. Not for interest, dividends, etc.
c.
Thus, if you are
paying a mortgage with SP esp. in beginning, you will be paying most $ in
interest, therefore, won’t get this back, rather only any principal you are
paying off. Also, if put in 123,456 into downpayment, will get 123,456 back
exactly (dollar for dollar).
Importance of getting $ back “off the top”:
1.
Not all assets go
up in value.
2.
Example
= 50k into car of own SP. Car cost 75k. At time of Trial, car is worth 25k.
Conclusion, you will get 25k back and that’s it, even though lose $. Can’t take
$ lost from other assets. Each asset considered individually this way.
3.
However, if buy
House1 and then sell and use proceeds to obtain House2, then House3, etc. You
can trace your $25k from House1 to House4. These are not considered separate
assets. This $ goes through. Note: you have to show that your specific SP was
rolled into new house. This is important. If put in 25k in H1 and this went up
to 75k in equity, then you put 50k into H2, you WONT be able to get original 25k
back because CANT trace your 25k because the 25k kept from H1 to H2 ruins
ability to trace [will deal with this later on].
Discussion of first two ways: (1) transmutation
and (2) SP ---> CP
1.
Rule
= Anytime you have a transmutation from SP into CP, you will have a §2640
problem – two work hand in hand.
2.
Rationale:
if have a house and transmute it. At day of transmutation, I have $100k in
equity in house then this $100k becomes my §2640 claim. That is, a SP into a CP
asset. Legislature never contemplated this happening. You are entitled to dollar
for dollar back.
3.
Example 1:
you have a car that is SP and you transmute it into CP. At time of
transmutation, it’s worth $50k in equity. At time of DOT, it’s worth $30k. You
get all $30k because of your §2640 claim. But, $30k is all you get, even though
put $50k in.
4.
Example 2:
Own a house worth $50k at time of transmutation from SP to CP. At DOT, worth
$500k. Will have a §2640 claim. When $500k divided, will get $50k off top, and
then split $450k: total – $275k.
(3) CP CONTRIBUTION INTO SP ASSET
Overview
1.
Purpose
is to back CP out of SP. There is
no statute like past two; only have case law. This is why complicated.
2.
CP contribution
can be in many forms, not just money (as is the case with the last with SP
contribution into CP).
3.
Each
asset has own formula because different values
(businesses, houses, stock options, etc.)
4.
Concern is that
own business is your efforts, but when married it’s not your efforts, it’s the
community doing it. Community is entitled to being reimbursed.
5.
Biggest dollar
figure in any business is Good Will/Reputation.
Businesses
Two Formulas:
Periera
Analysis:
(1)
What was the value of the business at the DOM?
(2)
For each year married, give value a reasonable
rate of return (RRR).
a.
This is
compounded on an annual basis. Before, if failed to identify a RRR, used Legal
Rate of Interest (10%). But no one will use this in today’s market because will
use RRR. RRR today is about 3%.
(3)
Result is SP.
Rest is CP.
Most businesses will be valued as closely to the DOT as possible. CP is
benefited here more.
Van Camp
ANALYSIS:
(1)
What is reasonable value of your services?
a.
That is, how much
would we have to pay someone to do what you were doing? This is the CP portion
of the business.
b.
Cord v. Neuhoff =
Must determine value on a year by year basis.
Therefore, if need to determine this over the course of 30 years, have to do an
analysis for EACH year.
(2)
Subtract what the community received out of this
reasonable value. This will knock it
down considerably.
(3)
Result is CP
Beam v. Bank of
H inherited money: 1.6 M.
Over the course of 29 years only made about 200k. Not very much $ - about a
.001% annual return.
Periera Analysis
Van Camp Analysis
1.
Reasonable value
is 1% of the corpus. Which is 17k a year. Therefore, over the course of marriage
is $357,000, which is CP. W wants ½ of this.
2.
But, spent $2k a
month on living expenses and more $ on travel and gifts.
3.
Therefore, what
Community received exceeded the reasonable value of his services.
4.
W loses. H gets
everything because did factor in what you have to back out what you received.
Gilmore v. Gilmore
H owned several auto
dealerships. Increased from 200k to 800k over the course of 6 years. Success of
business is really a result of his capital investment because period of time was
very good for industry.
Periera Analysis
Van Camp Analysis
What if business declined for a few years but
then went back up?
Example:
DOM = value is $100k
After 5 years = $20,000
DOS = $140,000
Point
= you ignore any VARIATIONS between DOM and DOS. Therefore, you only look at DOM
value and DOS value in analysis.
**Only exception
where court allowed variance is the
Denney Case.
VALUATION OF BUSINESS
**Don’t use an accounting
analysis for valuation!
Four (4) assets to consider when dividing a
business:
1.
Tangible Assets
a.
Physical assets
of the business; e.g. phones, desks, computers
b.
Fair Market Value
(what could sell asset for now on open market); not depreciated value
2.
Intangible assets
a.
E.g. Copy rights,
patents, favorable leases, liquor licenses
3.
Accounts Payable and Accounts Receivable
a.
What you owe (AP)
and what you are to be paid (AR).
b.
AR is tricky
because could have clients, like lawyers, doctors, where work on contingency or
don’t get paid for 1-2 years. What if get divorced halfway through work and 1
year before get paid?
c.
