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Entries in divorce finance (5)

Friday
Jan152016

To Bifurcate, or Not to Bifurcate: That is the Divorce Question

Divorce Attorney

 

 

by Veronica R. Woods

818.907.3250

 

Divorce Bifurcation

 

Some divorcing couples may want their divorce resolved as quickly as possible. In California, the legal minimum time requirement that a dissolution can be entered is six months from the date of service of the Petition to the entered judgment. However oftentimes, complex financial matters or other contentious questions make the process much longer.

Fortunately, California’s Family Code provides an alternative option: Courts may allow parties to request a bifurcation, which essentially gives the Court the leeway to grant a divorce before other outstanding issues are resolved. Bifurcation is the separation of one or more issues in a case.

The California Rules of Court: Rule 5.390 provides for the separate trial of 13 issues, if a quicker resolution of a family law matter may help move proceedings along: 

  • Postnuptial or prenuptial agreement validity
  • Date of separation
  • Date of asset valuation
  • Separate vs. community property questions
  • Distribution of increased value of a business
  • Value of business or professional goodwill
  • Termination of marriage or domestic partnership
  • Custody and visitation rights
  • Support for child, partner or spouse
  • Attorneys’ fees
  • Equitable property and debt distribution
  • Claims for reimbursement
  • Other specific issues

Submitting a motion to bifurcate also means meeting certain demands. If the reason for bifurcating involves determining an alternate date of valuation of assets for example, the party making the motion will have to give the reasons for alternating the date and whether or not the proposed date applies to all or only some of the assets.

Other indemnities must be made to protect both spouses and children, in regards to health insurance, retirement, social security and other estate benefits.

Practical reasons for “Status Only” Bifurcation

There are some practical reasons to submit a motion to bifurcate. In a status-only bifurcation, which effectively restores the parties to “single” again, a common motive is that one or both of the parties wish to remarry immediately. Another less common reason, is to protect the best interests of the children, as in the case of Dwayne Wade’s dissolution in Illinois.

Financially, there are a few reasons: 

  • Tax Incentives: Under IRS rules, a party may file as a single tax payer or “Head of Household” if s/he had a divorce finalized anytime that year, even on December 31st. Remember, spousal support payments are deductible to the payor. Conversely, the party who receives spousal support must claim the money as income.

  • Bankruptcy: If one spouse files for bankruptcy, couples may seek bifurcation so the divorce proceedings can proceed while bankruptcy issues are still being resolved.

  • Time is Money: One party refusing to agree to certain issues to prolong the proceedings just leads to more legal fees. Reasons vary: a party may want to put off the ex’s remarriage or one party is highly emotional and unwilling to compromise, dragging on proceedings for as long as s/he can. 

Legislative Intent: Slight Evidence Required

The legislature intends “that the dissolution of marriage should not be postponed merely because issues relating to property, support, attorney fees or child custody [are] unready for decision.’ [Citation.]” (Gionis v. Superior Court (1988) 202 Cal.App.3d 786, 788.) The court is more concerned that parties forced to remain legally bound to one another when this status can do nothing but engender additional bitterness and unhappiness.” (Hull v. Superior Court (1960) 54 Cal.2d 139, 147-148.) A decision dissolving the marital status is reviewed under the substantial evidence standard. No valid purpose is served by requiring the parties to stay married.

Motion to Bifurcate Divorce

Opposing a Bifurcation

The burden of evidence to defeat a status only bifurcation must be compelling.

In the recent case of In re Marriage of Kimberly M. and Fletcher Jones, Jr., the Fourth Appellate District Court of California upheld the trial court’s decision to allow bifurcation and end the marriage in status.

In 2012, Fletcher made a motion to bifurcate based on, among other reasons, detrimental effects on future investments. Kimberly alleged her spouse did not comply with preliminary disclosure requirements – these must be filed before a bifurcation judgment is granted under Family Code §2337(b). She asked for 31 conditions to be met if bifurcation is granted.

Though Fletcher provided the required list of assets and debts, and though Kimberly did not disagree that the marriage should be dissolved, she did contend that Fletcher should be required to provide current values of the listed assets and debts, and that she be allowed an opportunity to seek further conditions of the bifurcation.

The lower court found that the disclosure and augmentations Fletcher provided were sufficient to allow the bifurcation.

Additionally,

…Kimberly made no showing the rejected conditions were necessary to protect her interests. She argues they are necessary because the early termination of the marital status “may impact upon property division issues” . . . The same can be said in every situation wherein the court bifurcates the trial, resulting in termination of the marital status prior to resolution of other issues.

Here, the court reaffirmed the legislative intent that severance of a personal relationship which the law has found to be unworkable and, as a result, injurious to the public welfare, is not dependent upon final settlement of property disputes. Society will be little concerned if the parties engage in property litigation of however long duration.

