SPECIAL RULES FOR SPECIAL ASSETS Flashcards
What is the classification of Personal Injury recovery?
The classification of a personal injury recovery from a third-party tortfeasor as CP or SP depends on the timing of the cause of action, which arises upon infliction of the injury.
What is the classification of PI recovery acquired during marriage?
If the spouse was injured during marriage, any money received as a result of the injury is treated as community property.
What is the classification of PI recovery acquired [upon death of the injured spouse]?
The personal injury recovery is community property.
What is the classification of PI recovery acquired [upon divorce]?
The personal injury recovery is awarded entirely to the injured spouse, unless the interests of justice require otherwise (economic need), but the injured spouse must get at least half.
What is the classification of PI recovery acquired [After permanent separation or divorce] ?
If the spouse was injured post-permanent separation, the personal injury recovery is the separate property of the injured spouse, but the injured spouse must reimburse the community or the other spouse SP for any expenses paid on account of the injury (e.g., medical expenses).
What is the classification of PI recovery acquired for claims against each other?
This is always the injured spouse’s SP.
How are pension plans divided?
Pension plans (and other forms of retirement) earned during marriage are CP regardless of when the pension is fully vested or exercisable. For pensions earned both before and during the marriage, use the Time Rule for apportionment.
What is the time rule and how is it used?
The Time Rule is used to apportion pensions, retirement, and stock options earned both before and during the marriage. CP interest is calculated by dividing the number of years when the spouses were married while the pension was earned by the total number of years that the employed spouse earned the pension, times the total pension.
CP= TOTAL PENSION OR STOCK X YEARS MARRIED/TOTAL # YEARS PENSION EARNED
How are Stock Options divided during marriage?
If the stock options vest during the marriage, it is CP.
Exercisable after marriage ends: If the stock option is awarded during marriage but is not exercisable until after the marriage has ended, the following guidelines apply depending on the purpose of the stock option:
CP if compensation for past services: The portion earned during the marriage is CP and the CP interest will be calculated using the Time Rule (above).
SP if compensation for future services: The stock option will be SP when awarded to compensate for services performed after the divorce.
How is Disability pay/workers’ compensation divided?
The classification of disability pay or workers’ compensation as SP or CP depends on what it was intended to replace, regardless of when it is actually paid.
CP if used to replace marital earnings: If the disability pay is intended to replace marital earnings, it is CP.
SP if used to replace post-divorce earnings: If the disability pay is intended to replace the spouse’s income after separation or dissolution, it is SP.
If intended to replace a pension use the Time Rule: To the extent disability benefits are taken in lieu of retirement benefits, disability benefits will be treated like retirement benefits. Use the Time Rule to calculate the CP portion.
How is severance pay divided?
Severance pay is treated similarly to disability pay and a court will look at when the severance pay accrued and what it is intended to replace to calculate the CP portion.
CP if used to replace earned retirement benefits: If the severance pay replaces earned retirement benefits from when the couple was married, or enhances retirement earned during marriage, it is CP.
SP if used to replace post-divorce earnings: If the severance pay is intended to compensate lost future earnings after separation or dissolution, it is SP . Even if the severance pay is based on the number of years worked while married, courts will still consider it SP if the right to the benefit accrued after separation or dissolution.
How are bonuses divided?
Bonuses are classified based on when they were earned and what they are intended to reward, rather than when they are paid.
CP if reward for good work performed during marriage: If an employer provides a bonus for good work performed during marriage, it is CP.
SP if reward for good work performed after separation or divorce: If an employer provides a bonus for good work performed after separation or dissolution, it is SP.
SP if a personal gift: If the bonus is more like a personal gift, it is SP.
How is Education/ training divided during marriage?
is not a community asset/debt, even when the community pays for it, unless there is a written agreement to the contrary. However, at divorce, the community is entitled to reimbursement for CP contributions to education/training that substantially enhanced the earning capacity of the party, with interest, accruing from the end of the calendar year in which the contributions were made.
Defenses to reimbursement:
Reimbursement may be reduced or denied if:
a) The community already substantially benefited from the education, which is presumed after ten years;
b) The education is offset by the CP funded education received by the other spouse; or
c) The education reduced the need for spousal support for the educated spouse.
How are whole life insurances divided?
Whole life insurance provides lifetime death benefit coverage and has an investment component that allows it to accumulate a cash value for the policy if it were to be forfeited.
Estate paying premium controls: Each estate (CP and SP) has an interest in the cash value of the policy to the extent that they paid the premiums.
CP interest = amount CP contributed ÷ total amount contributed (CP+SP)
SP interest = amount SP contributed ÷ total amount contributed (CP + SP)
Multiply the SP and CP percentage interest by total cash value of insurance to determine their respective amounts.
How are term life insurances divided?
Term life insurance provides death benefit coverage for a specified term of time in exchange for the payment of a specific sum of money (the premiums) and does not accumulate cash value.
Estate paying premium on latest term controls: The term policy is CP or SP depending on which estate paid the premium for the latest term.