Have to go in and
look at all assets. There is no right to privacy for spouse, have right to look
at all records. Problems if part of a partnership and people don’t want your
spouse looking at records.
d.
Point
= make sure to account for all assets that parties may have; if not would be
malpractice
4.
Goodwill
(see handout)
a.
Defined
= Anticipation of future business – value of expected revenues based upon your
standing in the community.
b.
If you build that
reputation while married, it is community, is what will be divided. Hard part is
how to quantify this – put a dollar figure on this?
Two Types of Good will:
1.
Business Goodwill =
Easy category – has a Market
value because it’s sellable; customer has no idea who owns it. E.g. a McDonald’s
franchise. Don’t have to worry about goodwill because there is a FMV for this.
Market will dictate what sales price is. If FMV is $1M and accounts payable is
$100k then Goodwill is $900k.
2.
Professional Goodwill
= E.g. Bob’s Law Firm. You can’t look at market value because you can’t value
Bob’s practice minus Bob. That is, the person is part of the value of business.
a.
CA Rule
= must value business without sale. That is, how do we value Bob’s law
practice with him part of it. Cases are about this.
b.
Excess Capitalization Method
(used to value goodwill) [Marriage
of Foster]
i.
This method is
used exclusively in CA courts.
ii.
Out of Foster
came the method of excess capitalization.
iii.
Formula:
1.
What would you pay a fungible person to do your
job?
a.
E.g. Bob makes
$300k per year while John makes $100k doing same thing.
b.
$200k is amount
attributable to goodwill
2.
Multiply this by a factor of anywhere from one
to ten (called an “excess capitalization rate”).
a.
This is a
multiplier to compensate community for goodwill into future.
b.
Rationale
= reputation that developed will continue to grow after divorce. This makes
formula subjective. Wouldn’t this make sense that community would share in
additional years? Problem is what happens if you die or you have an accident and
can’t practice or other scenarios and you are unable to proceed.
c.
In re: marriage of Lukens Factors =
contributing to goodwill include: age, health, past earning power, reputation in
community for judgment, skill, and knowledge, and his comparative professional
success.
d.
Point
= excess capitalization rate is based on these FACTORS. The higher the rate the
more $ client will have to pay. Usually won’t be more than 3-4 because don’t
want to destroy the person’s business, as this is the source to pay the spouse.
RETIREMENT PLANS
Two (2) Types of Qualified Plans
Tax will be deferred until
you retire. Theory is that you will be making less money when retired so will
get a tax benefit by being in a lower bracket.
Defined Contribution Plans
Defined Benefit Plans
Brown Case
Brown Timeline Formula:
CP% =
Total # of months married while employed
Total # of months employed
NOTE
1.
Always use MONTHS
2.
At DOT will
only know numerator and not denominator. This is because don’t know
when spouse will retire.
Example:
1.
CP% = 120 months
/ 240 months = 50%
2.
Total Pension =
$100k; CP = $500; H gets $750; W gets $250.
3.
This amount will
be paid for the rest of your client’s life.
4.
This is
not support. It doesn’t matter if
spouse gets married or becomes really rich.
Gilmore Case
Employment, DOM, DOS, date
of maturity, in that order. But at
age 60, H doesn’t quit working… works past date of maturity.
W says the retirement $ is her asset too (equal division rule).
Problem is that W can’t force the company to pay her share now.
Rule
= H cannot unilaterally prevent W from collecting CP funds. Mr. G can work past
maturity but cannot deprive Mrs. G part of the pension. $ comes out of H’s
pocket - H argues he’s forced into retirement, but court doesn’t care
Gilmore Election Formula
CP% =
Total # of months married
while employed
Total months employed until Gilmore election
Discussion
1.
This addresses
the problem if H makes increased salary after date of maturity.
2.
A Gilmore
Election can be exercised at anytime from date of maturity to date of
retirement.
3.
Therefore, if W
chooses to get her share (Gilmore Election) at date of maturity, just find out
what he is paid during this time. BUT she loses out on any potential growth.
4.
Ex. If goes from
janitor to CEO and pension goes from $1,000 to $10,000, she LOSES out.
Point
= W locks herself into size of the pension at date of
Gilmore Election.
Note
1.
The earlier you
exercise you Gilmore Election, you will get a bigger portion because denominator
will be smaller (fewer months worked at earlier time)! But pension will be less
(potentially), if salary increases.
2.
Gilmore
Election only in CA. Federal Government doesn’t support this.
Thus, this will be a problem with reporting taxes. Solution: stipulate for tax
purposes Gilmore election will be spousal support (which is tax deductible).
3.
Why don’t we give
spouse a share of pension for what it would have been between DOM and DOS?
Because is it fair to give more $ later when not married.
a.
Answer = CA is a
minority in doing later salary amount. Most states will do above.
Example of Brown/Gilmore
Problem
DOE = 1975
DOM = 1980
DOS = 1990
Maturity = 1995
Actual Retirement = 2005
Brown
Formula:
1.
120/360 = CP%
2.
33.33%/2 = 16.66%
- this is because W gets only ½ of CP
3.
At 2005
Retirement =$5000 (e.g.)
Therefore, client gets
16.66% of $5000 = $833/month (in 2005)
Gilmore
Formula:
1.
120/240 = CP%
2.
50%/2 = 25%
3.
