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Recent Blog Posts in May 2010 |
| May 31, 2010 |
| I thought my PARTNER had REGISTERED our DOMESTIC PARTNERSHIP but she says she didn't. Do I have rights? |
| Posted By Thurman Arnold |
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Q. I have been living with my girlfriend for four years. Three years ago we agreed to enter into a domestic partnership and filled out and signed the registration papers. She told me she had filed them with the Secretary of State. We separated last month, and when I asked her to help me financially and to divide property we acquired during the relation she said I have no rights because she never mailed in the registration. Is she right?
A. She may not be right if you can meet the legal test to qualify as a "putative domestic partner."
California Family Code section 2251 sets forth remedies regarding the division of property in cases of annulments, or where a marriage turns out to be void or voidable because of some legal defect (for instance, where the parties could not be legally married because one party had not properly obtained a termination of an earlier marital status before entering the new union). In cases of void or voidable marriages, no marital rights or obligations actually attach unless one party can establish what is known as putative spouse status.
The putative spouse doctrine was intended to protect "innocent spouses" - the partner who reasonably believes the parties were married - as long as their is an objective basis in reality for that person to have held that belief.
This doctrine now applies equally to putative domestic partners.
For one spouse or domestic partner to qualify for this protection there must have been an attempted compliance with the procedures for creating a valid marriage or registered domestic partnership. Sincerely believing that a marriage or domestic partnership existed by itself is not enough. Do you have a copy of the registration document that was never filed? This is exactly the type of evidence that would be most useful in establishing an objective basis for having believed you were registered.
In a very similar case - In re Domestic Partnership of Ellis & Arriaga (2008) 162 Cal.App.4th 1000 - Darren Ellis and David Arriaga complied with the first step in the procedure for creating an RDP, the completion of the registration papers. Arriaga was supposed to mail the registration to the Secretary of State, but he never did. When Ellis filed a Petition to Dissolve the Domestic Partnership, Arriaga asked the trial court to dismiss Ellis' action on the ground that no RDP in fact existed. The trial court agreed with Arriaga, but the appellate court reversed the trial court's ruling.
The appellate court held that a person's reasonable, good faith belief that his or her RDP was validly registered with the Secretary of State entitled that person to the rights and duties of an actual registered domestic partner - even where the partnership never was in fact registered - under this equitable putative spouse doctrine.
However the court also restated the rule of putative spouses that the question is tested by an objective standard - not just by what one party believed, however genuinely. For instance, if both parties know that the registration was never mailed neither can qualify as putative domestic partners because without a belief in the mailing it would not be objectively reasonable to conclude an RDP existed.
Parties who qualify for putative spouse and putative domestic partnership status may be entitled to all of the benefits and burdens of marital partners or RDP's. This includes rights to property acquired during marriage, responsbilities for debt incurred during marriage, and support benefits. You can get more information concerning those issues - which are largely the same as if you were married persons - by using our search engine at the top of the page.
The likelihood of your success depends a lot on what evidence you can produce establishing that you reasonably believed the formalities were complied with. If your former partner admits that you both completed the document but that she never mailed it AND never told you that she hadn't mailed it (unfortunately people tend to be dishonest about these things in the face of legal proceedings), you are likely to prevail.
If she denies it and you don't have a copy of the registration papers you need to look to other evidence to establish the basis for your belief the two of you were registered - for instance, if a witness can testify that your partner held herself out to be your RDP that may persuade a court.
Are there any other documents that were ever signed (i.e., applications for benefits of any kind, joint bank accounts, trust documents or wills) that make reference to your purported status? If so these should be collected and submitted to the Court.
You would initiate a proceeding just like you would if there had actually been a RDP - this would be a Petition to Dissolve a Domestic Partnership.
Finally, you still may have the basis for a civil Marvin claim which is founded upon written or oral promises to undertake a joint asset pooling arrangement or joint venture when two people decide to share lives (however, your chances of recovering support or "palimony" are slim). I will blog Marvin actions another day.
Thurman W. Arnold III
http://www.ThurmanArnold.com
5/31/10
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| May 26, 2010 |
| Announcing the Opening of DESERT FAMILY MEDIATION SERVICES! |
| Posted By Thurman Arnold |
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To our honored visitors:
We are excited to give you advance notice that the first family law mediation center in the Coachella Valley is opening its offices in Palm Springs on June 15, 2010. Our hope and expectation is that we will be providing much needed peacemaking and reconciliation services to couples involved in relationship difficulties who live within the inland desert cities' empire, including all of Riverside and San Bernardino counties. We invite diversity in our clientele in all sizes, shapes, colors, and combinations!
Desert Family Mediation Services is the joint passion of the Honorable Gretchen W. Taylor, Retired Family Court Judge and Thurman W. Arnold, Attorney.
Former Judge Taylor was admitted to the Bar in California in 1979. She has practiced family law almost exclusively in the 31 years since. She is a Certified Family Law Specialist. Her practice was devoted to divorce and families in Beverly Hills until she became a Commissioner of the Indio Superior Court in Indio, California, in 1997. While in Indio she was one of two family court judges for the eastern Riverside County communities (excluding Blythe).
In 2003 Judge Taylor's assignment changed to the downtown Los Angeles Superior Court. She served as a family court commissioner in Los Angeles until 2009, when she retired and so left the bench. She has developed a particular expertise with high-conflict, high-asset dissolutions, domestic partnership breakups, but she cares deeply about all manner of relationship difficulties, small and large.
Since retiring in 2009 she has served privately as a family court referee, special master, private judge, and mediator for families residing in Los Angeles County, Orange County, Riverside County, and neighboring cities. She resides primarily in the Coachella Valley.
Thurman W. Arnold is a Palm Springs' native and was admitted to the practice of law in 1982. He has been practising law from his offices in Palm Springs since that time, and exclusively handles family law and related matters. He recently passed the California State Bar Certification Examination and so is eligible to become a Certified Family Law Specialist this year. He frequently serves as a Judge Pro Tem of the Riverside County Superior Court in Indio.
