Category Archives: Community Property

How Do Married People in California, Change the Characterization of Property?

In California, a married couple can change the characterization of property from one party’s

Discussion with a real estate agent

separate property, to both parties community property, and visa versa. They can also change the characterization of the community property of both parties, to the separate property of one party. And, they can change the separate property of one spouse to the separate property of the other spouse.

This process is referred to as a “Transmutation.” A Transmutation is a change in the characterization of marital property in California.

Before 1984, parties could verbally change the characterization of property. For instance, property acquired or bought before marriage, is the separate property of the party who acquired it.  Previously, the owner of a separate property residence or home, for example, could “transmute” the characterization of his or her property, simply by stating that s/he intended to do so. A person could say to his or her spouse, “Honey, I love you. Therefore, my home is your home.” Back in the day, that was a valid transmutation.

However, as time progressed verbal transmutations created problems of proof. Furthermore the legislature, in its ultimate wisdom, disfavored changes in the characterization of property which were traced to “pillow talk.” Therefore, in 1984, the legislature enacted section 852 of the California Family Code. Subsection (a) provides that a transmutation of real or personal property must be in writing, it must be consented to by both parties, and it must be signed by the party whose interest is adversely affected.

So what counts as a valid Transmutation in California? I recently had a case which involved an inter-spousal transfer deed. The parties bought a home while they were married with husbands wages. Remember, wages are community property. Therefore, the home was community property. Years later, the property was upside down. At that time, wife decided she no longer wanted any responsibility for the property. So she signed an inter-spousal transfer deed, wherein the property was transferred to the husband and became his separate property.

What were the consequences of wife having signed the inter-spousal transfer deed? Well, when the parties divorced and the property was sold, wife was no longer entitled to split the proceeds of the sale. It all went to husband! I found case law which stated that an inter-spousal transfer deed satisfies the requirements of Section 852 (a)! That is because it was signed by the wife at the time of conveyance to the husband, and she was the party whose interests were adversely affected. Also, both parties signed and consented to the inter-spousal transfer deed.

But be careful. Sometimes one may think there is a valid transmutation when there is not. For instance, it has been held that a notation in escrow to divide proceeds from the sale of a family residence on a 50/50 basis, did not constitute a transmutation. Or put differently, it did not change the characterization of the proceeds from the sale of the property, from the community property of both spouses to the separate property of each spouse, after the sale. Why? Because the escrow notation was not signed by the parties.

Finally, a mere agreement to divide proceeds of the sale separate property residence, does not changed the characterization of said property from separate to community. Why? Because, once again, per the requirements of section 852 (a), the party whose interests are adversely affected must state, in writing, that s/he is aware that she is giving up his or her interest in the property.

If you are in doubt about the characterization of property at the time of divorce, it is best to consult with an attorney who is versed on this topic. People often times think they have met the requirements of Family Code section 852 (a) when they have not. I have even known a few attorneys who do not fully understand the requirements of section 852 (a).

Do Prenuptual Agreements and Forum Shopping Pay Off? What Can Be Learned From The Breakup of Katie Holms and Tom Cruise

The shorthand answer to that question is that with careful planning, a divorcing couple can Kattie, Tom, Suriavoid a long drawn out court battle.  They can resolve the major issues within a matter of weeks, thus avoiding the stress and expense that is inherent in most dissolution cases.

First, Tom and Katie had a prenuptial agreement regarding their finances, in the event that they ever split up. Therefore, they avoided a long drawn out court battle over division of property and assets. Katie gets $15 million does. That is $3 million for each year that the couple was married.

A prenuptial agreement is a tool used by wealthy people or people with assets. It gives them the ability to alter the normal rules regarding spousal support and community property in the event of divorce. It is a contract between engaged people that takes effect when they get married.