At 1995
Retirement = $2000
Therefore, Client gets 25%
of 2000 = $500 (in 1995).
Note:
Spouse in a Gilmore Election will always be a HIGHER percentage than Brown
percentage. But will be a higher percentage of a theoretically SMALLER pie.
Also, if decide to wait for actual retirement, you will be giving up the
$500/month, which could have. Therefore, by actual retirement, will have given
up $60k which is 15 years of the Gilmore amount. Need to make a judgment.
Remember that this money will be paid for rest of your life.
What happens when spouse dies?
ERISA
= Employee Retirement Income Security Act
i.
SBP requires a
premium that must pay until comes
into effect (employed dies) – remember that might not ever come into effect if
employed outlives non-employed.
ii.
Different
levels of Survivor Benefit Plans
1.
Each level will
have a different premium.
2.
Usually the more
the monthly annuity, the higher premium will be.
iii.
Can’t opt for
SBP until actually retire. You have
30 days after retirement to opt out of SBP.
iv.
How it works
in a DISO action: Although the SBP
can’t be entered into until a person actually retires, in a DISO, the pension
plan is joined into the action by the court. The court orders the pension plan
to enter the parties into the SBP when employed spouse ACTUALLY retires. The
court further orders who the beneficiary will be and at what level the SBP is
selected. Thus, even if there is a subsequent spouse, the SBP is already locked
into.
v.
ERISA does NOT
require payment to other than first spouse.
If employed is divorced and then remarried, the SBP compensation will go to
first spouse (ex-spouse). Other spouses will have to sue first spouse to get own
share (doesn’t really happen in practice).
vi.
This is why
don’t have “defined benefit plans” present day.
They are too expensive to maintain.
Example: What if 60 and receive a pension. You marry a 25 year old. You die
when you are 62. Pension has to cover 25 year old until dies.
i.
Brown or Gilmore
Analysis: will create the numerator but won’t know the denominator.
ii.
Will then tell
company that when person retires or when a Gilmore election is made, the company
will do the calculations.
iii.
Must enter SBP at
preset level determined (see above) and lock in beneficiary.
iv.
The company must
approve it by signing it.
v.
The Judge will
then sign it and serve it on the employer.
vi.
Attorney has 1
year from DOJ to complete QDRO. Then, attorney’s job is done.
Marriage of Gowan – Broken Service
DOM = 1957
DOS = 1979
Emp = 1960-74; **time
off**; 1989-94
H worked for company for a
time and then stopped. He then started working for company again.
Holding
= Court combined the two periods of time together for the denominator (60-74 +
89-94) for Brown Timeline formula.
Gowan Formula:
CP% =
Total Number of Months Married while Employed
= same
as
Brown
Total Number of Months Employed
Rationale
= since company added second employment to pension computation, will add years
together for Brown Formula.
Point =
Broken service is ADDED even though second
employment was an individual effort and accounted for more $ (way more) than
first employment.
Marriage of Jones –
Disability Pay: NO VESTED Pension
**Disability pay is TAX
FREE!**
Disability given for two
reasons:
Holding
= Disability is NOT a CP Asset
Marriage of Stenquist –
Disability Pay: VESTED Pension
DOE = 1944; DOM = 1950; RET
= 1970; DOS = 1974
Facts
= H was in military. He injured
himself early in career, so could have taken disability retirement.
If he had taken disability then, would have been SP because
Disability is not a CP asset -
reimbursement for loss of future earnings, not past efforts).
However, he kept working until he had a vested pension (longevity
retirement). Turned out he got more money if he took disability… plus, it was
tax free.
Holding
= H can’t unilaterally waive W’s vested property rights. Since disability worked
out to 75% of base pay and longevity was 65%, court said H had to share up to
65% under CP principles. The remaining 10% was SP
Note
= After
Marriage of Wright –
Severance Pay
W and Father say that will
ruin H financially is didn’t leave work. Gave him severance pay of $24k. W
argues that this is for severance pay – it’s a buyout of retirement.
Holding
= Severance pay is also not CP because it compensates for lost future
earnings, not past service. $ wasn’t given to H as a result of compensation for
past efforts. $ was given to him because boss was out to get him. Thus, since
was going to be fired and would have a hard time finding job in future, was
going to compensate him for this.
Point
= Need to look at the real reason for giving the money.
In this case, the money was truly given as a severance pay.
Severance pay is not community property, so it is not divisible.
Marriage of Lehman –
Early Retirement Benefits
Enhancement of Retirements
= if you quit right now, we will pretend you worked for longer time period.
Therefore, retirement will be higher. Problem is that no one worked extra time.
It’s just a fiction. Just pretending that worked for time period.
Issue
= Is extra time CP or SP? Note that if “add” time to denominator, spouse will
get less, if don’t spouse gets a higher %.
Holding
= Court is going to ignore the extra time so spouse will get a higher %. That
is, will take the actual amount that gets (higher $) but will not include time
in the denominator, just pretend extra time never existed. Therefore, spouse
gets windfall.
Point
= this is a double-win for the spouse: (1) didn’t add time to denominator so
spouse gets bigger percentage; (2) used the actual retirement $ amount, so
divided up the bigger $ share (which is a result of enhancement).