Retired Judge Taylor and Attorney Arnold are committed to serving couples - and their children - and to managing the resolution of your disputes sensibly and with dignity. Mediation is a far better alternative to adversary court dispute litigation, and we as seasoned professionals know this fact first hand.
Judge Taylor is not a member of the Law Firm of Thurman W. Arnold - Desert Family Mediation Services is an enterprise completely separate from Mr. Arnold's law practice. Indeed, former Judge Taylor is not available to represent individual parties in dissolution cases or in any other family law proceedings.
We are overjoyed to share our expertise in helping couples resolve their breakups neutrally, economically and safely. In addition to mediations, we will be available to conduct private settlement conferences and to assist with parenting plans and parenting coordination. Please watch for us!
We and other passionate mediators are available for free initial consults.
The website for DFMS launches on or about June 15, 2010, If you find the information contained in this website useful, you might share our excitement concerning what is about to become available to all those who find it!
Our heartfelt desire is to share the wisdom accumulated over many years in order to spare you and your family from unnecessary suffering.
Desert Family Mediation Services offers a peacemaking alternative to family court.
Thurman W. Arnold III
Hon. Gretchen W. Taylor (Retired)
May 26, 2010
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| May 26, 2010 |
| What is FAMILY SUPPORT? |
| Posted By Thurman Arnold |
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Q. My lawyer mentioned something called "family support" as a way to possibly get more money from my ex-husband for child and spousal support. What exactly is family support and does it work?
A. Family Support is mentioned in two California Family Statutes - section 92 and section 4066.
In theory family support allows parties, by agreement, to characterize both child support and spousal support together. The spousal and child support components are unallocated, and the total sum is a combined number.
The purpose of family support is to create a deductibility for child support for federal and state income tax purposes that otherwise does not exist. One hundred percent of family support is potentially deductible by the payee and must be picked up as taxable income by the recipient. However, as mentioned at the bottom of this blog, there is some uncertainty whether the IRS will in fact allow this deduction.
While this may seem to be a bad deal for the supported spouse, this is not at all true in certain circumstances. If the supported spouse has no other taxable income, depending upon what the family support number is that person may pay little or no taxes on the combined sum while the payor obtains the benefits of total deductibility. If there are little adverse tax consequences to the party receiving family support but the party paying is substantially better off net after taxes, then family support is something divorcing spouses might want to horsetrade. Since the payor is receiving a benefit, they may well be willing to pay to the supported spouse a higher combined family support award than they would if it was broken down into deductible spousal support and non-deductible child support.
In this way, more money becomes available for both families - and particularly for children - and less money goes to the government.
One caveat - family support is clearly deductible for purposes of the California State Taxes. However, at least one federal tax court decision has invalidated a family support order in terms of its deductibility (Wells v. Commissioner). In that case mistakes were made in the drafting of the family support provision in that it was not stated that support would terminate upon the death of the payee (a requirement for deductible spousal support) and, more important, the cessation of payments was contingent upon events which were associated with the parties' children (i.e., turning 18 or graduating high school) - another major no-no for securing deductible alimony. I have separately blogged deductibility of spousal support.
Hence, before agreeing to family support (particularily if you are the payor, since if you are the payee you may find you actually had no tax liability after all and so the recipient may not be hurt while the payor is) you need to ask your lawyer or a tax accountant for their opinion on the current deductibility of family support, and you need to be sure the agreement is carefully drafted - including a provision that allows the parties some remedy if, for instance, the recipient fails to report the family support as income or if the deduction comes to be disallowed.
Since family support is a dicey proposition, it probably should not be considered until the IRS has given clearer directions that protect you.
Thurman W. Arnold
http://www.ThurmanArnold.com |
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| May 24, 2010 |
| What METHODS are used for VALUING BUSINESSES in divorce? |
| Posted By Thurman Arnold |
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Q. I own a business that I began shortly after marriage. Now I am getting divorced. Is this community property even though my partner never worked the business, and if it is what methods might be used to value it?
A. With certain exceptions where, for instance, there has been a transmutation of a community property interest in a business to your separate property per Family Code section 852 (which requires a writing signed by the party adversely affect showing an intent change the character of property from community to separate), all property acquired during marriage through the time, skill and efforts of either spouse is community property.
Family Code section 760.
A business begun by one spouse after the date of marriage and before physical separation will need to be divided in a dissolution or legal separation proceeding, and if you and your spouse cannot agree on its value it may need to be evaluated by an expert. This is usually accomplished under the provisions of Evidence Code section 730.
There are a number of methods that can be used to value a business, and depending upon whether the business sells services or products different valuation methods may be more appropriate than others. As a general overview, these include:
- Evaluating sales proceeds
When a business is actually being sold in an arm's length transaction to a third party, the price that a willing buyer will pay and a willing seller accept determines value. This is rare in the case of business valuations, but more common with respect to real property.
The specific asset is valued based upon the actual sales of similar assets or properties with actual sales that can be tracked. With professional practices, this is common with dental businesses which are commonly bought and sold, and so numbers from the sales of other dental practices may be persuasive to a court. Whether this method is useful depends very much on the nature of the business - sometimes there is nothing comparable or little published information about comparable sales. Comparables are also considering in setting the value of real estate.
Sometimes businesses will be cut up into parts that are sold separately. Sometimes the business is valued in terms of what these parts would sell for. It is rarely used except when the parties intend to actually liquidate the company. Liquidation value does not generally include valuing goodwill (because the assumption is there will be no on-going concern). Goodwill is the nightmare component to valuing businesses. Many people in divorce who manage the business believe strongly this is how businesses should be valued (in part because in the absence of an actual sale, it is a fiction to say what a buyer might pay when no such buyers as a practical matter exist).
