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Court Finds Judgment Creditor Can Reach Debtor’s Equitable Interest in Trust

In the recent case Fidelity National Title Insurance Co. v. Schroeder, the Court of Appeals ruled that a trial court incorrectly ruled that a judgment creditor could not maintain a resulting trust cause of action against a debtor.  A resulting trust cause of action generally arises when a creditor seeks to show that a debtor fraudulently transferred property to another person to avoid a debt, and if the creditor can show that the property transferred is owned for the benefit of the debtor, a resulting trust attaches to the debtor’s equitable interest in the property.

In this case, a former wife recorded a significant money judgment for unpaid spousal support against her former husband.  Subsequently, the former husband and long-time cohabitant purchased a property together, and title was taken in both names as joint tenants.  The couple refinanced several years later, and the title insurer (Fidelity) overlooked the former wife’s recorded lien.  As a result, Fidelity had to pay the former wife and then filed suit against the former husband and his cohabitant for unjust enrichment, money paid, and equitable subrogation.  Following the filing of the suit, the former husband and cohabitant transferred title in their home to several other persons, for no consideration.  Fidelity recorded its abstract of judgment one month later and then sought declaratory relief against the fraudulent conveyance, sought a determination that the cohabitant held the home in a constructive trust for the former husband because they were “putative” spouses, and finally Fidelity sought a determination that a resulting trust exists because the deed was designed to shield the former husband’s ownership interest from his creditors.  The Court of Appeals ultimately held that a judgment lien attaches to all interests in real property, including equitable interests.

This case is important in family law.  Many times, our attorneys need to pursue all legal methods to collect on child and spousal support orders which remain unpaid by the debtor.

January 2010

While the court has equitable discretion to deny enforcement of child support, a defense of unreasonable delay in enforcement, or laches, is not available to the obligor parent to discharge a child support obligation.

In Marriage of Escobedo and Blazevich, the Fourth District Court of Appeals ruled that Father could not use a laches defense to discharge a child support obligation stemming from a 1979 court order, where the child had turned 18 in 1996 and where the County did not enforce the arrears until 2008.

This case began over 30 years ago in 1979 when Father was first ordered to pay child support. Father became delinquent on his obligation and racked up over $6,000 arrears by 1992 when the County secured a Judgment against Father for that amount. The minor turned 18 in 1996. Father was incarcerated in 1999. He made only one payment towards the arrears from 1992 to 1999.

In 2008 the County filed a motion to determine Father’s arrears. Father used the laches defense, arguing that the County took over 15 years to enforce the Judgment.

The trial court ruled that the child support Judgment was enforceable against Father because holding otherwise would have been an impermissible retroactive modification of a child support judgment. Father appealed.

The Court of Appeals affirmed the trial court. In the last two decades, the California legislature and courts moved to ensure that child support could not be discharged because of the passage of time. In 1993, the legislature passed Family Code §4502, which states that a judgment for child support is enforceable until collected in full. In 2002, the legislature amended Family Code §4502 to bar laches as a defense in private actions to collect child support. The California Supreme Court ruled in 2006 in the Fellows case (2006) 39 Cal.4th  179, 186-88, that the legislature intended for the bar against laches to be retroactive.

Father suggested that the Court has equitable discretion to deny enforcement of child support. For example, the Court could refuse to enforce the arrears during a time period in which the child was living full-time with the obligor or after the child emancipated.

The Court was not persuaded because the equitable principles only apply when they are congruent with child support statutes. Citing the State’s compelling interest in the collection of child support, discharging Father’s obligation under the Judgment would have been an impermissible retroactive modification of child support.

Cases like Marriage of Escobedo and Blazevich demonstrate that California courts have broad jurisdiction over the issue of child support. Even if your child has reached majority, you can still seek payment from the obligor. If the other parent is delinquent in payment of child support, contact Wilkinson & Finkbeiner, LLP today for a consultation.

If an initial spousal support order contemplates that the supported spouse will reduce the need for support, and the spouse fails to do so, the Court may modify spousal support on the ground of change of circumstances.

In the unpublished opinion of Marriage of Frost, the Fourth District Court of Appeals held that Wife’s failure to abide by a spousal support order advisement to make efforts to decrease her need for support is grounds for a change of circumstances to modify the order. Further, the Court ruled that the trial court can terminate jurisdiction to award spousal support in a long-term marriage where the record is clear that the supported party can meet his or her needs by the date set for termination.

The parties’ in the Frost case separated in 1996 after a 16 ½ year marriage. They entered into a Marital Settlement Agreement which ordered Husband to pay Wife $2,600 per month in spousal support. Wife had no income at the time. The order stated that it is the legislature’s goal that a reasonable time for the supported spouse to become self-supporting was one-half the length of the marriage.

In 2002, Wife’s spousal support increased to $8,000 per month.  Wife was then earning $1,700 per month. The trial court reminded Wife that she has to become self-supporting. In 2003, Wife underwent a vocational evaluation, which found that she was grossly under-employed.

In 2007, Husband filed a motion to modify spousal support due to Wife’s cohabitation with her boyfriend and the fact that her investments netted her $1 million annually. Wife continued to be under-employed. The trial court found that she had ignored her duty to become self-supporting. The Court also balanced the mandatory Family Code §4320 factors. Spousal support was reduced in $2,000 increments until it reached zero. The court also terminated its jurisdiction to award spousal support.  Wife appealed.

The Fourth District affirmed.  According to the Court, a modification of spousal support requires a material change in circumstances, and unrealized expectations from a previous order can be such a change in circumstances. However, the court must also balance the various §4320 factors, such as the whether the parties’ earning capacities can maintain the martial standard of living, the needs of the parties, and the assets and liabilities of the parties and the supported spouse’s ability to become self-supporting. The court found that Wife made minimal efforts to secure gainful employment. Because self-sufficiency was a central provision of the Marital Settlement Agreement, the trial court properly focused on the fact that she was earning only about half of her capability. Additionally, Wife’s cohabitation constitutes a material change of circumstances.  The Court rejected Wife’s arguments that she could not find gainful employment and that the marital standard of living required the current level of spousal support.

Perhaps more controversial was the Court’s decision to terminate jurisdiction to award spousal support on this long-term marriage.  Wife complained that the Court applied the short-term marriage standard when it terminated jurisdiction. Under current law, marriages of long duration, or 10 years or more, is an exception to the legislature’s goal of one-half the length of the marriage being a reasonable time for the supported spouse to become self-sufficient. However, when the Frost Agreement was drafted in 1999 this exception was not yet law. Wife failed to show that the trial court committed prejudicial error when it terminated jurisdiction after she refused to become self-supporting a decade after she was warned.

The Court also cited Marriage of Morrison (1978) 20 Cal 3d 437,453, which held that a trial court shall not terminate the court’s ability to award spousal support after a lengthy marriage unless the record is clear that “the supported spouse will be able adequately to meet his or her financial needs at the time selected for termination of jurisdiction.”  Given Wife’s cohabitation, investment assets and the time that had passed since the Agreement was fashioned, she was now able to meet her needs.

At first blush, Frost suggests that the courts may be open to terminate jurisdiction over spousal support in long-term marriages where the supported party is not proactive in finding gainful employment. However, the court was persuaded to terminate jurisdiction primarily because Wife benefited from a bullish stock market, not to mention that Wife was cohabitating with her boyfriend. In a down economy the result may have been different if the supported spouse had no other sources of income, even if she flagrantly ignored the duty to become self-sufficient.

December 2009

Court should not have considered a party’s subsequent spouse’s share of community property income when modifying child support.

In re Marriage of Knowles the Third District Court of Appeal reversed a trial court’s ruling that considered all of the community property of a father and his subsequent spouse in modifying the father’s child support obligation. Writing for the majority, Justice Nicholson ruled that the trial court violated Family Code §4057.5(a)(1), which prohibits consideration of a subsequent spouse’s income unless the exclusion of the income would cause the obligor’s child to suffer extreme and severe hardship.

Knowles involved Elizabeth and Thomas, who had one child together. Eventually Thomas was ordered to pay $506 in child support to Elizabeth. Subsequently, Thomas married Sara. Shortly after Thomas and Sara’s marriage, the couple received capital gains of approximately $3 million, which they invested in a brokerage account in Sara’s name alone and in a real estate development. The brokerage account and the real estate development were Thomas and Sara’s community property.

Elizabeth then filed a motion to modify child support. The trial court granted her motion and ordered Thomas to pay $1,557 per month. The order was partially based on an imputed income of $50,000 per year to Thomas from his prior work as a ranch manager. The court also determined that the child support should be based on a reasonable rate of return on Thomas’s investments. The court found that to be $18,450 per month from the brokerage account and the real estate development. The Court did not reduce the value of the brokerage account and the real estate development by 50 percent in recognition of Sara’s one-half ownership. It reasoned that public policy, “…[S]tands for the proposition that capital gains or other passive community income for a party, such as interest income or dividends income should be divided for support purposes with a new spouse, making it half unavailable for child support.” However, the appellate court reversed and remanded the case because the trial court erred when it considered Sara’s half of the community income without a finding of extreme and severe hardship to the child. The appellate court also held that Family Code §4057.5 prohibits the use of community property attributable to the other spouse in calculating child support “whether the income is earned or is a return on investments.”

Thus, Knowles tells us that if you are the parent seeking modification of child support in a situation like in this case, you should attempt to prove the child would suffer extreme and severe hardship if the community property earnings of the other party’s new mate were excluded in considering an award for child support. If you are the obligor and attempting to prevent modification, you are not off the hook: Some well-tailored discovery may reveal that your separate property had more to do with the increase in value of your investments. As such, your new spouse’s community interest in the income would be reduced, making more of your income attributable for child support purposes.

A Marital Settlement Agreement does not prevent the IRS from disallowing claimed spousal support deductions as child support.

In a decision by the United States Tax Court in Rodkey v. Commissioner, the Internal Revenue Service (IRS) was permitted to disallow claimed spousal support deductions as child support even though it had allowed them to the same taxpayer in settlement of litigation for the previous tax year.

Joseph and JoAnn were divorced pursuant to a Marital Settlement Agreement in 2004. Joseph was ordered to pay JoAnn $3,200 per month in non-modifiable spousal support and child support. The agreement also read that the entire $3,200 was deductible for Joseph for income tax purposes. However, the agreement stated that $1,700 of each payment was child support, and $1,500 was for spousal support. Joseph made the payments in 2005 and 2006 and deducted the full $3,200 per month as spousal support on each of his 2005 and 2006 tax returns. In 2007 the IRS informed Joseph it was disallowing his spousal support deductions for 2005, but then reversed itself and cancelled the deficiency. Then the IRS disallowed Joseph’s 2006 spousal support deductions, which landed Joseph in Tax Court.

