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Recent Posts in Marital Settlement Agreements Category
| November 13, 2011 |
| Wife Bears Own ATTORNEY FEES In Failed SET ASIDE MOTION Involving MSA |
| Posted By Thurman Arnold, CFLS |
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Marriage of Guilardi (11/7/11) 200 Cal.App.4th 770
The Sixth District Appellate Court (including Santa Clara County) has upheld a trial court denial of recovery for the attorney fees incurred by and during a former wife's unsuccessful bid to set aside a Marital Settlement Agreement (MSA), based upon express language and implied waivers contained in that agreement (which became incorporated into the Judgment once it was approved by the court), and some misconduct on Wife's part.
Wife sought an award of $157,650 which she had paid (or that possibly remained unpaid) to her attorney, under the "needs" based provisions of Family Code section 2030, even though she incurred them on an underlying motion to set aside the MSA and Judgment that had been determined adversely to her. Her application was made on the basis of fraud, mistake, perjury and noncompliance with the Family Code disclosure requirements - which are standard grounds that
Family Code section 2122 enumerates for setting aside family law judgments. It appears from this decision, which is obtusely written at times, that Wife had waived spousal support in that agreement.
Her motion was filed one day before the one-year statute of limitations expired as to some of those grounds (i.e., mistake). When Wife signed the MSA she was not represented by counsel, and for "reasons known only to her" declined to consult with anyone despite being warned by language in the MSA that she might wish to do so and would be bound by it in any event. The MSA contained two standard provisions that the trial court seized upon in denying Wife recovery of any fees: a) a waiver of all claims under Evidence Code section 1542 and b) a clause that stated that in the event of further litigation arising from the agreement, the prevailing party would be entitled to recover their attorney fees and costs. It did not contain any express waivers of need based or other attorney fee claims, but the trial court implied this waiver from the language and intent of the document.
Unfortunately for Wife, also, the trial court found that she had intentionally destroyed a premarital agreement - although the decision is vague about how the prenup related to the MSA (apparently it too waived spousal support, but the trial court refused to uphold that waiver to the extent it arose in the premarital agreement) - and this fact may be useful to distinguish this decision from other cases, and their lines of reasoning that suggest some courts might reach a different result. (The decision recognizes this split of authority and briefly discusses these other cases). Reference to Wife's destruction of the prenup is also confusing because it was apparently nonetheless litigated so someone must have retained a copy.
So began three years of litigation, and ended after two more years of appellate processes. And lots of attorney fees for both sides.
I have mixed feelings about this decision. Sometimes bad facts make bad law. The decision doesn't tell us what burden of proof the trial court applied in finding a "waiver" of rights - whether by a preponderance of the evidence or by clear and convincing proof - and the additional fact of wife's destroying the Prenup, which the appellate decision repeatedly points out, makes this case muddy in terms of its potential application. I suspect that trial judges who wish to apply this case to fact patterns they see in their courtrooms may apply this holding without regard for similar bad acts in their own cases; in this sense, if indeed wife's destruction of the prenup sealed her fate, as the decision seems to imply, other people's fates may be similarly sealed in the future even in the absence of bad faith. And, is it good public policy to declare that a party who, in good faith, prosecutes a set aside motion should not recover fees if they ultimately lose? The two provisions in this MSA that the trial court relied are pretty much universal in MSA's and Stipulated Judgments for Dissolution and related marital or domestic partnership proceedings. Provisions that might be enforceable in most business or nonmarital contracts, particularly as they relate to power imbalances over the control of property or income that may be controlled by an "in-spouse", arguably should not apply within the family law context.
On the other hand, the fiduciary relationship arising under the fact of the marriage ("de facto" fiduciary relationship) ended when the parties separated and began their divorce battle. This is to be contrasted with the continuing legal obligations ("de jure" fiduciary duties) between the parties that don't end until the community property has been distributed. Additionally, there is a strong public policy interest in the finality of judgments - and this case, extending over 3 years at the trial court level, must have been expensive for the Husband. To have prevailed but still to have been required to pay $156,000 (or some other substantial amount) to Wife for her failed attack seems inherently unfair. This is especially so to the extent that she was destroying documents or otherwise defrauding him or the court. Moreover, Wife did sign the MSA and never apparently satisfactorily explained how this was not her own fault. While she was unrepresented at that time, she made that choice willingly.