This relies upon the company records to determine what 'retained value' is. It is rarely used, because it is more a statement of how the company perceives itself, or structured (or even 'cooked') its books, than any objective indication of value.
This is performed through a forensic audit. Usually it is performed on a cash basis, and accounts receivable and much more must be analyzed.
This describes a method that includes valuing the business as greater than the sum of its parts. There are a number of factors that are used.
This is the most common method for valuing businesses used in California because courts find it to be most reliable. If you hope to use a different method, you will need to justify why that method is fairer to the out-spouse. This method requires expensive forensics.
It is not uncommon to bifurcate the question of business valuations to try them separately because often this is the thorniest issue to be decided in a dissolution or legal separation proceeding.
The law of business valuations is extremely complex and even contradictory. The purpose of this blog is merely to introduce the concepts. I will develop these themes in more detail in additional family law blogs.
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| May 21, 2010 |
| What is HEAD OF HOUSEHOLD status for IRS purposes? |
| Posted By Thurman Arnold |
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Q. What is the effect of claiming "head of household" status in a tax return?
A. Head of household does not apply to joint tax returns. If you are divorced, or if you are married filing separately, you may be entitled to claim HH status. This is also often referred to as HH/MLA (married living apart). There are important tax advantages to filing HH/MLA. It is not an exemption, but a filing status just like filing "married," "married filing separately," and "single."
To qualify you must be separated from your spouse during the last 6 months of the calendar year and have at least one child living with you for more than 50% of the time.
There is an extremely important piece of knowledge here that many attorneys and most family law judges seem to forget or ignore: In situations where each parent has exactly 50% custody of the children, neither can file HH/MLA. 50-50 custody is a common shorthand way to characterize true joint physical custody arrangements. But to be eligible for this filing status, the custody cannot be exactly the same for each parent; if you presently share custody per a equal custody order, you would do well to modify the order (and even alter slightly your actual custodial timeshre). All you need do to avoid this problem is give one parent 50.1% custody and the other 49.9%, particularly in any orders that are drafted and filed with the Court. Squabbling over these percentages is a waste of time and money - it will not hurt you to be the 49.9% parent.
If there is more than one child, then parents can modify the parenting schedule so that each can claim one in order to maximize each party's tax savings and the support dollars.
Your filing status is important to your spousal and child support rights and obligations. Family Code § 4059(a) requires that child support orders be based upon accurate tax filing assumptions, and the support programs (the Dissomaster, Xspouse) similarly require a status to be selected before a support number can be rendered.
For a payor spouse, the child support will be less if the filing status is Single than it will be if the status is HH/MLA, but if you truly file Single the costs paid to the government will likely exceed any perceived savings on child support. This is because a person has more net disposable income after taxes when they are HH/MLA or even MFS than when they are Single. In the same way, the child support may be less for a parent claiming HH/MLA depending upon their income but if they have little income the HH/MLA may have little or relatively little economic value to them.
This is a good example of how Mediation and/or Collaborative Divorce can be used to benefit separating spouses. Money can be saved for both parties where they structure their dissolution to maximize tax benefits and minize tax consequences to each - which nobody typically considers or does in the midst of a hostile, contested divorce. The IRS benefits when couples are at war! In a mediated or collaborative dissolution, neutral tax experts can be consulted and used to design agreements that save the higher earning parent money while increasing the cash available to the supported spouse and for children. Would you not rather give money to your kids than to Uncle Sam?
Thurman W. Arnold III
http://www.ThurmanArnold.com |
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| May 21, 2010 |
| Must I file a JOINT TAX RETURN if we are not yet divorced? |
| Posted By Thurman Arnold |
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Q. My husband and I separated in 2009 but we are not divorced yet. We are currently on extension because he wanted me to sign a joint tax return with him, but I am nervous about doing it and keep stalling. He says if I don't sign he will ask the judge to make me. He has his own business and I suspect he is not reporting all his income. Am I required to file jointly and what happens if I do?
A. If you remain married as of December 31 of any year, you may - but you not required to - file jointly with your husband. It does not matter that you were separated during the tax year as long as your marital status has not been terminated, for instance by a Bifurcation application. You cannot be forced to file jointly, and no judge would order that you do so. Married people who are considering not filing jointly, however, should avoid signing the joint Form 4868 for the automatic extensions; depending upon other circumstances, the IRS might deem this is a consent to a joint return.
The chief problem with filing joint tax returns is that each spouse is "jointly and severally" liable for one hundred percent of any taxes due on either and both parties' income, and interest and penalties as well. If you suspect your husband is defrauding the IRS you are ill advised to file with him. Another problem is that absent an agreement otherwise, tax liabilities incurred between the date of marriage and the date of separation are community property debts, regardless which of you generated the income upon which the taxes are based. If it is not clear that you do not intend to take on any share of the liability, particularly the portion incurred after separation, by signing jointly an argument can be made you should be responsible for one-half of the full-amount. It is best to define your understanding in a writing signed and dated by both of you.
If you do file jointly anyway, at a minimum consider first getting him to sign an indemnification agreement; if there is a court proceeding pending between you, this should be in the form of a Stipulation and Order that is filed with the Court. You want a judge's signature on the agreement because agreements have to be converted into orders or judgments anyway to be later enforced if one party breaches their promises.
Indemnification agreements are only as good as the availability of a meaningful remedy, and they apply only as between the parties and do not bind the IRS or anyone else. Even if your husband promises to pay all the taxes, interest, and penalties, and even if his promise becomes a court order, as a practical matter if he later lacks the ability to meet his obligation (or refuses to do so) you may wind up with a money judgment against him that you cannot collect.
But there can be good reasons to file jointly, and it is much less a problem where your spouse is trustworthy. Taxes are usually but not always lower, and to the extent he paid you spousal support in 2009 if you file jointly you will not be charged with that as taxable income.