The Tax Court ruled that the portion of $3,200 per month attributable for spousal support was deductible pursuant to Internal Revenue Code §71, but the other portion was child support and were therefore not deductible. Joseph argued that the IRS was collaterally estopped from arguing the 2006 deduction when it had already allowed the 2005 deduction. The IRS argued and the Court agreed that the 2006 issue had not been fully litigated, and that Joseph did not rely on the litigated outcome when he filed his 2006 tax return.

All of this could have been avoided by better legal drafting. Parties cannot enforce an agreement to violate federal law.

June 2009

Accessing and Disclosing Confidential Emails of Another Warrants a Restraining Order

In the unpublished opinion of Marriage of Nadkarni (Dist. 6 (Filed April 24, 2009)), the California Appellate Court ruled that Wife’s application and declaration for a restraining order against Husband were sufficient for a showing of abuse within the meaning of the Domestic Violence Prevention Act (DVPA).  Husband’s conduct included accessing, reading, and publicly disclosing the content of Wife’s confidential emails.

Husband sought to modify child custody orders, accusing Wife of leaving the children alone while she was in India.  Husband attached several of Wife’s emails showing that Wife lied to Child Protective Services (CPS) and told her children to lie in regards to her whereabouts.  Husband claimed he had no choice but to access Wife’s email account because the children’s safety was at stake. Wife was granted a temporary restraining order (TRO) on the grounds that her emails contained confidential information.  At the hearing for the permanent restraining order, the trial court ruled that Husband’s conduct did not rise to the level of the DVPA.  However, the appellate court reversed and remanded the case holding that that Husband’s conduct fell within the DVPA because Husband’s conduct of accessing, reading, and publicly disclosing the content of Wife’s confidential emails could cause her to suffer “shock” and “embarrassment,” to fear the destruction of her “business relationships,” and to fear for her safety.  The court reasoned that the DVPA authorizes injunctive relief even when the abuse alleged is not the actual infliction of physical injury or assault.

The DVPA authorizes restraining orders to prevent recurrence of domestic violence abuse.  Abuse may include an intentional or reckless attempt to cause bodily injury, sexual assault, or apprehension of imminent serious bodily injury.  In addition, California Family Code § 6320 of also enjoins several types of nonviolent conduct that may constitute abuse within the meaning of the DVPA.

Estate Planning Documents Results in Unequivocal Transmutation

In Marriage of Lund (Filed May 21, 2009), the California Court of Appeal held valid Husband and Wife’s agreement transmuting all of Husband’s separate property to the community property of Husband and Wife, despite an agreement providing that the transmutation was for ‘estate planning’ purposes only, and moreover, the trust provided the undoing of the transmutation agreement upon petition for dissolution.

Under California Family Code § 850, married persons may change the character of their separate property to community property by transmutation. A transmutation must be in writing and expressly declare that the characterization or ownership of the property is being changed. (Estate of MacDonald (1990) 51 Cal. 3d 262, 272.) The term “transmutation” need not be used, but “the express declaration must unambiguously indicate a change in character or ownership of property.

The parties explained in the agreement that the transmutation, “[I]s intended as a document of transfer for estate planning purposes… It is not intended by this Agreement to make any transfer of property between the parties hereto, nor shall this Agreement be construed for any purpose to affect any such transfer…”  Further, Husband’s trust provided that the agreement is automatically terminated upon the filing of petition for dissolution of marriage.

The court relied on its previous ruling in Marriage of Holtemann (2008) 166 Cal. App. 4th 659, 664, where the court held that recitals that state the agreement was executed for “estate planning purposes,” are irrelevant, stating “[T]he ‘estate planning’ documents do not have any bearing on whether the agreement at issue contains the ‘requisite express, unequivocal declarations of a present transmutation.’” (Holtemann at p. 1173.)

Parties intending to transmute property in a trust or will should know that regardless of the motivations underlying the preparation and execution of the documents, a transmutation may be found if it contains the requisite express unequivocal declarations of a present transmutation.

Loan Applications Must be Authenticated and Fall within a Hearsay Exception

In the unpublished opinion of Marriage of Jordan (Dist. 4, Div. 3 (Filed June 3, 2009)), the California Court of Appeal held that Husband’s loan application was properly authenticated and was not hearsay because it constituted an “adoptive” admission.

Husband and Wife were married in 1987 and separated in 2005. Husband contended that his monthly income was $12,500 from his dry wall business that he claimed was valued at $2.2 million. During a contested proceeding, Wife produced a residential loan application prepared by Husband in which he claimed his monthly income was $35,000 and the business was valued at $3.2 million.

The trial court found Husband’s proffered evidence was not credible and concluded that Husband had $40,000 per month of income for support purposes. The trial court ordered Husband to pay child support of $6,181 and spousal support of $2,500 per month.  Husband appealed, arguing that the residential loan application was improperly admitted because it was hearsay and it was not properly authenticated as required under Evidence Code § 1421 and § 1221.

The appellate court affirmed, holding that the document was properly authenticated because the document contained information referring to matters that were unlikely to be known to anyone other than Husband. Further, the court of appeal held that the document was not hearsay because Husband had turned the loan application over in response to Wife’s document production request, thereby admitting the existence and content.

When presenting evidence in court, parties should be aware that authentication of writings are required before it may be received into evidence and that some documents may be excluded from evidence on the basis of hearsay under the California Evidence Code, unless there is an applicable exception to the rule.

May 2009

Personal Jurisdiction Acquired by Serving Incarcerated Spouse’s Jailer

In California, there are various ways to effectuate “service of process”.  Generally, the most effective service method is by personal service, where a competent adult, who is not a party to the action, personally hands the summons and associated pleadings to the respondent or defendant.  Another method to effectuate service is when the party receiving the service documents signs a document entitled, “Notice and Acknowledgement of Receipt.”  In some situations it may be impossible for anyone to personally serve a party.

For example, in Sakaguchi v. Sakaguchi, Mr. Sakaguchi was incarcerated at the commencement of civil action against him by his wife.  Mrs. Sakaguchi tried to have third party personally serve Mr. Sakaguchi in jail, without any luck.  Finally, the documents were mailed to Mr. Sakaguchi, including the Notice and Acknowledgement of Receipt, care of Mr. Sakaguchi’s .  The documents were delivered to the husband’s jailer, who signed the Acknowledgement of Receipt.  As another layer of confusion, Mrs. Sakaguchi misspelled her husband’s name on the original Complaint that was filed in the case.

Mr. Sakaguchi never appeared in the action, and the Court entered a multi-million dollar default judgment against him.  Mr. Sakaguchi appealed the default judgment, alleging that he was not personally served, he did not personally sign the Acknowledgement of Receipt, and his name was misspelled.  The Court of Appeals rejected all of the husband’s arguments, holding that CCP § 419.10 and Cal. Penal Code § 4013 allows for service on an inmates jailer.  Further, the Court found that “slight errors” in the spelling of a name does not destroy the virtual identity of a name, and that since Mr. Sakaguchi was aware that he is the person named as a defendant the court acquired jurisdiction over him.

Non-Parent Custodial Rights are held Constitutional

In the recent case of In re E.S. (Civ. No. D052768; Ct. App., 4th Dist., Div. 1, 5/8/09), the appellate court rejected a father’s argument that Cal. Fam. Code § 3041 is unconstitutional.  In this child, the child was placed in the care of the child’s aunt and uncle, and the father was given supervised visits.  The father challenged the trial court’s decision arguing that the court allowed non-parental custody based on preponderance of the evidence (a very low standard) and without making a finding that the father was an unfit parent.

The appellate court held that Cal. Fam. Code § 3041 requires clear and convincing evidence (a very high standard) of detriment to the child to award custody to a non-parent; however, that presumption may be rebutted by a showing that the non-parent is actually a “de-facto” parent (i.e., a person who has cared for the child, holds themselves out as the child’s parent, and the child believes the person is their parent).  As a result, the burden rests equally between the de facto parent and the biological parent.

Finally, the appellate court held that a finding that a biological parent is unfit is not required to award custodial rights to a non-parent.

April 2009

A Message for “In Pro Per” Litigants

During this economic environment the Superior Courts have seen a dramatic rise in divorce and paternity case filings by “in propria persona” litigants, commonly referred to as “pro per” litigants.  Often, these litigants do not have an understanding of most issues that arise within the dissolution of marriage or paternity action they file.

At Wilkinson & Finkbeiner, LLP, we frequently educate and counsel “pro per” litigants on an hourly basis, to ensure that these litigants understand their particular legal issues and to guide them through the process.  Our lawyers can assist pro per clients by providing a variety of services, including helping the client file all necessary forms and pleadings, reviewing and advising of applicable laws and regulations, and negotiating with the opposing party or their attorney.  In most cases, our “pro per” clients are greatly appreciative of the services we provide and the information they receive during their consultations.

If you are a “pro per” litigant, please call and schedule your confidential appointment with one of our attorneys.  During that initial meeting you can decide whether our consultation services are right for you!

March 2009

Filing Bankruptcy did not Extinguish Wife’s Right to Community Property

In the unpublished opinion of Marriage of Nigorizawa (Dist. 2, Div. 5 (Filed March 10, 2009)), the Court held that Husband’s bankruptcy did not extinguish Wife’s community interest in marital assets.

Husband and Wife were married for over 30 years, separating in 1999.  Wife filed for divorce on March 23, 2000.  In September 2004, Husband filed a Chapter 7 bankruptcy petition, estimating that he had 1 to 15 creditors, assets of $0 to $50,000, and debts of $50,001 to $100,000.  He declared he was divorced (although he was still married, as the parties’ marriage was not dissolved until 2007).  Husband listed Wife as a non-priority creditor, and claimed that Wife had only a $70,000 claim to his estate.  Creditors were instructed to refrain from filing a claim because there did “not appear to be any property available to the trustee to pay creditors”.  In December 2004, Husband’s debts were discharged in the bankruptcy proceeding.  The parties’ divorce trial occurred in November 2007.  Husband argued that the court did not have jurisdiction (i.e. the power or authority) to make any orders with respect to community property interests because the bankruptcy court had already discharged those assets.  The court found that Husband did not list any of the disputed community property interests on his bankruptcy petition and that he misrepresented his marital status, employment and earnings.  The court entered judgment awarding Wife $30,296 from three investments, $20,000 cash, $1 million from a promissory note, other business rights, $19,000 from Husband’s 401(k), and $24,742 from Husband’s pension.

