How COVID-19 May Impact Divorcing Couples in Different Jurisdictions
- Introduction
The global outbreak of COVID-19 and Shelter-in-Place Orders have impacted married couples in different ways throughout the world.
Many couples have become closer together working through these difficult times. Unfortunately, for many others these recent issues have caused them to realize that they are better off separating and racing to Court as soon as their Shelter-In-Place Orders were lifted.[i]
However, another issue faced by some separating couples may be related to the choices they made at the outset, or even before the outbreak of the Coronavirus.
In today’s global economy, many Parties own homes in multiple jurisdictions, and frequently spend time in different countries.
Prior to the Coronavirus outbreak such couples may have spent most of their time in one location, but due to the onset of the pandemic they began staying in another location.
This article examines the issues that may arise with Parties maintaining conflicting actions in different jurisdictions, and how establishing each Party’s intent is a vital and frequently difficult factor in determining which Court has jurisdiction.
- A Hypothetical Case
Let us consider a hypothetical couple, Jack and Jill. Jack and Jill met in Paris, and after a few years got married there. Shortly after their marriage, while still in France they had two young boys but soon after the birth of their youngest child they moved to Hong Kong.
After a few years living in Hong Kong the Parties moved to California, where Jack was expanding the operations of his biotech company. The Parties then began spending most of their time in San Jose, California, and the children both attended school there. Over the past few years, the Parties would also spend several months in Paris and Hong Kong, where they maintained homes.
Shortly after Jack heard about the outbreak of the Coronavirus, he and Jill decided to stay closer to Jack’s main business operations in Hong Kong. Since the Parties were unsure when they would return, they planned to stay in Hong Kong for the foreseeable future. When the parties left for Hong Kong the children were 6 and 4 years old.
From January 2020 until August 2020, the Parties stayed in Hong Kong with their children. Unfortunately, the extended time alone with each other did not help the Parties’ relationship problems.
In August 2020 after the Shelter-In-Place Orders were further lessened in California, Jill informed Jack that she wished to go back to California with the children to visit some friends.
Jack was then unaware that the main reason for Jill’s return to California was to visit a former boyfriend.
While Jill was gone, Jack suspecting that something was amiss discovered that Jill was having an affair with her old boyfriend. Irate, Jack texted Jill, and informed her that he would be immediately filing for divorce in Hong Kong.
After hearing this, Jill decided to race to Court herself, and file for divorce in California.
Unfortunately, Jill was informed by her California counsel that she might not be able to commence divorce proceedings there, since she and Jack had not been present in California for the preceding six (6) months. Jill could either wait six (6) more months, or she could proceed immediately with filing a legal separation action, which did not require the six-month residency requirement.
Jill decided to file for legal separation, and request for temporary custody of the children in the California Court.
Even though Jack filed his Petition for Dissolution in Hong Kong first, before he could serve, Jill was able to have Jack served with her California Petition in Hong Kong.
- Jurisdictional Battles Across Borders
So, what usually happens when Parties file in different Jurisdictions?
In our hypothetical case, Jack would likely file a Motion to Quash in the California Court, claiming that a Hong Kong Court should have jurisdiction over the Parties. Jill would likely file a similar motion in the Hong Kong Court, claiming that California should have jurisdiction.[ii]
The Court in California will need to conduct a detailed hearing regarding Jack’s motion before making a final decision.
The California Court will need to determine if it has jurisdictional basis for each of the following matters: 1. Subject Matter Jurisdiction; 2. In Rem Jurisdiction; and 3. Personal Jurisdiction.[iii]
Both Parties will want to submit facts related to each of these jurisdictional matters. Different types of evidence and potentially the testimony of witnesses will need to be provided, which would cause the Court to schedule the case for a several-day hearing.
However, a significant issue that will have a bearing on the jurisdictional issues, is establishing the Parties’ intent when they relocated to Hong Kong and later travel to California.
What are some of the factual and legal issues the Court may consider in deciding whether to maintain the case in California or deferring the matter to Hong Kong?
- Does a Dissolution Action Take Precedence Over a Legal Separation Case?
In California, a judgment for dissolution of marriage may not be entered unless one of the spouses has been a “resident” of California for six months and of the county where the proceeding is filed for three months immediately preceding the filing of the Petition for Dissolution.[iv]
Courts have determined that the term “residency” are synonymous with “domicile” which requires both physical presence and an intent to remain “indefinitely.”[v]
Whether the residency requirement has been met is a question of fact, and the burden of establishing residency is on the party asserting it.[vi]
However, an action for legal separation, domicile is not controlling. A Court’s jurisdiction is dependent on personal jurisdiction over a Party.[vii]
Additionally, based upon the principles of divisible divorce, Parties could entertain concurrent legal separation and dissolution proceedings in different jurisdictions.[viii]
Therefore, in our hypothetical case even if the California Court determines that it does not have in rem jurisdiction over the Parties’ dissolution proceedings, technically it could still decide to maintain the legal separation proceeding, so long as the Court finds that it has personal jurisdiction over Jack.