The issue of joint returns is something divorcing couples often barter over. You ought to have clear ideas of the pros and cons for you in your particular situation. If you are reluctant to sign, consider what you might trade for. It may be helpful to know how much money your spouse stands to save if you agree to file jointly, so you can evaluate the value to him of your cooperation.
I urge you to speak to a competent accountant or other tax specialist early on, and before signing an extension request. Most attorneys have a limited understanding of tax rules, and they will usually urge you to consult an expert. You should follow that advice. Unless a lawyer is herself a tax specialist, avoid relying just on an attorney's opinion. Besides, an accountant can examine how you might end up under your other options.
Thurman W. Arnold III
http://www.ThurmanArnold.com
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| May 20, 2010 |
| What are the TAX CONSEQUENCES of CHILD SUPPORT and SPOUSAL SUPPORT? |
| Posted By Thurman Arnold |
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Q. My husband and I have separated, and pretty much agreed to work everything out without going to Court. But I would like some information about how any support we agree upon is taxed.
A. Child support is not taxable to the recipient, nor is it deductible by the payor.
Spousal support, or "alimony" as it is known in some states, is taxable to the recipient and deductible to the payor as long as certain Internal Revenue Code requirements are met. It is important that you obtain a professional explanation and review of these requirements in terms of what you write up in the settlement agreement (the agreement should be filed with the Court), because in some situations people have the highly unpleasant surprise of believing their support agreement passes muster only to find years later that it violated one of the provisions of the IRC - if that happens, the paying spouse may be forced to recapture the deductions in such a way that they are denied by the IRS, which now means not only that the payor owes monies for increased taxes, but they also owe substantial penalties.
To be deductible spousal support must meet the requirements of IRC section 71. These are known as DRTRA (pronounced "durtra"). The general requirements are that the spousal support obligation must be set forth in a written instrument (i.e., a Marital Termination Agreement), the payments must terminate at death, the payments must be in cash (and not as a swap of property, although it is possible to structure a property settlement in periodic payments of spousal support if done properly), and the parties must reside in separate households.
A common mistake includes "front-loading" or concentrating spousal support in the period immediately after divorce. Spousal support awards that decrease by no more than $10,000 per consecutive years are usually safe, but if you are contemplating a progressive decrease in spousal support over some years, you must have this agreement examined by a qualified professional in order to assure you are protected - this could be an accountant.
A common inadvertent mistake is to terminate spousal support on a date coinciding with a child's age of majority (turning 18). The IRS views this as an attempt to classify or hide what is really child support as deductible spousal support, and when this occurs the IRS may declare these payments that you believed were alimony for tax purposes all to have been child support - regardless of your true intentions - and so disallow the deductions from the time of the agreement forward. This will mean that the receiving spousal who has declared them as income may then be entitled to file an amended return to recover the taxes he or she paid. (Incidentally, the way this problem is often brought to the IRS's attention is where the recipient spouse doesn't declare the income, but you declare the deduction). There should be at least a six month differential between the timing of the termination of spousal support and a child's 18th birthday.
These issues can create a real shock, and totally undermine parties' expectations. Please have your settlement agreement reviewed by a competent attorney, and seek advice beyond the scope of this Blog in order to safeguard your interests!
Thurman W. Arnold III
http://www.ThurmanArnold.com
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| May 19, 2010 |
| When are ASSETS VALUED for purposes of DIVISION in a California DISSOLUTION? |
| Posted By Thurman Arnold |
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Q. My wife and I separated two years ago and we have decided to file for divorce. We don't agree on what date we should be setting the value of some of our property, like the residence where she has been living with the kids all this time. She wants it valued today, since prices are down, but when I left we agreed that she would take it at its value then. That value was substantially higher than today, and I don't think it is fair that I have suffer the decrease in real estate prices. What might a Court do?
A. First, it is always my hope that you and your spouse can agree on as many issues as possible, without court intervention. One never knows for sure what a Court will do, and my experience is that people are far better off working through their disagreements by way of Mediation. One reason why is to ensure you are in charge of your life, not a stranger. It is possible to mediate parts of your divorce.
Still, valuing real property is not a difficult legal issue. Family Code section 2552(a) directs the court to "value assets and liabilities as near as practicable to the time of trial." Time of trial is also the equivalent of the time of settlement - in order words, if you cannot settle your divorce and you take it to a judge, that will be the time of trial so the same rule for the date of valuation should apply to your settlement negotiations.
Family Code section 2552(b), however, gives the court discretion to pick another date before trial for the valuation of property "for good cause" in order to "accomplish an equal division of the community estate ... in an equitable manner." This concept is called an "alternate valuation date." It is often applied in cases of business valuations, which is a complex topic I will separately address, but the basic reasons for the potential different treatment includes the fact that business values can be intentionally depressed by the spouse who controls the assets (and so it may not be fair to apply a lower value) or because the "in-spouse" has contributed substantial value to the company since separation and it is not necessarily fair that the other spouse share those benefits.
Here you might argue that you and your spouse reached a verbal agreement to divide all your assets two years ago if that is in fact what you did, in order to hold to those values. But verbal agreements are difficult to prove if they are not admitted by the other party, absent witnesses and she will continue have various defenses where she was not independently advised before reaching agreement.
Most courts are going to value passive assets like houses or investments or pensions at the time of trial. That does not mean that post-separation increases in value, like increased equity by paying down principal on a mortgage, or contributions to a pension after the date of separation, will not be reimbursed to one or the other of you to compensate the separate property (post-separation) contributions.
If you do seek an alternate valuation date, you need to file a Notice of Motion to Bifurcate the issue (FL-315), along with the accompanying declaration establishing why this is more fair and appropriate than the basic rule. These forms appear in our
Family Law Form Library.