Husband appealed the trial courts ruling but the Court of Appeals affirmed the trial court’s holdings.  Since Husband filed his bankruptcy petition after Wife had filed for divorce, and there was no adjudication in the family court prior to Husband’s bankruptcy filing, the family court still retained jurisdiction to enter community property orders.

February 2009

The Court Narrows Non-Parent Ability to Join into UPA Child Custody Cases

The California Appellate Court recently ruled that non-parents do not have the right to join into child custody cases where a Court previously entered orders regarding custody between the children’s biological parents.  (Scott v. Superior Court (2009) __ Cal. App. 4th __ (CA 3 – Opinion filed 2/25/09))  In this case, Rachel and Bill had three children.  The children were taken by CPS from Rachel in 2001 and the court awarded Bill sole legal and physical custody under the Uniform Parentage Act (“UPA”).  Bill had been dating Jan, who proceeded to raise the minor children, as the primary parent, for the next seven years.  Bill and Jan broke up, and Bill refused Jan access to the children.

Jan filed a motion under the UPA case pursuant to Cal. Fam. Code § 3041(c), alleging that the children would suffer detriment if she were not awarded custody.  Jan did everything she could to show that she was the children’s de facto parent, including showing that she was the emergency contact at the children’s school, she had added them to her health insurance, and provided evidence that the children held her out as their mother.  Both biological parents objected to Jan’s joining the case.  The superior court allowed Jan to join into the case, but the Court of Appeals concluded that the superior court erred in allowing Jan to join, holding that 1) Jan cannot be the presumed mother; 2) is not an interested party; and 3) cannot interfere with Bill and Rachel’s constitutionally protected right to make custody and visitation decisions for their children.

The holding in this case severely limits a non-parent’s ability to gain custodial rights to a child under the Family Code.  However, the outcome might have been different had Jan filed a motion to modify child custody orders under the UPA action, or if she had filed for guardianship.  Jan simply cannot seek to inject herself into an action that settled child custody issues years before her joinder request.

January 2009

Law in Brief – Selected Changes to the California Family and Penal Codes

Fam. Code § 3111 – Courts now have the ability to impose monetary sanctions against parties who make unwarranted disclosures of child custody evaluators’ confidential written reports.

Cal. Penal Code § 653m / 653.2 – It is a misdemeanor to (1) make telephone calls or contact with an electronic communications device with the intent to annoy or harass another person at any place; or (2) to knowingly permit someone else, under that person’s control, to annoy or harass another person at any place (Pen. Code § 653m).  Additionally, it is misdemeanor to use an electronic communication device (include telephone, cell phone, internet, email, web pages or sites, computers, etc.) to distribute, publish, email, hyperlink, or make available for downloading (1) personal identifying information of another person, including image(s), or (2) an electronic message of a harassing nature about another person that would be likely to “imminently cause that other person unwanted physical contact, injury, or harassment” by a third party.

Cal. Civ. Code § 1946.7 (AB 2052) – This statute amends, repeals and adds Cal. Code Civ. Proc. § 1161, authorizing a tenant to notify a landlord in writing of his or her intention to vacate the premises and terminate a tenancy because the tenant (or a member of the household) has been the victim of domestic violence, sexual assault, or stalking.  The tenant must attach a copy of a temporary restraining order, emergency protective order, or police report.  (Note:  This new law allows tenants to easily escape their obligations under a lease, no matter how long the leasehold contract anticipates, due to an allegation of domestic violence.)  The tenant may then quit the premises and stop paying rent after 30 days.  This legislation poses further difficulties for landlords, but offers real victims of domestic violence an opportunity to remove themselves from domestic violence situations.

December 2008

The Impact of the Economic Recession on Your Family Law Matter

The United States economy is currently experiencing a significant recession.  We are all affected by the recession, and many news outlets and economic forecasters have warned that the recession will get worse before it gets better.  By no means are we financial experts, but the purpose of this article is to provide family law litigants with information related to how the recession affects their family law matter.

Obviously, engaging in any type of litigation is expensive.  It is certainly expensive (even if you don’t have an attorney) during a family law proceeding wherein a household is becoming split into two households.  Expenses generally double, but income remains the same.  As a result, preservation of assets and minimizing expenses to the extent possible remain extremely important for family law litigants.  Often, litigants begin to become focused on “winning” their case and lose sight of preparing themselves for a financially secure future without their spouse.

It should be the goal of all family law litigants, whether it is a divorce case, paternity action, support matter, post-judgment motion issue, or other family Law matter, to reach an amicable, cooperative settlement outside of court.  This goal is true whether the economy is in a recession or not.  It is always advisable to have competent legal counsel to structure your settlement terms in a matter which is fair, legally binding, and enforceable.  Competent legal counsel can also help you structure your settlement in a way that benefits both parties using proactive, creative thinking.  Every family law litigant’s case is unique, and there are no two situations that are exactly the same.  The attorneys at Wilkinson & Finkbeiner, LLP have dealt with family law issues for hundreds, if not thousands of family law litigants.  Many times, our clients require a creative, non-standard solution to their problem.  Because agreements between parties in a family law case are generally limited only by the court’s ultimate approval of the agreement, litigants can structure their contract in any way they see fit.  For example, our attorneys have prepared many Marital Settlement Agreements containing provisions wherein the parties continue to hold their real estate in joint title form following their divorce.  If parties did not reach such an agreement, courts will most likely order property to be sold following trial.

However, sometimes it is not possible to reach an agreement outside of court.  In such cases, litigants should work hard to settle as many issues as possible and narrow the issues that the court will decide.  For example, in a divorce case, it is often easier to reach an agreement on financial issues, such as division of assets and debts, than it is to reach an agreement on child custody issues.  It is perfectly acceptable to reach an agreement outside of court on financial issues, and only ask for the court’s assistance with respect to child custody issues.

Many litigants also express concern over the cost of hiring an attorney to help them in their case.  The long-term cost of failing to seek competent legal advice can be much more severe than the relatively inexpensive short-term costs of having an effective attorney representing you.  Our firm prides itself on minimizing costs while still providing all clients with exceptional service and advice.  You will find that your short-term investment in an attorney will likely provide significant, long-term benefits.

Mr. Finkbeiner was recently interviewed by Fox 5 News in San Diego regarding the “credit crunch” and its impact on family law litigants.  You can view that news clip by clicking here.

November 2008

Tax Court Holds Spousal Support Payments Made by Cohabitee Spouse Non-Deductible

In Ohrman (Steven F.) v. Commissioner (Civ. No. 95401-07S; U.S. Tax Ct. 9/16/08), the United States Tax Court held that the IRS correctly denied alimony deductions to a spouse who resided with and made alimony payments to his wife.  Steve and his wife entered into a legal separation agreement in 2001.  The legal separation agreement included terms dividing assets and debts and provided that Steve would pay his wife alimony.  Although the parties were legally separated, they continued to reside together.

On his individual returns, Steve attempted to deduct the alimony payments he made to his wife for tax years 2002 through 2004.  The IRS disallowed these deductions because the parties still lived with each other, so Steve and his wife filed amended returns claiming joint filing status.  They attempted to deduct property taxes and mortgage interest (for the wife’s property, which she received in the legal separation agreement).  The IRS denied these new deductions also, and Steve filed his appeal with the Tax Court.

The Tax Court applied state law where the parties’ legal separation judgment was filed, and determined that Oregon law the couple was legally separated regardless of the fact that they continued to reside together.  Therefore, they were not afforded the opportunity to file a joint return.  Because IRC Sec. 71(b)(1)(C) disallows alimony tax treatment when the payor and payee are members of the same household, Steve was not able to deduct his alimony payments for tax purposes.

Changes to Legislation Concerning Family Domestic Violence

Generally, family law litigants are able to obtain temporary restraining orders on an emergency basis without notice pursuant to Cal. Fam. Code Sec. 6320.  This procedure is commonly referred to as an “ex parte” hearing.  A judge may restrain a party from molesting, attacking, striking, stalking, threatening, sexually assaulting, battering, harassing, telephoning, destroying personal property, contacting, coming within a specified distance of, or disturbing the peace of the other party.  Family or household members may also be protected by these ex parte orders upon a showing of good cause.

Beginning January 1, 2009, the new Cal. Fam. Code Sec. 6320.5 provides that “[a]n order denying a petition for an ex parte order pursuant to [Fam. Code Sec. 6320] shall include the reasons for denying the petition.”  The legislation also dictates that an order denying a “jurisdictionally adequate” petition for an ex parte order under the Code must “provide the petitioner the right to a noticed hearing on the earliest date of the business of the court will permit, but not later than 20 days or, if good cause appears to the court, 25 days from the date of the order.”

Currently, judges normally state their reasons for denial of an ex parte temporary restraining order request on the record.  However, such a finding is not required.  This new legislation requires judges to provide their reasons for the denial, but more importantly provides for a mandatory expedited hearing on the petitioner’s request for the injunctive restraining order even if their ex parte request is denied.  Currently, if a petitioner’s ex parte request for a temporary restraining order is denied, the trial court does not set a hearing for a permanent restraining order.  The petitioner may file a noticed motion for such a permanent restraining order in due course, but it usually takes up to 45-60 days to obtain such a hearing date.

September 2008

Unallocated Family Support May Not Always Be Tax Deductible

In the recent case, Przewoznik v. Commissioner (2008) (Civ. No. 15519-06S; United States Tax Court), the United States Tax Court  held that “unallocated family support payments” that terminated “when the child reaches the age of majority or graduates from high school” could not be treated as deductible on his tax returns.

The rules are simple concerning deductibility of alimony and child support under the Internal Revenue Code.  Payments treated as alimony are taxable to the payee (receiving party) and tax deductible to the payor (paying party).  (I.R.C. §§ 71, 215)  Payments that are fixed for a child cannot qualify for alimony tax treatment. (I.R.C. §71(c))

Przewoznik argued that the unallocated form of the support should be treated as alimony.  The Tax Court held otherwise citing I.R.C. §71(c) which provides that support payments made until the happening of an event involving a child are treated as child support.  The Tax Court further reasoned that the both parents understood the payments to be child support because the payments were routed through the state child support services.

**Lesson: As a rule of thumb, any unallocated family support payment should not be contingent upon the happening of an event involving a minor child.

