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ANTHONY J. ROBINSON

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COMMUNITY AND SEPARATE PROPERTY:

        Everyone going through a divorce must be very careful in handling the division of their  assets and debts. Even before you are able to divide those items up, you must be able to ascertain exactly what they are, you must then ascertain their character, ascertain their value, and only then will you be able to divide them fairly. Today, the Court requires that you file a Disclosure with the Court setting forth these items, with particularity.

What the Hell is Community and Separate Property Anyway?

        Under California Law, "Community Property" is defined as any asset or debt acquired, or income earned by a married person while living with his or her spouse. "Separate Property" is defined as any asset or debt acquired by a spouse before the marriage, or during the marriage by gift, devise or bequest, or after separation. These are the general rules, and like all general rules there are exceptions.  For this reason it is advisable to check with a family law attorney before finalizing the division of the property.

        The law requires that the community property be divided equally if there is no written agreement to the contrary. This means that from the total fair market value of the community assets, the joint obligations of the parties are subtracted, yielding the net community estate. Unless agreed otherwise, each spouse must receive ½ of the net community estate. This is an oversimplification, but it gives you a rough idea. The problem arises when no one is willing to divide the property.

How is the Community Property Divided?

        Under California Law,  you are not required to do an "in kind" division of the community property. All that the law requires is that the "net value" of the assets received by each spouse must be equal. Thus, it is not uncommon for one spouse to be awarded the family residence, with the other spouse receiving the family business and investment real estate. Since the total net value of the assets being received by each spouse is equal, such a division is proper. You do not have to physically divide everything in half.

        I think that you should clearly understand that unless you are very wealthy, the Court is not going to take the time to try and sort out your property squabbles.  If the two of you cannot agree then the Court is going to resort to one of several  rather drastic measures to get the job done, including:

• The Court may just order all the assets sold;

• The Court can appoint a Special Master to conduct a sale or hearing;

• The Court can hold a reverse auction, where you and your spouse can bid against each other for the items;

• A really big yard sale in the Courthouse parking lot; or

• Any other method that occurs reasonable to the Judge.

        Guess who pays the cost for this? You and your spouse do and you get to pay for the Special Master's time as well. It behooves you to become very reasonable in dividing up community property assets and debts. 

How About Pension and Employment Benefits?

        Being married gives you an interest  in any  pension, retirement, profit sharing or other employee benefit plan that you or your spouse may accumulate during the marriage. These plans are usually a community asset and subject to division in the Dissolution of Marriage. The  judge has the power to award each spouse their proportionate share  of his or her pension plan, based on either its "present value," or simply  "reserve jurisdiction" to make an award at a later date.

How Are Pension Plans Divided?

         Pension Plans are divided in one of two ways: a "reservation of jurisdiction," or "Brown Orders" or in some cases, by a "cash-out."

Reservation of Jurisdiction or Brown Formula:

        A reservation of Jurisdiction is usually called a Brown Order after a case named "In re the Marriage of Brown."  Under the Brown formula, the Court reserves jurisdiction to divide the pension or retirement benefits to a later date. The Court calculates the percentage of the retirement benefit that the non-employee spouse is entitled to receive. The Brown formula calculation is done by  dividing the years when the spouses lived together as husband and wife by the total number of years that the employed spouse has been participating in the Pension Plan. The result of that division is the community property interest in  the Pension Plan.

        For example, if the husband had 30 years of contributions into a Pension Plan, with 15 of those years coinciding with the years he lived with his wife, the community property share of his Pension Plan would be 50% (15 divided by 30). Thus, the wife would be entitled to 25% of the husband's pension  (½ of 50%). Of course if the wife had her own pension, the same would happen with her pension.

        Under a reservation of jurisdiction, the spouse can elect to receive his or her share of the employed spouse's pension benefits at the earliest time that the employed spouse could retire. This means that even if the employed spouse chooses not to retire, he or she still may have to pay to the other spouse what that spouse would have received if the employed spouse had retired.

        For example, if the husband is eligible for "early retirement" at age 55, but he chooses not to retire at that time, his ex-wife can demand that he pay her the amount of money that she would get if he actually retired. However, if the wife makes such an election, she does not receive any cost of living increases after that date. Many people who elect this option, pay dearly for being in such a hurry.

        You should also be advised that these rules vary widely from plan to plan. Railroad retirement, Fire Department, Police and  Sheriff's Department, teachers and military plans all have their own rules that must be followed. Once again this is somewhat of an over simplification for illustration purposes only, everyone needs to discuss their own plan with an attorney.

        For more information relating to Brown Orders, simply click on the "Brown Orders" button which will take you to the page where you will find an in depth discussion of the subject of Brown Orders.