Since the parties financial situation may change during the course of their marriage, it is not always possible to predict, in advance, whether or not a prenuptial agreement will be legally enforceable when the parties separate or divorce. That is why it is important to hired skilled legal counsel when entering into a prenuptial agreement, to ensure that you have adequately complied with all of the legal requirements. While the cost of drafting a prenuptial agreement may be costly, it is far more cost efficient than not having one, and having to litigate property issues when the parties divorce.

A prenuptial agreement cannot include issues regarding child custody and child support. However, Katie was able to get control of the child custody issue by careful planning. First, she moved with her daughter to their home in New York. She stayed in New York long enough to make sure she met the “residency” requirement. She changed her cell phone number and fired all of their New York staff. (She probably did this to get away from the influence of the church of Scientology). She then filed for divorce in New York, rather than California. In New York, there is a presumption of sole custody. While in California, there is a presumption of joint custody. Also, in New York, judges are more likely to listen to arguments regarding the influence of fringe religions, such as Scientology, on children. I am also told that New York is a little more sensitive to mothers who are filing for sole custody.

Thus, by carefully planning this out, and making sure that she met the residency requirements to file for divorce in New York, Katie was able to select a jurisdiction, where the law is more favorable to her position.  In the end, Tom Cruise agreed that Katie would have primary physical custody of their daughter,  Suri, while he would have regular and meaningful ‘visitation’ rights. The distinction between joint physical custody and visitation is important when dividing up parental rights and responsibilities.  Katie also has exclusive say over the choice of her daughter’s religion and education. She enrolled her daughter into a private catholic school. Had this matter been decided in California, they probably would have had joint legal custody. That means that Tom would have had equal say in his daughter’s education and religion.  The parties could have very likely been back in court battling over these issues long after the divorce was final.

As to the issue of child support, in California, that is done by guideline. It is based on the time that each party spends with the child, and the respective incomes of both parties. In any event, I doubt if child support was an issue of contention for Tom and Katie. I cannot imagine Tom Cruise refusing to pay child support, or arguing about the amount. He probably does want his daughter to be financially secure.

So the moral of the story, or the lesson to be learned from the split of Tom and Katie, is that with careful planning, parties can resolve major issues of finances, property division and child custody and support within a matter of weeks, if not days. (Tom and Katie settled most of these issues within 11 days after she filed for divorce)! Thus, they can avoid the stress and expense of what otherwise could have been a long and drawn out court battle.

What Happens In A California Divorce When The Parties Do Not Disclose ALL of Their Assets?-The Case of the Lotto Ticket

lotto case family lawIn a California divorce proceeding, both parties are required to disclose all information regarding their assets and debts.  The parties have a fiduciary duty to one another, which remains in effect until the dissolution has been finalized. Family law judges have wide discretion in dividing property and awarding sanctions when the parties intentionally breach this fiduciary duty. That includes an unequal division of community property, or, in more extreme cases, awarding an entire asset to only one spouse.

The case that immediately comes to mind is Marriage of Rossi (2001) 90 Cal. App. 4th 34. That case hit the press in 2001, and received wide applause from our male population. However, Rossi was not really a case about men’s rights. Rather, it was a case which illustrated the requirement of full disclosure.

In the Rossi matter, the wife had purchased a lottery ticket while the parties were still married. Therefore, any potential earnings from the lotto ticket would be community property. Ms. Rossi subsequently filed for divorce. Her lotto winnings came in during the dissolution proceeding. She had won about $1,336,000.00.  Yet, Ms. Rossi intentionally did not disclose this information on her schedules of assets and debts, which is a document that the parties are required to  sign under the penalty of perjury. The proceedings continued to judgment. The community property, as then know to the judge and the other party, was divided per California law.

Either during, or shortly after the dissolution was finalized, Mr. Rossi filed for bankruptcy. He was about $14,000 in debt. He had continued to reside in the former family home. One day, Mr. Rossi unexpectedly got a phone call from the lottery, informing him that his lotto winnings had come through.  Apparently, Ms. Rossi had forgotten that she had listed their former residence phone number with the lottery. In any event, I am sure you know what happened next. Mr. Rossi went back to court and made a motion to re-open the judgment.

