Articles Posted in Community Property

401kIn any divorce case, one of the primary issues willl likely be the division of property. While the couple’s marital home may be the largest asset, another important asset for many couples is retirement accounts. In the recent case of one Riverside County couple, their April 2010 divorce order gave the wife a portion of the husband’s 401(k) account. The case focused upon what should happen to the gains and losses from that portion of funds when that money wasn’t immediately segregated in the wife’s name. Issues like these highlight how almost any divorce case can contain many subtleties and complexities that can benefit from the detailed knowledge of a skilled California divorce attorney.

The case involved a husband and wife who separated in 2009 after 17 years of marriage. The couple’s divorce was finalized in the spring of 2010 and included a marital settlement agreement. Among other terms, the settlement agreement awarded to the wife the sum of $113,000 from the funds contained within a 401(k) retirement account.

Several years later, all of the money, including the wife’s $113,000, was still in the husband’s 401(k). The wife then went to court to ask that, in addition to the original $113,000, she receive whichever gains and losses had accumulated in the intervening time period. The husband opposed this request, arguing that the original order gave the wife no right to gains and losses, but only the exact lump sum stated. Giving gains to the wife would be an improper modification of the original order, he contended.

split dollarFor many divorcing couples, one of the larger and more important assets is often retirement benefits. To the extent the pension or other retirement asset was earned during the marriage it is community property and subject to division in the divorce, while whatever portion was earned before the marriage of after the date of separation is not. Assessing how much of a retirement benefit should go to a former spouse can involve some complicated calculations.

An example of a couple dealing with this issue was the recent case of Joseph and Cathye. Joseph was a 30-year veteran of the Los Angeles Police Department when his pension became effective in 2004. From 2004 forward, Joseph continued working for several years under a deferred retirement option plan. Eventually, in 2009, Joseph transferred all of his pension funds into an IRA. That sum was $700,000.

From 1984 to 2011, Joseph was married to Cathye. A key issue in the divorce was the division of Joseph’s pension funds. In this case, the wife’s portion was calculated using something called the time rule. The time rule meant that the court took the time that Joseph worked for the LAPD during his marriage and divided it by Joseph’s total time of service. The court then multiplied that fraction by the husband’s monthly pension amount. The amount yielded from that math equation was the community property portion of the pension, which meant that Cathye got one-half of that amount.

A big question in many California divorce cases is what happens to the family home. Property held by spouses during the course of a marriage is generally split evenly between them in divorce under the state’s community property system. Still, there are a number of ways to handle the issue, including by allowing the divorcing spouses to work together to come up with a mutually agreeable solution. Even when that happens, legal issues can spring up after the agreement is reached. California’s Second District Court of Appeals recently took on some of those questions.

houseWhen Husband and Wife divorced in 2010, they agreed to share legal custody of their two children, with primary physical custody of the kids going to Wife. They also agreed to split their assets, including the net equity in the family home in Covina. The court entered a stipulated judgment covering the terms of the agreement. The judgment made clear that Wife would be able to stay in the home until the kids reached the age of 18 or otherwise were no longer living there. It also obligated the spouses to immediately sell the home and split the proceeds if Wife did anything to “transfer, encumber or convey their interest in the said real property” without an agreement with Husband or court approval. In the event that happened, the judgment also gave Wife the opportunity to buy Husband’s interest in the property.

Husband went back to court in 2014, asking a judge to force Wife to sell the property. He said he signed a quitclaim deed over to Wife after she said she wanted to buy him out, but he added that she never sent him the money and had stopped communicating with him altogether. Wife also refused several requests to have the property inspected and appraised to determine its value, according to Husband. Wife countered by alleging that Husband said shortly after he was injured in a car accident that he wanted to sign the property over to her in order to take care of the kids. He later told Wife – according to Wife – that he’d given her the property so that he could qualify financially for Medi-Cal benefits related to the accident. The judge eventually sided with Husband, ordering the spouses to sell the home and split the proceeds.

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One of the many issues that often come up in California divorce cases is what to do with the family home. The state’s Fourth District Court of Appeal recently explained that a spouse who uses his or her separate money to help purchase the property is entitled to be compensated before the value of the home is divided between the former couple. To get that compensation, however, the spouse has to clearly show where the separate money originated.

houseHusband and Wife were married for about 18 months before they divorced in the summer of 2004. The former spouses are both Serbian nationals, and they met at a state dinner in which Wife interviewed Husband for a story for the news service where she worked as a journalist. Husband was a successful engineer who held the patents for a number of services and products. The two began living together in Southern California in 2002 and married the following year.