A bifurcation is essentially a request of the court to carve off one or more issues in the divorce for separate trial or adjudication. It is often used where a call needs to be made on one issue that, once decided, will assist in resolving other aspects of the case. |
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| May 17, 2010 |
| My husband was HOSPITALIZED after we SEPARATED; am I liable for the bill? |
| Posted By Thurman Arnold |
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Q. After my husband and I separated, he was hospitalized and incurred $28,000 in medical bills. The creditor is threatening to sue me. Am I liable? Is there anything I should do?
A. In a recent appellate decision out of San Diego County (CMRE Financial Services, Inc. v. Parton), the wife called police after an incident of domestic violence and shortly thereafter filed for DV restraining orders. A week later the parties separated, and the husband was admitted to Tri-City Medical Center for treatment for a severe emotional illness. He incurred substantial medical bills.
The wife filed a dissolution action three months after that. In her Schedule of Assets and Debts she listed the debt as owed by her husband. A judgment for dissolution came to be entered several months later, and it did not assign the hospital obligation to the wife. It appears to have been a default judgment against the husband.
CMRE, the assignee of Tri-City Hospital, sued both the husband and wife to collect the money for husband's treatment; by then husband had disappeared and was never served with the lawsuit. Wife responded by denying liability, and with a cross-complaint that alleged that by sending her collection notices CMRE had violated the provisions of the Fair Debt Collection Practices Act (Title 15, United States Code section 1692 et seq.), and that she should obtain damages against them.
CMRE filed a motion to toss out the cross-complaint, relying on the language of Family Code section 914(a)(2), which states that spouses are liable for debts incurred by the other when separated if these are for "necessaries of life."
The trial court agreed with CMRE, and the matter proceeded to a judgment against the wife for the full amount plus interest. Wife appealed.
The appellate court ruled in favor of wife, and reversed the trial court. Wife would have been liable for these medical costs IF a dissolution including property division had not been granted, or if the dissolution judgment had assigned the debt to her, or if she had agreed to support her estranged husband while they were separated. For instance, if the parties had reconciled and if CMRE had sued the wife and obtained a money judgment against her, she would have been on the hook. But once a dissolution judgment was entered that did not assign the debt to the wife she was protected. Family Code section 916.
The appellate court also noted that an independent basis for holding wife free of the debt included Family Code section 4302 which states that a person is not liable for the support of their spouse when the person is living separate from the spouse by agreement, unless the agreement calls for support. The court reasoned that while the starting point is that spouses are liable for the other's necessaries while living separately that rule will not apply where they are separated by agreement (apparently the agreement can be verbal or implied from conduct), unless the agreement includes a promise to support the other.
This appellate decision seems confusing because the language of the statutes themselves conflict. The court continued by noting that the legislature has declared that one spouse's liability for the other spouse's post-separation necessaries is entirely derivative of the fact of marriage and not the same as a debt personally incurred by the supporting spouse. This means that "the liability imposed by section 914 can be avoided by the simple expedient of entering into a separation agreement which does not provide for support."
The only exception might be where a creditor alleges a marital settlement agreement violates the Uniform Fraudulent Transfer Act. CMRE did not allege any fraud between these spouses.
This is landmark case because up to this point most lawyers and judges believed that spouses were liable for the necessaries of life of the other, even after separating, and that this was a special exception to the general rule that once spouses separate liability for debt ends.
Now we know that you have at least two ways to avoid this debt: (1) Obtain a Judgment for Dissolution before the creditor obtains a civil judgment against you, but be sure that the debt is assigned to the other spouse; and (2) be sure that you don't have an agreement to support the other spouse in place, at least at the time the debt is incurred. The judgment can be based upon a marital termination agreement.
If you pretend to separate, or separate just to avoid the debt, and if the creditor claims you did this fraudulently to avoid liability, the outcome might be different.
One additional point of information: Under the circumstances of this case, CMRE was found to have in fact violated the federal Fair Debt Collection Practices Act just by sending threatening letters, and of course by filing suit. Knowledge of this case can be used to back off creditors who are harassing you.
Thurman W. Arnold III
http://www.thurmanarnold.com
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| May 14, 2010 |
| What do I do about SPOUSAL SUPPORT if my ex-spouse is COHABITING with another man? |
| Posted By Thurman Arnold |
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Q. My ex-wife is living with another guy. I am paying her spousal support per our settlement agreement. I have remarried, and this really upsets my present wife. Besides, I don't think it is fair. What can I do?
A. Lawyers who represent "payor" spouses often attempt to include a provision in the parties' Marital Settlement Settlement Agreement or divorce judgment that says future cohabitation between the support recipient and another person will terminate spousal support. If your agreement so provides, you may have leverage to modify or terminate spousal support.
But even if your agreement or the Judgment is silent about cohabitation, Family Code section 4323 creates a rebuttable presumption the she has a
decreased need for alimony once you convince the Court that your ex-wife is living with a person of the opposite sex, who is sharing income or contributing to her expenses. That section tracks the public policy of this state that you should not be underwriting your ex-wife's new household where her expenses are being covered by a romantic partner.
The § 4323 presumption isn't triggered solely because a man is living in your ex-wifes home. It does not cover persons who are simply opposite sex roommates, which as you would expect is the common explanation or story. An ex partner may take on a roommate for purely financial reasons - that is not by itself cohabitation. If you believe there is more to the relationship, look to establishing the length of their joint living circumstances, and utilize discovery to try establish whether they have joint credit cards or household accounts. If this is a new situation that you've just learned about, consider being patient and don't file for relief too early; let your ex's situation mature. If she is indeed in a romantic relationship, it will be increasingly unlikely that she will move him out in response to your motion.
Don't expect to learn what that person earns. California law is pretty clear that you won't ever get that information. Look instead to what that person contributes to joint expenses, or to your ex-wife's expenses.
I do not recommend that you hire a private investigator to peek into their bedroom to establish that they have an intimate relationship. But what course you take may depend upon how she characterizes the relationship. For instance, if she claims there is not an intimate relation, then proving there is may be useful to you.