Another unanswered question in the reported decision is whether Husband himself sought attorney fees against the Wife as the prevailing party; it seems not. Presumably this is because Wife signed away substantial rights to property and support when she executed the MSA, and so had little to give towards his attorney fees. Notably this was a lengthy 16 year marriage, and it produced a 10 year old daughter. We know nothing about Wife's education, background, or the parties' assets and income.
Incidentally, Wife complained for the first on appeal that the denying her a need's based attorney fee award per Family Code section 2030 was inappropriate given that issues of child custody and support were also determined in the MSA; she did not urge this point in the lower court. The appellate decision implies that such an argument, if properly made, could have caused a different result even if Mom still had lost the set aside application.
This is an important case for protecting the interests of parties once settlement agreements are executed and approved by family court judges. It is also one of those cases that parties who are resisting set aside motions will use to intimidate the other side. It is not at all clear from the decision what would happen where a party files a fee application to underwrite their set aside motion and sets it to be heard before the final determination, i.e., before the other side is determined to have "prevailed." But the implications seem clear. This case should not be considered the final word on the subject.
T.W. Arnold, III, CFLS |
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| October 11, 2010 |
| Our Disso is Final But We Never Changed the JOINT TENANCY DEEDS. My Ex Just DIED. |
| Posted By Thurman Arnold |
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Q. I just found out that my ex-partner passed away last week. Our partnership disso became final six months ago. We had agreed to hold some commercial property jointly until the real estate market improved, and then to sell it and divide what we netted. They were held in "joint tenancy" and that was never changed. Does this mean I now inherit his share?
A. Probably not, but read on. I talk about this in my last blog about title to property held as "Community Property" and describe "rights of survivorship". But this raises a point that might be useful for you or someone out there - it is not all that uncommon, especially these days, that people agree to continue to jointly own real estate hoping the market is better down the road when they will finally sell. Sometimes they'd actually prefer that their former domestic partner or spouse inherit their share if they die first, before the property is sold especially when there are no children or when adult children have been disinherited.
However, it is not enough that a Judgment, Stipulated Judgment, or Settlement or Termination Agreement say "we will continue to hold the property jointly after the divorce is final and will agree to sell it later (or maybe after a specific time period)" to preserve a joint tenancy interest and its chief attribute - a right of survivorship. This is because without more once the domestic partner (or marital) status is terminated, all joint tenancies that existed prior to that point become tenancies in common as a matter of law. California Probate Code section 5601. Tenancies in common do not contain any survivorship rights.
There is a big "however", however. Section 5601(b) has two exceptions that might help you: (1) Where the joint tenancy is not subject to severence at the time of death, possibly where a written agreement specifically says so (as in a settlement agreement filed with the Court or (2) there is "clear and convincing" evidence that the person who died intended the preserve the joint tenancy in favor of the former partner or spouse.
Hence, where anybody intends to preserve joint tenancy status they should specifically say so in a written document, preferably as part of the Judgment. I always reference the Probate Code section itself. Or, there may be something else that is sufficient to cause the Probate Court to find no severence was intended. My bet is that if there were no other heirs at law for the deceased party, the court would be more easily convinced to find in your favor then if there are surviving children or other family left.
Notice that under the statute the outcome would be different if the Judgment was a decree of legal separation instead.
T.W. Arnold
http://www.DesertFamilyMediationServices.com
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| September 25, 2010 |
| How Do I Use a MARITAL BALANCE SHEET to Figure Out How to Best DIVIDE OUR PROPERTY? |
| Posted By Thurman Arnold |
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Q. I am considering filing for divorce, and am beginning to pencil out what the division of our assets and debts might look like. What is a good way to go about this?
A. Prepare a Marital Balance Sheet. This will give you an idea of how your property could be divided in a dissolution or legal separation, and to allow you to try out different combinations of division.
Its usefulness will depend the accuracy of your assumptions. Often times more information or outside opinions are required to do this with any degree of correctness. Sometimes the outside opinion that is required is the judge's decision on a disputed issue. Marital balance sheets can range from being exquisitely simple to exceedingly complex. Remember that it is the duty of the Court to divide the community estate equally - this division means an equal division in dollars, not that you divide the family residence with a chain saw.
The format itself is simple. You want two columns, one for you and one for your partner or spouse. You will categorize, value, and assign the community property between each of you. Some categories might be listed on a different balance sheet, like pensions.
Here are some suggestions for drafting a Marital Balance Sheet you can work with.
- Use net value numbers, i.e., equity in homes and automobiles. Secured debt is subtracted from fair market value - it is not divided as unsecured debt would be. If you take the house, you take 100% of the mortgage.