The couple purchased a $2 million home together in Laguna Niguel just two weeks before they separated. A trial court found that the home was community property to be split evenly between the divorcing spouses. The court further concluded, however, that Husband was entitled to a credit for the $545,000 of his own separate money that he used for a down payment on the property. After allocating that amount to Husband, the court said the property was worth less than the outstanding balance on the home’s mortgage. As a result, the court awarded the property to Husband. It also declined Wife’s request to be compensated for Husband’s exclusive use of the home from the time the couple separated until they were actually divorced. It noted that Husband used his own money to cover all of the expenses related to the house.

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Once upon a time, back in the 50’s/60’s when divorce was considered somewhat shameful and there were few of the wonderful, wise and supportive divorce professionals that, with some effort, can be found these days, Bill and Helen divorced.

It was a long, drawn out, torturous divorce that ended badly for everyone involved. (except for the floozy) Bill began sleeping with the town floozy and ultimately, fell in love with her. But he did not have the courage to tell Helen that he had fallen in love with someone else, and instead stayed away for long periods of time, was dishonest about what he was doing, and mean and judgmental with Helen, cruelly criticizing her for not being the woman he wanted, rather than being honest about his choices. Bill attempted to beat up one of his children for calling the floozy a slut. And the floozy was even more cruel and heartless than Bill. Helen was naïve and insecure and worried about what others might think, so did not open up with those who could have helped her. Nor was she able to simply confront Bill and suggest that the marital contract be terminated with as much dignity and respect as could be mustered. Or alternatively, simply ignore him, get some therapy and continue with a separate life while married. Instead, there were ugly fights, many tears and much sobbing, sleepless nights, and an emotional breakdown. Neither parent was present for the children in a meaningful way because, as is so often the case with divorces, the parents were too caught up in their own self-interest (Bill) and pain (Helen).

They lived separately for several years, Bill doing whatever Bill wanted and Helen working at a stressful, low wage job and trying to provide a home for the children. Seeing the pain Bill was causing, the children aligned with Helen and ceased their relationship with him, not even attending his funeral some forty odd years later.

Retirement benefits are often among the most significant assets in play when a couple decides to divorce. The question of how to divide those benefits can be a tricky one that implicates both state and federal laws. As California’s Second District Court of Appeals recently explained, state law in California generally dictates that retirement benefits are community property to be split evenly between spouses upon divorce. Federal law, however, mandates that Social Security retirement benefits remain the separate property of the spouse who contributes to the system during the course of the marriage.

retired-and-relaxing-1565780Husband and Wife separated in February 2010, following roughly 16 years of marriage. Husband, who worked as an attorney, contributed to Social Security through deductions from his paychecks during the course of the marriage. Wife, who worked for a state government entity as an employee of local district attorney’s office, participated in a defined-benefit retirement plan (“LACERA”), in which her employer contributed the full amount. The total retirement benefits available to Wife under her LACERA plan were based on the number of years she worked, her age, and her compensation. The plan also barred covered employees from contributing to or receiving Social Security for the time they served in the district attorney’s office, according to the Court.

Husband and Wife eventually entered into a marital settlement agreement, in which they resolved a number of issues related to the divorce. Among other things, the couple agreed that Husband’s Social Security benefits – valued at $228,000 – were separate property and that Wife’s LACERA benefits – valued at about $215,000 – were community property. Wife later asked a trial court to divide the couple’s property in a way that accounted for this disparity. She said the court should either require Husband to reimburse the community for the Social Security contributions and then divide them equally, or allocate her all of the LACERA benefits to equalize the retirement assets. The trial judge declined, finding that federal law prevented the court from considering Husband’s Social Security benefits in dividing the couple’s property.

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California divorce courts generally consider any property owned by one spouse before a marriage that spouse’s separate property to be kept by the spouse in the event of a divorce. Community property, on the other hand, includes anything that one or both spouses acquire through their efforts during the marriage, and it is typically divided equally between the spouses upon divorce. A recent case from the state’s Fourth District Court of Appeals shows how spouses can change the nature of separate property by specifically granting the other spouse an interest in it.

Husband and Wife were married for roughly 32 years before separating in 2007. Two years earlier, they signed an agreement in which the couple stated that all of the property they owned now and anything they acquired going forward would be considered community property. The spouses were eventually able to resolve many of the issues related to the divorce, but a nine-day trial was also held to consider lingering matters related to property distribution.

Wife argued that the trial court erred in awarding Husband reimbursement for his separate property under Family Code section 2640 because of the agreement to transmute all separate property to community property.

