Community Property

Community Property: Wesley Outline 3

COMMUNITY PROPERTY

Professor Wesley

I. Introduction

A. Community property is “All things acquired from date of marriage to date of separation except those acquired by gift, bequest, devise or descent with rents issues and profits thereon.”

B. Community property is not an equitable system; it is created solely to aid people to get through the community property system.

1. It is purely a mechanical calculation on how we are going to divide up the community property assets.

2. Meant to be an expeditious way of getting through the system.

3. Tried by judge alone, no juries.

C. Under California law, there are two types of property and two types of property only. All property must fit in one of those two categories.

1. Community property and

2. Separate property.

a. Separate property is all property that is not community property.

b. Separate property must go back to the separate property owner.

D. Only the community exists from the date of marriage onward.

E. Date of separation, is the date where the parties believe that there are irreconcilable differences and is irretrievably broken.

F. Three ways to commingle SP & CP

1. Transmutation = 852, 721, Haines, Delaney, Mathews

2. SP contribution into CP—2640 of the Family Law Code

3. CP Contribution into SP—Too complicated

G. First question is when you got married and when you got separated. Without this knowledge, you have nothing.

1. Anything before DOM is SP

2. Anything after DOS is SP by definition.

H. Date of Marriage-when you cease to exist and community comes into creation.

I. Under the law, there are 4 ways and only four ways that we can get you into the community property system.

1. Pursuant to FLC § 300.

2. FLC § 297.5

3. Quasi Marital

4. Marvin action (technically not community property actions, but they resolve in the same findings)

J. Legal separation is a unique judgment. Don’t confuse this with date of separation.

1. Legally separated all community property assets are divided the same. Only reason to use legal separation is because government or employers doesn’t recognize legal separation, would do for technical purposes to keep health insurance, etc.

II. Creating Community Property

A. Date of Marriage

1. 300 FLC

2. 297.5 FLC

3. 2251 FLC

4. Marvin Actions

III. Valid Marriage

A. IS MARRIAGE VALID PER §300?

B. Requirements for a valid marriage:

1. Consent

2. License

3. Solemnization

C. 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)

D. §308 = CA must recognize a marriage from another jurisdiction.

E. Exception (§308.5) = CA doesn’t have to recognize same sex marriages even if valid in another jurisdiction.

F. IF NOT A VALID MARRIAGE, LOOK FOR ALTERNATIVE WAYS TO GET INTO COURT

IV. Domestic Partnership

A. Domestic Partnership = FLC §297

B. Domestic Partnership Act (original)

1. Limited rights. Nothing of substance took place under those

C. Domestic Partnership Act (amended)

1. Signed into law last October. Given until Jan. 2005 to take effect.

2. DP under old Act will be grandfathered into new Act

3. Coverage:

a. Same Sex couples

b. Odd sex relationships

c. Persons over the age of 62 – they don’t want to get married for social security reasons.

D. Benefits = DPs will have the same benefits as those with a licensed marriage under §300 – See §299.5

E. If want to dissolve DP, need to do it through the Family Law Court.

V. Qausi-Marital Property

A. Quasi-Marital Property

B. 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.

C. Putative Spouse = is a spouse meeting above definition. The court can invoke this statute and invoke CP. Putative means “innocent.”

D. §2251 “Status of Putative Spouse; Division of Quasi-Marital Property

1. This section falls into the “VOIDABLE MARRIAGES” section under NULLITY.

2. 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.

3. 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.

4. Requires “good faith” belief that the marriage is valid.

5. If a putative spouse and invoked §2251, then act is if had a valid marriage for division of assets purposes.

6. Problem = a “good faith belief” that marriage was valid seems identical to a COMMON LAW MARRIAGE.

E. §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.

F. 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 Ohio. Got in a fight. H filed a dissolution against W. After she was served, he went back and said he was kidding and wanted to get back. They reconciled and lived happily ever after. Moved to CA and had kids. Later had another fight and marriage breaks up. They both file for dissolution of marriage. H’s attorney comes in with first papers and shows they have been divorced for 10 years.

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.