- Be sure to use realistic fair market value numbers. Don't make your final decisions based on Zillow. If your assumptions are flawed, your balance sheet analysis will be of limited use.
- Use wholesale Kelly Blue Book values for cars or at least make sure whatever yardstick you use is consistent for both parties.
- Obtain accurate and current pay-off information as to debts. Typically that will be the value of the debts on the date they are assigned, as adjusted for Epstein Credits.
- Don't treat apples and oranges as apples. For instance, list pension assets as a class separate from other assets - the present value of IRA's, 401k's, and other defined contribution plans is always different than the present value of a bank account. These pension accounts are not valued in real dollars but must be discounted, and that may require a pension forensic or CPA.
- Don't include separate property (the other spouse may dispute that characterization). Pure SP doesn't go on the marital balance sheet.
- Assign the debts, placing those numbers in parentheses to ensure they are subtracted and not added in your running total. Remember that it doesn't matter in whose name a credit card is parked. If a debt was incurred during marriage the general rule as between spouses is that each owes 50-50.
- Separate property debts don't go onto the balance sheet because they don't get evenly divided and if they were listed you may inadvertently charge yourself for half.
- Use total values rather than 1/2 community values. These numbers get divided as one of the last steps.
- Don't include support or support arrears.
- Calculate and note Watts' and Jeffries' claims
- List professional practices and businesses but realize you probably have no practical way to put a number on them, would be entirely guessing as to their value, and would probably be wrong anyway. Understand that business are worth more than the sum of their balance sheets or book values.
- If you share this document with your spouse, be sure to write "Confidential Evidence Code section 1152 Materials" on it, which makes them inadmissible as evidence against you. Otherwise you may find yourself stuck with your preliminary numbers when that is not what you intended.
- Realize that if you share this document, no matter how preliminary it is, with your spouse you will be creating in them expectations concerning value or division that they may become stuck on.
- Be careful how you treat negative equity on property. For instance, if you own a car that is worth $15,000 but you owe $25,000 and want that vehicle awarded to you, the other party will not be charged for one-half of the $10,000 in negative equity.
- Leased vehicles should be identified but have no value. I believe it is a good idea to list everything that you own or owe whether or not it has a value or can be valued at that time, since this list becomes an important road map for you and your lawyer.
- Make a note of alleged breach of fiduciary duty claims, but don't value them.
- Don't include your separate property. Include their separate property if you claim it to be all or partly community, but understand those aren't real numbers until a judge rules.
- Don't leave the document lying around where someone else might find it.
- If property is held in one spouse's name alone but a mortgage or taxes were paid during marriage, or if it was improved or refinanced during marriage, understand that the community probably has some Moore-Marsden interest in that property but that you will have great difficulty figuring out what that is without expert assistance.
- Similarly, if one spouse owned property (i.e, real estate) prior to marriage and the other was placed on title during the marriage, note to yourself that the property has community and separate property attributes and understand you will need more information or help to value those competing interests.
- Make a note of all separate property contributions you made for the acquisition or improvement of any property. These are called Family Code section 2640 credits.
- List all other reimbursements due to the community. For instance, there are many situations where the community property is used to pay one party's separate obligations (i.e., child support from a previous marriage) and if you know to assert the claim the community may be entitled to a reimbursement.
- List consumer goods like furniture at garage sale prices unless there is something truly special about the items. Nothing is valued at its purchase price or even its replacement cost new.
- Be sure to include loans from parents, work, or family members that were made during the marriage and assign those that relate to your family or work to you.
- Make a note of any gifts to one or the other of you alone that were used to purchase or improve community property, whether they were received before or during the marriage.
- Look at your bank balances at the date of separation and assign those balances appropriately. If your husband emptied the savings account the day before he walked out, list the amount he took under his column.
This is just a starting point and is valuable as a roadmap to get you thinking about what needs to be done to conclude the divorce. Once you discipline yourself to begin to overcome any paralysis you might feel, the marital balance sheet will speak to you about what is important for you, what the issues are, and will give you some idea of what important paperwork you need to obtain to evaluate your interests now or in the future. Get that paperwork at once. You are going to have to do this exercise anyway once a legal actin is filed.
This the some of the information that you must provide in your Declarations of Disclosure. It is an efficient idea to use those forms from the beginning. These California Judicial Council Forms include:
Getting started on this early will make any meeting with a family attorney cheaper and far more useful then if you've not even thought about these things.