Formula:
CP% =
Total number of months employed while married
Actual number months employed
(don’t add the enhancement time)
Stock Options
Overview:
An alternative to Defined Benefit Plan for Retirement Plans. Have a “potential”
for great earning capacity. Good for company because options only make money if
company makes money. If share price not doing well, then company won’t lose
money on options because won’t want to exercise them.
Concept:
Problem
= What is SP? What is CP? Clearly is exercisable before marriage, then SP.
Conversely, if exercisable during marriage is CP.
Marriage of Hug – How you deal with Stock
Options
Issue
= Need to choose which of TWO FORUMLAS to use:
Hug Timeline Formula
CP%
=
Date of Employment – DOS
Date of Employment – DOE(xercisabilty)
When used:
If you are hired with the idea that stock option is an inducement to come and
work for company (because of ability and skill) idea is that this was due to
performance in past – community effort.
Nelson Formula:
CP %
=
Date of Granting – DOS
Date of Granting – DOE(xercisability)
When used:
Stock options granted WHILE employed not as an inducement for you to come.
Point
= have to look behind the scenes to see reason for granting of stock. Nelson
will usually give CP a SMALLER Percent. Also, have to do an analysis for each
year because will have different dates of granting and different dates of
exercisability which will affect results of formula. [CP % will change]
REAL PROPERTY
(including Rental Property + Capital Improvements on SP asset paid for by CP)
Moore Formula
= exclusive remedy for backing CP out
of a Real Property SP
Facts
Purchase price = $56,640.97
Down payment = $16, 640.57
Before Marriage principle
paydown = $245 principal paid off
Post Separation principle
paydown = $581.07
SP Total = $17,466.87
CP Pay Down of principle =
$5,986.20
Capital Appreciation =
$103,359.43
Purchase Price – CP Pay Down
=
SP%
Purchase Price
Capital Appreciation = Fair Market Value at DOT
(not DOS) – Purchase Price
(
Example for Determining SP Total:
$56000-$6000
= 90%
$56000
CA = $100,000
$100,000 x 90% = $90,000
$90,000 + $18,000 =
$108,000 (SP Total)
NOTE:
(1) SP total and CP total equal FMV of home. (2) CP is divided in half.
**SEE HANDOUTS FOR HYPO**
Marsden Case
Person had purchased to
house a long time before marriage and house experience significant
Holding
= Pre-marital CA goes to the SP holder! Contrast to
Point
= only use CA acquired from DOM to DOT. The CA before DOM belongs to SP holder.
Problem
= how do we value the house at the DOM? Have comparison statistics to help you
with figuring this out.
**Therefore, Formula for
Capital Appreciation becomes FMV at DOT – DOM. Leave PRE-DOM to SP.
Walrath Case
Issue
= SP house, during DOM-DOS, it is refinanced and $ is pulled from house. Very
common. This will increase principle owed on house.
Rule
= If $ is used for CP property purposes, reduce the CP Pay down by this amount.
If used for SP purposes, reduce the SP Pay down amount by this. Moore/Marsden
Formula remains the same
Rental Property
Point
= use Moore/Marsden formula.
Question
= What happens if rental property is a truly negative property – is this
reimbursable? E.g. mortgage and other costs are $1000 but rent is only $700 a
month. Losing $300 a month. Therefore, Community is losing $ each month.
Answer
= No. Moore/Marsden is sole remedy for Rental property, therefore, money is lost
because if no capital appreciation, no formula (because multiply % by
Capital Improvements
Use Moore/Marsden
formula. This questionable from an evidentiary perspective.
Review of all three (3) ways can come into
office
Example: transmutation of a
SP into CP; at time of transmutation house has equity of $200k.
**See graph on handout**
Different Issues:
CREDITS
Two credits that accumulate
between DOS and DOT. Since the average divorce 2-3 years, there will be issues
between DOS and DOT that need to be addressed.
1.
Epstein Credit
= [codified] when a community debt exists at the DOS and one party pays on the
debt between the DOS and the DOT, that party is entitled to reimbursement of 50%
of all they paid.
a.
Exception
= Will not be entitled to Epstein credit if you are utilizing the asset the
debt is on – such as living in house at issue.
b.
Not just
principle reduction, but 50% of all you pay INCLUDING interest!
c.
Examples:
car payments, medical bills, etc. One person will be making these payments
because don’t want credit destroyed.
2.
Watts Credit
= [Case law result]: Also between DOS and DOT. “Usage
Credit”: If you use an asset that has a fair market rental value greater
than what you are paying, community is entitled to reimbursement of 50%.
a.
Example
= H remains in house. House has a FMV of $5k / month. Mortgage payment plus
costs $2k / month. Difference is $3k. Since H chose to remain in house, you are
costing community $3k / month. Therefore, a usage credit because using the
house. Therefore, entitled to reimbursement of 50% of $3k or $1.5k.
3.
These Credits can work together:
Say W was making the $2k/month payment. You would get $1k back (Epstein
Credit) plus the $1.5k (Watts Credit). Therefore, will get
$2.5k/month.
TWO EXCEPTIONS TO THE EQUAL DIVISION RULE
(§2550)
Family Law court only has
jurisdiction to divide CP equally. However, two exceptions per state
legislature: §2603 & §2641.
1.
§2603 – Personal Injury Award
a.
Old Rule
(prior to 1965): Damage award would
be community in nature and divided equally. This yielded some really bad
results.
b.