I think you all know where this is going. The judge exercised his discretion and awarded the entire earnings from the lotto, i.e., the entire $1,336,000.00, to Mr Rossi. This ruling was intended to punish Ms. Rossi for non disclosure of her lottery winnings during the dissolution proceeding. The judge ruled that Ms. Rossi had breached her fiduciary duty to fully disclose all of her assets.

So, what is the moral of this story? Failure to disclose pertinent information regarding assets and debts  in a California dissolution matter is the equivalent of lying. Don’t risk it. It is not worth the gamble. The price you may have to pay is too large.

When Can the Non-Earner Spouse Withdraw Funds From Joint Bank Accounts?

In California, when the parties are married and living together, either party can withdraw funds from a joint back account. The purpose for which the funds may be used depends on the ‘intent of the withdrawing party.’  Even if the funds are used for the withdrawing party’s personal use, rather than for joint living expenses, that decision generally will not be disturbed or undone, absent a judicially recognized exception.    Withdraw funds from joint account

However, once either of the parties files for dissolution of marriage (a.k.a. divorce), there are “Automatic Temporary Restraining Orders,” (ATRO’s) which go into effect immediately. Said orders are binding on the party who files, as soon as the petition for dissolution is filed with the court. The orders are binding on the responding party, as soon as that party is served with the petition. What these orders do is prevent either spouse from transferring, encumbering, or borrowing against the property until the dissolution is final.  Put in lay terms, that means that once the petition is filed, neither party can withdraw money from joint accounts without court approval.

Even in today’s modern world, often times, it is one party who is the primary bread winner and who controls all of the finances. (Usually that person is the husband). Therefore, if you are the non earning party, and if you are planning to file for divorce, it is prudent to think ahead and estimate about how much money you will need to pay your lawyer, and to pay basic living expenses while going through a divorce. Once the ATRO’s or temporary orders go into effect, a party who withdraws funds to pay for attorney’s fees or living expenses, may be violating a court order.

The amount that a party withdraws from a joint account, prior to filing for a divorce, varies with the circumstances. I generally advise my clients not to withdraw more than one-half (½) of the total amount in the account. That is because, in general, they are entitled to about ½ of the marital estate. I also advise my clients to keep very careful records of all large withdraws prior to filing. In all likelihood, the other party’s lawyer will make reasonable discovery requests in order to ascertain what the funds were used for.

The Goodwill Of A Professional Practice In A California Divorce

California is a Community Property State. That means that, absent certain exceptions, all doctor-dentistproperty that is acquired during marriage will be divided equally amongst the parties when the marriage is dissolved. Property that was inherited or acquired before marriage, will continue to be the separate property of the acquiring spouse. This rule applies not only to assets, but also to a business or professional practice which was set up and in operation before the parties were married. However, the community may be entitled to a credit to the extent that the value of the business increased during the time that the parties were married and living together. This means that the non working spouse of person who has an ownership interest in a professional practice, e.g., the wife of a dentist or lawyer, may be entitled to a portion of the monetary value of the practice of her spouse in a California divorce proceeding.

There are several methods which are used to determine the value of a professional practice in a California Divorce action. This article will focus on good will and when it would benefit the working and non working spouse.

Good will has been defined as the expectation of continued public patronage. It has also been defined as the expectation that old customers will continue to patronage the business or practice in the future. This is usually based upon the unique skill, reputation, and celebrity of the owner spouse. An example of good will would be a medical practice of a renowned surgeon, who has developed a reputation of getting excellent results. Courts look at the income of the earner spouse on the date of separation when determining the good will of a professional practice. This method of evaluation would benefit the non-working spouse of a professional when the parties were married for a long time, and the bulk of the practice was built up during the time that the parties were married.