Understand that even if your ex spouse is receiving financial benefits from her live-in, that does not gurantee that the Court will terminate as opposed to reduce her support - the statutory presumption is for a reduced need. If the marital standard of living that the two of you enjoyed was high, and she is shacking up with a tennis coach, the Court might choose to reduce her support rather than cutting her off entirely because his contributions may be limited in light of the marital standard. Don't think that just because you feel violated that the Court will view it in the same way, although it might.
Section 4323 only speaks in terms of living with a person of the opposite sex. However, if your ex-spouse is living in a romantic relationship with a same sex partner, it is hard to imagine that a judge will not act to reduce your alimony obligation. We have no appellate decisions on this question yet.
File a motion to terminate the support, but ask in the alternative that it be reduced. Even if you are not successful terminating support the first time, if they continue to live together you will have an improved chance on your next application.
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| May 12, 2010 |
| Is there any way to request that the Judge RECONSIDER her rulings in my case? |
| Posted By Thurman Arnold |
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Q. I was in Court three days ago and the Judge ordered me to pay an amount in support that there is no way I can afford. The Judge averaged my earnings over the past 12 months, and then entered that information into the Dissomaster. She then told me how much I had to pay for child and spousal support. The problem is that my hours were drastically cut back by my employer 10 days before the hearing and what I have been earning is not what I will be earning. I was so nervous in the courtroom I didn't explain this change to the Judge. Is there anything I can do to get the Judge to reconsider this order?
A. There are two important procedures that you can use to try to get a rehearing or a reconsideration of a court's award or decision, a motion for reconsideration and an application for CCP § 473 relief. Each is tricky and they do not succeed too often. I know of no statistics, but my guess is that court's will reconsider and reverse or modify their earlier decisions less than 10% of the time. 473 relief is more commonly granted.
The first is called a Motion for Reconsideration. The California statute governing reconsideration motions is California Code of Civil Procedure section 1008. It has at least two important parts: a) it must be timely filed and b) it must be based upon new or different facts,
circumstances, or law than what was known or shown at the time the hearing took place.
The threshold requirement is timing: § 1008(a) states that the motion must be filed "within 10 days after service upon the party of written notice of entry of the order." Courts consider that the failure to timely file a motion to reconsider is jurisdictional - which means they don't have the power to even consider your request if you are too late.
A literal reading of this statute suggests that the 10 day clock doesn't start ticking until you receive a hard copy of the court's order or ruling (typically through the mail or sometimes by personal service), but this is generally not how judges view it. Typically a judge announces their decision in open court. In the case of a Dissomaster or other support calculation they may print it out and give each party or the attorney for each party a copy. A minute order will be written by the court clerk, and placed in the file. It usually goes out in the mail to both sides the same day.
Sometimes a party or attorney will be directed by the Court to prepare a formal order. That formal order is usually on a Judicial Council form. The losing side is customarily asked to review and approve it before it is submitted to the judge for signature, except that many courts do not require an attorney to get the approval of an unrepresented party first and so it may wind up just being prepared and approved by the drafting attorney alone. Once the order after hearing gets signed by the court, it is supposed to be served upon the other party but often through sloppy practices or oversight it is not.
What this means is that you cannot rely on written notice as triggering your obligation to get the reconsideration motion filed - and you definitely cannot sit back and think that your time is not running just because no written order has been received by you.
Where the Judge makes their ruling while you are present in court, in my experience, most courts start the time running from the date of hearing regardless whether written notice or a formal written order is to follow. An exception is where a judge takes the matter "under submission" and makes her decision later, when a decision or ruling is mailed.
Many judges believe you have been "served" with the decision when you hear it - and therefore that your time to file a motion for reconsideration begins to run from that moment. This means that the only safe practice is to file your reconsideration motion no later than 10 calendar days after the hearing (not counting the first day, and if the 10th day falls on a weekend or holiday, your time is extended to the next calendar day).
10 days is not a lot of time to put a Motion for Reconsideration together. It needs to include a Notice of Motion form, an application form which includes your detailed declaration, and it is a good idea to provide legal authorities.
Assuming you meet the deadline you will find that Judges don't like to be asked to reconsider their decisions except for really good reason, and do not appreciate parties that simply are unhappy with the outcome and want to take another shot at it. They apply the technical rules technically to avoid changing their rulings, which makes some sense in terms of court efficiency because in litigation one side is almost always unhappy with the outcome and would like to reargue the matter.
The second half of a motion for reconsideration requires you establish that you have discovered "new or different facts or law." The "new law" situation is rare and does not mean that you just discovered that you quoted the wrong legal authorities to the Court and so now have "new" ones to present; it is intended to cover situations where the law changes or is clarified by statute or case decision in a way that would caused the Court to make a different decision.
Another important ground for reconsideration motions is the Court's inherent power "to do equity" or correct its own mistakes.
These motions are complicated and this Blog is just to give you some familiarity with them. These are the points I want to leave you with at the moment:
- If you can, try to research CCP § 1008, including looking at some legal treatise or the reported appellate decisions that mention it
- New or different facts don't generally include things you forgot to mention, unless you have some really credible explanation of why you forgot
- You must explain to the Court what you learned, how and when you learned it, why you didn't learn it earlier, and why these new or different facts matter enough that the Court should render a different outcome. If the other party withheld facts that you became aware of only after the hearing, you need to describe your reasonable diligence in having attempted to first get all the facts
- New facts are not the same as different facts. Be specific
- Telling the judge you just think she was wrong is rarely helpful - judges know they will be wrong some of the time, and they are trained as much to just make a decision as to get it right (clearly they want to get it right). Most of us don't like being told we are wrong and that is rarely a useful persuasive tool. Instead, focus on the justice or injustice of the situation and be humble
- Explaining that you made a mistake without more is also risky, because lawyers and parties do make mistakes in presenting their cases but the law favors finality in decision-making. Your mistake needs to have been a reasonable one.