New Rule (post
1965): (1)
Presume that all of award will be an
SP award to injured spouse. (2)
However, with proper evidence, the parties can overcome that presumption and
divide that award up – but at least 50% of award must go to injured party. Thus,
the court can give up to 50% to other spouse and give 50(+)% to uninjured
spouse; prorate it however they want.
i.
Note:
what is important is date when injury occurred and not when monetary recovery
date is. That is, if date of injury was between DOM and DOS, must then look to
§2603. If occurred before DOM then ALL SP.
2.
§2641 – Community Contributions to Education
or Training
a.
Traditional
analysis would give spouse ½ of your degree. §2641 was passed to exempt
educational degrees from being a community asset.
b.
§2641(d)
= §2641 is the exclusive remedy of the community for putting you through
school; can’t use civil litigation.
c.
Sullivan Case
i.
Rule
= the educational degree is your separate. But, if the community spent money
obtaining that educational degree, then the
community is entitled to reimbursement (remember that will divide in
1/2!).
1.
Expenses must have been used for books and
tuition: This means that any funds
that the community spends to feed, shelter, insurance, car, etc. are NOT
reimbursable. Community can’t get reimbursed for these because not “related” to
education.
2.
Education must be of type to enhance your
earning capacity. So if spouse was a
cardiologist and went to law school, won’t enhance earning capacity.
3.
Presumption of a ten year SOL.
That is, if CP contribution to obtaining the degree took place over 10 years
ago, then community has already benefited from education and is NOT entitled to
reimbursement.
ii.
Point
= when take these three conditions above, community will usually not get much
back. Also, spouse will only get ½, so really won’t be much.
d.
Student Loans
i.
Any outstanding
debt for
tuition or
books at DOS become the SP of the student. These will not
ii.
Loans used for
other expenses will be CP debt.
e.
Only Two Remedies Available per §2641
(community contributions to education)
i.
Reimbursement
for community paying tuition and books
(seen above – divide in 1/2)
ii.
§4320(b)
Spousal Support = While reimbursement
is primary avenue to equalization for community, nothing prevents the court from
using §4320 which is the section to be used for spousal support. That is,
because of restrictions for §2641, can use §4320 to figure in spousal support.
1.
Lifestyle Rule
(after legislature reacted to Watt case)
= “Lifestyle” is the overriding factor that §4320
considers. Court cannot order support at a level higher than had during marriage
because this would violate public policy by encouraging divorces.
Marriage
of Watt – OVERTURNED BY
LEGISLATURE
Holding
= Have to look at “lifestyle” in context of what parties are doing. Therefore,
if lifestyle is suppressed while parties are in school, should look to an
anticipated lifestyle in determining spousal support. That is, will not
return spouse to lifestyle while in school, but lifestyle anticipated after
graduated from school.
Court went around
legislative intent so Legislature reacted:
they made lifestyle the overriding factor in §4320. Spousal support CAN’T be
higher than lifestyle had while married.
Example of “Lifestyle Rule”:
Dr. Green is a dentist and
W puts him through
Holding
= No spousal support. Can never give spousal support greater than what
enjoyed during marriage. Since W is earning more than during marriage and is no
longer supporting H, her lifestyle has gone up. Therefore, she can’t get spousal
support.
TRACING
Overview:
1.
FLC §760
creates CP presumption for assets acquired between the DOM and DOS. This
presumption can be overcome by tracing acquisition of asset back to SP.
2.
Spouses typically
commingle SP funds w/ community assets: E.g. a joint checking account. Then they
buy something from the account and the question becomes whether the SP or CP
bought the asset.
3.
Since there is a
presumption of CP, burden of proof falls on party asserting SP
Tracing is Done for Two Reasons
(1) Asset acquired is in
own name or is an asset that is without certificate of title (like a painting).
(2) §2581 problem where
property is held in joint form between the parties. Per §2640, entitled
to SP contribution into it.
TWO METHODS:
Family Expense Method
Based on two concepts
1) CP expenses are first
paid w/ CP funds
2) Commingling of money
doesn’t in or itself transmute $.
Sees v. Sees
H was VP for Sees candy. H
put CP funds and SP funds into a joint account. Says that if CP income first
pays for CP expenses then has to add up all CP income ($50k) and if spent all CP
$ on CP expenses ($50k) then everything left: stocks, real estate, has to have
been bought with SP! H just added up records at end of marriage to prove this.
Holding
= H did not do calculations correctly. H’s basic analysis is correct but his
mistake is that did not show that SP funds were available to purchase assets
at
date of acquisition. H showed
that more SP available but at “end of marriage” when did all the calculations
and added everything up. This was his mistake. Need to trace back to date of
acquisition. See example below.
Point
= Must show SP funds were available to purchases assets at date of
acquisition.
HYPO
Put in $20k in CP. Then put
in $15k SP. Then put in $5k CP. Then put in $5k SP. Then pay a medical expense
of $15k. Then go on vacation and spend $10k. Then invest in equity and spend
$15k.
Holding
= even though this account is “commingled” can still determine SP. This is
because CP put in a total of $25k. But then CP spent $25k on medical costs and
vacation. Since CP is presumed to be used first for CP expenses, can then prove
that rest of things purchased were from SP.