To the extent you can determine values or ranges of values, add up the net equity in your column for the community property you want or get, and subtract 100% of the debts that are to be assigned to you. Again, chances are there will be categories where you can't put a number on the items. But if you had the numbers, then after totalling the total net to the other party, subtract the two net numbers. One of you will show a higher number. This number will reflect the over-credit amount to that person which needs to be equalized between you. Divide this number by 2, and the person who netted more owes that resulting number to the one who received less. This amount is called an "equalization payment."
This is just one way to do a marital balance sheet. Often times there is no money to pay the equalization payment because all or most of the community is held in the form of personal and real property. An equalization payment is no good to you unless you can collect it. Perhaps you can get a promissory note secured by a deed of trust on the family residence that is awarded to the wife. That is usually a bad idea - you don't want to become a bank, with all the attendant risks of default and depreciation.
Another option once you have these numbers are pencilled out is to go back and rethink how the property was divided. Maybe you should take those Peter Max lithographs after all. Maybe the residence or that vacant lot must be sold to raise money for the equalization payment. It is frequently seen in Stipulated Judgments or Marital Termination Agreements. It is not common in litigated judgments because courts generally must equalize the division at the time of trial, not in the future. This is why property may be ordered sold to ensure an equal, current division of the estate.
If defined contribution pension plans exist these are a good place to find the money to assure the equalization payment is actually honored. But a 401k with a net asset value of $100,000 might only be worth $80,000 after penalties and ordinary income taxes are charged on it. Pensions can be divided without tax consequences (QDRO's) but if you are owed a $100,000 equalization, creating a new pension in your name and transferring $100,000 from the other party's interest in it is like being handed a check for $80,000.
Thurman W. Arnold III
September 25, 2010
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| September 20, 2010 |
| How Can I Be Sure a Court Will Enforce My AGREEMENT Reached With My Spouse OUT OF COURT? |
| Posted By Thurman Arnold |
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Q. My wife and I have reached some agreements about support and property division in our dissolution proceedings. Neither of us have attorneys. I want to write something up that is enforceable. Is there anything I should know?
A. If a case has already been filed and so is "pending", and whether you have attorneys or not, if you and your wife reach an agreement on any issue outside of court and you want to be sure that she can't back out of it before it is signed by a Judge and becomes an order, it is essential that you make reference to California Code of Civil Procedure section 664.6 in any written agreement you prepare.
The terms of all types of agreements that you reach as an incident to pending family law litigation must be independently approved by a court commissioner or judge. Usually these judicial officers just want to know that both parties are in agreement, and will not substitute their opinions for what you've decided, but not always. Particularly where children are involved, judges have an independent obligation to ensure that a child's best interests are protected. Still, judges will not usually reject your agreements - however, if one side backs out before the agreement becomes an order or a judgment, when children are involved a court may be more inclined to refuse to enter the disputed order than it would be if the issues involved property division, debts, or spousal support.
Often times people reach agreements in the hallway outside the courtroom, and then come into court and tell the judge what their agreement is - once that agreement is 'on the record', most courts are going to enforce it. Those agreements often require, however, some further writing like a stipulation and it when the stipulation is presented days or weeks later that the other party may have changed their mind. You now need to enforce that agreement, possibly by a Motion under CCP 664.6.
The problem also arises when cases get settled away from court, during the lunch break, or when the agreement doesn't get put on the record for any number of reasons. Maybe they won't sign some other document that the signed agreement contemplated or obligated them to comply with.
Any agreement you reach with anyone is a contract if certain conditions are met. Unfortunately, failure to abide by such promises may only give rise to a claim for breach of contract under civil law - which is pretty worthless in family law proceedings because you have to file an independent civil action to enforce them, which takes months or years to resolve.
You want enforceable orders. These are something more than mere verbal or written promises, or contracts that haven't ripened into Orders or Judgments.
C.C.P. section 664.6 is extremely important and useful for enforcing written agreements, because it gives the Court the power to enforce the terms of those the agreements as court orders, and to interpret them later if there is disagreement about what was in fact agreed to.
However, in order for 664.6 to work for you, you need to either reference the statute in the document that is signed or in an oral statement on the record. You don't need to mention the section specifically, but I recommend that the following language should appear in the agreement or court transcript: "The parties request the Court to retain jurisdiction to enforce the terms of the settlement agreement per CCP 664.6" is the optimal language to use.
Thurman Arnold
http://www.DesertDivorceandFamilyLawyer.com
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| September 13, 2010 |
| My Husband and I Want to Informally DIVIDE OUR PROPERTY. What are some IDEAS for How We Go About It? |
| Posted By Thurman Arnold |
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Q. My Husband and I are separating and plan to divorce. Can you give us some ideas for informally dividing our property without court intervention between ourselves?