- How about Personal Jurisdiction?
Even if Jill is allowed to maintain her legal separation proceeding in California, she would have to show that the Court has personal jurisdiction over Jack.
If Jack were in California when he was served with Jill’s Petition for Legal Separation, this would not be an issue. However, since Jack was served in Hong Kong, Jill would have to establish that Jack has “minimum contacts” with California for the Court to have jurisdiction over him based upon the Court’s Long Arm Statute.[ix]
The extent to which “minimum contacts” personal jurisdiction may be exercised (i.e., where jurisdiction is predicated solely on minimum contacts, and not domicile, consent or in-state service of process), would depend on the nature and quality of Jack’s contacts with California, and if Jack had “purposely” conducted certain activities immediately prior to the filing of the Petition to “avail” himself of activities in the State.[x]
Jack’s activities in California that occurred a significant time prior to the filing of Jill’s Petition may not be adequate to establish sufficient minimum contacts with California.[xi]
Therefore, Jill would have to establish that Jack had intentionally continued to have certain minimum contacts with California, to have an expectation that he would be subject to personal jurisdiction there.
However, even if California determines that it does have personal jurisdiction over Jack, it could still decide that based on the inconvenience to the Parties or witnesses, Hong Kong is a more convenient forum.[xii]
- What About Custody (UCCJEA) Jurisdiction?
If a California Court is advised that another Jurisdiction may have a similar pending custody proceeding, it is will seek to communicate with that Court about such matters.[xiii]
However, frequently scheduling an appropriate time for the Courts to communicate in different time zones can be difficult.
Pursuant to the Uniform Child-Custody Jurisdiction and Enforcement Act (UCCJEA), for a California Court to determine custody visitation and matters, the children must have resided in California for the six months before the filing of Jill’s Petition for dissolution.[xiv]
In determining Habitual Residence, a Court would need to consider the “the intentions and circumstances of caregiving parents.”[xv]
However, Jill may be able to argue that the Parties were only in Hong Kong on a temporary basis and therefore California should still have jurisdiction over custody.
Periods of temporary absence may still be considered by the Court in determining jurisdiction over custody.[xvi]
In determining whether the children’s absence from California was temporary or not, the Court is required to consider the parents’ intentions, as well as other factors relating to the circumstances of the child’s or family’s departure from the state where they had been residing.[xvii]
- Does Filing or Serving First Matter?
When two Parties file simultaneous Dissolution proceedings, the person who is able to serve first may be able to seek abatement of the later proceedings.[xviii]
However, an order for abatement is a matter of Court discretion and subject to consideration of various factors including: “the seriousness of threat of multiple and vexatious litigation, convenience of parties, status of foreign action, and competing interests of two forums.”[xix]
Therefore, in our hypothetical case, it really does not matter whether Jack filed first or Jill. Rather the Court will need to still make a detailed jurisdictional analysis.
- So How can Parties Establish Intent Needed for Jurisdictional Purposes?
Various types of circumstantial evidence can be provided to a Court to establish a party’s intent.[xx]
Evidence in support of such intent can be manifested by both past declarations and specific actions in a certain jurisdiction including: owning property, maintaining a local driver’s license and automobile registration, filing local taxes, and registering to vote.[xxi]
In our hypothetical, either party may also seek to submit various written communications (such as emails or texts) between them to establish their intent, and whether they planned on staying in Hong Kong indefinitely or not.
However, while one party’s statement(s) may supply evidence of the intention requisite to establish domicile at a given place of residence, they cannot alone supply the fact of residence there.[xxii]
Counsel should also be aware that submitting only one type of evidence may be insufficient to establish intent. For example, merely owning a residence in a jurisdiction may not be sufficient to demonstrate intent to acquire a domicile if contradicted by other substantial evidence of intent.[xxiii] Similarly filing taxes alone in a given jurisdiction may not be enough.[xxiv]
- Can a Party’s immigration status impact the Court’s finding of jurisdictional intent?