Direct Method
(determined by
Hicks
case, seen in
Mix case)
Rule
= to show direct tracing, must show that money was SP and then put into a joint
account (commingled) but then taken out within a short period of time (around 30
days) and used to purchase an asset. To overcome community presumption must have
GOOD RECORDS of transaction showing SP source. Idea is that simply used joint
account temporarily to hold funds that were intended to purchase a certain
asset.
Mix Case (bad result)
W was able to overcome CP
presumption by using her own testimony that she had intended funds to be SP.
This is bootstrapping and not a good result.
DEBTS
General Rule
= CP includes all things acquired from DOM-DOS, including
debts and
liabilities
Two Exceptions to the Equal Division Rule of
DEBTS
1.
Truly Negative Estate §2622(B):
[Debts outweigh the Assets] = Court can award this debt to whomever equity
demands – to the person most able to pay it (not necessarily the person most
responsible). That is, court has discretion to divide up excess debts however
want. On the other hand, debt up to amount you have in assets has to be divided
equally.
a.
Example:
Debt is $500k. Assets only have $300k. Negative estate of $200k. Therefore, up
to $300k have to divide equally. The remaining $200k can be divided up per
discretion of court (who is most able to pay).
2.
3rd Party Creditors
= even if FLC awards debt to one party, a 3rd party creditor can go
after either or both spouses. Creditors can‘t be divested of a vested property
right.
a.
Problem:
in a situation where a spouse agrees to take all debt and if other spouse waives
spousal support. But what could happen is spouse who took debt doesn’t pay debt
or files bankruptcy and creditor goes after other spouse who doesn’t even have
spousal support.
b.
Bankruptcy is in
federal court and has jurisdiction over
c.
Point
= Remember that as long as debt is out there, can be on the hook to creditors.
Have to be careful in FLC when dividing debt – have to consider that creditors
will be out there regardless of what FLC says and you can’t protect your client.
Analyze Debts Pursuant to Three Different Time
Frames
1.
Debt Before DOM
a.
§910
= when marry someone, you marry their debts. Community Estate is responsible for
that debt such as spousal/credit support from pre-existing relationship.
Creditor can go after any community estate to reach SP debt.
i.
Exception [§911(a)]
= As long as the non-debting spouse takes their earnings and keeps it in an
account that other spouse is not authorized to withdraw from, they can prevent
those funds from being taken by the creditor. On the other hand, as soon as they
put these funds into a joint asset (house, car, bank account), that asset
becomes fair game for the creditors to come after them.
b.
Community is entitled to limited reimbursements
for $ used on SP Debt [§920(c)(1)]
i.
There is a 3
year SOL that is not tolled by the
fact that marriage is continuing to proceed. Therefore, if have used CP funds
for SP debt, have 3 years to get reimbursement. But in reality, who is going to
seek reimbursement while still married?
Example: You have a SP car that still has three years of payments. Get
married and use CP funds on car. Stay married for another three years. Won’t be
able to get reimbursement for this.
ii.
Money
community has expended for child support:
there is (1) a 3 year SOL and a requirement that says (2) community is entitled
to reimbursement only if at time child support payment is made (from a previous
marriage), owing spouse must have had sufficient SP income (income from an asset
you have before marriage – rental property, trust fund, pension, etc. as long as
income and not an asset) available to pay the debt on own and not with CP funds.
Point is this is very unlikely to
happen.
c.
Any balance on that SP debt at DOS, reverts back
to your SP.
2.
Debts created between DOM and DOS
a.
Debts will be
presumed to be community debts
regardless of how silly or unfair they are – such as when a spouse takes CP
funds and creates a debt at racetrack.
b.
Three (3) Exceptions to Presumption (may be
more) => Thus SP Debt. Person who
wants to show exception has the burden of proof:
i.
(1) Debt was created in anticipation of
dissolution: Look to proximity in
relation to dissolution. Ordinarily this is not a problem because will be
obvious, e.g. attorney’s fees. However, there are problems when spouses start
hiding away money years before dissolution. Harder to prove that created debt in
anticipation of dissolution.
ii.
(2)
Debt is NOT for the benefit of the community:
If you go lose money at racetrack, considered benefit for the community because
you are the community. That is, benefit for a party still is a benefit for the
community. Therefore, to overcome presumption,
benefit is for a 3rd party without spouse knowledge (e.g.
mistress). That is, $ spent on mistress (jewelry, hotels, flowers) is NOT for
the benefit of the community. This is for
public policy reasons, so can’t argue that for benefit of the community.
1.
A Non-Mistress Example:
Borrowing $ for sister’s college education without spouse’s knowledge.
2.
Where draw line?
What if used $ to see dirty movies. At what point will NOT be for benefit of the
community. A big gray area. Once get past mistress relationship, court is more
hesitant to find that have overcome presumption.
iii.
(3) Debt is created for an intentional, wrongful
act: An example would be a mayor
whose spouse is prosecuted for embezzlement. During the course of prosecution,
used an expensive criminal defense lawyer. Since the embezzlement was an
intentional, wrongful act, the debt is SP. Have to convince FLC that committed
act by preponderance of the evidence.
1.
Court uses this a
lot in areas of DUIs, where rack up a lot of debt because of fees. Court finds
these to be an Intentional, Wrongful Act.
2.
Contrast
to a Negligence Case – Do NOT overcome presumption:
Guy didn’t pay his taxes for 3 years because thought it was
unconstitutional. IRS went after him. His wife filed taxes separately. By the
time he paid all fees, owed $70k. Took this $ out of home (CP). Court found his
actions were stupid and negligent but not intentional and wrongful.