A. The following are alternative methods for resolving community property division and valuation disputes. [See Marriage of Cream (1993) 13 CA4th 81, 94-95.] They cannot be ordered by a Court, but are frequently suggested by family law judges and lawyers. You need first to stipulate to the method used, since absent a Stipulation your division may not be later enforceable if either of you refuse to ratify and abide by it. Oral agreements about how you will divide your property are not by themselves enforceable, even if they have been fully executed (i.e., complied with). * In-Kind Division: Each party takes one-half of assets such as bank accounts and stock in a corporation, and/or one-half of the debts.
* Trade-off Division: You may stipulate to settle your property disputes, without regard to value, by agreeing one of yoiu will take certain items of property, e.g., the furniture, and the other will take other items, e.g., the car.
* Piece-of-Cake Division: This method gets its name from the common situation where two children have a piece of cake to be cut in half. To avoid the argument over who gets the "bigger" half, it is agreed that one will cut the cake and the other gets to choose which piece he or she will receive. In the marital property context, one party makes up two lists of the property in question that he or she believes are equal, and the other party chooses which list of items she or he will take. (You may want to agree not to break up sets, e.g., a dining room set, a set of dishes, matching art works, etc.) The piece-of-cake method is particularly useful for dividing furniture and furnishing that usually have a real value to the parties far in excess of their fair market value. The method is also useful in short-term marriages for dividing wedding gifts.
* One Values, the Other Chooses: One of you places a value on each item of community property in dispute and the other party chooses those items he or she will take at the stated value up to one-half the total value. Alternatively, the party choosing may choose any, all, or none of the items, with any items not chosen going at the stated value to the one who set the value. An equalization payment can be required. In dividing furniture and furnishings, an alternative to piece-by-piece choice is to list furniture and furnishings room-by-room, and each party chooses by room.
* You Take It or I Will Take It: One party places a value on an asset at which that party is willing to let the other party be awarded the asset, or else the former will be awarded the asset at that value.
* Appraisal and Alternate Selection: An appraiser is selected by stipulation to value each of the items in question. The parties then choose items alternately until all items are taken. The one to make the first choice can be designated by the flip of a coin. Another approach is to let one party go first and the other party then gets two selections, after which choices are made alternately. It is usually preferable to agree that sets not be broken up. It might be agreed that if a party takes a set it counts as that many choices, e.g., a dining room table and four matching chairs counts as five choices, and the other party then makes the next five choices.
* Sale: The parties agree that the items in question be sold at a public sale or to a particular buyer with the proceeds divided equally, or in whatever other proportion is necessary to accomplish a satisfactory or equal division, considering the other marital assets or obligations each is receiving. For modest furniture or furnishings, the sale may be a garage sale.
* Sealed Bid: Each of the parties submits a sealed bid on each item of property in dispute, using the same list. The bids are opened simultaneously and the one bidding the highest amount for an item gets that item valued at the figure he or she bid, with an equalizing payment to be made, if necessary. This method can also be used for disposition of the family home, other real property, or a family business that both parties have operated, where each seeks to have it awarded to him or her.
* Interspousal Auction: This is a straight auction between the parties, usually with an agreed minimum incremental increase over the last bid being required. The high bidder gets the asset at the amount of his or her bid with an equalizing payment being made, if necessary. To the extent a major asset is involved such as a family business or real estate, the stipulation might provide that each of the parties have an advisor present during the bidding.
* Arbitration: The valuation and division of the community property in question is determined by an arbitrator selected by the parties. The parties should understand that the arbitrator is not required to follow the law, and his or her decision, for all practical purposes, is final and not subject to appeal. Because arbitration usually takes much less time than a court trial, the parties might consider stipulating with your consent that you hear the case as an arbitrator.
* Mediation: Mediation is greatly underutilized in family law cases. It can be a very effective and satisfying way for the parties to reach agreement on the value and division of their marital property.
* Real Property: If both parties want community real property, one of the foregoing methods of resolution can be used. If neither wants it, it can be listed for sale with a broker stipulated to by the parties, at a listing price recommended by the broker. If one wants the property but the other feels that he or she is offering too little, the latter can list it for sale with a broker of his or her choosing. If the property does not sell within a specified period of time, the listing price will be periodically reduced until it reaches the figure where the net proceeds would be equal to what the other party offered. The property then goes to the offering party for the amount of the offer.