California Courts had previously deemed that a child or Party’s immigration status itself would not bar a party from filing a dissolution action in California.[xxv]
However, Counsel should be aware that recently a Federal Court in California has determined that a nonimmigrant who entered the United States legally, but unlawfully overstayed her visa is precluded from establishing domiciliary intent required for obtaining a divorce in California.[xxvi]
- Conclusion
Any decision to relocate for an indefinite period of time, including those taken after the onset of COVID-19 may impact a Party’s ability to commence (or halt) family law proceedings in California. Appropriately establishing the intent for the move (and return) are vital factors in determining the proper jurisdiction.
[i] China’s Divorce Spike Is a Warning to Rest of Locked-Down World: Bloomberg Businessweek March 31, 2020, 1:00 AM PDT – https://www.bloomberg.com/news/articles/2020-03-31/divorces-spike-in-china-after-coronavirus-quarantines
[ii] Cal. Code of Civ. Proc. §418.10; CRC 5.63.
[iii] See Hogoboom & King, CAL. PRAC. GUIDE: FAMILY LAW (The Rutter Group 2019), §3:1.5.
[iv] Cal. Fam. Code Sec. 2320.
[v] See In re Marriage of Thornton (1982) 135 Cal.App.3d 500, 507; In re Marriage of Tucker (1991) 226 Cal.App.3d 1249, 1258–1259.
[vi] In re Marriage of Dick (1993) 15 Cal.App.4th 144, 153.
[vii] See Goodwine v. Superior Court (1965) 63 Cal.2d 481, 483 – The residence requirements applicable to the plaintiff in divorce actions are inapplicable in actions for separate maintenance.
[viii] See Estin v. Estin (1948) 334 U.S. 541, 549; Marriage of Gray (1988) 204 Cal.App.3d 1239, 1250-1251—W’s legal separation action in her domiciliary state of Wash. D.C. no bar to H’s dissolution action in his domiciliary state of California; See Also [Marriage of Hattis (1987) 196 CA3d 1162, 1170 – California courts may both have jurisdiction over nonpension issues in the dissolution proceeding and at the same time lack jurisdiction to divide the military member’s pension under the USFSPA.
[ix] See Khan v. Superior Court (1988) 204 Cal.App.3d 1168, 1170.
[x] See Muckle v. Sup.Ct. (Burgess-Muckle) (2002) 102 Cal. App. 4th 218, 228-230.
[xi] Muckle v. Sup.Ct. (Burgess-Muckle), 102 Cal. App. 4th at 227: See also Tarvin v. Tarvin (1986) 187 Cal.App.3d 56, 60-61.
[xii] Code of Civ. Proc. §410.30(a); See Marriage of Tucker (1991) 226 Cal.App.3d 1249.
[xiii] Cal. Fam. Code §3424(d)
[xv] Monasky v. Taglieri (2020) 140 S.Ct. 719, 727.
[xvi] Fam. Code §3402(g).
[xvii] See In re Marriage of Nurie (2009) 176 Cal.App.4th 478, 493, fn. 12; In re Aiden L. (2017) 16 Cal.App.5th 508, 518.
[xviii] See Marriage of Hanley (1988) 199 CalA3d 1109, 1115-1116.
[xix] Leadford v. Leadford (1992) 6 Cal.App.4th 571, 574.
[xx] Witkin California Evidence (2019) Fifth Edition, Chp. IV, §122.
[xxi] In re Marriage of Leff (1972) 25 Cal.App.3d 630, 633.
[xxii] Penn Mut. Life Ins. Co. v. Fields (1948) 81 F.Supp. 54, 60.
[xxiii] Johnson v. Johnson (1960) 245 Cal.App.2d 40, 44-45.
[xxiv] Penn Mut. Life Ins. Co. v. Fields, 81 F.Supp. at 61.
[xxv] In re B. Del C.S.B. (2009) 559 F.3d 999, 1010-1014; In re Marriage of Dick (1993) 15 Cal. App. 4th 144, 154 – Nonimmigrant status does not preclude a finding of residence under California law for the purposes of obtaining a dissolution of marriage.
[xxvi] Park v. Barr (2020) 946 F.3d 1096, 1099.
[1] China’s Divorce Spike Is a Warning to Rest of Locked-Down World: Bloomberg Businessweek March 31, 2020, 1:00 AM PDT – https://www.bloomberg.com/news/articles/2020-03-31/divorces-spike-in-china-after-coronavirus-quarantines
[1] Cal. Code of Civ. Proc. §418.10; CRC 5.63.
[1] See Hogoboom & King, CAL. PRAC. GUIDE: FAMILY LAW (The Rutter Group 2019), §3:1.5.
[1] Cal. Fam. Code Sec. 2320.