VI. Marvin Action

A. Nonmarital relationships are not entitled to relief under the family law code.

B. Inquire into the conduct of the parties, to determine if any sort of tacit understanding existed between the parties.

C. Cases

1. Marriage of Cary (451)

a. W and H never married but held themselves out as being married.

b. Family Law Act went to a No Fault System.

c. T. Ct. held that don’t allow W and H into Family Law Court because they know they are not married and are “committing sin.”

d. Holding = reversed. FLA allows these types of couples into court because not trying to punish, is a No Fault System. Thus, will allow a division of property. Also, older conception was sexually discriminating because most W were homemakers. Until 1975, H controlled all assets of household.

e. Point = Can get into Family Law Court without being Married

2. Marvin v. Marvin

a. W (P) would give up career to be a homemaker.

b. Holding = Court said can’t get into family law court unless you are validly married. But then can find an express contract unless based on meretricious sexual relations. In the absence of an express contract, can find an implied contract based upon tacit understanding between parties over the years.

c. Point = created a liberal interpretation of contracts that allows court to find an implied contract or tacit understanding between parties, which can find in almost all the case. Weird that not in civil court since based on Ks! Family Law Court, not well suited to handle these problems, but have to.

d. Remedies = can bring contact principles into determining remedies. Shouldn’t do this in Family Law Court but do. This is another problem stemming from Marvin actions.

3. Trend in CA:

a. Cohabitate for a few years before marriage.

b. Acquire assets together before marriage.

c. Get married and then get separated.

d. Therefore, might do a MARVIN ACTION first to determine what was acquired before marriage. Then will do a DISSOLUTION PROCEDING analysis to divide CP. Up to court to find a contract (implied or express).

VII. Date of Separation

A. CA says DOS is when marriage is irretrievably broken.

B. Compare and contrast Manfer with Baragry

1. Baragry 3^rd party. Dr. Baragry actions were one that bespoke that relationship was over. Baragry was application of strict objective standard. If it appears that their marriage is not irretrievably broken then there is no DOS.

2. Manfer wrong when it says it doesn’t overturn Baragry, it modifies Baragry. Addresses problem of when parties conceal relationship. Would have been a sham to say date of separation was the latter date. They were living in a charade of not informing other people.

a. Manfer sets up a 2 prong test:

i. Look at the subjective intent of the parties.

ii. Objective factors, do they bespeak of their subject intent, do their actions demonstrate that subjective intent was being carried out.

VIII. Jurisdiction

IX. Equal Division Rule

X. Quasi-Community Property

A. Basic Definition = Quasi Community Property is property that would be CP if located in CA but it is not.

B. §125 - Quasi-community property

1. "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.

C. §125 Has Two (2) Elements (to give CA jurisdiction to divide assets pursuant to CA CP Laws):

1. Both Parties domiciled in CA (where intend to reside permanently – can only have one domicile but can have multiple residences).

2. Dissolution Action has been filed in CA

a. By taking the second step, the parties consent to application of CA law

D. Jurisdiction of Quasi Community Property

1. 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.

2. Example

a. H and W living in Mississippi. Lived their whole life. H earns pension. Under Miss. law would be H’s SP. Never been in CA. After retirement and pension matures, W and H move to CA. W files for divorce after 1 year in CA.

b. Issue = can divide pension?

c. Holding = use §125 to deal with this situation. Treats pension as quasi CP and treats as if it had been earned here.

d. 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.

3. 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.

XI. Date of Valuation

XII. Community Property Presumptions

XIII. Evidentiary Presumption

XIV. Transmutation

A. Transmuting During Marriage

1. Pre-1985 Transmutation

a. Prior to 1985, there were no formal requirements for property agreements made during, as opposed to before, marriage.

b. Estate of Raphael

i. A husband who had inherited some property made statements to the effect that “what is mine is your,” and proceeded to file a joint tax return with his wife indicating that she had equal interest in all of the property he owned.

ii. The husband’s brother appealed, arguing that the executed oral agreement lacks the necessary requisites of a valid contract in that it is indefinite and uncertain and thus unenforceable.

iii. The court held that the agreement to transmutate property may be of informal character. An oral agreement is enough, and the jointly filed tax returns are sufficient evidence to support this.

c. Marriage of Jafeman

i. When Edward married Mary, he already owned the house that is the subject of dispute in the divorce proceeding.

ii. The testimony of the wife and the husband conflicted. The wife believed the house was community property and the husband did not.

iii. The court held that although testimony by a husband as to his undisclosed intent to transmute his separate property to community property has probative value, the same cannot be said of testimony by a wife as to her undisclosed beliefs respecting her husband’s property. Such testimony is not effective to show an implied agreement between the parties to alter the character of the husband’s property.