Conversely, this method may not be good for a non-earner spouse who was in a short term marriage, and where the good will of the practice was established before the parties were married. For example, in Marriage of Rivers (1992) 130 Cal App 3rd 138, at page 150, a California court held that when ‘a husbands skill, experience and reputation were acquired 40 years prior to a relatively short term marriage,’ the court would not conclude that the good will of the practice was enhanced primarily as a result of community efforts.

The efforts of the working spouse, and the time frame in which those efforts were extended, are a key factor in determining which spouse will benefit from this method of valuation. The efforts of the working spouse are considered to be a community asset if extended when the parties were married. Conversely, efforts extended before the parties were married, are considered to be a separate property asset. Thus, when selecting the good will method to evaluate a professional practice, the factors to consider are the length of the marriage, the extent to which the value of the business increased during the time the parties were married, and, if the increased value is attributable to the efforts and reputation of the working spouse.

 

 

Can My Husband Force Me To Sell My Jewelry In A California Divorce?

I had a client come into my office the other day who asked this question. She was married to Beauty with Jewelreyher soon to be ex for about eleven (11) years. Her current spouse is quite a bit older than she. She is a very attractive woman.  In a manner of speaking, she is a trophy wife. He is a successful entrepreneur, whom she married for financial security. The marriage worked out well for both of them during the eleven years they were together. But, as often happens, they grew apart and will  be going their separate ways.

During the course of their marriage, he bought her expensive  jewelry twice a year. That was a ritual they had. Now that they are  parting ways, she wants to know if she will be forced to sell the jewelry and give him half the proceeds when they divorce.

The general rule in California is that all property acquired by the parties during the time that they are married and living together, is considered to be community property and will be equally divided among them when they get divorced. However, as with most everything else, there is an exception to that rule. The exception is carved out in California Family Code section 770 (a) (2) which provides, inter alia, that all property acquired by a married person by gift or bequest, is separate property.

In order to prove that the jewelry was intended to be a gift, the wife must show three things. First, that her ex-husband  intended  that the jewelry he bestowed upon her was to be a gift.  This should not be hard to prove. For instance,  if she can provide evidence of a gift card that accompanied the jewelry at the time she received it, that would be evidence that he intended for it to be a gift. Evidence that they went out to celebrate a special event, such as their anniversary or her birthday, at the time she received the jewelry, could also be evidence that he intended the jewelry to be a  gift. Second, she will have to prove that he gave her the jewelry.  This should not be hard to prove, since they had a bi-annual ritual of him giving her expensive jewelry.   Third, she must show that she accepted the jewelry. This last element can be proved by her testimony, as well as evidence of the surrounding circumstances when she received the jewelry and took it into her possession.

If the trophy wife can prove the above three elements, she may be able to keep all of her jewelry when she and he ex-husband part ways. It would be considered her separate property.

Suppose a slightly different set of facts. Suppose that the successful husband in the above scenario, was a well know jeweler, rather than an entrepreneur. Suppose that he too, gave his wife expensive jewelry twice a year. Suppose further, that the jeweler husband testified that the reason he gave his wife fine jewelry twice a year was so that he could promote his business. When people saw his wife wearing the jewelry, it drove business to his office. In that situation, a court could conceivably find that the jewelry was not a gift. Rather, that it was given to the wife for the purpose of promoting the husband’s business. In that situation, a court may find that the jewelry was, in fact, community property, and order it sold and the proceeds divided between the parties. Alternatively, a court could allow the wife to keep the jewelry, and award the husband other assets of equal value.

In sum, whether or not a wife will be able to keep her jewelry in a California divorce, will depend upon her ability to prove that it was a gift.  If it was a gift then it is her separate property, even if she received it during marriage.

Are Professional Degrees Earned During Marriage Classified as Community Property?

I sometimes get asked about professional degrees, and whether the costs involved in obtaining Professional degreesthe degrees, or the future earnings one gets from having a professional degree, can or should be divided  when the parties divorce.