[1] See In re Marriage of Thornton (1982) 135 Cal.App.3d 500, 507; In re Marriage of Tucker (1991) 226 Cal.App.3d 1249, 1258–1259.
[1] In re Marriage of Dick (1993) 15 Cal.App.4th 144, 153.
[1] See Goodwine v. Superior Court (1965) 63 Cal.2d 481, 483 – The residence requirements applicable to the plaintiff in divorce actions are inapplicable in actions for separate maintenance.
[1] See Estin v. Estin (1948) 334 U.S. 541, 549; Marriage of Gray (1988) 204 Cal.App.3d 1239, 1250-1251—W’s legal separation action in her domiciliary state of Wash. D.C. no bar to H’s dissolution action in his domiciliary state of California; See Also [Marriage of Hattis (1987) 196 CA3d 1162, 1170 – California courts may both have jurisdiction over nonpension issues in the dissolution proceeding and at the same time lack jurisdiction to divide the military member’s pension under the USFSPA.
[1] See Khan v. Superior Court (1988) 204 Cal.App.3d 1168, 1170.
[1] See Muckle v. Sup.Ct. (Burgess-Muckle) (2002) 102 Cal. App. 4th 218, 228-230.
[1] Muckle v. Sup.Ct. (Burgess-Muckle), 102 Cal. App. 4th at 227: See also Tarvin v. Tarvin (1986) 187 Cal.App.3d 56, 60-61.
[1] Code of Civ. Proc. §410.30(a); See Marriage of Tucker (1991) 226 Cal.App.3d 1249.
[1] Cal. Fam. Code §3424(d)
[1] Fam. Code §3421(a)(1).
[1] Monasky v. Taglieri (2020) 140 S.Ct. 719, 727.
[1] Fam. Code §3402(g).
[1] See In re Marriage of Nurie (2009) 176 Cal.App.4th 478, 493, fn. 12; In re Aiden L. (2017) 16 Cal.App.5th 508, 518.
[1] See Marriage of Hanley (1988) 199 CalA3d 1109, 1115-1116.
[1] Leadford v. Leadford (1992) 6 Cal.App.4th 571, 574.
[1] Witkin California Evidence (2019) Fifth Edition, Chp. IV, §122.
[1] In re Marriage of Leff (1972) 25 Cal.App.3d 630, 633.
[1] Penn Mut. Life Ins. Co. v. Fields (1948) 81 F.Supp. 54, 60.
[1] Johnson v. Johnson (1960) 245 Cal.App.2d 40, 44-45.
[1] Penn Mut. Life Ins. Co. v. Fields, 81 F.Supp. at 61.
[1] In re B. Del C.S.B. (2009) 559 F.3d 999, 1010-1014; In re Marriage of Dick (1993) 15 Cal. App. 4th 144, 154 – Nonimmigrant status does not preclude a finding of residence under California law for the purposes of obtaining a dissolution of marriage.
[1] Park v. Barr (2020) 946 F.3d 1096, 1099.
Read MoreSpousal Support & The Mythical Ten Year Rule
I was recently listening to a radio morning show when one of the listeners raised the issue of spousal support and the so-called “Ten Year Rule.” This listener recommended that a previous caller divorce his wife before ten years, otherwise because of the “Ten Year Rule,” he would have to pay her alimony indefinitely. Immediately, numerous other callers began calling about this rule and stating their understanding of it. I was quite surprised about the local audience’s misconceptions about this matter and spousal support in general.
The General Concept
California law specifically states that “Except upon written agreement of the parties to the contrary or a court order terminating spousal support, the court retains jurisdiction indefinitely in a proceeding for dissolution of marriage or for legal separation of the parties where the marriage is of long duration.” Cal. Fam. Code §4336(a).
Retaining Jurisdiction: in this aspect means the courts ability to reexamine its’ initial order of spousal support, modify it, extend its’ duration, or reissue it.
Long Duration: Any marriage that is longer than Ten-years is presumed “lengthy.” However, under limited circumstances even shorter marriages may be deemed “lengthy.” The courts have discretion to determine–without the aid of a presumption — that shorter marriages are “lengthy.” [See Marriage of Heistermann (1991) 234 Cal.App.3d 1195 – retention of jurisdiction rule “can, under proper circumstances, apply equally to a medium length marriage” (8-year, 11-month marriage)].
A Few Examples
The easiest way to explain the above law is to give two examples.
Jill & Jim were married for 6 years. They go through Family Court, and eventually Jill receives a support award in the amount of $500 for 3 years. The court then states that its’ jurisdiction would also terminate after 3 years. Therefore, if Jill were to lose her job or get sick during the next three years and request that the court increase her support amount (which tends to happen quite often), then the court may do so – but only during those 3 years. After the 3 years, the court cannot modify or reissue spousal support for Jill (the court no longer has “jurisdiction” to award spousal support).
