Characterization of Special and Employment Assets Flashcards
Commingled CP and SP Assets
Occurs when a bank account that has a spouses’ SP is mixed or combined with the CP or SP of the other spouse.
Such assets are presumed to be CP!
Regarding a commingled bank account, who has the burden of proof to rebut the CP presumption?
How can the CP presumption be rebutted?
The spouse claiming an SP Interest!
The spouse can rebut the CP presumption by tracing the funds back to a SP source.
Two methods:
1) Exhaustion Method
2) Direct Tracing
Exhaustion Method/Indirect Tracing
SP proponent must prove that CP funds in the account were already exhausted because they were used to pay for family expenses at the time the asset was purchased.
Family expenses are presumed to be paid with CP funds first, then SP funds as needed!
Direct Tracing Method
SP proponent must prove that:
1) There were sufficient SP funds avaliable at the time of the purchase
2) Proponent intended to use SP funds to purchase the asset.
ESSAY TIP: When should you be prepared to use the Direct Tracing/Exhaustion methods?
1) There is a commingled bank account
2) Property was purchased using funds from the bank account
What is the character of vested and unvested retirement/pension benefits obtained during the marriage?
CP!
Regarding pension/retirement plans, how do you divide the SP and CP portions?
Using the time rule! Use the time rule if:
1) Retirement benefits are based upon the number of years employed
2) Benefits were partly earned before marriage.
ESSAY TIP: What if a spouse earned their pension entirely before marriage, yet still obtains monthly installments during the marriage?
The sum obtained before marriage and installments obtained during marriage are the spouses SP!
How does you apply the time rule?
Divided the number of years employed while married with number of years under the retirement plan.
EX: H worked starting in 1995 and was under a pension plan. H married W in 2005 and they divorced in 2010. H is eligible to retire in 2020.
Number of years employed while married: 5
Number of years worked under the retirement plan: 25
Time Rule: 5/25 or 1/5. If total benefit of the retirement plan is 100k, 1/5 is the CP benefit!
What is the characterization of personal injury awards and settlements?
Presumed to be CP if the injury occurred during the marriage!
Presumed to be SP if the jury occurred before marriage or after permanent separation!
How do you deal with personal injury awards upon divorce?
Even with the CP characterization, CP personal injury awards and settlements are assigned entirely to the injured spouse upon divorce.
UNLESS:
1) Commingled with other CP funds
2) Interests of justice does not require distributing the funds otherwise
When are stock options subject to division?
Depends on when the stocks were obtained!
If during marriage: CP, entitled to value of share in stocks
If stocks granted during marriage but not exercisable until after marriage: Two different formulas based on intent of employer:
- Past Efforts
- Retention Incentive
What is the Past Efforts test re: stock options obtained during MEC but exercised after MEC?
Occurs if stock options were given to **compensate employee for past services or used to **attract new employee.
Formula:
Date of Hire (DOH) - Date of Separation (DOS)
———————–DIVIDED BY————————–
DOH - Date Option’s Vested to become Exercisable (DOV)
(DOH – DOS) / (DOH – DOV) x # of shares = CP
What is the Retention Incentive test re: stock options obtained during MEC but exercised after MEC?
Occurs if stock options are given to incentive continued employment.
Date of Grant (DOG) - Date of Separation (DOS)
————————-DIVIDED——————————
Date of Grant (DOG) - Date of Vest DOG) x # of shares
(DOG – DOS) / (DOG – DOV) x # of shares = CP
What is debt before the marriage classified as, and is the non-debtor spouse’s SP liable?
May the non-debtor spouse obtain reimbursement?
It is SP!
Non-debt’s spouse’s SP Is not liable, but community is.
May obtain reimbursement if:
- CP used
- Debtor spouse had SP available