Court Refused to Impute Income Absent Proof of Ability and Opportunity to Earn

In the 2008 case, In re Marriage of Bardzik (Civ. No. G038644; Ct. App., 4th Dist., Div. 3 7/25/08), the court of appeal held that the trial court properly refused to impute income to a parent during a child support proceeding even though the parent took early retirement, because the other parent failed to satisfy their burden of showing ability and opportunity to earn.

Jeffrey and Yvette divorced in 1994 and had two minor children.  During several post-judgment motions, it was finally resolved that the parties would share 50/50 custody of the two minor children, and neither party would pay child support to the other.  Both parties were deputy sheriffs in Orange County.  In 2006, the parties resorted to litigation after Yvette filed for a change in custody and requested “guideline” child support.  Yvette complained that she had retired from the sheriff’s office at the age of 42 in order to spend more time with her sons, one of which had been adopted and had a disability, and with her two sons of a new marriage.  She cited stress factors resulted in her early retirement.  Yvette’s only income was her retirement pay.

A week before Yvette’s Order to Show Cause hearing, Jeffrey filed a companion matter motion requesting custody of the child with the disability.  He also requested “child support in an amount in accordance with the California guideline, taking into consideration the parties’ gross incomes and time share…”  Jeffrey’s initial pleadings did not request that any income be imputed to Yvette.  Jeffrey’s trial brief (at a later hearing) unambiguously addressed the imputation issue, stating that income should be imputed to Yvette based on her pre-retirement ability to earn and because she cite no health reason for her early retirement.  During trial, Jeffrey did not produce any evidence regarding the imputation issue, except to refer to Yvette’s testimony concerning her employment history.  Yvette offered to participate in a vocational evaluation during the hearing, but the court declined stating that Jeffrey had not made his prima facie case for imputation.  After no additional witnesses were called, and after oral argument, the court expressly declined to impute income to Yvette.

The outcome of this case affirms that the moving party (the person requesting a certain order) in an imputation of income case bears the burden of proof showing that the other party has an ability and opportunity to achieve gainful employment.  In this case, Jeffrey could have provided the court with Yvette’s resume, want ads, testimony from a professional job counselor, pay scales correlating to ability and opportunity, or a vocational evaluation.

August 2008

Trust Agreement for Estate Planning Purposes Transmutes Property

In the recent case, Marriage of Holtemann (2008) 162 Cal. App. 4th 1175, 76 Cal. Rptr. 3d 615, the California Court of Appeal held that language in a typical estate planning instrument and transmutation agreement, even though both documents contained language stating that the documents were intended for estate planning purposes only, effectively transmuted property.  In Holtemann, the parties were married for a short period of time.  Husband brought substantial assets into the marriage (constituting his separate property under the Family Code) and Wife had few assets.  The parties retained one attorney and executed a “Spousal Property Transmutation Agreement” and the “Holtemann Community Property Trust”.  The documents did not contemplate a separation of the parties, nor did it contemplate dissolution of marriage.  The documents contained numerous references to transmutation of property and also included references that Husband intended that his separate property would become community property.  The documents indicated that the documents were intended for estate planning purposes only.

Wife filed for divorce and Husband argued during a bifurcated trial that the Transmutation Agreement failed to effectively transmute Husband’s separate property into the parties’ joint community property because the documents were ambiguously written and were clearly intended for estate planning purposes only.  The Court found, and the appellate court affirmed, that Husband had clearly, expressly stated that he intended to change the character of his separate property into the community property of both parties.

Parties intending to formulate and execute estate planning documents should be fully informed of all family law consequences of such a plan.  The transmutation issue presented in the Holtemann case is a typical estate planning issue present when one or both spouses bring substantial separate assets into a marriage.

Tax Court Denies Equitable Innocent Spouse Relief to Wife Due to Wife’s Participation in Financial Plan

In the case Casula (Andrea C.) v. Commissioner (Civ. No. 3385-05S; U.S. Tax Ct. 5/5/08), the United States Tax Court denied a spouse’s request for equitable innocent spouse relief to a Wife who clearly participated in a marital financial plan that led to nonpayment of taxes.  The parties were married for a period of 20 years before Husband started a business.  After seventeen years of business, Husband began realizing setbacks in his business.  In 2000, Husband withdrew funds from his 401(k) account and Wife sold employee stock to keep the business in operation.  The parties filed a joint return for tax year 2000 and reported the transactions but failed to pay taxes owing on the transactions.  Wife later filed a request with the IRS, pursuant to IRC Section 6015, asking for relief from the tax liability on the basis that she was an innocent spouse.  Such a request is founded upon equitable principals.  The IRS denied her request.  The Tax Court upheld the decision by the IRS based on the following: 1) Part of the tax liability was based on Wife’s own stock sale; 2) The couple was still married and there was no evidence that Husband committed any fraud; and 3) The tax liability was not so great so as to impose an unreasonable burden on Wife given her employment.

Spouses intending to prepare a request for equitable innocent spouse relief should consult with their Certified Public Accountant and attorney and receive advice with respect to IRC Section 6015.

May 2008

Whether a Personal Injury Settlement Should Be Considered in Calculating Child Support

In re Marriage of Rothrock (Civ. No. B193031, Ct. App., 2d Dist., January 23, 2008), provides guidance as to whether a personal injury settlement (in the form of an undifferentiated insurance annuity) should be considered when setting child support. Ultimately, the Court of Appeal held an undifferentiated settlement should not be considered gross income under Family Code §4058 for purposes of setting child support, and the following explains the Court’s rationale.

Under Federal law, personal injury or sickness damages received as lump sums or periodic payments are excluded from gross income for federal income tax purposes. (Henninger v. Southern Pacific Co. (1967) 250 Cal. App. 2d 872, 878; see also 26 U.S.C. §104(a)(2)) Such damages are excludable because they make the injured party whole as a result of their loss. This is in contrast to compensation for lost wages or disability/worker’s compensation, which is a substitute for lost wages.

Based on this distinction, the Rothrock Court held that Family Code §4058 definition of “gross income” would exclude Husband’s personal injury settlement.

From a public policy standpoint, this seems to be a no-brainer. However, the interesting part of the case held that it is the “person who is challenging an undifferentiated settlement bears the burden of proving it otherwise.” What this means is that Wife had the burden of proving that Husband’s “undifferentiated settlement agreement” was comprised of certain components having to do with lost wages and was not just a settlement to “make the injured party whole.” This holding is troubling because if after a divorce a former spouse is in an accident, he or she could structure an “undifferentiated settlement” that could seemingly shelter such compensation from child support.

Does Breaking Into Your Own Home During A Divorce Proceeding Constitute Residential Burglary?

Believe it or not, it can. In People v. Gill (Crim. No. C051108; Ct. App., 3d Dist., January 22, 2008) Husband and Wife had a marital fight. Wife told Husband to leave the family residence and not come back. Husband left and voluntarily surrendered his keys. Husband then returned, broke into his own home, threatened, assaulted, sexually abused, and kidnapped his Wife.

Although generally, a person cannot be convicted of burglarizing his or her own home, the Appellate Court held that by voluntarily surrendering his keys and heeding Wife’s directive not to return, Husband waived his right to enter the home.

When Two Family Courts have Jurisdiction over Custody Issues, Which Court Should Hear the Matter?

The case of the Adoption of Lauren D (Civ. No. C054705, Ct. App., 3d Dist., October 26, 2007) answers the often asked question of, what court do I file in? In Lauren D, a Yolo County family court dissolved Lauren’s parents’ marriage, ordered child support payable by Father and ordered sole legal and physical custody to Mother.

Several years later, Mother, the children, and her new husband were residing in Sacramento County. Mother and new husband filed a stepparent adoption motion to terminate Father’s parental rights and allow new husband to adopt the parties’ children.

Soon after Mother’s motion in Sacramento County, Father filed a motion to modify custody and visitation in Yolo County. Thus, the battle of competing courts ensued.

Ultimately, the Court of Appeals held that if two superior courts have concurrent jurisdiction concerning child custody, the first court to assume jurisdiction has exclusive and continuing jurisdiction until determined differently. (See Moffat v. Moffat (1980) 27 Cal. 3d 645, 652) Practically speaking, this makes sense because it would be disastrous if two courts insisted on entering conflicting orders.

From a practical standpoint, what happens if a parent lawfully relocates to a different Court’s jurisdiction? Again, the original Court would generally retain jurisdiction but a change in venue could be sought by a party to move the case to a different county.

Judges Are Vested With Broader Discretion to Enter Domestic Violence Restraining Orders than Civil Restraining Orders

By way of background, a domestic violence restraining order is generally entered if there is any form of “abuse.” The Family Code defines abuse as (1) intentional or reckless acts that cause or attempt to cause bodily injury; (2) sexual assault; (3) an act placing a person in reasonable apprehension bodily injury or (4) molesting, attacking, striking, stalking, threatening, battering, harassing, or annoying phone calls.

In the case of Nakamura v. Parker (Civ. No. A115626; Ct. App., 1st Dist., Div. 2, October 22, 2007), Ms. Nakamura’s temporary restraining order request was denied without even a noticed hearing. Her allegations included apprehension, threats, stalking, harassment, and sexual abuse, among other things. Nevertheless, her request was denied. She appealed.

Judges must balance the rights of an unnoticed and unrepresented party versus the need to protect persons seeking shelter from abuse. This is a very difficult balance. In reversing the trial Court’s dismissal of Ms. Nakamura’s request, the Appellate Court stated that when considering a domestic violence restraining order request, the court is vested “with more liberal discretion than similar civil harassment statutes under the Cal. Code of Civil Procedure §527.6.” Practically speaking, this holding means that family courts will err on the side of caution when considering whether to issue a restraining order in an effort to protect those from harm. Therefore, do not be surprised if a temporary restraining order is entered even if the allegations seem less than convincing.

November 2007

Dividing Pension Benefits Under The Mythical “Brown Formula”

If the concepts of dividing pension benefits were not already difficult enough for litigants to understand, the California Court of Appeal has held that the “Time Rule” is not synonymous with the “Brown Formula.”  In re Marriage of Gray (2007) Civ. No. H030284 (Ct. App., 6th Dist.)  So what is this mythical Brown Formula?

In 1976, the California Supreme Court decided In re Marriage of Brown (1976) 15 Cal. 3d 838, holding that the non-vested and non-matured pension benefits derived during marriage, are community property subject to division at dissolution.  Okay, so if such benefits are subject to division, how do we divide them?  The simple answer is the Brown case provides the Court the discretion to divide such rights, but does not endorse or describe a formula to determine the actual division.  What the Brown case does stand for is the following:  In exercising its discretion to divide a pension, the trial court can (1) divide the pension in kind and retain jurisdiction (the ability) to later implement the division, or (2) cash out the non-employee spouse’s interest by determining its present value and ordering payment.  Thus, as pointed out in Gray, there is no actual “Brown Formula.”