- Always consider combining your reconsideration request with a request for relief under Code of Civil Procedure § 473, which is a very important statute that covers relief from orders or judgments that result from your inadvertence, surprise, mistake, or reasonable neglect
In your situation the question will be: If you knew 10 days before the hearing that your time had been cut back, why didn't you mention it? If you did mention it, then the Court considered your evidence and ruled against you, so this would not be new information.
Also, how different would the outcome have been if the Court had considered or known of the cut backs in your work? For instance, if those cut backs are partial and your income is 15% less than the Court supposed, this may not seem so important to the Judge that she thinks she needs to correct the unfairness of the result. If it is 40% less, she might. There are no hard and fast rules that can be applied with consistency.
It is quite common for clients to wind up hiring attorneys after they attempted to handle their case on their own, and it blew up at the hearing, and now they need desperately to get more or better information in front of the judge. It is very difficult to "un-ring the bell."
When these things happen they are a good lesson of why the adversarial court process is to be avoided whenever possible, and of the importance of finding and listening to a competent lawyer early on in your case.
Thurman W. Arnold
http://www.ThurmanArnold.com |
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| May 11, 2010 |
| What are EPSTEIN REIMBURSEMENTS? |
| Posted By Thurman Arnold |
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Q. My soon to be ex wife and I are getting our divorce with the assistance of a paralegal. That person has prepared a Marital Settlement Agreement. The paralegal says she cannot give us legal advice. There is a phrase in the agreement that says something about each of us waiving Epstein reimbursements. I have no idea what this means.
A. "Epstein reimbursements" deal with the question: "How do we divide debts that we incurred during the marriage, where one of us made payments
after we separated and up to the time of divorce?"
A common situation is that parties have credit card debt that needs to be divided in the divorce. Say there was a balance of $10,000 owing to American Express on December 31st, the day before your wife drank too much at the office New Year's celebration and had an unfortunate tryst with her boss - this isn't the first time this has happened, and your New Year's resolution is to move out (sorry, I am just trying to be colorful), and so you do move out the next day. Her reaction is to file for divorce, because her boss looks way more interesting to her than you do these days.
Under this example January 1 is your date of separation. From the date of separation on, the earnings of either spouse are no longer community property, or joint earnings, but instead these earnings belong to each of you separately.
Family Code § 771.
Often where a credit card is in the name of one person alone, the other spouse or domestic partner doesn't contribute to the payments after separation - sometimes because they won't and sometimes because they can't. But as between the two of you, the $10,000 is jointly owed to American Express, even if the other spouse did not sign the credit card application or is not named on the card, or on the statement. This is also true whether or not both parties directly benefitted from the use of the credit card - for instance, maybe the $10,000 was charged by your wife to buy shoes over the course of the past year to help make herself feel better about the fact that you never have intimate conversations with her any more (or for any other reason), or perhaps you charged the card to add more chrome to your Harley Davidson FatBoy because your hairline is receding.
If the card is not paid, American Express can pursue collection either against the spouse who is the account holder, or against the community property of both spouses. Family Code § 910. If the credit card is in your name alone, it will be your credit that might be ruined if the monthly installments are missed.
Now again, as between you and your wife, the general rule is that each of you owe one-half of the credit card debt which means that all other things being equal, in a property settlement or if a Judge is forced to divide your property and estate, if one party is assigned 100% of the debt the other owes a reimbursement of $5,000. Lawyers and Judges speak of assigning the debt to one party or the other on the
"marital balance sheet" which implies a corresponding credit or right of setoff against the division of some other item of property.
There are, of course, exceptions. These exceptions frequently include (a) situations where a debt was incurred in breach of a fiduciary obligation owing the community estate or to the other spouse and (b) where one party retains the benefit of the property that the credit card was used to acquire (believe it or not, I am frequently asked about breast augmentations or other cosmetic surgeries - except in extreme cases, courts do not charge one party for these). For example, if when you learned of your wife's affair your reaction included flying to Las Vegas and having a wild weekend and you recklessly charged the $10,000 at the casino, this might be considered a breach of fiduciary duty and result in the entire $10,000 being your responsibility even though the two of you had yet to physically separate. Or, if instead you spent the $10,000 buying more chrome for your Harley and you expect to keep it in the divorce, then even though the $10,000 was otherwise a community obligation equitable considerations may result in the debt being assigned to you. If in the divorce the two of you decide to sell the Harley but the chrome you spent $10,000 buying adds only $2,000 in value to the sale's price, in that case the $10,000 remains a joint obligation because you neither breached a fiduciary duty nor retained a sufficient benefit that the law would charge you for it and the asset is being divided. Another common situation is where one spouse retains the furniture or refrigerator charged at Lowes - in that case more of the debt may be assigned to that party.
Assuming you continue to make monthly payments of principal and interest on the credit card up to the point of dividing the debt in a marital settlement agreement (MSA), or if a judge makes the call for you both after a trial, as a general proposition your wife owes you one-half of all those payments. These are called Epstein credits or
Epstein reimbursements in California, and many other community property states have similar rules. These are also called
equitable reimbursements, meaning that the right to be reimbursed is not absolute and certain but that the court has wide discretion to grant the reimbursement or not depending upon fairness. Typically California family law courts do grant the reimbursement so long as the parties benefited equally (or the money was equally wasted).
The principle in California was first set forth in the case of Marriage of Epstein (1979) 24 Cal.3d 76. It is to be distinguished from the rule that the debt itself, if community, must be divided equally between parties in divorce. Family Code § 2550. It covers reimbursements rights that accrue between physical separation and the date of ultimate division of the liability.
So, the agreement the paralegal has prepared includes an agreement each of you is giving up any right to be reimbursed for debt related payments made after separation. You are not being asked to waive your credit for $5,000 if the $10,000 debt is assigned to you (unless there is a separate provision assigning the credit card balance to you completely). You are being asked to waive all the debt maintenance up to this point. It is not an unusual clause in an MSA, but it may or may not be in your best interests to agree to it.
