DIVISION OF SEPARATE AND
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Three Basic Steps In Dividing
Property In A California Divorce Action:
There are three basic steps in dividing property in a divorce
Characterization: First it must be determined
whether the property is "community property", "separate
property", or "quasi-marital property.
Valuation: Next the property must be given
a value either by agreement or appraisal.
Division: After the property has been charicarized
and valued, the goal of the court is to confirm separate property
to the owner of that property and to evenly divide community
Separate Property - General Concepts: Property
acquired before marriage is the acquiring spouse's separate
property, as is property obtained during marriage that can be
traced to a premarital acquisition. [Ca Fam § 770(a)(1)
& (3) ("rents, issues and profits" of SP are SP)
Like community property, separate property does not lose its
character as such by a mere change in form or identity.
The court must therefore determine when the property was "acquired".
For property characterization purposes, "acquired"
contemplates the "inception of title" . . . generally
meaning the time (before marriage, during marriage, or after
separation) when the original property right arose, not the
time when it subsequently matured into full legal title.
Property acquired during marriage by "gift, bequest, devise,
or descent" (i.e., inter vivos or testamentary gift or
intestate succession) is the acquiring spouse's separate property.
[Ca Const. Art. I § 21; Ca Fam § 770(a)(2)]
A spouse's "earnings and accumulations" after a judgment
of legal separation are his or her separate property (Ca Fam
§ 772); and so are a spouse's "earnings and accumulations"
while living separate and apart from the other spouse (Ca Fam
"Separation" within the meaning of Ca Fam §
771(a) requires more than a rift in the spouses' relationship.
The date of "separation" occurs only when the parties
have come to a parting of the ways with no present intent to
resume their marriage and their conduct evidences a complete
and final break in the marital relationship.
Community Property - General Concepts: All
property acquired during marriage and before separation, other
than by gift or inheritance (Ca Fam § 770(a)(2)), is presumptively
community property. [Ca Fam §§ 760, 771(a)]
Income derived from a spouse's labor, time or skill during
marriage and prior to separation is community property. Such
"earnings" includes any compensation for services,
regardless of the form in which it is received. For example,
to the extent it reflects employment during marriage, community
"earnings" can include:
Stock in lieu of salary.
Employer contributions to an employee profit-sharing plan.
Incentive stock options.
A conveyance of real estate from the employer in the form
of a gift, but which is in reality deferred compensation
in lieu of a pension.
Vacation pay, or the right to receive certain other financial
benefits as deferred compensation upon termination of employment.
Other employment fringe benefits based on a contract right
to future benefits after separation (even though unvested
and unmatured): To the extent "earned" during
marriage, these interests are allocatable to the community.
Profits from a spouse's business (sole proprietorship, partnership
or closely-held corporation) are "earnings" to the
extent attributable to either spouse's participation in the
business. Conversely, income and profits not reflective of either
spouse's labor or skill are strictly a return on the capital
investment, characterized in accordance with the separate or
community property status of the original investment.
Transmutation: Both before and during marriage,
spouses may agree to change the status of any or all of their
property (presently owned or thereafter acquired); i.e., they
can convert separate into community property, community into
separate property, or separate property of one into separate
property of the other. [Ca Fam § 850(a),(b) & (c);
see also Ca Fam § 1500--spouse's property rights prescribed
by statute may be altered by premarital agreement or marital
property agreement] The process is commonly referred to as "transmutation."
"Quasi-Community Property": For
purposes of a property division in marital actions or the rules
governing marital property debt liability, "quasi-community
property" is (i) real and personal property, wherever situated,
which would have been community property had the owner spouse
been domiciled in California at the time of acquisition, and
(ii) any property acquired in exchange for such property. [Ca
Fam § 125(a) & (b)]
The establishment of a California marital domicile may trigger
California "quasi-community property" law, under which
the parties' common law separate property will be treated as
if it were community property for certain purposes.
Quasi-Marital Property: The characterization
of "marital" acquisitions as community property necessarily
assumes the parties were validly married. Nonetheless, in a
nullity proceeding to terminate a void or voidable marriage,
California "quasi-marital property" law recognizes
normal community property rights in favor of a party who has
"putative spouse" status (good faith belief in validity
of marriage). [Ca Fam § 2251(a)(2)]
Absent an in-kind division or sale and division of proceeds,
valuation of each item in the community estate is an essential
prerequisite to the court's responsibility to effect a net equal
division. Valuation is ultimately a question of fact, to be
resolved in the exercise of the trial court's broad discretion
based on the range of evidence presented. The trial court's
determination will be upheld on appeal so long as supported
by substantial evidence in the record.