In Marriage of Gray the Court held that the trial Court has the discretion to divide a pension equitably.  Thus, whether the “Time Rule” or some other equitable method of division is used, ultimately, Brown is the case affording the Family Court the right to make such a division.

**Lesson: Simply stating in your Marital Settlement Agreement that the method of dividing a pension plan will be pursuant to the “Brown Formula” is inadequate and may cause unnecessary litigation in the future.  The attorneys at Wilkinson & Finkbeiner will assist you to determine the correct language to use when dividing pension assets in a Marital Settlement Agreement.

October 2007

Nondisclosure of Financial Information Results in Hefty Sanctions

In the recent case, In re Marriage of Feldman (Civ. No. D047896, Ct. App., 4th Dist., Div. 1. filed 7/20/07), the Fourth District Court of Appeal affirmed a trial court’s order that a husband in a dissolution proceeding had to pay $250,000 in sanctions and $140,000 in attorney’s fees to his wife, based on the husband’s failure to disclose financial information.

Elena (wife) and Aaron (husband) were married for 34 years, during which time Aaron created a large number of companies.  Aaron declared that his assets were worth over $50 million.  Throughout the proceeding, Aaron provided updates to his Schedule of Assets and Debts, and responded to discovery demands from Elena’s attorney.  Elena filed an attorney’s fees motion in September 2004, alleging that Aaron failed to disclose several financial transactions, including the purchase of a residence and a bond, and the existence of a 401(k) account and several privately held companies.

The appellate court affirmed the trial court’s harsh sanctions and attorney’s fees award, based on Aaron’s breach of fiduciary duty, failure to disclose, and frustration of the policy promoting settlement.

Family law dissolution of marriage litigants should be aware that trial courts have broad discretion to make life miserable for parties who fail to follow disclosure requirements.  Among those remedies, it should be noted, is the Court’s ability to award 100% of the undisclosed asset to the opposing party.

September 2007

Collaborative Family Law

Effective January 1, 2007, Cal. Fam. Code § 2013 became part of the Collaborative Family Law Act.  The statute authorizes parties to a family law proceeding (Cal. Fam. Code § 2000, etc.) to enter into a written agreement to resolve their matter using a collaborative process.

There is significant distinction between the collaborative process and “mediation”.  The collaborative process utilizes professionals to assist the parties in reaching an agreement, and further requires that both parties use their best efforts and make a good faith attempt to resolve disputes relating to the Family Code.  The mediation process has no such requirements, although the mere act of participating in mediation requires some level of good faith.

Both collaborative law and mediation utilize an alternate method of resolving disputes, rather than resorting to the court process to resolve important family law issues.  Our attorneys are able to discuss various alternative dispute resolution methods with you, and how these processes might be useful in your matter.

August 2007

Enforcing Support Rights under Divorce Judgment Violates Deceased Husband’s Trust Terms

In the recent case of Colburn v. Northern Trust Company (Civ. No. B185956; Ct. App., 2nd Dist., Div. 1, filed 5/25/07; mod. 6/4/07), the ordered that if a decedent’s former wife filed a claim or action against the decedent’s trust seeking modification of support, the claim would violate the trust’s no-contest clause.

Richard and Jacqueline married in 1998, had two children, and divorced in 2002.  The dissolution judgment provided, among other orders, that Richard would pay $4,000 per month in child support, and $8,333 per month in spousal support until Jacqueline’s death (non-terminable upon Richard’s death or Jacqueline’s remarriage.)  The judgment also provided for a significant sum of money to be placed into an irrevocable trust for the benefit of the minor children, and an additional sum to purchase an irrevocable annuity for Jacqueline.

After restating his trust post-dissolution, Richard died in June 2004.  Richard’s trust had a specific no-contest clause, which stated that if Jacqueline raised any community property claim, asserted a creditor’s claim, or otherwise made any claim on Richard’s estate, then Jacqueline and the children would be deemed to have predeceased Richard and they would all take nothing.  Jacqueline filed two safe harbor applications with the probate court (a motion in which you ask the Court, in very basic terms, ‘If I file a claim against this estate, will the no-contest clause within the Trust prevent me from taking?’)  Jacqueline pondered whether the no-contest would preclude her and the children from taking under Richard’s estate if she filed a creditor’s claim for a sum total of spousal and child support; or if she filed an order to show cause (OSC) to modify child support.

The trial court found that if Jacqueline filed a creditor’s claim, she would violate the no-contest clause; however, if Jacqueline filed an OSC, she would not violate the no-contest clause.  It is generally against public policy to contract away the statutory right to request modification of child support.

The appellate court reversed the trial court’s ruling regarding the OSC, and prevented Jacqueline from asserting any claim or filing an OSC against Richard’s estate.

July 2007

Innocent Spouse Relief Granted When Spouse Lacked Access to Income Records

Income tax matters are an increasingly important aspect of dissolution proceedings, and thus we provide another Tax Court recent case.  In Farmer (Linda D.) v. Commissioner (Civ. No. 19966-05, U.S. Tax Ct. 3/29/07), the Tax Court found, on equitable grounds, that Linda should not be responsible for paying back taxes for returns in which her former husband failed to pay tax on income resulting from his business.

Linda and Daniel filed joint federal tax returns for 1994, 1995, and 1999.  No tax was paid for these years.  The parties separated in 2002, and Daniel disappeared.  Linda obtained a default judgment of dissolution of marriage.

Although both spouses are jointly and severally liable for taxes in years during which joint returns are filed, the IRS and Tax Court can provide a spouse with equitable relief under I.R.C. § 6015.  The Tax Court in this case found that because Linda did not have access to Daniel’s business receipts (and notwithstanding the fact that Linda knew that Daniel would not pay the resulting tax on those returns), Linda was relieved of her tax obligation on the previously filed joint returns.

June 2007

Innocent Spouse Relief is not Affected by Spouse’s Bankruptcy Filing

Spouses may notice the Internal Revenue Service (IRS) that they intend to seek “innocent spouse relief” under I.R.C. § 6015, et seq., when they believe their spouse has provided false information to the IRS within a jointly filed tax return.  Many family law litigants file for such relief upon receipt of deficiency notice from the IRS.

In Kovitch (Lisa Susan) v. Commissioner (Civ. No. 12281-05; U.S. Tax Ct. 4/4/07), Lisa and her husband, Richard, had filed a joint federal tax return in 2002.  They subsequently divorced, and then received a deficiency notice from the IRS in 2005.  Lisa sought innocent spouse relief, and Richard promptly filed for bankruptcy.  Richard intervened in Lisa’s claim, asserting that the Tax Court did not have authority to adjudicated Lisa’s claim until Richard’s bankruptcy petition was adjudicated.  The Tax Court held that Richard’s filing for bankruptcy did not affect its ability to adjudicate Lisa’s innocent spouse relief claim concurrently with Richard’s bankruptcy claim.

The practical effect of this ruling is that if one spouse requests innocent spouse relief, the other spouse cannot simply pass the tax deficiency obligation to their pervious spouse by filing for bankruptcy.

May 2007

Tax Court Determines that Unallocated Family Support is Deductible as Alimony

Generally, the two types of support paid in family law matters consist of child and spousal (or alimony) support.  “Family Support” combines both child support and alimony without apportioning the amounts paid for each type of support in the order (thus, the order is unallocated). Fam. Code §3586.  Moreover, the Internal Revenue Service treats payments made for alimony as deductible by the payor (spouse paying) and taxable to the payee (spouse receiving).  (I.R.C. §§71, 215)

In Cosby v. Commissioner, a January 2007 Tax Court summary opinion, the court examined a California Family Court divorce decree ordering Husband to pay $1,400 per month in unallocated family support to Wife.  The issue before the Tax Court was whether all of Husband’s unallocated alimony payments to Wife were deductible as alimony.

The Tax Court held that Husband’s unallocated family support order would qualify for alimony tax treatment so long as it met the definition of “alimony.”  The Court looked to the case of Berry v. Commission (T.C. Memo 2005-91), for the definition of “alimony,” which is, “any payment (1) paid pursuant to a divorce decree that (2) terminates upon the death of the payee spouse.”  Therefore, despite Husband’s divorce decree being silent on whether the family support order terminated upon Wife’s death, the Tax Court found that such an unallocated family support order would need to be reconsidered in the event of Wife’s death and as such, Husband’s family support constituted “alimony” and was deductible.

Contrasting the Cosby opinion is the Tax Court’s opinion in Ayres v. Commission.  Here, a Louisiana divorce decree ordered Husband to pay $350 per month for six months to complete the division of the parties’ community property.  Husband ultimately made twelve payments totaling $4,200 and made a lump sum payment of $5,000 to Wife.  The divorce decree made no mention of spousal support.  Using the same analysis as the Cosby case, the Tax Court determined Husband’s obligation to make payments to Wife pursuant to the divorce decree were intended to settle community property and would not have terminated in the event of her death.  As such, the Tax Court denied Husband’s request to deduct such payments as alimony.

The lesson to take from these cases is that not all support or payments paid to the other spouse by an order of the Family Court is tax deductible by the payor spouse.  Prudent practice dictates that any Family Support order should also contain a termination provision upon the death of the payee spouse to ensure deductibility with the IRS.

*Article adapted from Family Law Monthly, Issue 3, Vol. 2007; Cosby v. Commissioner, Civ. No. 12019-05S, U.S. Tax Ct. 1/17/07; Ayres v. Commissioner, Civ. No. 12569-05S, U.S. Tax Ct. 1/8/07; and Fam. Code § 3586.

April 2007

When Determining Child Support, Depreciation of Rental Property is Not Deductible from a Parent’s Gross Income

If you thought the factors to determine child support were already confusing, now you can add another wrinkle to the mix.  In the case of Asfaw v. Wolderhan, 2007 Cal. App. LEXIS 269, the Court of Appeal held that depreciation of rental property is not deductible from a parent’s gross income when determining that parent’s child support obligation.

Why did the Court of Appeal come to this conclusion and what does it mean practically?

Simply stated, the Court of Appeal affirmed California’s public policy that the support of a child is the “state’s top priority” that should reflect each parent’s station in life. Cal. Fam. Code §4053.  In its decision, the Court also reasoned that (1) depreciation did not require an expenditure of cash and was not required for the operation of a business; and (2) that depreciation was a fictional loss that actually represented tax savings to a parent.  This opinion is also no surprise considering “depreciation” is not enumerated in Fam. Code §4059 list of approved deductions to determine net disposable income.