Now say Jill & Jim had been married for 12 years. She receives the same amount, this time for 6 years. However, since Jill & Jim have been married for more than 10 years, the court will presume this marriage as a “long-term” marriage and retain jurisdiction to modify this support amount. Under these circumstances, the court may retain jurisdiction indefinitely (until Jill remarries or passes away). Therefore, if Jill got sick the month before her support is to end, she can ask the court to extend the duration of support and even ask for a higher amount of support.
Setting the Duration and Amount of Support (FC §4320 Factors)
When a court determines the amount and duration of permanent spousal support they would have to weigh twelve factors mentioned in Cal. Fam. Code §4320 (The following is for general reference only – You do not need to read it all):
(a) The extent to which the earning capacity of each party is sufficient to maintain the standard of living established during the marriage…; (b) The extent to which the supported party contributed to the attainment of an education, training, a career position, or a license by the supporting party; (c) The ability to pay of the supporting party, taking into account the supporting party’s earning capacity, earned and unearned income, assets, and standard of living; (d) The needs of each party based on the standard of living established during the marriage; (e) The obligations and assets, including the separate property, of each party; (f) The duration of the marriage; (g) The ability of the supported party to engage in gainful employment without unduly interfering with the interests of dependent children in the custody of the party; (h) The age and health of the parties, including, but not limited to, consideration of emotional distress resulting from domestic violence perpetrated against the supported party by the supporting party where the court finds documented evidence of a history of domestic violence, as defined in Section 6211, against the supported party by the supporting party; (i) The immediate and specific tax consequences to each party; (j) The balance of the hardships to each party; (k) The goal that the supported party shall be self-supporting within a reasonable period of time. Except in the case of a marriage of long duration as described in Section 4336, a “reasonable period of time” for purposes of this section generally shall be one-half the length of the marriage. However, nothing in this section is intended to limit the court’s discretion to order support for a greater or lesser length of time, based on any of the other factors listed in this section, Section 4336, and the circumstances of the parties; and (l) Any other factors the court determines are just and equitable.
You may have noticed in the previous examples that in both scenarios, Jill received an award for support for half the length of her marriage. In circumstances where the marriage lasted less than ten years, it is “reasonable” (and quite common) for a court to set the duration of support at half the length of marriage, but that does not mean that the court must set the amount exactly at half the length of marriage. With marriages that last longer than ten years, the half the length of the marriage formula may not be followed as commonly, and the court may weigh the factors listed above to determine the duration of support.
So why did an attorney tell me that I would have to pay X amount of spousal support before we even went to court? How did he figure out this amount using all the factors listed above?
If an attorney gives you an exact number for spousal support, in all likelihood he is using a computer program to determine the exact amount of spousal support payable. However, even though using these programs for determining child support are valid, these programs can only be used to determine Temporary Spousal Support not Permanent Spousal Support.
Temporary Spousal Support: Support that one party pays the other while the divorce proceedings are not finalized and only until final judgment of divorce. Temporary Support is usually only determined by the parties’ current gross incomes alone.
Courts cannot rely upon computer formulas to determine the amount of Permanent Spousal Support they must weigh the factors listed in Fam. Code §4320. Therefore, an attorney who tells you the exact amount of your spousal support payment, is likely discussing temporary support only. The final amount of permanent spousal support determined by a court, might be quite different from the amount of temporary spousal support.
Conclusion
The Ten Year Rule is not a magical number that states that a court will automatically award spousal support with indefinite duration. The duration of support would be determined, based on the circumstances of each case. However, ten years is important, since it may affect the court’s ability to revisit the issue of spousal support again, and reissue or change the amount of support – ABSENT any agreements between the parties regarding this matter.
February 1, 2001 -(c) Copyright Law Offices of Rod Firoozye.
Read MoreShould I Sell the House or Buy Out My Spouse
You spent almost two years finding your home. Then you spent another two – three years remodeling it. Since then you have spent 10 years adding, changing, and making your home the perfect place. Your kids have grown up there and it is their palace. It is a beautiful home and is worth a fortune now.
All of sudden your spouse tells you that he (or she) is filing for divorce (maybe because of all the time you spent on the house) and moves out.
So what happens to the house now?
As you may know, California is a community property law state, which basically means that there is a presumption that all property (including the home) acquired during marriage is divided 50 – 50 between the spouses upon divorce* (See note below).
