Recent Posts in Disability Benefits Category

Marriage of Ruiz (4/14/11) 194 Cal.App.4th 348 

In the recently published Fourth Appellate case of Marriage of Ruiz out of Riverside County, the parties' marriage lasted 32 years - married in 1973 (not the summer of love), they separated in March, 2005. A major bone of contention was how to characterize Wife's lump-sum worker's comp settlement of $250,000 received several years before the breakup, which netted $172,364 after attorney fees and costs. Wife believed it was all hers in the absence of proof by Husband of what portion of the money she received should be allocated between compensation for loss of past income verses what portion was intended to compensate her for loss of future earning capacity. Not surprisingly if Husband indeed had the burden of proof on this issue, he was never going to meet it - worker's compensation awards and financial settlements relating to personal injuries are simply gross numbers that some insurance bean counter crunches and then offers a gross settlement to resolve. No one in Wife's work compensation team was thinking about a fixed amount that was intended to resolve temporary compensation benefits as opposed to wife's lifetime loss of income producing ability - these claims just don't get settled in that fashion. Hence, if Husband had the burden of proving an imaginary apportionment he would never be able to do so and Wife would take all.

This case illustrates what can happen where one party or another has the "burden of proof" on a particular issue - often this is a short hand way of saying "you lose."

Four years later their divorce proceedings resulted in a discretionary trial court finding that $103,033 of the award was CP, with a balance of $71,311 being Wife's separate property. This finding was upheld on appeal as a reasonable exercise of discretion by Judge Irma Poole Asberry.

Wife argued that despite the statutory community presumption per Family Code section 760 that property acquired during marriage belongs to the community, existing caselaw (Raphael v. Bloomfield) (2003) 113 Cal.App.4th 617) required a conclusion that the award is community property only to the extent that it is intended to compensate for the injured spouse's reduced income during the marriage and before separation, and for injury-related expenses that were paid with community funds. She urged that the remainder of an injured spouse's recovery is intended to compensate her for their diminished earning capacity and/or medical expenses which continue after the DOS.

Therefore, the Wife here argued that Raphael carved an exception to the rebuttable presumption that all property acquired during marriage is community property, instead creating a presumption that the award is the injured spouse's separate property. If true, this would impose the burden of proof as to allocation upon the noninjured spouse. Hence, she argued, if neither party could show evidence of how the award was calculated the party with the burden of proof would lose. The record on appeal was clear that neither party produced any evidence one way or the other because - frankly - there was and could be none.

Judge Asberry correctly declined to find that the general overriding FC § 760 presumption could be trumped by this supposed exception. Since Wife evidently concluded her best litigation strategy was not to offer any compromise solution for determining the competing community verses separate property interests, the court applied a formula suggested by Husband for apportioning the award as between CP and SP. Wife took and all or nothing position that was a high stakes gamble, and she lost. Interestingly, the decision is clear that had she suggested some other valuation method the trial court could have found that was more equitable than Husband's proposal instead, and it would not have been reversed.

Play hard ball, get slammed.

The rule reiterated by the Ruiz court is simple, fair, and obvious. It is already established that period disability retirement payments which are received during marriage are community property, in that they are intended to compensate the community for loss of income that the injured spouse would otherwise have earned. Periodic disability payments received after separation are the separate property of the injured spouse alone for his or her diminished earning capacity. Citing the California Supreme Court in Marriage of Jones (1975) 13 Cal.3d 457, the Riverside justices stated "[s]o long as the marriage subsists, the [injured spouse's] reduced earnings worked a loss to the community. But such community loss does not continue after dissolution; at that point the earnings or accumulations of each party are the separate property" of each.  "[O]nly such payments as are received during marriage are community property."

But within the context of worker's compensation permanent disability awards, as was presented here, Raphael had concluded that the timing of the award (i.e., whether received before or after separation) should not dictate the outcome - instead the inquiry was what portion was intended to compensate the injured spouse for his/her reduced earnings during the marriage, which would be CP. Again, a question that is not likely to be answered by the non-injured spouse because they have no access to such information assuming it even was part of the settlement calculation; yet, this perhaps reasonably did suggest to Wife's attorney he might successfully argue that the burden of proof was hence placed upon the Husband.

The Ruiz Court decided that neither party had a burden of proof that would create a rebuttable presumption in the favor of one or the other because the trial court properly concluded that the award was part community and part separate property of Wife. The issue was then for the trial court to decide in terms of equitable apportionment of the competing interests. "In doing so, the court may use any method which fairly apportions the assets or its value between community and separate property interests. Because it is the court's obligation to make an equitable apportionment, neither party has the burden of proof in the sense that a failure of proof will result in an award of the asset in its entirety to the other party."

Thus, in equitable apportionment cases involving disability awards, which includes all hybrid mixes of community/separate attributes, a disadvantaged party (here the Husband who could not marshal much less control the evidence of what the worker's comp carrier intended when it settled Wife's case) does not lose simply because of a failure of their access to proof. Instead trial courts are free to fashion any result which works substantial justice. This was fair because nothing indicated that Wife had received any temporary disability benefits during the marriage that got banked - this lump sum settlement was all that she apparently received for the total loss occasioned to her, and to the community, for the injuries she suffered.