In Southern California, many parents are also real estate investors maintaining one or more rental properties in addition to their everyday job.  Normally, the IRS allows depreciation to be deducted from gross revenue when determining tax liability.  However, the Asfaw opinion tells us that for purposes of determining child support, the Family Court will not recognize this “fictional” depreciation deduction.

*Article adapted from Family Law Monthly, Issue 4, Vol. 2007; Asfaw v. Woldberhan, 2007 Cal. App. LEXIS 269; and Fam. Code §§ 4053, 4058 and 4059.

March 2007

California’s Proposed Legislation Would Authorize Modification of Spousal Support Based on Termination of Child Support

A proposed Senate Bill would provide that termination of child support under Fam. Code §3901(a), due to a child’s completing 12th grade or reaching the age of 19 years, would constitute a “changed circumstance” justifying a parent’s request for modification of a previous spousal support order.  (Senate Bill – 415 Harmon).  If enacted, this bill would become effective January 1, 2008.

The proposed bill takes the opposite approach to current California case law hold that termination of child support obligation does not constitute a “changed circumstance” justifying an increase in spousal support.  In Re Marriage of Lautsbaugh, (1999) 72 Cal. App. 4th 1131, 1133-1134.

Stay tuned for further developments on this proposed bill.  A copy of the Senate Bill can be found at:

http://info.sen.ca.gov/pub/07-08/bill/sen/sb_0401-0450/sb_415_cfa_20070329_174420_sen_floor.asp

February 2007

Determining Spousal Support: Permissible Methods of Calculation and Relevant Factors

Fam. Code §4320 delineates the circumstances the Court is to consider in making an award of spousal support. One of the factors taken into account is the standard of living during the time the parties were married.

Trial courts have broad discretion as to how much weight to give each of the relevant factors listed in Fam. Code §4320 in determining an award of spousal support. Furthermore, the holding of the Trial Court will not be disturbed on appeal unless there is found to have been an abuse of discretion, wherein spousal support was awarded without having sufficient evidence of the parties’ financial circumstances to support the order.

In re Marriage of Ackerman (Civ. Nos. G034582, G034259, Ct. App., 4th Dist., Div. 3 12/27/2006) involved a reputable plastic surgeon in Newport Beach, California and his wife, who was seeking a considerable award of spousal support upon dissolution of the marriage.

The Court of Appeals in Ackerman held that the standard of living during the marriage is not an absolute measure of the need for spousal support, but merely a reference point.

The Court of Appeals went on to state that there are two alternative approaches that can be used by the Trial Court in order to ascertain the standard of living during marriage:

1. Lifestyle of the parties, including their income and expenses; or
2. The average income of the family, without giving due consideration to their expenses.

The second alternative, according to Ackerman, is the proper consideration to take into account where a couple has enjoyed a standard of living that was above and beyond their financial means.

Furthermore, the Court of Appeals determined that a Trial Court is not required to take into account the post-separation income of the supporting spouse if the marital income level would be sufficient to afford the non-supporting spouse a standard of living comparable to that during the marriage.

January 2007

Fiduciary Duty Does Not Require One Spouse to Provide a First Right of Refusal to Purchase Community Home

The Fourth District Court of Appeal, in re Marriage of Leni (Civ. No. C047305; Ct. App., 3d Dist. 11/15/06), held that Fam. Code §721(b) does not require one spouse to offer the other spouse a right to first refusal in the sale of the community residence upon dissolution of marriage.

Leni involved a husband and wife that had been married for 15 years prior to dissolution. The husband moved out and the wife continued to live at the house, paying fair market rent. Three years later, the two decided to sell their home and received an offer from a third party. The wife agreed to the purchase price, but the husband refused to sell, informing his soon-to-be-ex-wife that he wanted to buy the property himself. The wife refused to sell the home to her husband and instead, continued to occupy it. The Court held that the wife had no fiduciary duty to sell the home to the husband irrespective of the fact that she was willing to sell to a third party.

Family Code §721(b) classifies spouses as having a fiduciary relationship comparable to the relationship of nonmarital business partners as provided in §§16403, 16404 and 16503 of the Corporations Code.

Despite reference to the Corporations Code, the Court held that Fam. Code 721(b) does not impose on marital partners all the fiduciary duties of an officer or director of a corporation, such as right of first refusal. Generally, one spouse owes the other a fiduciary duty to provide access, information and accounting.

December 2006

The Date of Separation Should be Determined According to Parties’ Subjective Intent to Separate

The date of separation is relevant in dissolution proceedings because it determines when the disposition of income and property earned by the respective parties changes from that of community to separate property.

In re Marriage of Manfer (Civ. No. G037269, Ct. App., 4th Dist., Div. 3. 11/09/06) the trial court used a public-perception standard to determine the date of the married couples’ separation under Fam. Code §771. In other words, the court considered the date ‘…society at large…’ considered the couple to be separated was the date of separation.

In Manfer, even though there was sufficient evidence to show that the parties intended to completely terminate their marital relationship in June 2004, the Court ruled that the Date of Separation was almost a year later, when the parties publicly announced their separation in March 2005. According to the parties, they had, in spite of their private separation, continued to maintain a public façade of their marriage for the benefit of their daughters and friends. During that time, they had privately been unraveling their ties to each other.

On appeal it was held that the trial court erred by using the public-perception standard and should have instead used a subjective intent of the parties’ standard.

**Bottom line:  According to Manfer, the date of separation under Fam. Code §771 will be determined according to the parties’ subjective intent and not the date that ‘society at large’ would have felt that the couple was separated.

November 2006

Enforcement of Child Support Arrears – Out-of-State Registration of Judgment

In Leon v. Jenkins (Civ. No. D046188; Ct. App., 4th Dist., Div. 1. 9/21/06), the court of appeal held that although a former wife (Wife) failed to challenge the registration of her out-of-state child support order within 20 days, and the registration mistakenly listed arrears as $0, Wife was not precluded from litigating the amount of arrears owed prior to registration.

Husband and Wife divorced in 2002 in New Mexico.  The dissolution judgment required Husband to pay Wife $915 per month in child support, plus his share of unreimbursed medical expenses and daycare costs.  Later, Wife moved to San Diego, California.  On September 4, 2003, the San Diego Department of Child Support Services (DCSS) registered the out-of-state judgment.  DCSS erroneously listed arrears as “$0.00,” although Husband actually owed over $3,100.  Neither party challenged the flawed registration within the 20-day limited period.

There are strict registration requirements for out-of-state support orders.  (See Cal. Fam. Code §§ 4950, 4951)  There are also requirements that mandate that the registering tribunal notice the nonregistering party that the (1) order is enforceable; (2) a hearing must be requested within 20 days; (3) failure to contest registration will confirm the order; and (4) the arrears must be stated.  (Cal. Fam. Code § 4954)

The court of appeal held that the Uniform Interstate Family Support Act (UIFSA) does not preclude all objections raised by a nonregistering party, but states only that “[c]onfirmation of a registered order…precludes further contest of the order with respect to any matter that could have been asserted at the time of registration.”  (See Cal. Fam. Code § 4957)  Husband’s arrears obligation was restored.

**Lesson: Child support arrears do not easily vanish, even when a clerical error makes arrears disappear altogether.

October 2006

Post-Marital Agreements; a Recent Example of Unenforceability

In a recent decision, In re Marriage of Balcof, the California Court of Appeals held that the trial court properly found that a document signed by a husband during the marriage was unenforceable due to duress and undue influence.

The parties signed a pre-nuptial agreement in 1988 that provided that Wife was never to acquire any interest in Husband’s business, regardless of whether the value of the business increased due to Husband’s efforts during the marriage. Eleven years later, the couple executed a document that transmuted their marital residence and a twenty percent interest in Husband’s business to Wife. Following this agreement, there was a provision that required Husband to pay Wife one thousand dollars per day if the transfer was not completed by December 1st.

The trial court held that the writing was an ineffective transmutation of property. On appeal, the Court of Appeals reversed the decision stating that the transfer satisfied transmutation requirements under Cal. Fam. Code § 852, but remanded the case to the trial court to allow the Husband to raise his defenses to the enforcement of the agreement.

A husband and wife have a fiduciary duty between because of the special confidential relationship they have with one another. [See Cal. Fam. Code § 721(b)]. When one spouse obtains an advantage over the other, a statutory presumption arises under Cal. Fam. Code § 721 that the advantaged spouse exercised undue influence. It is the duty of the advantaged spouse to rebut the presumption of undue influence by showing the “writing was freely and voluntarily made with full knowledge of the facts and complete knowledge of the effects.” In Re Marriage of Matthews (2005), 133 Cal. App. 4th 634, 628-629.

Husband was able to successfully show that wife had exerted both undue influence and duress over him while he was signed the document. The trial court found that (1) the writing “was not made at arm’s length;” (2) Wife threatened Husband with divorce and the obstruction of his relationship with his children; and (3) Wife screamed at Husband for 45 minutes immediately before he executed the document. The court also found that Wife stuck Husband on occasion and that on the day of execution, Husband wrote down everything word for word that Wife asked him to write.

**Lesson: Post-nuptial agreements may have significant effect on your separate and community property rights.  If the document is not property drafted, executed, and supervised by an attorney, the parties may find themselves in unwanted, time consuming, and expensive litigation.  Before executing any legal document, consult an attorney.

September 2006

Former Spouse Relieved From Tax Deficiency Liability for Ex-Husband’s Business; McKnight v. Commissioner (Civ. No. 3398-05; U.S. Tax Ct. 7/25/06; Tax Court Memo 2006-155.)

John and Cheryl were married in 1992, at which time John owned a business.  Cheryl worked at John’s business, which John incorporated under Subchapter S in 1993.  Besides an employment position, Cheryl never gained any substantial interest in the business.  John’s behavior deteriorated partly due to a drinking problem.  The couple divorced in 1998, and John passed away in 1998.  The divorce judgment caused John to accept full responsibility for the parties’ 1995 joint income tax return.  The I.R.S. noticed the parties with a deficiency for the 1995 return in 1998.

Cheryl requested relief from liability based on innocent spouse status.  John’s estate objected to Cheryl’s request, alleging that Cheryl was half-owner of John’s corporation.  Generally, a former spouse may claim relief from tax liability based on a lack of knowledge of dealings and income of their former spouse.  The I.R.S. limited innocent spouse relief to only half of the deficiency.  Cheryl petitioned the U.S. Tax Court for relief.