3.
Debts created between DOS and DOJ
a.
§914:
Liability is extended to DOJ for the “Necessaries of life.” This could be
interpreted as shelter, clothing, food, etc. but court has not stretched it that
far. Court usually interprets necessaries as only covering
medical coverage
and care that has been extended
to an individual between DOS and DOJ.
i.
Since 6-10% of
people separate but never get divorced, their “necks” are still on the line
until actual DOJ. This could rack up a lot of $.
Note
= when do dissolution planning, need to address these debt concerns to protect
client and not just pass debt out “like candy.”
FIDUCIARY RESPONSIBILITIES
§721: Fiduciary Relationship between Husband and
Wife
Duty of good faith and fair
dealing between spouses – can’t take unfair advantage of each other.
§2102: Fiduciary Responsibility Extended to DOJ.
§2104 & §2105: Declarations of Disclosure
1.
Must disclose
in writing all of those factors laid
out in §2104: income, investment opportunities, liabilities. Encompasses
everything in §2102, including SP (whatever you have “interest” in)
a.
Writing is
considered the exclusive demonstration of disclosure.
2.
Must disclose
at least TWICE.
a.
A
preliminary one when divorce is
filed
b.
A
final one at of around time of
judgment
c.
[And anytime in
between if assets change!!]
3.
Must serve
upon the court a declaration that you have delivered to other side a declaration
of disclosure.
4.
Court has
jurisdiction to reopen case if you failed to disclose the assets – remain on the
hook indefinitely.
Three Sections on Breaches of Fiduciary
Responsibility
Remedies (§1101)
1.
Ordinarily, the
court is to divide the asset 50/50 if person fails to disclose it.
2.
But under §3294,
the remedy is
at least 100% to the
non-offending spouse if breach was result of fraud, malice, or oppression.
a.
Thus, if there
was a significant asset which has not been listed on declaration, court will
determine this as fraud (usually) and will give all of it to ex-spouse. However,
if was done by mistake and not fraud, will divide it 50/50.
Personal Property (§1100)
1.
Rule
= Don’t need written permission to sell as long as you get FMV.
2.
Exceptions:
furnishings for house, spouses clothes – need permission from other side
a.
b.
Beltran
Case: H had a military
retirement. After DOS, he committed criminal acts so lost pension rights. Court
held that this was breach of fiduciary responsibility. What is difference from
above? In this case, there is an exception to Debt rule: a wrongful and
intentional act (criminal charge).
Real Property (§1102)
1.
Rule
= need written consent of other spouse if going to dispose of community real
property. Have one (1) year from transaction to go in and set aside that
transaction.
2.
If try to set
aside transaction, run into problem with creditor:
3.
Lezine
Case = H unilaterally transferred
a security interest on house after W wouldn’t let him get a loan on the house. H
forged her signature and put house in his name only. H then got $ and
disappeared. W set aside transaction per §1102 (within one year required time
frame). But, creditors file a lien and get a $ judgment, so W if basically
screwed. Remember that debts can be collected by creditors from either spouse if
debt is on community estate (between DOM and DOS)! Therefore, setting aside
transaction did no good. Court won’t set aside the lien from the creditors.
a.
What about debt exceptions?
They don’t apply to 3rd party creditors. So, even though W could sue
H based upon exceptions, is still screwed by creditors.
b.
Note
= result would have been different if H had did what he did after DOS!
PRE-MARITAL AGREEMENTS
Misconception
= PMAs don’t protect items you bring into marriage. That’s your SP. They protect
assets acquired from DOM-DOS.
Uniform Premarital Agreement Act (§1600)
1.
Before UPAA
adopted in 1985, PMAs were just Ks – you could go into civil court.
2.
Took out of K law
and gave FLC exclusive jurisdiction.
What can you do with a PMA?
§1612: as long as it deals
with property, you can do just about anything you want.
What can’t you do with a PMA?
1.
Can’t address
child support or
child custody.
2.
Can’t do anything
that violates
public policy
a.
This includes anything that
promotes the dissolution of marriage. This is up to court to decide on a
case-case basis.
3.
If any of the
above is included in a premarital agreement makes that agreement INVALID Per Se.
4.
Note: all
premarital agreements promote dissolution of marriage in some form. Statistics
support this.
**
CA has an overwhelming desire to make PMA valid (Underlying principle of
state legislature and state courts).
Marriage of Noghrey
Got married, and night
before wedding H offered to give W a house and $500K, or ½ of his estate. Wrote
this on back of a napkin. Therefore, if she gets divorced she gets a house and
$500k or ½ of his estate, whatever is greater. She files divorce 7.5 months
afterwards. Issue is whether she got divorced for money?.
Holding
= PMA was held to promote dissolution and is thus invalid. But remember for
other cases to deal with on particular facts on a case-case basis.
Barry Bonds Case – changed rules
Married a Swedish woman
(English her second language). At time was making 100k a year. When divorced
making $8M. On way to Vegas to get married, they stop at Bonds attorney’s
office. They give W a PMA. They said she doesn’t have to sign it and can get a
lawyer but plane is waiting for them and can’t get married unless she presently
signs it. She signed it and they got married.