Epstein credits take a variety of forms, and are not limited to credit card debt. The Epstein case itself involved a husband who voluntarily made the mortgage, insurance, and tax payments on the family residence during the separation period. Wife and their son occupied the home. Up to that point the law was that if one party used separate property (earnings after separation) to pay community debt (the mortgage, etc., on the residence), there was a presumption that this was intended to be a gift to the community unless an agreement could be proved that it was not to be a gift.
Each party may have separate Epstein claims as to different items of debt.
Upon separating, it is a smart idea to get and keep copies of credit card statements and statements for all liability accounts as of the date of separation. From an accounting point of view, the date of separation is a critical snapshot of a point in time. It is essential that the parties maintain these records as proof of what the numbers were, and of what payments were made afterwards.
Whether or not you should waive the Epstein reimbursements that might be owing you is part of the give and take of negotiating a divorce settlement. These are usually simple accounting issues, but not always.
If your Wife gets an attorney that attorney might try to convince you to waive the Espteins, or hope that you don't understand the concept or have it independently explained to you. In my experience where we are speaking in terms of vanilla debt (meaning there is no questionable conduct and the charges were incurred in the normal course), your wife's lawyer would also agree that you are entitled to these reimbursements without a fight if you know enough to insist.
There is an important flip side and hybrid of the Epstein reimbursement concept - that of Watts charges and credits. The deal generally with who pays for the beneficial use of community property (i.e., the home) during the separation period, once the divorce is finalized.
I will address those separately. |
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| May 10, 2010 |
| What does it mean that a judge has ordered a 730 EVALUATION in my custody case? |
| Posted By Thurman Arnold |
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Q. My ex wife and I are fighting over custody of our three children. The judge decided to appoint a psychologist to interview us all. How does this affect me and my case?
A. In high conflict cases where two sides have entrenched and opposing views about what is in the best interests of their children in terms of custody and visitation, California Evidence Code section 730 provides judges the option of appointing an expert witness to investigate the matter and report to the Court. This is often referred to as a forensic evaluation but in California we typically call them "730 evaluations."
What this means for you is that your family is likely in trouble, since these custody "evals" only are necessary where parents are failing to proactively resolve their parenting issues. They can be quite expensive in every way. I describe the process here in part to help encourage you avoid it. Still, there are times when it can lead to a lessening of conflict and it may be inevitable in move away situations.
Forensic evaluations can be used in a number of other settings as well, including valuing businesses or real estate. It is extremely common in move away cases and in fact a strong argument can be made that to allow a parent to relocate with minor children in the absence of such a report (if it is requested) violates the due process rights of the non-moving parent [In re Marriage of McGinnis (1992) 7 Cal.App.4th 473, 9 Cal.Rptr. 2d 182].
In your situation the Court has likely appointed a Psychologist or Marriage and Family Therapist whose work is already known to the Court because that person is on a panel the Court uses, or possibly because one or both lawyers have worked with the expert and either recommended him or her to the Court. Often the parties' lawyers will agree upon this third person.
Reliable evaluators are not hired guns for either side. However, like everyone else they can have their own biases. To the extent that you can, it is always a good idea to get as much information as possible about a potential evaluator before a selection is made. Courts generally don't impose someone on the parties where one of them objects to that person, but in smaller communities there may be fewer options in terms of qualified evaluators.
It can be very difficult for a judge to determine the truth of claims between family law litigants, what their underlying motives are, whether there is some mental health or substance abuse undercurrent, and whether one parent is more likely than the other to foster an ongoing relationship between the other parent and their children. Courts don't have the time or resources to do much more than call balls and strikes based upon witness declarations or live testimony. Therapists and psychologists are able to spend time interviewing parents and sometimes have them complete psychological testing, they meet children, talk to teachers, visiting homes, check with therapists who are seeing family members, and also interview significant others, new spouses, and other children in blended families. A much more reliable picture may emerge than that which comes from the parties' own descriptions of themselves, their children, and the other parent.
These custody evaluations can be quite expensive, typically starting at about $2,500. They seem to average between $4,000 and $6,000, but the costs skyrocket with the number of people other than the parents themselves (often called 'collaterals') whose input is required.
It typically takes at least three months for an expert psychologist or MFT to complete all the necessary interviews and write a detailed report. In my experience the time frame is closer to four months. This report is then submitted to the attorneys and to the Court.
Most courts require this report to be submitted at least 10 days prior to a hearing, so that both sides have ample time to review it. If you are involved in a custody dispute and you or your attorney receive the report late, if you disagree with its recommendations you may want to object that you have not had sufficient time if you want a continuance; otherwise, the Court may adopt the recommendations at that hearing.
In almost all cases where a 730 report has been completed, either side may request that an evidentiary hearing take place with live testimony and the ability to examine and cross-examine witnesses - including the custody evaluator whose recommendations are being considered. Depending upon the urgency of the family's issues and the Court's availability, these hearings may not be set for weeks or months.
In addition, if you feel that the evaluator failed to adequately investigate the case, or did not meet the standards of practice for such evaluations, you may want to consider hiring your own Evidence Code § 733 expert to advise you or your attorney on how to point out the shortcomings to the Court. This can be an expensive, but sometimes useful, way to challenge findings that you do not agree with. The usefulness of 733 evaluators is limited by the fact they do not get to perform a second evaluation (for instance, they rarely meet with the other party), and without conducting full interviews with all relevant persons they may be ethically bound not to render an opinion and certainly their views won't carry the same weight with a judge as the full evaluator. This is not to imply, however, that your children's interests are even your own interests are served by attacking an evaluator's report just because you don't like portions of it.
I will write more on this topic but want to leave you with this thought: Contested custody cases will damage your children, guaranteed. I urge you to consider mediating your custody differences instead, either by using a qualified mediator or a mental health professional.
Attorney T.W. Arnold III
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