California Family Law Attorney
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May 19, 2010
  When are ASSETS VALUED for purposes of DIVISION in a California DISSOLUTION?
Posted By Thurman Arnold

Q. My wife and I separated two years ago and we have decided to divorce. We don't agree on the date we should use to value some of our property, like the home where she's been living in with the kids. She wants it to be now while prices are down, but when I left our deal was that she got that value. I don't think this is fair. What is a judge going to do?

It is always my hope that spouses 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, like this issue.

Still, valuing real property is not difficult. 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.

This is a major issue in dividing businesses or professional practices, where you are many months down the road from your separation. All post date of separation time, skill and efforts belong to each spouse and not to them jointly - as was the case before separation. All that blood, sweat, and tears after separating may have dramatically increased the value of the business; or the spouse in control may have trashed the business intentionally to avoid a higher buy-out.

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. 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.

For more articles about date of valuation in California divorce, visit us here!

For more information about bifurcations generally, click here!

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Thurman W. Arnold III

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March 06, 2010
Posted By Thurman Arnold

Q. If I have a California divorce case pending but there has been no final judgment, is it possible to terminate the marital status so that I can remarry?

Terminating Marital Status Before the Property is Divided Is Easy to Accomplish

California requires that at least six months elapse between the date that a Petition for Dissolution is filed and served upon the other party before the marital relationship can be terminated. Family Code section 2339. This can occur despite the fact that all other issues (support, custody, property division, etc.) remain unresolved or unadjudicated. The remaining issues in contested cases rarely get addressed that quickly, and the average litigated divorce case takes nine months to two years to conclude. Hence, many people find themselves desiring a Judgment for Dissolution on the soonest available date, even though the rest of the case remains pending.

There are a number of reasons why people may wish to obtain an early marital status termination. Sometimes they wish to remarry and at other times the fact that the marital ties continue between the parties may itself be a source of friction where, for instance, one party is in denial that the marriage is over. Terminating status might help the parties to move on emotionally, and so to come to agreement on issues relating to the "financial" divorce.

However, terminating marital status has some important legal and economic consequences and should be considered carefully. In order to obtain derivative Social Security benefits based upon the other spouse's employment, federal law requires the marriage be of at least ten years duration - counted from the date of marriage to the actual termination date for marital status. Once the marriage itself is dissolved, the time for becoming eligible for social security benefits ceases to run. It is inadvisable therefor to seek or to agree to an early termination of marital status if it has the effect of terminating the marriage earlier than the 10 year mark. Social Security benefits are not an asset that can be divided by state courts in divorce, and it costs the working spouse absolutely nothing to allow the other to spouse to perfect his or her interest in these benefits.

Moreover, while Family Code section 2337, which governs these applications, speaks in terms of a right of indemnity (i.e., reimbursement) in favor of a former spouse who suffers financial injury as a consequence of an early dissolution of the marriage, it is a very weak provision and it would require a lot of legal expense to enforce it.

Whether you should resist a bifurcation of status request may depend upon the length of marriage so far. For instance, if you are at the six year mark it is almost certain that the marriage will be dissolved before you reach ten years, and so an early bifurcation may not matter. If your marriage is already nine years old, chances are the case will not be completed before ten years are achieved.

Keep in mind, neither party is hurt by allowing the ten years to accumulate because Social Security benefits are not paid from the pocket of either spouse, but from the taxpayers' pocketbook. Allowing social security rights to mature hurts neither party but may be important to the interests of each - indeed, for a spouse paying alimony the receipt of social security benefits may actually decrease that obligation in the future since the receiving spouse has income.

Another common consequence of bifurcating marital status is the likely termination of health coverage. Almost all health insurance coverage will terminate upon divorce although federal law requires a transitioning period of between 18 to 36 months under COBRA regulations.

There are other important consequences as well. You cannot obtain the tax savings that is often available by filing a joint tax return (or 'married filing separately') because once marriage is dissolved, your filing status becomes "single". There can be very serious impacts on inheritance rights (whether by Will or by Trust) once the marriage is terminated. Where title to property was held in joint tenancy (giving each spouse the right to inherit the other's interest in such property upon death), that joint tenancy is severed by operation of law and so becomes a tenancy in common without survivorship rights once the marital status is terminated. There can be consequences to certain forms of retirement plans, and it is a good idea to first join any pensions that can be joined into the proceeding - in fact, joinder of applicable retirement plans is first required, and failure to have done this constitutes grounds for objecting to a "bifo".

A party seeking a bifurcation of status will be required to indemnify the non-requesting or resisting spouse from some of the so-called "bifo" consequences (i.e., the requesting party may be ordered to pay the costs of maintaining health insurance, often at increased COBRA premiums, until a Judgment issues on the entire case).

Often bifurcation requests are handled informally by way of a stipulation, thus obviating the need to actually file a motion in order to have a judge rule on the application. These stipulations track the requirements set forth in California Family Code section 2337. A sample form of Stipulation to Bifurcate marital status is provided here for illustration purposes only.

If your spouse is seeking a bifurcation to terminate the marriage, be sure these provisions are including in the both the Stipulation to Bifurcate and the Judgment of Dissolution.

If you do wish to bifurcate marital status, you must use Judicial Council Form FL-315. The burden of proof required to succeed is very slight, and the key case on the topic is Gionis v. Superior Court (1988) 202 Cal.App.3d 786. As a matter of interest, Dr. Gionis was married to John Wayne's daughter, Aissa. Still, they can successfully be opposed (and they should be) very substantial prejudice might result. As a practical matter, it is pretty hard to recover against the other party for injury that an early "bifo" may cause.

If you want to read more about terminating marital status, click here!

Author: Thurman W. Arnold III

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