* Combination: When more than one marital asset is in dispute, one of the foregoing methods might be used for one asset, while one or more other methods might be used for other assets.
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| September 08, 2010 |
| What do I do if my spouse or domestic partner does not complete their DECLARATION OF DISCLOSURE? |
| Posted By Thurman Arnold |
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Q. What do I do if the other party to a divorce or dissolution of domestic partnership proceeding refuses to file their Preliminary Declaration of Disclosure?
A. Declarations of Disclosure must be exchanged in all California proceedings for dissolution of marriage or domestic partnership, for legal separations, and for annulments. They do not need to be served in any other form of family law proceeding.
There are two forms of Declarations of Disclosure: Preliminary Declarations of Disclosure (PDD's) and Final Declarations of Disclosure (FDD's). PDD's are governed by Family Code section 2103 and FC section 2104. FDD's are governed by Family Code section 2105. While parties to a dissolution or legal separation action can waive the exchange of the FDD in writing (although it is not a good idea to do so for reasons discussed in my blogs about fiduciary duties), they cannot waive exchanging the Preliminary Declarations with one exception: Where a dissolution or legal separation judgment is obtained by default, the defaulting party need not provide the PDD to the other party. Family Code section 2110.
Note that I used the words "exchange" and "serve." This is because the forms themselves are not required to be filed with the Court itself - instead, the proof of service upon the other party to the proceeding is what is to be filed. Judicial Council Form FL-141 is what you file with the clerk's office. In practice many people do file the actual schedules with the clerk, which can be a good idea because whether these forms were really exchanged and their contents can have a big impact on future set aside motions.
Here is the California Judicial Council Form FL-140 cover sheet that accompanies the PDD or the FDD. As you can see, it is the same form but different boxes are checked for each. A form FL-150 Income and Expense Declaration must accompany both, in addition to the FL-142 Schedule of Assets and Debts and the FL-160 Property Declaration.
The FDD is supposed to have much more detailed information, including supporting attachments, then is expected in the PDD.
Where the proceedings do not conclude by way of a default Judgment, the problem you have where the other party fails or refuses to exchange at least their PDD and thereupon to file the FL-141 proof of service is that the clerk cannot (a) set the matter for trial or (b) cannot accept for submittal to a judge and later filing a Stipulated Judgment or Marital Termination Agreement. This can make it impossible to conclude a case even by way of settlement where both parties are in perfect agreement, or to obtain a trial date where they are not. One party can hold up the entire process, and it is true that this often happens intentionally.
There is no set time for when parties must complete and exchange their preliminary declarations. Family Code section 2104 states in part that "after or concurrently with service of the petition for dissolution or nullity of marriage or legal separation of the parties, each party shall serve on the other party a preliminary declaration of disclosure...." The problem with this language is the word "after." The expectation is that this will be done within a reasonable time not usually exceeding 60 days from the date a party appears in the action by filing a Petition or a Response, but the statute does not explicitly say that.
The only remedy you have is file a notice of motion (or OSC application) pursuant to Family Code section 2107 asking that the court order the other party to serve their PDD and file the proof of service within a given number of days, not usually exceeding thirty. That motion should request an order that the other party's Petition or Response be stricken if they then fail to do so in a timely manner, so that your matter may effectively proceed by default hearing.
Expect the Court to give the other side one or two opportunities to get themselves into compliance with their fiduciary obligations to provide this exchange.
Thurman W. Arnold III
http://www.DesertDivorceandFamilyLawyer.com
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| June 11, 2010 |
| What should I know if I want to LIMIT or TERMINATE SPOUSAL SUPPORT in the future? |
| Posted By Thurman Arnold |
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Q. My wife and I were married for 14 years. We have two children, aged 11 and 13. We are both in our early 40's. My wife has a college degree, but quit working shortly before our first child was born. I am a doctor, and she was a nurse at the local hospital before she quit. Our divorce is not final. I think she should be able to support herself once she gets some updated training, although I don't object to supporting our children. She says she won't work until until our youngest child finishes high school. What should I ask the judge to do and what should I expect to limit my spousal support exposure?
A. There are a number of things you need to know.
First, you have a long term marriage within the meaning of Family Code section 4336. Start with the expectation that you will be paying alimony for at least half the length of the marriage.
Second, Family Code section 4320 sets forth the most important factors that a court is required to consider in issuing a spousal support award; it is also the decisive section for determining whether spousal support should be modified, reduced, or terminated in the future. As to later modifications, this means that whatever the court decides as to the 4320 factors (or depending upon what facts are recited in your Marital Termination Agreement) may have a huge impact on how much you pay and for how long. The 4320 factors only come into play when a final judgment enters: Although courts are supposed to consider them in dealing with temporary spousal support issues, they typically do not.