So do you get a chain saw and cut your multi-million dollar home in half (See: War of the Roses)?
Not really, you have the right to offer your spouse to buy out his/her interest in the home.
Usually parties try to agree to a joint appraiser to appraise the current market value of the home. Based on the appraised value, the purchasing spouse would need to come up with 50% of the equity (market value of home less agreed debts on the home) to buy out the other spouse’s interest. Note that when calculating a buyout value, courts usually do NOT consider any future adverse capital gains taxes or sales commission costs, if you are not selling the home now. Accordingly, if there is a possibility of a real high capital gains hit, you might strongly consider selling your home rather than buying out your spouse.
Another problem occurs if your spouse has moved out of the house after the announcement and left you with exclusive use of the home.
Depending on your circumstances, you may be charged with additional amounts for each month that you reside in the home alone after separation.
These charges are commonly referred to as Watts charges (after Marriage of Watts, 171 Cal.App. 3d 366, 388 (1985)). They are based on the assumption that both you and your spouse could hypothetically rent your home out after your separation. Any monies left from any rents received (after payment of mortgages) would be “community” incomes which you or your spouse would have a right to half of.
For example, your home’s mortgage is $3,000 a month. After separation, your spouse obtains a fair market rental value appraisal which states that based on comparable rentals your home could be rented out at $5,000 a month. The difference in the home’s mortgage and fair market rental value ($2,000) is a technically a community interest. Since you have had exclusive use of the home, you would have to account for one half of that value ($1,000 a month) to your spouse as Watts charges from the date he or she moved out.
Upon final division the court may account for the $1,000 a month charges and may give your spouse credit for these charges.
Bottom line, if your mortgage is fairly low compared to the rental value of your home, you might also be better off moving out of the home and asking that the house be listed for sale or rent as soon as possible, so you will not get hit with any Watts charges.
Good Luck,
Rod Firoozye, Esq.
Read MoreStock Option Issues and Divorce
Parties contemplating divorce frequently can agree to sell a car or a home and divide up the receipts. However with assets that cannot be sold or do not have any real value, parties sometimes agree to just give up their rights to that asset in exchange for some other asset. This exchange sometimes occurs with private company stock options granted to one party. Therefore since an exact value of the options cannot be determined, one Party may agree to some type of exchange.
A Start-Up Hypothetical
Here’s a typical Silicon Valley scenario: Husband has a job working for start-up company. As part of his compensation package, he has received stock options subject to a four year vesting schedule. The Party’s are unsure if the start up will continue on and later be acquired, or will fold up as many other companies’ have in the Valley.
Question – During their discussion about the division of their assets pursuant to a divorce, the stock options issue come up. The parties try to figure out what to do with the options and whether Husband should just get to keep them in exchange for his gratitude and agreement to not to speak to Wife again.
California the Land of Equality – at Least for Divorce
Under California Law, there is a presumption that any assets acquired from the date of marriage until the date the parties separate (referred to as “date of separation”) is considered community property (This presumption is referred to as a “general community property presumption.”). Community property would then be subject to equal division (50 – 50).
The date of separation is a very important date as it establishes different characterization in property rights. The date of separation is generally the date when one of the parties subjectively decided that the marriage was over and then objectively did something, such as moving out. Parties sometimes later end up arguing about when exactly the date of separation was as it can make a major impact on what assets where community property subject to equal division or separate property (since they were acquired after the date of separation). For example, bonuses received before the date of separation would be subject to equal division, but bonuses received after that date would be considered separate property.
In our hypothetical, let’s assume there is no problem on the date of separation and the parties agree that it was the date that Husband moved out the home.
Some of Husband’s options vested during marriage and before the date of separation. Based on the “general community property presumption,” these vested options would be subject to equal division.
But what about those options that were granted during marriage but had not vested before the date of separation?
Some people may think that the options that were not vested do not have any present value and if Husband were to quit or be fired, they would not be worth anything anyway.
However, the courts in California disagree with this view, and believe that even though these options may not have a present value, they you are subject to division.
Half the Pie or Just a Few Slices?
So how does the court determine what portion of the options belong to Wife?
Generally, courts use one of several formulas (commonly referred to as “time rules.”). Before deciding which formula to use, a court may first want to determine why the options were granted to the employee (e.g. – as an incentive to stay, or to attract the employee to the job).
Two of the main time rule formulas used are the Hug formula and the Nelson formula.
