Characterization Problems raised by certain assets

Question 1

Pereira (painful) - applies to businesses owned before marriage which greatly increase during marriage

Answer 1

Personal Skills and Effort - Use where spouse’s time, skill, and effort are major factors in growth of business. Look for instances where spouse contributed creative ideas or develops new techniques, and/or worked long hours and only drew modest salary.

Pay interest on the SP and the rest is CP

E.g.
Pay interest (legal rate of 10% annum) on value of business at time of the marriage.
In Hypo 23, if H & W had been married for ten years, W is entitled to the initial $100,000 (value of business at time of marriage) plus $100,000 in interest (10 x 10,000 (interest at 10%)). Therefore, the business is 5% her SP ($200,000/$4,000,0000) and the balance is CP.

formula - SP = ((value of biz at marriage) + (interest * # of years))/total value of business

Question 2

Van Camp (very nice for worker)

Answer 2

Valuable company or asset

Start with value of spouse’s services at market rates (how much would executives in similar positions be compensated on the market?) MINUS family expenses paid from community funds EQUALS community component. The balance is SP.
• In Hypo 23, if H&W married for 10 years, and the market rate for executives in comparable positions was $100,000 and living expenses were 80,000/year, the value of the community component would be $200,000. The business would be 5% CP ($200,000/$4,000,000) and the balance W’s SP.
• $100,0000 x 10 years = $1,000,000 value of
community labor
- $80,000 x 10 years = - $800,000 family expenses
paid from CP
community component: $200,000

formula - CP = ((comp. salary - family expenses) * # of years)/(total value of business)

Question 3

pension benefits

Answer 3

employee retirement benefits accumulated during marriage, whether or not vested at time of divorce, are CP

Pro ration rule
CP = (years of service while married) / (total years employed to retirement)

Rememebr, can split it in half when received OR

cash her out with othe rassets of equal value

Question 4

When finding CP

Answer 4

Always remember to split it in half! each couple gets 1/2.

Question 5

pension benefits

Answer 5

Once they vest (you’re eligible for retirement) it means they’re CP

Question 6

Non participating spouse and pensions

Answer 6

If a non participant spouse divorces a participant spouse, her community property is recognized in the pension. Unnder federal law she can get a qualified domestic relationshs order and receive paymetn form the plans.

If death, ERISA applies and she can’t get anythin.

Question 7

Disability retirement benefits and workers’ compensation benefits

Answer 7

not treated as pension benefits but treated as wage replacemnet. They will be treated as SP or CP depending on when received not when earned

Question 8

severance pay

Answer 8

ARGUE BOTH WAYS

 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.

Question 9

Stock Options

Answer 9

If the option is awarded during marriage but does not vest until after the economic community has ended, the proration formula that is used in determining what portion of the option is CP and what portion is SP depends on the primary intent of the employer in granting the option.

Question 10

Stock Options and Marriage of Hug (deferred compensation)

Answer 10

The divorce court determines that the stock options were awarded primarily to reward spouse for his past services, as a form of deferred compensation. The court should employ the Marriage of Hug proration formula, under which the starting point for both the numerator and denominator of the fraction is the date of employment. The fraction is then multiplied by the number of shares of stock that can be purchased under the options:

CP = (years from date of employment to date econ. community ends)/(years from date of employment to date options are exercisable)

Question 11

Stock Options and Marriage of Nelson

Answer 11

court determines that the stock options were awarded primarily to encourage Hank to remain with the company. The court should employ the Marriage of Nelson proration formula, under which the starting point for both the numerator and denominator of the fraction is the date the options are granted. The fraction is multiplied by the number of shares of stock that can be purchased under the options:

CP = (years from date options are granted to date econ community ends)/(years from date options are grante dto date options become exercisable)

Question 12

goodwill of professional practice

Answer 12

Goodwill is CP (if acquired during marriage)

Goodwill is those qualities that generate income byeond that drived from profssional’s labor and reasonable return on capital and physical assets

Question 13

Educational Expenses

Answer 13

If education increases earning capacity, then can get reimbursement for educational cost. This is even if loans were paid with CP funds during marraige

DEFENSE - if more than 10 years have elapsed since degree is awarded, assumes that community benefited