Third, it is essential that you convince the Court to give your former spouse a Gavron warning. I have separately blogged this concept. In essence its effect is to give a supported spouse something of a free pass to rehabilitate themselves and enter the work force until and unless they've been given advance notice of that expectation. If you settle your case without going to trial, as I sincerely hope you do, make sure that a Gavron Admonition is included in your settlement agreement. It starts the clock ticking on your former wife's obligation to become self-sufficient. However, you need to realize that her ability to do so will be impacted by her child rearing responsibilities to whatever extent they exist, and most courts will consider this. It becomes less relevant with older children. Given the length of your marriage (14 years) your youngest child will be finishing high school right about the time that you reach half the length of the marriage.
Fourth, consider trying to get what is called a Richmond Order. Essentially this is an order or an agreement to terminate spousal support jurisdiction on a specified date unless, prior to the fixed termination date, the supported spouse files a motion showing good cause to modify the amount of support or its duration. Unlike most orders which are open-ended, a Richmond Order discourages delay and supports the goal of California that an ex-spouse receive support only so long as is reasonably necessary to get back on their own two feet. They are generally not appropriate in extremely lengthy marriages, or in situations where health or age makes it unreasonable to believe the other party can become self-supporting.
Age is a factor in your case because there is still time for your Wife to develop financial independence.
The effect of the Richmond Order is to place the burden upon the supported spouse to justify continuing support because of unforseen future events. Most judges prefer Richmond orders, but you won't get it unless you request it. Attorneys representing supported spouses are less likely to agree to them in Marital Settlement Agreements at first blush. There may be good reasons, however, that be persuasive if you persevere.
Fifth, consider a request for step down spousal support orders where support is reduced in increments into the future; this may make perfect sense depending upon the length of marriage, whether there are children, and the supported spouse's age.
Sixth, consider a Family Code section 4331
Vocational Training Examination. Even if the Court concludes that it is not reasonable for your wife to work now, this may create an important benchmark which will be useful to you in the future. Downstream if she does not obtain employment she arguably might have, the Court may be convinced it should impute income to her that might have otherwise earned.
At this stage of the proceedings you are setting the stage for a future reduction. That requires smart advance preparation. Find a competent spousal support attorney in your area!
By the way, this is exactly why you should want mediation rather than a court judgment. IMHO. Mediation takes the future into consideration, and creates a safe container for the parties to talk about it!
Thurman Arnold
http://www.DesertDivorceandFamilyLawyer.com
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| June 11, 2010 |
| What is a GAVRON WARNING and how does it affect my right to SPOUSAL SUPPORT? |
| Posted By Thurman Arnold |
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Q. I was at our first court hearing last week requesting child and spousal support, and my husband's attorney asked the judge to give me a "Gavron Warning". The judge said he would consider giving it to me at a future hearing and didn't go along with the lawyer, but I don't understand what this meant. The judge did order my husband to pay child and spousal support. What do I do if this comes up again?
A. Gavron warnings deal with the question of when a supported spouse may be expected to become partially or totally self-sufficient, so that they can no longer be expected to rely on a former spouse for economic support. At some point the entitlement to be supported usually ends.
Where the court intends that party to become self-supporting by a given date, it generally must first give that person advance warning. Marriage of Gavron (1988) 203 Cal.App.3d 705 is a relatively recent case which first articulated this policy. This advance notice is now called the Gavron Warning. It does not impact child support.
This represents a trend in the law away from a rule which once entitled a spouse (typically women) to lifelong alimony to a right to receive spousal support for only so long as necessary to become self-supporting. It applies equally to men and women, and to domestic partners. There is no question that this trend has gained legislative acceptance, and in 2000 Family Code section 4330 was enacted. It provides in part:
"(b) When making an order for spousal support, the court may advise the recipient of support that he or she should make reasonable efforts to assist in providing for his or her support needs, taking into account the particular circumstances considered by the court pursuant to Section 4320, unless, in the case of a marriage of long duration as provided for in Section 4336, the court decides this warning is inadvisable."
Note that this statute states the court "may advise" the support recipient to make reasonable efforts to assist in supporting themselves. This means it is up to a judge to decide at any given stage oin any given case when and whether or not to give the warning. One of the factors that the court must consider is the length of the marriage.