Although both spouses are generally jointly and severally liable for joint income tax returns during marriage, the Tax Court allowed Cheryl full relief because Cheryl had no beneficial interest in John’s corporation.

Although hold harmless provisions contained within dissolution judgments may seem to absolve one spouse from tax liability, the I.R.S. does not have to abide by or follow the terms of such a judgment.  Therefore, it is important to consult with a qualified attorney to discuss your rights and obligations with respect to entering into a Marital Settlement Agreement.

August 2006

California Legislature Adopts Regulations Allowing Registration for Advance Healthcare Directives

A person who has executed an Advance Healthcare Directive may register information regarding the directive with the California Secretary of State.  The new regulations, which are now in effect, requires the Secretary of State to:

• Receive and release a person’s Advance Healthcare Directive;
• Transmit the information to the registry of another jurisdiction upon request; and
• Respond to a request for information received from the emergency department of a general acute care hospital.  Click here and here for the appropriate California Secretary of State information pages.

The following assembly bill and revised California Probate Code and Government Codes are applicable to this new Regulation:

• Assembly Bill 2445;
• Probate Code Section 4717;
• Probate Code Section 4800;
• Probate Code Section 4805; and
• Government Code Section 6254.

The attorneys at Wilkinson & Finkbeiner, LLP, will draft and execute your personalized Advance Healthcare Directive for you as part of your comprehensive estate plan.  The adoption of this new regulation will greatly ease the burden on your loved ones during a time of crisis, and provide an easy system to make your wishes known regarding your healthcare decisions if you become incapacitated.

For more information, please also see the California Attorney General’s discussion regarding Advance Healthcare Directives.

July 2006

Court Erred in Finding Former Wife Guilty of Contempt for Interfering with Visitation, Absent Written Visitation Order

Husband (Ittai) and wife (Stacy) were married in 1992 and had a daughter in 1999. The family resided in California until 2000 when Ittai sought a marital dissolution. At his time, Stacy relocated with their daughter to New York. During the dissolution proceeding, the trial court issued a detailed custody schedule that granted Ittai a visit with his daughter “in New York from October 25 until October 28.” The following August both parents attended a settlement conference to modify the custody order and they reached an agreement off the record.  Ittai’s attorney then recited the agreement paragraph by paragraph in court to create a formal record. When the attorney reached the paragraph in question, she stated that the words “New York” should be stricken from the record. Later, Ittai claimed this modification allowed him to travel to California with his daughter.

After the entire agreement was read, the trial judge asked them whether they agreed to the proposal and they both answered affirmatively. Ittai’s attorney submitted a proposed order to the court, which stated that both parents had the right to travel with their daughter wherever they choose within the United States. Although Stacy’s attorney objected to the order, the trial judge still signed it. Because Stacy thought this order exceeded their custody arrangement, she obtained a protective order from a New York trial court that stated Ittai should not remove their daughter from the state of New York.

When Ittai arrived in New York to pick up their daughter, he was met at her school by two police officers that served him with the protective order. When Ittai returned to California he filed an order to show cause for contempt against Stacy. They both agreed she lacked notice of the new order because it had only been served on her one day before Ittai had arrived in New York to pick up their daughter. The contempt hearing proceeded on the assumption that the trial court judge’s oral ruling on the custody modifications was the basis for contempt. The trial court held that Stacy was guilty of contempt for interfering with visitation absent a written visitation order.

The appellate court reversed the order noting that the trial court’s oral order was insufficient to support a contempt finding. The court held that the need for certainly is especially important because contempt “can only rest upon clear, intentional violation of a specific narrowly drawn order.” (Quoting from Wilson v. Superior Court (1987) 194 Cal. App. 3d 1259) The court held that an oral ruling is subject to varying memories and is subject to change until the court reduces the order to writing. The court noted that Stacy should have asked the California court for a protective order but because she was given no notice of the written order there was no order on which the trial court’s contempt finding could be based.

June 2006

Statute Authorizing Adoption of Child After Two Years in Legal Guardian’s Custody is Constitutional

The recent case, Guardianship of Ann M., held that the child’s aunt and uncle, through the retroactive application of Cal. Prob. Code § 1516.5, could adopt Ann without violating the Constitution.

In September 2001, a trial court appointed the paternal aunt and uncle temporary guardians of an 18-month old child. In December, the child’s mother, who had multiple criminal offenses and a history of heroin addiction, consented to permanent guardianship by the aunt and uncle. In 2002, the mother was charged with several crimes and was sentenced to two years and eight months in prison. In February of 2004, the guardians sought to have the child declared free from her mother’s care under the newly enacted Cal. Prob. Code § 1516.5.

Section § 1516.5 provides that a proceeding to have a child declared free from custody and control of one or both parents may be brought in the guardianship proceeding if all of the following requirements are satisfied:

1. One or both parents do not have the legal custody of the child
2. The child has been in the physical custody of the guardian for a period of not less than two years
3. The court finds that the child would benefit from being adopted by his or her guardian.

The child’s mother argued this section of the probate code was unconstitutional because it did not require a finding of parental unfitness and that it could not be applied retroactively. The appellate court concluded that parental rights cannot be terminated based solely on the child’s best interests absent some showing of parental unfitness because parents have a fundamental liberty interest in the care, custody, management, and control of their children. However, parental unfitness generally means that a child will suffer detriment if returned to a parent’s custody. Because the Family Code emphasizes the importance of a stable environment for he child, “a child cannot be abandoned and then put ‘on hold’ for a parent’s whim to reunite.” (Quoting from In re Daniel M (1993) 16 Cal. App. 4th 878)

May 2006

Presumption of Undue Influence Is Inapplicable to Mediated Settlement Agreement

In re Marriage of Kieturakis recently held that a trial court properly denied a former wife’s motion to set aside, on grounds of duress, fraud, and failure to exchange declarations of disclosure, a marital dissolution judgment that incorporated a mediated marital settlement agreement.  In re Marriage of Kieturakis (Civ. Nos. A101719, A104661)(March 29, 2006).

In this particular case, Wife sought a martial dissolution from her Husband (Maciej) after fourteen years of marriage.   The trial court entered a dissolution judgment in 1999 incorporating the couple’s mediated marital settlement agreement (“MSA”).  The MSA provided that Husband would pay Wife $8,500 a month in family support, that spousal support would terminate on June 1, 2007, and that Husband would receive all intellectual property interest in a surgical device he invented.

In June 2001, Wife petitioned the trial court to set aside the judgment and the MSA and to modify her spousal support claiming stating she was pressured into signing the MSA in 1999.   Husband filed an income and expense declaration showing royalty income of $540,810 over the previous twelve months.  Wife further claimed the judgment and MSA should be set aside on the grounds of duress, actual fraud, constructive fraud, and failure to exchange declarations of disclosure.

In denying Wife’s request to set aside the judgment, the Court of Appeal reasoned:

• The presumption of undue influence cannot be applied to marital settlement agreements;
• The presumption of undue influence should not apply to a case in which the influence is alleged with respect to a judgment that has long been final (more than six months); and
• The presumption of undue influence should not attach to this case because the parties acknowledged in their settlement agreement that no undue influence was exercised.

Lesson:  Be very careful that the MSA you sign in your dissolution action is properly reviewed and contains and pertinent provisions within it because it is very difficult to set-aside in the future.

*Article adapted from Family Law Monthly , Issue 5 2006, Vol. 2006 and In re Marriage of Kieturakis (Civ. A101719, 3/29/06).

April 2006

A Parent May Not Terminate His or Her Own Parental Rights, The Michael Jackson Case

Generally, there are two circumstances when a Court will terminate parental rights.   The most extreme occurs when one or both parents are deemed unfit and the child is placed in foster care.  The other situation occurs when a parent becomes remarried and a stepparent adoption ensues.

In Re Marriage of Jackson is one of those cases where the factual scenario is as strange as the parents.  During pop star Michael Jackson’s divorce to “Deborah,” the parties stipulated that Michael would be awarded sole legal custody of the parties’ two children with Deborah having a right to visitation.  A year later, Deborah, filed a motion to terminate her own parental rights stating that “Michael is a wonderful father” and that terminating her parental rights would be in the “children’s best interests.”  The trial court thus terminated her parental rights. Fam. Code § 7822(b) (abandonment statute).

Two years later, Michael became the subject of criminal sexual molestation allegations.   Deborah then petitioned for temporary exclusive custody of the children.  Michael opposed the motion based on the fact that Deborah’s parental rights were previously terminated.

The trial court determined that its prior order terminating Deborah’s rights was void because it failed to (1) order an investigation and (2) consider appointing minor’s counsel.

Michael appealed and appellate court held that a trial court may NOT enter an order terminating parental rights based solely an agreement between the parties.  It reasoned that Deborah’s hearing to terminate her rights was “the functional equivalent of a stipulated agreement between the parties.”  Essentially, the court held that the order terminating Deborah’s parental rights was in excess of the court’s jurisdiction and was properly set aside.

**Lesson:  Absent a parent’s unfitness or a stepparent adoption, it is unlikely that a parent can voluntarily terminate his or her own parental rights.

*Article adapted from Family Law Monthly , Issue 4, Vol. 2006 and   In Re Marriage of Jackson, ____ Cal. App. 4 th  ____ (2006).

March 2006

The Difficulties in Terminating Parental Rights on the Basis of a Previous Felony Conviction

In re Baby Girl M. held that Family Code §7825, which authorizes termination of parental rights when a parent has been convicted of a felony, applies only when the actual facts underlying the conviction demonstrate the parent’s unfitness to have future custody and control of a child. In Re Baby Girl M. (Civ. No. D 046838)(Jan. 1, 2006).

This case involves an adoption where mother placed her daughter (“M”) with prospective adoptive parents.  However, soon after M’s birth, the biological Father, who had previous felony convictions, petitioned for custody and visitation with M.  The adoptive parents then petitioned for guardianship of M and to terminate Father’s parental rights claiming that Father’s previous convictions for burglary (twice) and possession of methamphetamines (once) rendered him an “unfit parent.”

The Appeals court reversed the Juvenile court stating that Fam. Code §7825 does not authorize termination of parental rights in the absence of evidence that the facts underlying a felony conviction, as opposed to the mere existence of a conviction, demonstrate parental unfitness.  Citing legislative history surrounding §7825, the appeals court reasoned this statute would only apply when the facts of the underlying felony conviction demonstrated future parental unfitness.