2. Post-1984 Transmutation

a. FC § 2581

b. FC § 803

c. FC § 760

d. FC § 852 Form of Transmutation

e. FC § 720

f. The Content of the Express Declaration

i. Estate of MacDonald

XV. Relationship of FC §2581; §852, §720, and Evidence Code §662

XVI. Separate Property into Community Property

A. Separate Property Contributions to the Purchase Price of Jointly Titled Property

1. Marriage of Lucas

a. FACTS: Gerald and Brenda Lucas were married and decided to purchase a home. The house was purchased in 1968 for $23,3000 and Brenda used $6,351.57 of her trust money as a down payment. Title to the house was taken with Gerald and Brenda as joint tenants.

b. ISSUE: What is the proper method for determining ownership interests in a residence purchased during the parties’ marriage with both separate and community funds?

c. HOLDING: The court held that the proper method for determining ownership interests in a residence purchased during the parties’ marriage with both separate and community property funds was that the residence was entirely community in nature in the absence of any evidence of an agreement or understanding between the parties to the contrary.

d. RATIONALE: There was no agreement or understanding that Brenda was to retain a separate interest in the house.

e. The court says the property acquired during marriage is presumed to be community property in the absence of any evidence of an agreement or understanding between the parties to the contrary.

2. Anti-Lucas Law

a. Marriage of Buol

i. ISSUE: May legislation requiring a writing to prove, upon dissolution of marriage, that property taken in joint tenancy form is the separate property of one spouse be applied to cases pending before the effective date?

ii. No, applied retroactively, the statute impairs vested property rights without due process of law.

iii. § 2850 of the FLC may not be given retroactive effect.

b. Marriage of Heikes

B. Improvements: Gift Presumptions and Statutory Treatment

1. Marriage of Warren

a. The parties to the marriage agreed that $38,000 was used to improve the husband’s separate real property. However, at the time of trial, the building was worth only $33,952.

b. The court held that the amount of reimbursement is equal to the amount expended.

2. Marriage of Jafeman

a. Various community property funds were used to improve the husband’s separate property home.

b. When community funds are expended for improvement of a husband’s separate property, the community is entitled to be reimbursed only if the expenditure was made without the wife’s consent.

3. Post-1975

a. If either spouse appropriates community funds for his or her own benefit, without the consent of the other spouse, the community should be reimbursed.

C. The Family Expense Presumption

1. Available community property funds are presumed to have been used to pay family expenses. Separate property funds are deemed to have been used to meet family expenses only when community funds are exhausted.

2. When separate property funds are used to pay family expenses, the separate estate has no right to reimbursement unless the parties have agreed otherwise.

3. See v. See

a. A spouse who elects to use his/her separate property instead of community property to meet community expenses cannot claim reimbursement.

b. In the absence of an agreement to the contrary, the use of separate property by a spouse for community property purposes is a gift to the community.

XVII. Community Property into Separate Property

XVIII. Business Evaluations

A. Business and Professional Goodwill

1. As Property Subject to Division

a. Marriage of Lukens

i. Dr. Lukens owned a practice of which the court valued the goodwill at $60,000. Dr. Lukens contends that professional goodwill has no market value and thus should not be included in the value of the practice for the purposes of community property.

ii. Goodwill is property of an intangible nature and is commonly defined as the expectation of continued public patronage.

iii. The fact that professional goodwill may be elusive, intangible, and difficult to evaluate is not a proper reason to ignore its existence and once its existence and value are ascertained, professional goodwill along with the other assets of the professional practice, should be included in a property division

2. Valuation of Professional Goodwill at Dissolution of the Community

a. Marriage of Foster

i. In sum we conclude the applicable rule in evaluating community goodwill to be that such goodwill may not be valued by any method that takes into account the post-marital efforts of either spouse but that a proper means of arriving at the value of such goodwill contemplates any legitimate method of evaluation that measures its present value by taking into account some past result.

ii. The method in Foster is valid because it did not take into account future earnings, rather it took into account past earnings and projected these into the present value of goodwill.

b. Marriage of Fortier

i. The wife appealed a divorce proceeding claiming that the court drastically undervalued the goodwill of the business by $284,000. The appellant argues that the market value is not a correct method for evaluating the goodwill.

ii. The court says that future value should not be used because the couple is no longer married and it would be inconsistent to assign community interest to a future value of something where the parties are separated.

iii. Since community goodwill may not be evaluated by a method that is dependent on the post-marital efforts of either spouse, then, as a consequence, the value of community goodwill is simply the market value at which the goodwill could be sold upon dissolution of the marriage, taking into consideration the expectancy of the continuity of the practice,