The Hug formula is used in cases where the options were primarily intended to reward past services, and to attract the employee to the job. The formulas used in Hug would be:
DOH – DOS
—————– x No. of shares exercisable = Community Property Shares
DOH – DOE
(DOH = Date of Hire; DOS = Date of Separation; DOE = Date of Exercisability)
The Nelson formula is used in circumstances where the options were primarily intended more as compensation for future performances, and as an incentive to stay with the company. The formula used in Nelson is:
DOG – DOS
—————– x No. of shares exercisable = Community Property Shares
DOG – DOE
(DOG = Date of Grant; DOS = Date of Separation; DOE=Date of Exercisability)
There are several other Time rules formulas for other types of options, and the courts have quite a lot of discretion to decide which formula (if any) to use, and how to equitably divide the pie.
Generally speaking though, the longer the time between the date of separation and the date the options vests, the smaller the overall percentage of the amount of the options that would be considered community property. For example if a specific number of options vested one month after separation, then a significant portion of those shares would be considered community property subject to equal division (50 – 50), however if the options vested several years after the date of separation, then a much smaller percentage would be considered community property.
After application of either time rule, the parties could then agree that the employee spouse would retain the agreed upon number of shares in trust for the other person. When the shares vest and if they can be sold, then non-employee spouse could then request that her portion of the shares be sold on her behalf.
Conclusion
Before Parties agree to just give up their rights to the other person’s stock options, they may want to consider applying a time rule formula to such options, even though presently they may not be worth anything. Accordingly, should the shares later become valuable due to an acquisition or other circumstances, the non-employee spouse could still retain their interest in such shares, and their potential profits.
Read MoreConsideration of Fault In Divorce Proceedings After the #MeToo Movement
By: Rod Firoozye
First published: Family Law News, Issue 2, 2018, Volume 40, No. 2.
The Filing of Divorces after the #MeToo Movement
The #MeToo Movement has led to a public discussion about the actions of various men in positions of prominence and influence toward women. Since then, this movement and other similar ones have led to many prominent people losing their jobs and facing potential criminal and civil liability to their victims. Furthermore, this movement seems to have caused several high-profile divorce cases.
Many aggrieved spouses in such divorce proceedings may have sought to initiate the divorce proceedings in advance of various civil (and criminal) claims being filed on behalf of the victims against their spouses. This article seeks to address the issue of fault in California divorce proceedings and whether it should play any role in such proceedings. Furthermore, if a court is to consider a spouse’s fault, who should have the burden of proof? And what about the impact of conflicting public policies on these matters?
California is a No-Fault Divorce State. Really?
California was the first state in the United States to pass a no-fault divorce law. No-fault divorce was adopted with the Family Law Act of 1969, which became effective on January 1, 1970. This Act codified a general public policy against the consideration of fault in family law proceedings. It abolished California’s action for divorce and replaced it with a proceeding for dissolution of marriage on the grounds of irreconcilable differences, which continues to be the law today.
After the enactment of this Act, spouses generally could not maintain a cause of action for alienation of affection. Furthermore, in family law proceedings, a party’s misconduct were generally inadmissible. However, in spite of the stated public policy against acceptance of fault-based evidence in family proceedings, there are certain limited exceptions that permit the consideration of such evidence.
One area in which where fault-based evidence may be considered is with regard to evidence of domestic violence in determining spousal support. Another area in which courts may consider the fault of a spouse is in the area of breach of fiduciary duties.
Generally, spouses share equal management and control of their community property. However, in 1992, the California Legislature adopted the predecessor statutes to current Family Code 721 and 1100 to further clarify spouses’ fiduciary obligations to each other in the management and control of their community property. Section 1100 states that in exercising management and control of the community assets and liabilities, each spouse “shall act with respect to the other spouse” in accordance with the general fiduciary relationship standards specified in Fam. Code 721(b).”
Family Code 721 provides that “in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code.”
Corporate Code Section 16404 specifically notes that: “(c) A partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law” and “(d) a partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.”
Partners are also required to provide “without demand any information concerning a partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties.” Additionally, spouse may not “make a gift of community personal property, or dispose of community personal property for less than fair and reasonable value, without the written consent of the other spouse.”
In the context of breach of fiduciary duties, aggrieved spouses may be able to submit evidence of fault, such as showing that the other spouse spent certain funds without their knowledge, whether on another party or used as payments made to keep a potential victim of abuse quiet. Additionally, in corporate cases a partner can make a claim against the other partner for failure to exercise appropriate duty of care in the management of a business. Section 721 indicates that an aggrieved spouse can make similar claims related to a spouse’s failure to exercise due care.
Who Has or Should have the Burden of Proof?