 

Veronica R. Woods is an attorney in our Family Law Practice Group. 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Oct262015

Marriage of Davis: A Shared Roof = Shared (Community) Property

Encino Tarzana Divorce LawyerCertified Family Law Specialist

 

by Vanessa Soto Nellis

818.907.3274

 

 

 

Community Property DivisionDuring the recession, we occasionally heard of couples who were divorcing, but still cohabitating. For economic reasons, neither spouse moved out of the house – they continued to share or divide financial responsibilities as they did before agreeing to end their marriage. Maybe they each agreed to do their own laundry, cook their own meals or vacation without each other.

Sometimes the situation occurs for non-economic reasons, one spouse needing time to find another place to live, for example, or parents living together for their children's sake.

This past summer, the Supreme Court of California issued an opinion In re Marriage of Davis that showed the decision for splitting couples to share an address may not always be wise. The opinion came down to whether or not the parties lived "separate and apart", though they shared the same roof.

Destructive Times Between Deciding to Divorce and Actually Leaving

On the surface it seemed the Davises did live separately:

Sheryl Jones Davis and Keith Xavier Davis discontinued sexual relations in 1999; stopped sharing a bedroom in either 2001 or 2004 (the parties disagreed here), took separate vehicles to their children's activities, and each did his or her own laundry.

On the other hand, for the sake of the children, they continued to celebrate birthdays and holidays together. Sometimes they vacationed separately, and other times they vacationed as a family. They maintained a joint bank account for household expenses, though each opened or reactivated a personal account as well. 

When Sheryl petitioned for divorce in December 2008, she listed the date of separation as June 1, 2006 – that marked the day Sheryl told her husband she was done with the marriage, presented him with a ledger of household expenses, removed him from her American Express card and returned his credit account cards to him, and took a job the following month. She told the court she considered Keith to be merely a roommate from that point forward.

Divorce LitigationIn response to the divorce petition, Keith Davis listed the date of separation as January 2, 2009. Sheryl did not move out until July 2011, and Keith filed an amended response changing the date of separation to July 1, 2011.

Both the lower and appellate courts found June 1, 2006 to be the date of separation. The Supreme Court disagreed.

Why Does Date of Separation Matter?

California is a community property state. Family Code § 771(a) regarding community property provides:

"The earnings and accumulations of a spouse and the minor children living with, or in the custody of, the spouse, while living separate and apart from the other spouse, are the separate property of the spouse." 

Date of separation, therefore, is important in determining whether or not a particular asset should be classified as community property, or separate property.

In the Davis' case – Keith argued that spouses who share a home cannot be "living separate and apart"; while Sheryl contended that the totality of circumstances, i.e. arriving at the kids' activities in separate cars, individual bank accounts, etc. should determine whether or not spouses are separated.

The Supreme Court considered previous cases and legislation dating back to the 19th century.  In particular, the Court referred to Chapter 161 of the Statutes of California, "An Act to protect the rights of married women in certain cases."   

The 1870 Act did not contain a definition of the phrase ―"living separate and apart" used in section 2. (Stats. 1870, ch. 161, § 2, p. 226.) However, the Legislature‘s understanding that the phrase connoted a threshold requirement of separate residences may be discerned from an additional section of the statute.

The Court also turned to Black's Law Dictionary, which previously defined separation as "residing in different places and having no intention of resuming marital relations," and more recently, as "living away from each other, along with at least one spouse's intent to dissolve the marriage." 

Focused solely on the interpretation of California's community property statute, the Supreme Court reversed the judgment of the Court of Appeal.

Moving Out is Merely the First Step 

Though living in separate residences is a critical part of establishing a date of separation, divorcing couples who need to cohabitate for a while can have an attorney draw up a written agreement to stipulate the official separation date.

On the other hand, couples who live apart immediately may still not be legally separated – moving out is merely one step in establishing a separation date.  Should the parties continue to act married in other ways, establishing separate domiciles may not help in the community vs. separate property issue.

Vanessa Soto Nellis is a Certified Family Law Specialist (State Bar of California Board of Legal Specialization) and a Shareholder at our firm. Contact her via email: vnellis@lewitthackman.com or by phone: 818-907-3274.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
May272015

Family Law: Special Considerations When Representing Professional Athletes

Celebrity Divorce - Athletes

 by Anthony D. Storm

 

While we await news of Tom Brady's Deflate-Gate appeal, the National Basketball Association playoffs coming up fast, and the latest hints that Lamar Odom and Khloe Kardashian may not follow through with their divorce after all, it is apropos to address issues that are germane to the family law representation of a professional athlete. 

Like most professions, a professional athlete is compensated pursuant to his or her employment contract.  However, while that employment contract may be based on skills obtained before or during the marriage, may be negotiated during marriage, and provide a predictable sum of earnings, those earnings are often based on performance after separation. 

So, the question arises, do the payments belong to the community or are they separate property?

Furthermore, athletes may receive additional income from sponsorships and endorsements above what is set forth in their employment contract.  Even though there is no celebrity goodwill in California, this additional income may be income available for support. 