California courts have ruled that a professional degree is not property, therefore, it cannot be divided or inherited. It also cannot be a gift. A degree belongs solely to the individual who earned it.

The best that the non earner or non degreed spouse can do, is get reimbursed for any expenses s/he may have contributed to the education of the professional spouse, while they were married and living together.

Of course during the time that the parties are married and living together, income obtained from the professional spouse is community property, as in any other marriage. Also, as in any other marriage, after the parties are separated and living apart, all income obtained by the professional spouse is the separate property of the earner spouse.

Should I get a Prenuptial Agreement before I get married in California?

When making this decision, it is important to have an understanding of what Prenuptial Agreements can and cannot include in California.

A prenuptial agreement is a contract between an engaged couple which takes effect when they get married. It is enforced if and when the parties divorce. It is generally a tool used by wealthy people who have assets, and who want certainty as to how their assets will be divided in the event that their marriage winds up in divorce. The parties can alter the general rules regarding spousal support and division of community property with this agreement.

In order to be enforceable, the party seeking to limit spousal support must fully disclose the Prenuptial agreement in Californiaextent of his or her assets and financial resources. There must be no coercion involved, and the other party must understand what s/he is signing and giving up. Along those lines, the party who is agreeing to limit or waive spousal support must have the agreement reviewed by his or her own independent counsel before signing it.  California law requires seven days between the time when the party, whose rights will be limited, is first presented with the agreement, and the time when s/he signs the agreement.

A prenuptial agreement must not be unconscionable at the time of enforcement. Since a parties financial circumstances may change during the course of his or her marriage, that makes it difficult to predict in advance whether or not the agreement will be legally enforced when the parties separate or divorce.

A prenuptial agreement cannot include issues regarding child support or child custody. It also cannot include agreements regarding obligations that arise during marriage, such as household chores, sexual relations or penalties for adultery.

It is advisable to be represented by counsel when entering into a prenuptial agreement, to ensure that you have compiled with all of the legal requirements. Otherwise, there is a good chance that the agreement may invalidated by the court when the parties get divorced.

 

What Are the Consequences of Not Having a Prenuptual Agreement?

Jessica Simpson was recently quoted as saying that her biggest money mistake was her first marriage to Nick Lachey.  She was spot on. In addition to her notoriety as an actress,

Jessica Simpson and Nick Lachey during 2005 MTV Video Music Awards - MTV ShowBox at American Airlines Arena in Miami, Florida, United States. (Photo by Michael Loccisano/FilmMagic)

Jessica Simpson and Nick Lachey during 2005 MTV Video Music Awards – MTV ShowBox at American Airlines Arena in Miami, Florida, United States. (Photo by Michael Loccisano/FilmMagic)as an acclaimed actress, Jessica has also become a fashion Icon. Today, her fashion empire is said to be worth close to $1 billion.

she has become a fashion Icon.

In contrast, her ex husband, Nick Lachey, never achieved the same level of fame that she did. Accordingly, when they split up, Jessica wound up paying.  Nick Lachey walked away with half of the value Jessica Simpson’s estate when their divorce became final, back in 2006.  At that time, the parties settled for about $2 million. Fortunately for Jessica, she made most of her fortune in the fashion industry after the parties split.

Before getting married, carefully weigh the economic consequences. Be very clear about what you may be giving up, before saying “I do.”  Under California law, one spouse could be giving up a lot for the other.

There are two solutions to avoid this outcome. The first, and most obvious, would be not to get married.

The second would be to get married, but to make sure to have an air tight prenuptual agreement. A well written prenuptual agreement can avoid harsh laws regarding spousal support and the division of community property.

The problem with a prenuptual agreement is that no one can predict the future.  No matter how carefully the agreement is drafted, things inevitably change over the course of a few years, including one’s financial situation. Accordingly,  at some future point when the parties split, the agreement may no longer be a true representation of the parties current financial situation.  Thus,  the agreement may be hard to enforce.