Generally, a party making a claim in civil proceedings bears the burden of proof. However, in family law proceedings, where a spouse can establish that the other spouse used community funds after separation without prior agreement, the burden of proof would shift to the “using” spouse to establish the appropriate use of those funds.
During marriage, a spouse may not “make a gift of community personal property, or dispose of community personal property for less than fair and reasonable value, without the written consent of the other spouse.” Presently, there is no specific family law authority regarding the shifting of the burden of proof for the pre-separation use of funds. However, in civil breach of fiduciary proceedings, courts have shifted the burden of proof to a defending party when “evidence necessary to establish a fact essential to a claim lies peculiarly within the knowledge and competence of one of the parties, that party has the burden of going forward with the evidence on the issue although it is not the party asserting the claim.” However, a spouse defending against a claim of gifts given in violation of fiduciary duties may be able to raise appropriate defense such as waiver or laches. Furthermore, spouses managing a business may be relieved of the obligation to obtain such prior written notice if the gifts were made as part of their roles in management of their business enterprise.
Public Policy Concerns with Fault Issues and the Slippery Slope Effect
Former Supreme Court of California Associate Justice Stanley Mosk once described the actions of parties in divorce proceedings prior to the enactment of no-fault law this way:
“Every day, in every superior court in the state, the same melancholy charade was played: the “innocent” spouse, generally the wife, would take the stand and, to the accompanying cacophony of sobbing and nose-blowing, testify under the deft guidance of an attorney to the spousal conduct that she deemed “cruel.”
Also, prior to the enactment of the no-fault basis for dissolution, spouses arguing against fault could plead a variety of defenses such as recrimination (essentially an accusation of “so did the other person”), or that the other spouse was aware of the wrongdoing but did nothing about it.
Where does a court draw the line regarding the admission of fault-based evidence in divorce proceedings? Are fiduciary duty claims simply “fault” in disguise?
Can spouses claim that a spouse misused funds without their knowledge in their affairs, or failed to exercise their duty of care, and be allowed to submit fault-based evidence in every divorce case? Should spouses be found to have breached their fiduciary duties based only on accusations without first establishing the truth of the allegations? Or does the party bringing the claim for breach of fiduciary duty bear the burden of proof to establish the truth of the allegations before making the claim?
This issue is obviously a tough call for each judge weighing the public policy concerns against consideration of no-fault evidence in relation to the spouse’s fiduciary obligations to each other and must be judged on a specific case by case basis. However, both spouses making or defending these arguments need to be wary of potential victims being able to use any information obtained in their divorce proceedings against the spouse in later civil or criminal proceedings, which could lead to potential dissipation of community funds or income available for support.
About the Author: Rod Firoozye has practiced law since 1996 in Silicon Valley and been a certified family law specialist since 2004. Before practicing family law, Mr. Firoozye represented clients in business litigation disputes against various businesses, including Microsoft and Earthlink. Mr. Firoozye has also previously testified as an expert witness in the areas of spousal support and California family law. Mr. Firoozye has been regularly selected as a Superlawyer by San Francisco Magazine.
Family Law Act (Civ.Code, div. 4, pt. 5, s 4000 et seq., operative Jan. 1, 1970) and the Family Law Rules of Court, Rule 1201 et seq., effective Jan. 1, 1970).
Cal. Fam. Code, 2333.
Cal. Civ. Code, 43.5; Askew v. Askew, 22 Cal.App.4th 942, 947 (1994).
Cal. Fam. Code, 2335.
Cal. Fam. Code, 4320(i); In re Marriage of Schu, 6 Cal.App.5th 470, 474 (2016).
See Farmers’ Exch. Nat. Bank v. Drew, 48 Cal.App. 442, 449 (1920).
Cal. Fam. Code, 1100.
Cal. Fam. Code, 721(b).
Cal. Corp. Code, 16404.
Cal. Corp. Code, 16403.
Cal. Fam. Code, 1101(b).
See Marriage of Walker,138 Cal.App.4th 1408, 1424 � 1425 (2006).
Cal. Evid. Code, 500.
In re Marriage of Margulis, 198 Cal. App. 4th 1252, 1268(2011).
Cal. Fam. Code, 1100(b).
Wolf v. Superior Court, 107 Cal.App.4th 25, 35 (2003).
See In re Marriage of Hopkins, 74 Cal.App.3d 591, 602, fn. 7 (1977); cf. Estate of Bray, 230 Cal.App.2d (1964).136.
See Fam. Code, 1101(d); Farmers’ Exch. Nat. Bank v. Drew, 48 Cal.App. 442, 449 (1920).
In re Marriage of McKim, 6 Cal. 3d 673 (1972) (Mosk, J., dissenting).
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