Obligation To Disclose Value: Each spouse's
fiduciary obligations in the management and control of the community
estate include the duty (a) to fully disclose to the other spouse "all material facts and information regarding the existence,
characterization and valuation of all assets in which the community
has or may have an interest and debts for which the community
is or may be liable"; and (b) upon request, to "provide
equal access to all information, records, and books that pertain
to the value and character of those assets and debts." [Ca Fam § 1100(e) (emphasis added)]
The Parties May Agree On Value: The parties
are free to enter into an agreement concerning the value of
community property and they are encourage to do so by the court.
Fair Market Value: Unless the parties stipulate
or agree to accept some other measure of value (e.g., cost or
book value), an equal division of the community estate must
be predicated on fair market value. [Marriage of Cream (1993) 13 Cal.App.4th 81, 88-89, 16 Cal.Rptr.2d 575, 579] For
purposes of effecting an equal property division upon marriage
dissolution or legal separation, "fair market value"
of a marketable asset is the highest price on the valuation
date that would be agreed to by (i) a seller, who is willing
to sell but under no obligation "or urgent necessity to
do so," and (ii) a buyer, who is ready, willing and able
to buy but under "no particular necessity for so doing."
[Marriage of Cream, supra, 13 Cal.App.4th at 89, 16 Cal.Rptr.2d
Date Of Valueation: With few exceptions,
community assets and liabilities subject to the court's disposition
ordinarily must be valued "as near as practicable to the
time of trial." [Ca Fam § 2552(a)]
Proof Of Value: Competent valuation evidence
may be proffered by any of the following methods:
Expert Testimony: A qualified expert can
testify as to value (e.g., appraisers, accountants, actuaries
or real estate brokers/salespersons). [Ca Evid §§
801, 813(a)(1), 814]
Owner's Testimony: The property owner
or owner's spouse is competent to testify as to the value
of his or her own property even though not qualified to
testify as an expert. [Ca Evid §§ 813(a)(2) &
Comparable Sales: A witness offering opinion
testimony may take into account as the basis of his or her
opinion evidence of the price paid for the property if recently
purchased; or evidence of market prices or recent sale prices
for comparable (similar) property. [Ca Evid §§ 815,
816] However, mere offers to buy or sell certain property
are inadmissible to prove the property's value. [Ca Evid §
822(a)(2) & (b)]
Buy-Sell Agreement: The agreed-upon buy-out
price or buy-out formula for purchasing a business interest
(e.g., shares of stock in a closely-held or professional corporation)
as between the business principals is admissable on the question
of value in a community property division proceeding between
the spouses. However, such a buy-sell agreement is not conclusive.
Based upon the evidence presented, the family law court has
broad discretion to accept or reject the valuation formula
in a business buy-out (or stock purchase) agreement.
Court's Broad Discretion: Generally, where
the parties are unable to agree on a disposition of their community
estate, trial courts have broad discretion to determine the
manner of division in order to accomplish a net equal division.
General Approaches: Typically, the court will
adopt one or more of the following approaches:
In-Kind Division: The Court divides fungible
assets (bank accounts, shares of stock, etc.) in kind, whereby
each spouse is awarded one-half.
Asset Distribution Or Cash-Out Division: The Court distributes one or more items to one spouse and
items of equal value (which may include an equalizing promissory
note) to the other (Ca Fam § 2601).
Sale & Division Of Proceeds: The Court
orders an asset sold, with the proceeds divided in proportions
necessary to effect a net equal division of the overall community
Deferred Partition By Conversion To Tenancy In Common: The Court awards each spouse an undivided one-half
interest in certain items to hold as tenants in common (typically,
the family home), deferring partition until feasible to effect
a sale and division of the proceeds.
Reservation Of Property Division Jurisdiction: The court may bifurcate the action and grant a "status
only" judgment of dissolution or legal separation, expressly
reserving jurisdiction to divide the community estate and
resolve all other pending issues at a later time. [Ca Fam
§ 2337] Additionally, where contingencies certain to
occur at some finite future time render it impracticable to
apportion and fix a value on particular community interests,
trial courts may properly act within their discretion by reserving
jurisdiction to value and divide specified community assets
at a later time. [Marriage of Kilbourne (1991) 232
Cal.App.3d 1518, 1524-1525, 284 Cal.Rptr. 201, 204-205] A
reservation of jurisdiction may also be appropriate where
there is a potential reimbursement claim but the amount thereof
turns on contingencies not yet fixed at the time of the property
division trial. [Marriage of Feldner (1995) 40 Cal.App.4th
617, 626, 47 Cal.Rptr.2d 312, 317]
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