**Lesson: A parent’s previous felony conviction alone will not justify the termination of his or her parental rights.

February 2006

Rents Received by Father’s Roommate IS Considered Income when determining Father’s Child Support Obligation

In County of Orange v. Smith, 2005 Cal. App. LEXIS 1516, the Court of Appeal affirmed the trial court’s holding that monthly rental payments received by father from his roommate was properly included in father’s child support obligation determination.  The Court of Appeals reasoned that because Father was the initial tenant, that he collected money from the roommate and then handed it over to the Landlord, such payments were properly characterized as “income” under Fam. Code § 4058(a)(1).  The Court further reasoned that just because the rents were not claimed on Father’s income tax returns did not preclude the consideration of the unreported income.

November 2005

Attorney’s Fees Awards – The Surprising Nexus Between Family Code § 2030 (Need Based Awards) and Family Code § 2032 (Spousal Support Factors Cited in Family Code § 4320)

Generally, courts look to the parties’ respective resources to determine whether an award of attorney’s fees should be issued to a family law litigant.  However, Cal. Fam. Code § 2032 extends the court’s scope of analysis with respect to attorney’s fees.  In fact, In re Marriage of Lynn (2002) 101 Cal. App. 4 th 120, 133 and In re Marriage of Rosen (2002) 105 Cal. App. 4 th 808 require the court to consider relevant factors, such as:

• Domestic duties kept a spouse out of the workforce (§4320(a)(2));
• One spouse’s contribution to the other’s career (§4320(a)(3));
• Duration of the marriage (§4320(f));
• Domestic violence (§4320(i);(m));
• Balance of hardships (§4320(k));
• Goals of self-support (§4320(l)); and
• Any other factor that is just and reasonable (§4320(n)).

**Lesson: Your competent Wilkinson & Finkbeiner attorney has a host of potential arguments to assist you with your request that the opposing party pay your attorney’s fees.

*Article adapted from Family Code Section 2032: Using the Spousal Support Connection in Arguing Attorney’s Fees, Robert A. Roth, Family Law News , Issue 3 2005, Vol. 27, No. 3.

October 2005

Be Careful What You Sign

In the age of mortgages, refinancing and equity it is hard to imagine that a loan application you previously submitted could be used in your dissolution or child support case against you and could possibly subject you to perjury prosecution.

That is precisely what happened in the recent child support modification case of In Re Marriage of Calcaterra & Badakhsh (Civ. No. B180103; Ct. App., 2d Dist., Div. 6. 8/22/05).  In this case, Father was a businessman who owned a self-service gas station and several rental properties.  In 2004, he filed an Income and Expense Declaration, which stated that his net monthly income was $1,279.60 from self-employment income plus $417 from rentals.  Father also submitted his 2004 Schedule C to the Court showing self-employment income of $6,662 and rental income of $23,821.

At trial, Mother’s attorney introduced evidence of two home loan applications signed by Father that stated Father made monthly income from self-employment and rentals of $23,870, significantly higher than that of his Income and Expense Declaration.  The application also stated that Father and his new wife had joint assets of approximately $2.6 million.

When the Trial Court ordered Father to pay $1,789 per month in child support, it stated, “family law courts will not tolerate parties who interfere with the truth-seeking function of the court by submitting false and misleading information.  It further stated that when a trial court recognizes deception, it may draw adverse factual inferences and even refer the matter for perjury prosecution.”  (Emphasis added)

In affirming the Trial Court’s decision, the Court of Appeal held, (1) when a parent owns a business, the presumption that a parent’s income as stated on his/her tax return is deemed correct, but may be rebutted by income declarations in a loan application, (2) a trial court may believe and accept as true only part of a document and may disregard the rest when it finds the information is false and misleading, and (3) when deception is present in a party’s financial disclosures a court may draw adverse factual inferences.

Lesson: There is a recent focus by Family Law trial courts to weed out and punish those who frustrate the truth finding process and/or submit false or misleading financial disclosures to the court.  The penalties can range from the Judge looking unfavorably on your financial disclosures to referring the matter to the District Attorney to prosecute you for perjury.  Be careful what you sign.

September 2005

The Court Must Address a Parent’s Ability and Opportunity to Work when Ruling on Imputation of Income in Child Support Cases.  The In re Marriage of Eggers case (Civ. No. G034027; Ct. App., 4th Dist., Div. 3. 7/28/05.)

In 1999, a trial court ordered a father (Thomas) to pay child support of $1,382 a month, and spousal support of $1,618 a month.  At the time, Thomas was employed.  Four years later, when Thomas was 55 years old, his employment was terminated.  Thomas sought modification of this support obligations based on changed circumstances.

At trial, Thomas’ former employer testified that he notified Thomas that his behavior resulted in his termination.  The Court found that Thomas had reasonable notice that his behavior could result in termination of his employment, and that because of his child and spousal support obligations his conduct leading to his termination was unreasonable.  Therefore, the Court imputed income to Thomas equal to his income when his employment was terminated.  Thomas appealed.

The rule of thumb for imputation of income is the Earning Capacity Test , under Cal. Fam. Code § 4058(b), which allows a trial court to use a parent’s ability to earn income instead of actual income.  Three elements compose the test, including (1) ability to work, (2) willingness to work, and (3) opportunity to work.  The appellate court reversed the trial court’s ruling, stating that the trial court never reached the issue of Thomas’ ability and opportunity to work.

Lesson: A trial court cannot impute income on a parent without at least considering the parent’s ability and opportunity to work.

August 2005

Court Lacked Jurisdiction to Shift Responsibility for Injured Child’s Medical Care from Mexico to California: The In re A. C. Case .

A child (“A”) was severely injured in an automobile accident in Tijuana, Mexico in July 2002.  The family had difficulty providing for A.’s care, and A. was transferred from a Tijuana hospital to a Sacramento, California hospital.  A. made several trips back and forth from Tijuana to Sacramento for treatment, on one occasion spending three weeks in the intensive care unit in Sacramento.  Sacramento County social workers took protective custody of the child in late 2002, and filed a dependency petition alleging that A. had been left without support because continuing medical care in Tijuana was unavailable.   In December 2002, a juvenile court denied the County’s petition.  Eleven days later, A.’s parents agreed to the San Diego Health and Human Services Agency (Agency) taking jurisdiction over A.

On December 31, 2003, the Agency filed another dependency petition, alleging that A.’s parents were unable to provide the necessary medical treatment for A.  A juvenile court then declared A. to be a dependent child, and continued her foster care placement.  In May 2004, the foster parents sought “de facto” parent status, and the court granted their request.  A.’s natural parents appealed.

The appellate court ruled in favor of A.’s natural parents, stating that under the UCCJEA, the child’s “home state” was not California when the County filed its petition in December 2003.   The court also found that California did not have subject matter jurisdiction, nor did “temporary emergency jurisdiction” under the UCCJEA apply.

Lesson:  Because A.’s natural parents did not willfully or negligently fail to provide the child with adequate medical treatment or neglect A. in any way, California did not have jurisdiction to enter a judgment in a dependency action.

July 2005

Transmuting (Changing) the Character of Marital Property: The Starkman Case

In general, in order to transmute (change) separate property to community property, or vice versa, you must specifically state that the property is changing character (see Cal. Fam. Code § 850 et seq.; see also Cal. Fam. Code § 760 et seq.)

The California Court of Appeals, in the Starkman case, recently affirmed this principle.   In Starkman, Husband and Wife established a revocable trust as part of their family estate plan.  A paragraph in the trust agreement provided that “the property transferred to the trust was community property unless otherwise identified as separate property.”  Husband then executed brokerage transfer forms to convey assets into the trust.  These forms, did not specifically describe Husband’s assets as either community or separate property.  Upon dissolution of the marriage, Husband exercised his right to revoke the trust and argued that the stocks he previously transferred to the trust remained his separate property.

The question presented in this case is whether Husband’s execution of the brokerage transfer forms conveying the stocks to the family trust transmuted (or changed) the character of the assets from Husband’s separate property to the Family’s community property?

The California Court of Appeal held that execution of the stock brokerage transfer forms did NOT constitute a transmutation (change) of the Husband’s stock from separate property to community property.  As such, Husband retained the stocks as his separate property to the detriment of Wife.

Lesson:  If you plan on changing the character (community or separate) of your assets while executing an estate plan, that estate plan must contain specific language transmuting the property from community to separate, or vice versa.  Simply re-titling property/assets in the name of your family’s trust will NOT legally change the character of the asset.

June 2005

Court in Custody Proceeding Cannot Order Drug Testing of Parent by Hair Follicle Test

The Fourth District Court of Appeal, in Deborah M. v. Superior Court  (Civ. No. D045854, Ct. App., 4th Dist., Div. 1, 4/29/05), held that Fam. Code § 3041.5(a) permits a trial court in a custody and visitation proceeding to order drug testing of a parent by a urine test, but not  by a hair follicle test.

This case is a local case from the San Diego Superior Court.  The trial court ordered the child’s mother to submit to a hair follicle test.  Mother appealed.  The issue was whether Fam. Code Section 3041.5(a) permitted trial courts in custody and visitation cases to order a hair follicle test of a parent whom the trial court had determined engaged in habitual, frequent, or continual illegal use of controlled substances.  The appellate court held that any court-ordered drug testing must conform to federal drug testing procedures and standards, and at present those federal standards only allow for urine testing.

May 2005

Spouse is Entitled to Reimbursement of Equity Value Contribution to Acquisition of Community Property

The recent case of In re Marriage of Weaver  (Civ. No. E035434, Ct. App., 4th Dist., Div. 2 3/21/05) –Cal. App. 4th –, — Cal. Rptr. 3d — held that a husband was entitled to reimbursement under Cal. Fam. Code Sec. 2640.  The husband received a joint tenancy interest in his mother’s home as a gift. The wife waived any interest in the property. The title was later changed to include the wife as a joint tenant.

The court held that, under Cal. Fam. Code § 2581, the joint tenancy title was presumed to be community property upon dissolution, rebuttable only by written evidence. Because there was no written evidence refuting the presumption, the trial court erred in finding that the wife had no community property interest. Under Cal. Fam. Code § 2640, however, the husband was entitled to reimbursement for his separate property contribution to the parties’ joint tenancy interest. Moreover, reimbursement for his down payment on the marital residence was in accordance with Cal. Fam. Code § 2650. Although the residence was purchased before the marriage, the transmutation to community property resulted from commingling the parties’ separate property interest with community property used to pay the mortgage and home improvements during the marriage; hence, Cal. Fam. Code § 852(a), which provided that a transmutation of property was not valid unless made in writing by an express declaration, was inapplicable.

March 2005

State Bar of California Family Law Section Publications – Publications issued by the State Bar concerning family law (members only).