Issue
= was PMA valid? Real question is was it entered into VOLUNTARILY?
Holding
= Fiduciary Duty does not apply because these people were not married. Voluntary
requirement is in between FD of spouses and two people negotiating a
commercial contract. Putting fiancés in position of married couple, would shift
voluntary responsibility to person not seeking to have PMA set aside. Therefore,
burden of proof is on person seeking to have the PMA set aside. Therefore, you
are going to have to show some type of coercion or undue influence for court to
infer that NOT voluntary. Upheld Bond’s PMA.
Point
= court made it nearly impossible to find that did not enter into PMA
voluntarily. This rewrote the whole definition of voluntariness!!
Pendelton & Fireman Case
“Permanency is no longer a
characteristic of modern marriage.” Purpose of UPAA is to ensure PMAs are
enforceable. Holding = No longer
violative of public policy to waive spousal support!!!
**As a result of
Bonds/Pendelton, State legislature rewrote statutes concerning PMAs
To Make PMA Valid
1.
Must be in writing
2.
Must be entered into voluntarily
a.
Did person fully
understand what they were doing; did person act freely?
b.
Nothing in
requirements that each party have their own attorney. But each party having
attorney supports meeting the ‘voluntary requirement.’
3.
Can’t be unconscionable at the time of
execution.
a.
“At the time of
execution” is CRITICAL.
4.
Full Disclosure of all assets and liabilities OR
a Waiver of full disclosure
a.
Courts have hard
time with obliging a waiver of full disclosure.
b.
WESLEY says that
should have a full written disclosure; the more complete the better because will
make more valid.
5.
Agreement must be in language parties are fluent
in
a.
This addresses
the problem in Bonds.
6.
If waive spousal support, must be represented by
independent counsel
7.
Even if you have independent counsel when waive
spousal support, if PMA is unconscionable at the time of enforcement (not
execution), then that waiver can be rejected.
a.
E.g. if during
course of marriage, spouse stays home with children, can set up a position of
unconscionability at time of enforcement. This causes a lot of litigation,
putting people back in court system (PMA was supposed to mitigate this).
8.
Must be given notice in writing that have a
right to independent counsel
9.
PMA must be given to spouse and spouse must sign
waiver of counsel at least seven (7) days before sign PMA.
10.
If not independent counsel, there must be a 3rd
party full explanation of rights in writing
a.
In practical
terms, means that you must have counsel.
**Remember that PMA can’t
address
child support &
child custody or do anything that
violates public policy, which includes anything that promotes
dissolution of marriage.
Two Different Types of PMAs
TAX IMPLICATIONS IN CP
Tax Consequences in the Domestic Partnership Act
FEDERAL PROGRAMS & BENEFITS
Overview
Boggs v. Boggs
ERISA = federal act that
dictates how defined benefit programs are going to be administered uniformly
throughout country.
H married to W1. W1 died. H
remarries W2. W2 under survivor benefit plan was beneficiary. When H died, W1’s
children wanted part of that pension because earned while married to W1 and part
of it was CP. Kids sued W2 for pension.
Issue
= ERISA says can name beneficiary. W2 was beneficiary. Conflict between State
and Federal law.
Holding
= Under CP law, children win, but CP doesn’t control. Federal law controls so W2
wins and gets all of pension.
Stenquist Case (again)
Issue was disability pay
and retirement pay and whether W got any of it because both were available to
choose from. Holding was if have option, and choose disability pay, W, to extent
that opting out of longevity, is CP and divisible. This is decision under CA
law. But with FEDERAL employees, is NOT GOOD.
Mansell Case – military disability benefits
Holding
= congress hasn’t past an enabling statute that allows states to divide military
disability. Therefore, states can’t divide federal disability under any
circumstances. E.g. this would apply to military disability. H, in this case,
can deprive W of disability pension. Can’t divide that asset.
Federal Pensions
Background
= prior to 1981 family law attorneys were
dividing them (never had right to divide pensions). In the
McCarty Case,
went to SC. Held that no enabling statute that gave courts authority to divide
these assets. After this, Congress passed an enabling statute (10 USC §1408).
Congress decided that could divide the pensions, BUT also said how would divide
them:
Two Categories:
1.
Federal Civil Service
= states CAN DIVIDE them pursuant to state law like they would any pension. In
CA would be the Brown Formula.
2.
Military
= Three (3) prong test to divide pension per §1408. Must meet one of the
criteria:
a.
(1) Does
military member consent to division? (doesn’t happen often); OR
i.
If don’t
address/ignore service of DISO than by default finds consent.
b.
(2) Is the
military member a domicile of state? (usually not); OR
c.
(3) Did the
military member commit acts greater than necessary as a result of their military
obligation? This is like a long arm statute with the “purposeful availment”
test. That is, did military member commit acts greater than necessary while
stationed here in CA to make them purposefully availed of the state laws?
i.
Tucker Case
= H was stationed in CA but domiciled in FL. H owned a house in CA. Had a CA
driver’s license. H worked as a chaplain in a hospital and has a child who was
special and state paid money to him. Seems to meet the “greater than necessary
act” requirement.
ii.
Holding
= everything he did was connected to military obligation. Did not commit acts
greater than military but CONSISTENT with military obligation!
iii.
Point
= as a result, in CA almost impossible to divide a military pension.
More Examples – even if bought with CP funds!!!!