Family Code section 4336 defines a marriage of long duration as 10 years or more. There are cases that have decided that this 10 year rule is not inflexible, and that marriages of less than ten years may qualify for this protection where the facts warrant it (i.e., disability, domestic violence, the parties' respective ages).
The effect of the Gavron decision is to require that fair advance notice in fact be given before a court can properly terminate or reduce spousal support as of a specified future date. The idea is that a supported spouse should not be punished for failing to meet the court's unrevealed expectation that they would become self-sufficient - absent this required advance notice it is judicial error to abruptly terminate an alimony order because of a failure to make good faith efforts to become self-supporting.
However, that notice need not be express - although it usually is. For instance, your husband's attorney was competently (but aggressively) representing your husband by asking the court early on to give you an express warning. He or she will probably ask again at every future hearing until the judge finally does give you the Gavron admonition. That warning need not be in any magic formula: It merely needs to clearly tell the supported spouse that they are expected to become self-supporting. The classic language is contained in the FL-180 Judgment of Annulment, Legal Separation or Dissolution form and reads: "It is the goal of this state that each party will make reasonable good faith efforts to become selfsupporting as provided for in Family Code section 4320. The failure to make reasonable good faith efforts maybe one of the factors considered by the court as a basis for modifying or terminating spousal or partner support."
Except in short marriages of less than 10 years, most judges will not issue Gavron warnings early on because during the early divorce process it is not reasonable that suddenly a homemaker should become self-supporting. At the time a Judgment of Dissolution or Legal Separation is entered, however, and possibly except in cases of very lengthy marriages lasting 20 years or more (or where the parties are too old to be expected to retrain), most judges will give the Gavron Warning.
Additionally, Gavron language is often found in Marital Termination Agreements (also known as MSA's for 'marital settlement agreements'). Whether the language is included in the settlement agreements is a matter of negotiation between the parties. As a recipient you want to resist it. As a payor spouse, you want to insist upon it. The longer the marriage, the less reasonable it is to include such language. For instance, when I represent women over the age of 50 with marriages in excess of 10-15 years, I counsel my client not to permit it. On the other hand, if I am representing the high earner spouse, I always argue for its inclusion. This is one of those subtle areas where having the right attorney for you can make a huge difference in your future security. However, as you may have noted above the language has become so standard now that it is included in the FL-180 Judgment form and be used for or against you even if you never read that piece of paper (one you don't sign).
In answer to your question what to do when this comes up again, urge the court that this is too soon and too early, and not reasonable given that you have devoted your married life to child-rearing and to helping your client develop the career that you both once believed would support the family until retirement and ultimately death.
This is just an overview of the Gavron effect. I will give more education on the topic in future blogs.
T.W. Arnold III
http://www.DesertDivorceandFamilyLawyer.com
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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 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.
Thurman W. Arnold III
http://www.thurmanarnold.com |
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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. Where it can be negotiated, most lawyers who represent "payor" spouses attempt to write in a provision within the Marital Settlement Settlement Agreement that says cohabitation will terminate spousal support. If your agreement so provides, you have additional leverage to modify or terminate spousal support.
But even if your agreement, or the Judgment, doesn't say this Family Code section 4232 must be considered by the Court upon your application to modify or terminate spousal support. That section tracks the public policy of this state that you should not be underwriting your ex-wife's new household, or that you should not be made to pay her spousal support, where her expenses are being covered by a new romantic partner.
§ 4323 creates a rebuttable presumption for 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 actually contributing to her expenses. This does not include persons who are simply opposite sex roommates. Look to establishing the length of their joint living circumstances, consider utilizing discovery to establish whether they have joint credit cards or household accounts, and be patient and don't file for relief too early. An ex partner may take on a roommate for purely financial reasons - that is not by itself cohabitation. On the other hand, even if you are not successful terminating support the first time, if they continue to live together you will have an improved chance at success a year or more later.
Don't expect to ever 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.
Additionally, even if your ex spouse is receiving financial benefits from her boyfriend or girlfriend, that does not mean that the Court will terminate as opposed to reduce her support - 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 by imputing income to her commensurate with the benefits she is receiving rather than cutting her off entirely. Don't think that just because you feel violated that the Court will view it in the same way.
Finally, California law on cohabitation only speaks in terms of living with a person of the opposite sex. However, if the fact is that your ex-spouse is living in a romantic relationship with a same sex partner, it is hard to imagine that a courageous judge will not act to reduce your exposure. We have no appellate decisions on this question yet, but we will soon.
Thurman W. Arnold III
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.
Thurman W. Arnold III
http://www.ThurmanArnold.com |
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