To the extent that the Wife argued the trial court's division of the CP amounts vs. the SP amounts was arbitrary, she had no right to complain because she never suggested any other measure that the trial court might use in supporting a different allocation scheme.

So, the lesson is this: Play hardball, get slammed..... (mediate your disputes instead, and don't disconnect from reasonableness - one never knows how a court might rule!)

Thurman W. Arnold, III, C.F.L.S

Q.  I have a question about proposing legislation to fill a loophole in the Family Code section 4058 definition of gross income, as it relates to net ERISA disability benefits.  Under Family Code section 4058, gross income includes disability benefits, (including net, untaxable benefits).  Under ERISA, if an insurer denies payment of disability benefits, the insured must file a quasi-administrative appeal of the benefits denial decision to overturn the denial.  If that quasi-administrative appeal is successful, benefits are reinstated, but the insured cannot recover attorney fees expended to successfully prosecute the quasi-administrative appeal.  (If the quasi-administrative appeal fails, one may appeal that decision in federal district court, obtaining attorney fees if successful.)  Because generally, ERISA preempts state law regarding insurance,  one may not sue the insurer for bad faith denial of ERISA disability benefits.

In my case, an insurer denied ERISA disability benefits, a decision I had reversed on quasi-administrative appeal under ERISA.  That appeal cost me 45% of my net disability benefits, as a contingency fee.  The family court commissioner found that the contingency fee merely increased my expenses, but the contingency fee did not reduce my gross income under section 4058, in spite of the fact that I only received 55% of the benefit I would otherwise have received.  Because this result is inconsistent with the definition of gross income under section 4058, subd. (a)(2), (in which a business proprietor's income is defined as gross receipts minus business expenses), inconsistent with appellate decisions defining gross income as income that is actually received, and imposes a double burden on those who lose disability benefits, requiring that child support be paid from unreceived income, I would like to propose legislation to amend the Family Code to fix this inconsistency.  The proposal would merely define section 4058 gross income as including disability benefits, less the attorney fees and costs expended to obtain those benefits.

Do you think that such a change to the Family Code is warranted, and, if so, can you suggest mainstream family law associations that might be willing to consider supporting such legislation?  There are thousands of ERISA disability recipients in California, and practically every employer-sponsored disability insurance benefits policy in California is governed by ERISA.  I appreciate any information you can give me.

Best regards,

John

John:

This is a penetrating question, a very specialized inquiry, and an unfortunate story - thank you for taking the time to bring it to my attention. I do wonder if I have all the facts, however, because it is also surprising.

My initial response is that the court must have erred, much as you point out.  You mention appellate court rulings that also suggest this - but I understand the point that 'who can afford an appeal' and that these matters are best resolved by providing clear direction to trial courts to they don't make mistakes in the first place (assuming this is indeed true under existing appellate decisions). LOL, eh?  Have you filed for Reconsideration?

It is also a question I've not thought about before, having never faced the issue in my practice. I will have to give you what may be a shallow response, although I plan to look into it and possibly improve this blog soon.
 
One solution would be the changes you propose, or perhaps there needs to be some clarification in Family Code section 4058 that "net benefits" should be charged to the recipient rather than simply "receipts." This could then ignore the attorney fee deduction language component, if legislators were troubled by that remedy, but might open a larger can of worms without language that applied it to disability benefits only. But I don't know if it is the best answer, since letting people deduct attorney fees from income is a broad and difficult task and could create interpretational problems and factual controversies. 

Perhaps legislators might liker the vagueness of adding "net" to "receipts," since trial courts could then evaluate it on a case by case basis. I note that Family Code section 4058(a)(1) has "actually received" language, except that it is within wording that relates to spousal support income from a third party. If the "actually received" language was applied to the overall subparagraph (section 4058(a)(1)), this would resolve the problem. I would have to review the legislative history of section 4058 to offer more.

Family Code section 4058(a)(2) gives trial courts discretion to deduct an arguably similar class of write-offs or deductions from gross income (i.e., "expenditures from the operation of a business") for self-employed people.  Family Code section 4059 speaks in terms of "net disposable income" and an amendment there might be of use - but, 4058 is the biggie for trial courts dealing with child support issues.

As to recommendations about what family law organizations might be available to champion a legislative change, unfortunately other than AARP and your local California assembly person, I have no intelligent recommendations today. But I will endeavor to look into it.  I am hoping in time that legislators will in time read my blogs!

BTW, there may be further facts to your situation that influenced the outcome, since it does seem hard to comprehend. For instance, do you have new-mate income that the court considered in some fashion? Are family members paying for any of your living or residence expenses and was this attributed to you? Was other income imputed? I am assuming that you are tax exempt on this disability income stream, and might the court put you in the support calculator in the nontaxed income column?

A final note - if the time is not up, you might appeal this ruling. Appellate decisions that create unfair results (i.e., refusing to charge you with the net) are an alternate but expensive route to change inequities in our system when they exist, since they are courts telling the legislature - "if you want a different result, you change it."