“Dogs are our link to paradise. They don’t know evil or jealousy or discontent. To sit with a dog on a hillside on a glorious afternoon is to be back in Eden, where doing nothing was not boring–it was peace.”
Milan Kundera

It is estimated that about 50% of American marriages end in divorce. It is also estimated that 62% of American households include at least one pet. So, it is reasonable to conclude that many divorces also involve pets.

Do you consider your dog to be a highly adored member of the family? If so, you may be surprised to learn that most family law courts consider your ball-catching canine to be classified as personal property.

Divorces in California almost always include the division of property (assets and debts) between spouses. And sometimes, quite often in fact, the property is a dog. Since most courts consider pets to be personal property just like your toaster or car, judges usually follow the same guidelines they use to determine who gets to keep personal property when couples are dividing things in a divorce. All of this applies equally to cats but for some reason, it is the care and control of dogs more so than cats, that are disputed issues. California’s First District Court of Appeals recently considered a dispute over the family dog.

dog-3-1403648Husband and Wife entered into a stipulated agreement resolving most of the issues related to their divorce. However, they were unable to agree on what to do with Sadie, the family dog. The stalemate led to a two-day trial, after which a judge concluded that the pet was community property. The California Family Code requires community property to be split evenly between spouses. Courts often award the property to one spouse and require that person to compensate the other spouse for his or her interest in the property. Here, the trial judge awarded the dog to Husband, noting that Wife had maintained sole use and possession of the animal since Husband filed for divorce two years earlier.

Wife appealed the decision, arguing that her daughter from another marriage was the dog’s true owner. She said her daughter adopted Sadie and registered the animal with local authorities under her own name. Unfortunately, however, Wife didn’t point to any evidence in the record from the trial court hearing showing that this was actually the case. Moreover, the First District said she didn’t even provide a transcript of the proceedings. A person appealing a divorce decision is not required to provide the transcript of the proceedings, but courts in California typically don’t go and get those records on their own and are likely to presume that the decision was supported by adequate evidence if there is no transcript to review.

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When a divorce involves a business of one or both spouses that is community property, issues of valuation arise, including how and when the business is valued. California’s Second District Court of Appeals recently considered the question of when a business is valued.

business-card-1525590Husband and Wife divorced in April 2012, after entering into a written settlement agreement related to the division of their community property and the payment of spousal support. They weren’t able to agree on one issue, however:  what to do with the small heating and air-conditioning company that the former spouses owned and operated together. Husband managed the company’s day to day work, while Wife was in charge of the business’s marketing and finances.

According to the Court, Husband “frustrated” Wife’s attempts to get information about the business by ousting her from her job, filing for bankruptcy, and refusing to produce financial records or to be deposed about the company’s financial health. He also transferred assets from the business to another business owned by a former employee and managed by Husband. Because of these actions, the trial court eventually decided to value the business based on what it was worth in May 2012 instead of setting the value at the time of a trial on the issue nearly two years later. The court accepted a valuation prepared by business broker and accountant Rodd Feingold, who set the value at about $470,000. Although a separate appraiser – Phillip Sabol – said the company was only worth $47,000, the Court rejected that valuation because it didn’t take into account the business’ goodwill and tangible assets. The court awarded the business to Husband and ordered him to pay Wife half of its value.

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California law imposes what’s called a “fiduciary duty” on spouses, which mandates the highest duty of good faith and fair dealing in their interactions with each other and to not take advantage of each other through fraud or other means.  As the state’s Third District Court of Appeals recently explained, however, the duty no longer exists once the spouses divorce.

old-books-1057004Husband and Wife were divorced in December 2010, after 14 years of marriage. They entered into a marital settlement agreement, under which the former spouses agreed that their individual stock ownership stakes in two different companies (OMI and Lifekind) would be considered each spouse’s separate property. They also pledged to “cooperate” in efforts to sell both companies.

Wife went back to court about a year later, seeking to force Husband to cooperate in selling both companies. She alleged that he had diluted her interest in OMI by obtaining a stock option agreement to give him a majority interest in the company, that he had obstructed the sale of Lifekind and OMI, and that he had breached his fiduciary duties related to the businesses. She asked a trial court to rescind Husband’s stock options deal and to issue sanctions against him for breaching the duty. The trial court ultimately declined, however, finding that Husband didn’t owe Wife an ongoing fiduciary duty after they divorced. The judge also found that the question of whether Husband owed Wife or other company shareholders a separate fiduciary duty based on his positions and ownership interests in the companies was beyond the family court’s jurisdiction.

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