Pg 4 Flashcards
What happens with educational degrees or professional licenses that are earned during a marriage?
They are not considered to be community property because they are not divisible and the degree is not property, but the degree is valuable because it enhances the earning capacity of the holder. The community is reimbursed for expenses and that is split between the spouses
If one spouse goes to school and the other spouse works to support that spouse, that results in an inequity on separation, so what happens?
– for LOANS that are incurred during the marriage to get the degree, they are assigned to the student spouse at separation
– Community gets REIMBURSEMENT for its contribution for community funds that were used to educate the spouse, and then that is split between the spouses at divorce.
What are things that are included in reimbursement for the community contribution to one spouse’s education during the marriage?
Money spent on education, repayment of the loan for education, tuition, fees, books, supplies, transportation, special living expenses that are related to education – but not ordinary living expenses
This also includes interest at a legal rate that begins at the end of the calendar year that contributions were made
What are exceptions for when one spouse got a degree during the marriage?
– Substantial benefit to community
– the purpose of enhancing earning capacity
– both spouses got an education
– the education reduced the student’s need for support
If the education that one spouse got during the marriage created a substantial benefit to the community, how does that work upon divorce?
The reimbursement is reduced or eliminated if the community substantially benefitted from the education. There is a rebuttable presumption that by 10 years after the degree, the community has substantially benefitted
If the purpose of getting a degree during the marriage was to enhance that spouse’s earning capacity, when is reimbursement given upon divorce?
Only if the education was undertaken for the purpose of substantially enhancing the spouse’s earning capacity. The reimbursement can be stopped if the student spouse can show that the degree was for other reasons than increasing his earning capacity.
Ie: if a retiree gets a degree for fun, the community is not reimbursed because the purpose is not to increase his earning capacity, it is just a community gift to the retiree
If both spouses got an education during the marriage, what happens at divorce?
The reimbursement is offset if the other spouse also got a community property funded education that substantially reduced his need for support that he would otherwise require without the education
What happens at dissolution of a marriage when one spouse got an education that reduced his need for support during the marriage?
If the education that was acquired during the marriage enabled the student spouse to get a job that substantially reduced his need for support that he would otherwise require without the education, there is no reimbursement given.
I.e.: if the student didn’t work before school, then got law degree, now he can earn a good living and not be supported by the community, so there’s no reimbursement
What happens for business and professional Goodwill at divorce?
If a spouse owned a business or a professional practice, a divorce, this must be valued by the court
How does a court determine the value of a business upon divorce?
- They look at the ASSETS that make the business such as its real property, equipment, inventory, bank accounts, etc.
– as well as its GOODWILL
What is goodwill?
The value placed on the probability that an establishment will continue to exist and be successful. This is considered to be a valuable property interest
If a husband-and-wife owned a business for 15 years with a reputation for good quality, and the net profits are $250,000 a year and the assets are $150,000, and they get an offer for $500,000 for the business, how does the goodwill part work?
The buyer is paying three times what the assets are worth because of the expectation that the business will continue to make money. So he’s paying $350,000 for goodwill
How does the court determine the goodwill value of a business upon divorce?
This is determined on a case by case basis involving one of two methods evaluation:
– Fair market value analysis: what the buyer would pay for the business if it was sold at divorce.
– Capitalization method: the net income of the business for one year subtracted by a reasonable salary for someone of comparable experience, multiplied by a multiplier of some value
Which approach to goodwill results in the highest valuation?
The capitalization method because it captures all of the goodwill value in the owner’s hands.
The fair market value analysis results in smaller sums because it only captures goodwill that will survive a transfer to a third person
If a doctor is divorcing his spouse, and the court is using the fair market value analysis to determine the value of his practice and goodwill, what would that look like?
The court would determine how much money the doctor would make if he put his practice up for sale at that exact time compared to other doctor practices in nearby