Does No Fault Mean No Revenge In A California Divorce?

California is a “no fault” divorce state. That means that a California judge will not listen to arguments about the fact that your ex spouse had extra marital affairs. In fact, you could be sanctioned and ordered to pay a fine for bringing that issue up in a California divorce proceeding.

But does that mean that your spouses conduct is without consequences? Or that you are left holding the bag and without a remedy?

The answer is a resounding NO! There is always more than one way to skin a cat, or, in this context, to get revenge.  Remember, California is a community property state. Therefore, while a spouses infidelity may not be an issue in a California divorce proceeding, the way s/he spends his or her money ALWAYS is! Particularly if s/he squanders the assets of the marital estate, or makes a GIFT of community funds without the consent of the other spouse.

Since, California is a community property state, judges are supposed to equally divide the assets and debts of the community between the spouses when they divorce. However, like everything else, there are exceptions to that general rule.

The exception that is most on point here, is that neither spouse can make a GIFT of the community property without the consent of the other.  Here are two familiar examples.

Arnold and Maria

I am sure that most of you remember the split of of former Governor ArArnold and Marianold Schwarzenegger and his famous wife Maria Shriver, just a few years ago. Maria, as well as the rest of us, learned that Arnold fathered a child with another women while he and Maria were married and living together. This “love child” was born around the same time that their youngest son Patrick was born.

To add salt to the wounds, Arnold purchased a home for his former mistress and their love child in Bakersfield. The approximate cost of the home was $268,000.00. As stated above, Maria could not litigate or bring up the issue of Arnold’s infidelity during the divorce proceedings. If she had attempted to do that, she could have been sanctioned or fined.

However, if Maria could prove that the Bakersfield home was purchased with community funds, such as Arnold’s wages or assets acquired during marriage, and that she did not have knowledge of this purchase,  then she could have used that as evidence that Arnold had made a gift of their community property without her consent. Thus, she may have been able to have the purchase of the Bakersfield home set aside.  This, in turn, could have also be grounds for an unequal division of the community property.

As a caveat, I don’t know what finally happened between Maria and Arnold. If they wound up getting back together, or if they remained apart. Reference to their situation was merely used an example of the remedies Maria had available to her, had she chosen to use them.

Donald and Shelley

A more recent example, is the situation of Donald Sterling, the  former owner of the Clippers, and his now famous ex mistress V Stiviano. V Stiviano lived in a condo in LA that was worth $1 million dollars. She drove a nice car. She wore expensive jewelry. She enjoyed many comforts that she did not earn. Donald Sterling footed the bill for these items so that his mistress, V Stiviano, could live in luxury.Donald Sterling and V Stiviano

Donald Sterling made gifts to V Stiviano without the consent of his wife Shelly! Shelly found the paper trail, filed a law suit,  and was able to get all of those transactions set aside!

The basis of Shelly’s law suit was that Donald used community funds to make lavish gifts to his mistress, without Shelly’s consent.

Shelly is going to be able to set aside $3,000,000.00 worth of gifts to Donald’s mistress! Shelly got her revenge. Don’t you think?

Have a look at this article from the dailymail! http://www.dailymail.co.uk/news/article-3039372/Shelly-Sterling-emerges-victorious-bitter-court-battle-judge-rules-V-Stiviano-pay-2-6-MILLION-claimed-ex-Clippers-owner-Donald-gifted-her.html

Conclusion

As stated above, the moral of the story is that No Fault does NOT mean No Revenge. While a beleaguered spouse cannot mention the indiscretions or affairs of his or her former spouse, s/he can always mention the manner in which the former spouse spent their money. Remember, every monetary transaction, whether through a bank account or credit card, always leaves an electronic trail. Therefore, if a scorned spouse can prove that an ex used community property earnings or assets to buy lavish gifts for a lover, s/he can have the transaction set aside. This may also be grounds for an unequal division of the community assets when the parties divorce.