III. CHARACTERIZING PARTICULAR ASSETS Flashcards
A. Tort recovery
i. INJURY OCCURRED BEFORE MARRIAGE
ii. INJURY OCCURRED DURING THE MARRIAGE
Suppose now that Marge does not bring a lost consortium claim, and that Homer settles for $400. The settlement does not specify which portion of the payment is for lost wages, and which portion is for pain and suffering? How much of the award is SP?
SP under inception of title
SP: PAIN AND SUFFERING, LOSS OF CONSORTIUM, disfigurement , ETC. (u suffered urself)
CP: RECOVERY FOR LOSS OF EARNING CAPACITY (lost wages) AND medical expenses (usually paid out of CP)
0; must prove that an asset is SP by C&C evidence, there is no E here
B. AdversePossession
IF THE ADVERSE POSSESSOR ENTERED THE LAND UNDER A CLAIM OF RIGHT, then his eventual title relates back to the date of the original entry. The inception of title occurs at this date.
IF THE ADVERSE POSSESSOR ENTERED THE LAND AS A NAKED TRESPASSER, then he obtains title only when he competes AP period. The inception of title occurs at this date.
C. Life Insurance Policy
if buy it before getting married, SP
if names the other spouse as beneficiary, Divorce terminates another spouse’s status as beneficiary under an SP or CP insurance policy UNLESS
- The divorce decree names Marge as the beneficiary.
- Homer renames Marge as the beneficiary after the divorce.
- Marge was originally named the beneficiary in trust for, or on behalf of, a child of Marge or of Homer.
- The life insurance policy is part of an employer pension plan governed by ERISA (which governs plans offered by private employers), in which case federal law preempts the state law rule that divorce terminates beneficiary status.
used CP to pay premiums during marriage, the other can get reinbursed
D. Stock options
Homer obtains stock options in 2005 that will vest in 2015. He marries in 2008 and divorces in 2010. how?
The INCEPTION OF TITLE RULE DOES NOT APPLY to stock options.
A spouse might acquire a stock option in 2002 that will vest in 2012. Think about options as being “earned” over that entire time frame; they are then split between the SP and CP prorata
20%; marriged for 2 out of 10 yrs he earned those options so
- **E. Employee Retirement Benefits
i. Defined contribution plans (e.g. 401(k))
Homer contributes $1000 to a defined contribution plan and his employer contributes $100. This pays for 11 shares of ABC stock. In his first year of marriage, Homer increases his contributions to $2000 and his employer contributes $200. This pays for an additional 22 shares of ABC stock. How much is CP?
The INCEPTION OF TITLE RULE DOES NOT APPLY to employee retirement benefits. Employee retirement benefits are akin to wages
Retirement benefits that are earned partially before marriage and partially during the marriage are part SP and part CP, regardless of whether those benefits have vested at the time of divorce. It is easier to determine the SP and CP portions of a defined contribution plan, but a good deal harder to do so for a defined benefit plan.
i. Defined contribution plans (e.g. 401(k))
A defined contribution plan allows employees to invest their own money in a retirement account, and often encourages employees to do so by matching contributions.
22 shares r CP because purchased during M by CP
11 r SP
cash dividents from the total 33 shares r CP
ii. Defined benefit plans (including military pensions)
DEATH
How can the court divide a plan that is not yet paying anything out?
A defined benefit plan provides monthly payments upon retirement that are often dependent on how long you worked for the company.
Different rules apply depending on whether the employee is retired at the time of the divorce or not.
IF THE EMPLOYEE IS RETIRED, use the TAGGART rule: The CP portion of the defined benefit plan is given by the fraction:
(Years employed during the marriage) / (Total years employed at the time of retirement)
IF THE EMPLOYEE IS NOT YET RETIRED, use the BERRY rule: STEP #1: DETERMINE THE VALUE OF THE PLAN.
The plan is VALUED at the time of divorce
The value of the plan is determined by the plan itself. The following formula is typical:
Plan X pays a lifetime annual pension equal to:
[2%] x [years of service] x [average of 3 highest annual salaries]
STEP #2: DETERMINE THE CP PORTION OF THE PLAN.
The CP PORTION of the defined benefit plan is given by the fraction:
(Years employed during the marriage) / (total years employed at the time of divorce)
the pre-deceasing spouse has no divisable interest
1, if as and when decree: order Homer to pay if as and when he starts to collect the pention
2, QDRO: qualified domestic relations order, same as 1 decree
3, cash out, rare
F. Disability Benefits and Workers’ Compensation
Workers’ compensation and disability benefits are characterized the same way as the wages that they are intended to replace.
EXCEPTION: MILITARY DISABILITY BENEFITS are SP because federal law exempts them from characterization and division.
if part of the benefits is for disability, that percentage is SP but others r CP
G. BusinessInterests
i. Corporations
use tracing; stock can be characterized, but company owned stuff cannot be characterized
ii. Partnerships
salaries and profits received during marriage is CP
iii. Goodwill
There are two kinds of goodwill, and they are treated differently.
BUSINESS GOODWILL: goodwill that attaches to a  business. Business goodwill earned during the marriage is CP. Business goodwill earned before the marriage is SP. (extra selling price after earning the goodwill)
PROFESSIONAL GOODWILL: goodwill that attaches to a professional, like an excellent lawyer or doctor. Professional goodwill is NOT PROPERTY and thus is not characterized as either SP or CP.
H. Advanced Degrees like JDs or MBAs
not property not subject to characterization
I. Debt
Homer owns SP land, and he alone is listed on the deed. During the marriage, he gets a loan by securing a mortgage on this land. Is the debt community or separate?
what if The mortgage is NON-RECOURSE, meaning that the lender has agreed that its sole remedy is foreclosing on the SP land.
BUYING ON CREDIT:
If Homer buys a boat with $80,000 of proceeds from the non-recourse loan combined with $20,000 of CP, is the boat SP or CP?
Debts, like assets, can be community or separate. Debt incurred during the marriage is community debt unless the creditor agreed to look only to the borrowing spouse’s SP for repayment. That is, the creditor agreed that it can only seek to be made whole from the borrowing spouse’s SP
community; creditor can collect not only by foreclosing but also to his own SP
then SP
The label “community debt” does NOT mean that the spouses are jointly and separately liable. It merely means that some CP is liable for that debt.
tracing depends on the debt
80% SP, 20% CP; because debt is SP
J. Property Acquired in another State
It depends on whether the marriage has ended by death or divorce.
i. Divorce: quasi community property
Courts split property upon divorce as if the parties always lived in Texas.
QUASI COMMUNITY PROPERTY is property that would have been CP had the spouses acquired it while domiciled in Texas. Divorce courts divide quasi community property in a just and right manner
QUASI SEPARATE PROPERTY is property that would have been SP had the spouses acquired it while domiciled in Texas. Divorce courts do not divide quasi separate property.
ii. Death
Three main principles control our analysis:
1. In non CP states a spouse’s salary is her SP.
2. In non CP states, title determines ownership. A car titled in Homer’s name is Homer’s, regardless of when it was purchased.
3. Homer and Marge’s property rights do not change when they move to Texas.