Additionally, depending on the athlete’s income and where the parties live, he or she may be a high-earner.  What may be considered a high-earner in Bakersfield may not be a high-earner in Beverly Hills. 

Finally, custody can be more complicated---how do you work visitation when the athlete is travelling for games? Who pays for the travel?  Does the child travel alone, with a tutor, and where does he or she stay while away? 

There are no simple answers, but awareness of these issues is critical and provides an opportunity for good lawyering. 

Anthony D. Storm is a Divorce Lawyer in our Family Law Practice Group. Contact him via email: astorm@lewitthackman.com, or by phone: 818.907.3248.

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
May072015

Benefits of an Irrevocable Life Insurance Trust as Security for Support

 

by Kira S. Masteller and Anthony D. Storm

 

Divorce or separation agreements often require one spouse to maintain life insurance as security for their support obligation. Attorneys often do not address the tax implications if the insured spouse owns the policy. 

Often life insurance will create an estate tax that would NOT otherwise exist by adding a windfall to the insured’s estate upon death. The death benefit of a life insurance policy owned by the insured spouse will be included in his or her estate for estate tax purposes. When the insured owns his or her life insurance policy, he or she has “incidents of ownership”, such as withdrawing cash value, assigning the cash value as collateral, or changing the beneficiary during his or her lifetime. 

In order to keep the death benefit OUT of the insured’s estate for estate tax purposes, the insured can create an Irrevocable Life Insurance Trust, commonly referred to as an ILIT.

Once created, the Trustee of the ILIT will own the life insurance policy, NOT the insured. As a result of having the ILIT own the policy, the insured avoids incidents of ownership and the tax implications associated therewith. 

The ILIT will also be the beneficiary of the life insurance policy resulting with the death benefit being held for the ex-spouse, children or other beneficiaries until certain ages, and can provide liquidity to an insured’s taxable estate, without having the death benefit itself be exposed to estate tax.  

Should the insured pass away before a support obligation is complete, the death benefit related to the support for the benefit of the ex-spouse would be administered by the Trustee of the ILIT pursuant to the terms of the Marital Settlement Agreement/Judgment. The residue of the death benefit, if any, would pass to the other named beneficiaries via the ILIT with no Court proceeding. 

Kira S. Masteller is a Trusts & Estate Planning Attorney. Contact her via email: kmasteller@lewitthackman.com, or by phone: 818.907.3244.

Anthony D. Storm is a Family Law Attorney. He can be reached via email: astorm@lewitthackman.com, or by phone: 818.907.3248.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Mar132015

Tax Filing During a Divorce: Separate or Joint Returns?

Encino Tarzana Divorce LawyerDivorce Attorney

by Vanessa Soto Nellis
818.907.3274

 

Couples going through a divorce should remember this regarding taxes: You can still file a joint return, so long as you were still married as of December 31st.

Taxes During DivorceEven if you separated from your spouse and moved out of the house on  January 1, 2014 – if you did not receive a divorce decree by December 31st, you're still considered married in the eyes of the Internal Revenue Service.

The IRS considers same-sex couples married, if the couple was married in a state where same-sex marriages are legal. So here in California, no distinctions are made in terms of whether a heterosexual or same-sex couple is considered married or divorced – all follow the same rules.

For most couples, filing jointly will result in more tax savings. If your divorce finalized before December 31st, you'll have to file singly, or as head of household – the latter could garner you more tax savings if filing that way. Talk to your accountant to figure out what's best for your situation.

Speaking of accountants, the IRS allows you to deduct some of the fees paid for expert advice regarding tax planning and obtaining or collecting spousal support. Thus, you may want an itemized statement from your attorney.

Separated & Filing Taxes

No matter what the relationship status, couples should always communicate. That holds especially true for separating couples at tax time. Consider these questions: 

  • Are you Married, Filing Jointly; or Married, Filing Singly?

  • Which of you is the custodial parent?

  • Who claims the children as dependent exemptions?

  • Will one of you file as head of household, while the other claims the dependent exemptions? 

Divorce Finance Attorney

If you are legally separated in California, claiming head of household means you have dependents and pay for at least half of the costs of maintaining a home. So if your child(ren) live with your spouse in a home that you mostly pay for – you could file your taxes as head of household, rather than singly.

If you and your spouse each have 50 percent custody of your child(ren), you'll really need to communicate in terms of deciding who gets to claim what on the tax returns. If there is only one child, it might make sense to alternate the tax deduction annually. Alternatively, the tax deduction may benefit one parent more than another. It is important to make sure you are in sync so that you do not get audited.

There are many options to consider when separated and filing taxes. The best thing to do in these situations is to get help from an expert.

 

Vanessa Soto Nellis is a Divorce Attorney in our Family Law Practice Group. Contact her via phone:818.907.3274; or by email: vnellis@lewitthackman.com for more information.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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