Characterization Problems Raised by Certain Assets Flashcards
Business owned before marriage greatly increases value during marriage:
Pereira Method: (P)ersonal Skills and Effort increase the value then SP is ONLY the (P)ayment of interest on SP. Rest is CP.
Van Camp Method: (V)aluable (C)ompany: Capital investment was only reason why it’s valuable, little to do with skill. Look for high salary and large bonuses (shows community was compensated)
Van Camp Formula = (V)alue (c)ommunity labor; rest is SP
Pereira Method example: H owns company worth $100k at time of marriage, now worth $4M, interest rate is 10% per annum, married for 10 years. What is CP and SP
10% of 100k=10k. 10k+10 years marriage = $100k. $100k + the initial $100k of SP in the company = $200k. She owns $200k/$4M as SP, rest is CP (so 5% is SP)
Van Camp Method: H owns company worth $100k at time of marriage, now worth $4M, reasonable payment of execs is $100k/year, living expenses are $80k/year married for 10 years. What is CP and SP
Community Labor (salary) = $100k X 10 years of marriage = $1M - (family expenses = $80k X 10 = 800k) = 200k is the CP component $200k/$4M (or 5%) is CP, rest is SP.
Which should you use Pereira or Van Camp?
Look at whether the investment made the $ or the efforts/skill of partner did. Courts may select whichever formula will result in substantial justice b/w parties
Pension Benefits how to calculate?
Benefits accrued during marriage are CP. Formula = years of marriage with pension divided by total years employed to retirement = %
(10 years married, worked for 30 years = 1/3 CP so 1/6 would be for the spouse)
What if spouse is not eligible for retirement yet, how does the spouse get her CP?
Either “If and when” he gets paid she gets her %, or she can get cashed out now.
What if he could retire but doesn’t?
Spouse can force payment of those benefits because it is her present right
What are rights of nonparticipant spouse in qualified pension plan and they divorce? if she dies?
she can get payments under federal law from the plan, if she DIES has no rights under Fed Law and ERISA.
What rights does divorced spouse have to disability pension and worker’s comp benefits?
NO rights it is SP because this is a wage replacement so they are classified according to when received not when earned
Severance Pay:
No clear rule:H’s severance pay is SP because it replaced lost earnings which after a divorce or permanent separation would be H’s SP; OR
H’s severance pay is CP because it arose from a collective bargaining agreement and was thus earned by employment during marriage.
Stock Options what rights do spouses have to them?
Use proration formula if they are offered during employment but don’t vest until later. Look at intent of employer if to pay for future performance or for past performance
Future performance vs. past performance, what formula to use?
Future performance = Marriage of Nelson (Years from date of offering to divorce divided by date of offering to vest date) = the % that is CP
Past performance = Marriage of HUG proration (years of employment to the end of marriage divided by years from date of employment to exercisable date) = % of CP
Goodwill of professional practice:
Those qualities in business that generate income BEYOND THAT dervied from professional’s labor and reasonable return on capital/physical assets are CP
Educational Expenses:
Spouse of the educated person is entitled to reimbursement for education that enhanced earning capacity of other spouse (also if those debts were paid during marriage but incurred before marriage too)
Defenses to educational expenses:
Community has already benefitted and it’s been over 10 years OR if other spouse also received CP funded education