What the Hell is a QDRO?

        The Federal Retirement Equity Act of 1984 created what is known as the "Qualified Domestic Relations Order," or "QDRO" (sounds like "quadro"). Under Federal Law if the Court makes orders concerning a spouse's retirement plan and the order is prepared in the correct form,  the employer must comply with  the terms of the order. This is a simplification of the process utilized in California. Here the retirement plan is joined to the divorce action, and must approve the judgment and QDRO. The preparation of a QDRO can be time consuming, complicated, and, consequently, expensive  proposition. Frankly if you use the Brown Formula method, you can accomplish the same thing without the expense.

Cash-out:

        The other method of dealing with Pension Plans involves obtaining "actuarial evaluation" of a Pension Plan. An actuary is an expert who deals with statistical and financial evaluations of insurance policies, annuities and Pension Plans. By reviewing the Plan description as well as the accumulations on the account of the employed spouse, the actuary can determine the "present value" of the Pension Plan.

        For example, if the husband's Pension Plan provides that he will receive $1,000 per month upon his retirement at age 65, and the husband is presently 45 years old, the actuary estimates how much money would have to be deposited in an interest-bearing account now to yield interest income in 20 years of $1,000 per month. This process includes an estimate of how  the long-range interest rates  will effect the yield over that period of time. I call this method the Las Vegas Crap Shoot. There are so many factors to consider here that you are basically only guessing what will happen in the future. If you guess right you are a hero, if you are wrong, you are broke. All you have to do is look at the Enron or Global Crossing situation to see what can happen if you guess wrong.

        With a cash-out, the employed spouse receives his or her Pension Plan, with other community property assets being awarded to his or her spouse to result in an over all equal division of community property. This is also referred to as a buy-out, because the employed spouse is in essence buying you out of their retirement plan. This is not the favored method and many plans will not allow you to do this. It also may have adverse tax ramifications, you should check with an accountant before considering this plan.

        One of the biggest drawbacks to this plan is that in order for it to work you must have other property worth what your half of the pension plan is. Usually the pension plan may be the largest single asset that the family has. Taking a cash out when you are young may seem like a good idea, but it may come back to haunt you when you find yourself ready to retire with no money.

How About Businesses or Professional Practices?

        Like any other asset, a business or professional practice must be considered in the valuation and division of community property. To the extent that a business or practice has been developed during the marriage, there is a community property interest that must be dealt with in the dissolution. This concept sounds a lot better than it may be in actual practice.

        The most difficult and time-consuming aspect in determining the value of a business or professional practice is in evaluation of "goodwill." This is defined as "the intangible value that most businesses have, which is based on the expectation of future business, based on established name or reputation." If the business or practice is operated by one of the spouses, it still has a goodwill value, even if it could not be sold on the open market.

         All you have to do is figure out what this mythical value is. In order to do this each side must hire experts. These appraisers charge a fortune for this type of work. You have to be careful before you do this. Before you view this as a panacea, you should remember that many of these small businesses are really nothing more than a self created job. Half of nothing is still nothing.

How About the Family Home?

        Once upon a time in a land far,  far away, there was a time when the custodial spouse (usually the mother) stayed in the family residence until the youngest child reached their majority. During that period of time, the spouse who lives in the home was required to make all mortgage, property tax and homeowner insurance payments when due. Who gets to do maintenance on the house is an open question, most often no one does  it.  As a result the value of the house declines over the years.

        In this mythical land, the house was sold when the youngest child attained the age of majority, or any date as otherwise agreed by the parties or specified by the court. The problem with this little scenario, is that it could  be called the "Attorneys Full Employment Act."

        No one tells you that while you are living there, you are actually "renting your former spouses half of the residence" and he is delaying receiving his  money for your benefit. So when it comes time to sell, your former spouse is going to have his hand out asking you to pay for the use of the house. These little problems are what we family law attorneys call  "Epstein, Watts & Jefferies Credits." 

        For more information relating to "Epstein, Watts & Jefferies Credits." simply click on the "Epstein, Watts & Jefferies" button which will take you to the page where you will find an in depth discussion of the subject of "Epstein, Watts & Jefferies Credits."

        There are no free lunches, and you pay through the nose for this privilege. I have never seen the wisdom in these so-called "Duke Orders" and I certainly don't recommend doing this. What you are really getting is years and years of animosity and ill will, coupled with large amounts of attorneys fees.

        Today, in order to do this, you also have to demonstrate to the Court that your child will suffer irreparable harm if they are moved. This really isn't very easy to prove, assuming that the judge is on the ball.  More experts, more money and more fully employed lawyers. Get it?

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