3. Apportionment of Business Growth and Profits

a. Beam v. Bank of America

i. Mr. Beam inherited considerable assets in the amount of 1.7 million dollars that was his separate property. Mr. Beam was married for 29 years, during which the value of the funds only slightly increased. During the marriage Mr. Beam continuously pursued capital ventures and invested in the stock market. The wife contends that she is owed a portion of the money as community property.

ii. The court held that there was no resulting community property from the investments or earnings of her husband’s separate property.

b. Gilmore v. Gilmore

i. Mr. Gilmore owned several auto dealerships that were his separate property. During the course of his marriage the value of these dealerships increased greatly. During the course of his marriage Mr. Gilmore also received a comfortable salary from these ventures.

ii. The court held that the property amount to be determined as community property was the amount of salary that Mr. Gilmore received and not the value of the dealerships. The increase in the value of the dealerships was over $500,000 while the salary amounted to much less money.

XIX. Community into Separate Business

XX. Community into Separate retirement

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

Parties and the employer each are contributing to this plan. Usually employer matches employee contribution.
E.g. 401K, 403B, ESOP
For community property issues, this is an easy accounting method because just need to find out what contribution was between DOM and DOS.

Defined Benefit Plans

More complex problem. See Brown and Gilmore cases
This kind of plan is a promise to pay. E.g. if you work for me for 30 years, I’ll pay you the average of the last 3 years salary for the rest of your life.
Example:
1. Date of employment = 1980
2. DOM = 1990
3. DOS = 2000
4. Maturity (when you can receive pension or benefit plan – vesting date) = 2010
Problems = Difficult because there is no money there, just a promise to pay. If you quit early, you get nothing. Also, how do we know what these values are? How define value when don’t know what last years of salary is? Also, don’t know what pension value is because don’t know how many years you will live. Also, if you quit job before maturity, then you don’t get anything!
Don’t want to use an “Actuary” because is wrong since based on averages. Things can happen which could change result. Don’t want to take this chance since pensions are huge amounts of money. Only work well for very short marriages.

Brown Case

Brown overruled French Case. French said that nothing existed until pension vested, until then it is not property. Therefore, if get divorced before maturity, W gets nothing.
Brown analogized this to a personal injury case (accounts receivable). It doesn’t matter that it wasn’t vested.
Holding = regardless if matured or vested, a portion to community (1/2 between DOM and DOS)

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

ERISA is a federal act that dictates how defined benefit programs are going to be administered uniformly throughout country.
Basic Rule = ERISA banned Terminable Interest Rule, so pensions run until both parties die.
If Non-Employed Spouse Dies First (E.g. W):
1. Since pension is still part of W’s estate (CP asset, NOT support), it will flow to whomever she leaves it.
If Employed Spouse Dies First (E.g. H):
1. Survivor Benefit Plan = covers W from death of H to her own death.

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.

QDRO: Qualified Domestic Relations Order (296) – CREATED BY ERISA
1. Definition = This is a court drafted order for how retirement will be allocated.
2. You must first join pension plan into the DISO (dissolution of marriage) the first day of the case. Do this so employed spouse doesn’t buy way out of pension plan. You want court to be able to make orders over pension plan so have to join the pension plan. This includes a restraining order over funds.
3. This is considered per-se indispensable.
4. Court will rule on the pension since under its order:

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.

Point = once all these factors have been satisfied, it will be considered a QDRO. When spouse actually retires, the ex spouse doesn’t have to worry about it. The company will bifurcate the payments and give two separate retirements. That is, once qualified, the company will take care of all the payments.

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.

Why is pension earned during second employment a function of community efforts during first half? Seems insane.
If would have been with another employer, would have NOT had a case.

Marriage of Jones – Disability Pay: NO VESTED Pension

**Disability pay is TAX FREE!**

Disability given for two reasons:

Compensate for loss of wages
Pain & Suffering

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 Stenquist, SC reinterpreted 10 U.S.C. § 1408 to exempt military. Therefore, Stenquist applies to all federal jdx’s except for the military (b/c military is ordered into CA jdx). H won b/c he was military.

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:

Date of granting = Corporation gives you 10k options on a yearly basis: e.g. 2001, 2002, 2003, etc.
Date of vesting = 2-5 years out. Therefore, e.g. 2003 can exercise the options. This means that can buy each share for a predetermined price (e.g. $1.). If you are not employed at date of exercisability then LOSE options. Therefore, “golden handcuffs” to stay with the company.

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]

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