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Attorney’s BriefCase®Beyond the Basics™

The Family Residence

©2014 Attorney’s Briefcase, Inc. 1

THE FAMILY RESIDENCE: A Comprehensive Review of Key Concepts and Legal Principles

Starting the case Exclusive use and occupancy Characterization S/P interest in C/P residence C/P interest in S/P residence S/P interest in S/P residence Transmutation & Fiduciary Duty Valuation Watts & Epstein Equalizing the division Taxability of gain Effect of current economic situation

2

Starting the Case




Gather as much information about residence(s) as possible:

Are there any agreements?◦ Prenup?◦ Postnup?◦ Quit claim deeds?

When acquired?◦ Pre-1984 or 1987?

How acquired? In whose name?

4

Purchase price? Source of down payment?◦ Fam. Code §2640 (b) claim?

Was spouse added to title?◦ Why?◦ FMV on date name added?

Refi’s?◦ Character of loan?

Improvements?◦ Description?◦ Dates?◦ Source of funds?

5

Family Trusts?◦ Marital Property Agreements.◦ Terms of trust.◦ Drafting attorney.

Current title? Opinion of value?◦ At relevant times.

Are payments current? Liens? Status of house pending resolution?

6




◦ Verify title.◦ Copies of ALL deeds/reconveyances/liens/etc.◦ Get accurate legal description.◦ Taxes current?◦ Liens.◦ Encumbrances.◦ Family Trusts.◦ Get sales values.◦ Refi’s.◦ Family Trusts. Subpoena estate planner’s files.◦ Update before trial.

7

Civ. Code §2924B. Requires notice of any default.Not a cloud on title. Compare lis pendens.

Also, request notice from mortgage holder of any delinquencies.

8

“There is community property, the exact nature, description and value of which is unknown to Petitioner at this time. Petitioner will serve a Declaration of Disclosure as required by law when such has been ascertained.”

9




A petition which does not allege community interest in specific real property does not state a "real property claim" so as to support filing notice of lis pendens.

10

Prevents other party from encumbering or hypothecating in violation of ATRO.

Must be recorded in each county where property located.

Must be served on other party. Must have identified property in pleading. Record ASAP. Remember to release when case complete.

11

Exclusive Use and Occupancy




Controlling statutes:◦Fam. Code §6321 Ex Parte.◦Fam. Code §6340After Hearing.

Key: distinguish between exclusion ex parte and after hearing.

13

Requirements (Fam. Code §6321):◦ Right under color of law to possession of the premises.◦ Assault or threatened assault.◦ Physical or emotional harm.

Strong showing required.◦Marriage of Parker, p. 6. ◦Why isn’t an OST sufficient?

14

Lesser showing required (FC §6340)◦No requirement for “assault or threatened assault.”◦ Physical or emotional harm is enough.◦Must consider whether failure to make any of these orders may jeopardize the safety of the petitioner and the children.

15




Generally cannot exclude spouse from dwelling of the other. (FC §753.)

But, if excluded by TRO, then no longer has unconditional possessory right to enter and may be convicted of burglary as well as violation of TROs.◦ People v. Smith, p. 6◦ People v. Davenport, p. 8

16

Characterization

Fam. Code §760: “Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.”

18




“The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.”

Marriage of Brooks & Robinson held this applied to the marital residence. ◦ Shifted burden of proof to non-titled spouse to

prove that property acquired during marriage in other party’s name was c/p.

“Abrogated” by Marriage of Valli.

19

Held: ◦Evid. Code §662 does not apply to the characterization of marital property. ◦Property acquired from 3rd

parties still subject to transmutation rules.

20

Pre-1975: Married Woman’s Presumption.◦ Fam. Code §803

Old Law (for property acquired before 1984).◦ Title controlled absent an “agreement or

understanding,” which could be oral.(Marriage of Lucas, p. 12.)

◦ Overruled in 1984 by Civ. Code §4800.1 [Fam. Code §2581], but prospectively only. You can still have oral agreements for pre-1984 property.

21




Fam. Code §2581. (p. 13)◦ Jointly titled property presumed c/p. Rules tweaked between 1984 – 1987.

(See p.14)◦ Can only be overcome by a writing or title.◦ No mistake, oral or implied agreements

permitted. (Marriage of Weaver, p. 14)

Fam. Code §2640 controls reimbursement.

22

W moves into H’s s/p residence after 1990 DOM.

H pays all mortgage payments from s/p. 10 years after DOM, H wants to refi.

residence to lower interest rate. Deed put into joint names w/o H’s

noticing. H continues to pay mortgage with s/p. Parties separate 10 yrs. later.

23

H put W’s name on title “for estate planning purposes” only.

He testifies that he had no intention of making a present gift,

or, parties orally agreed still his s/p.

24




It doesn’t matter how or why other spouse’s name got on title ---(assuming no breach of fiduciary duty, etc.).

Once property goes into jt. names it is c/p absent a writing to the contrary.

(Marriage of Neal p. 32)

25

Be aware that Fam. Code §2581 and Fam. Code §2640 only apply in Family Law proceedings.

They are not applicable to probate proceedings.◦Estate of Blair, p. 15◦What if client dies during disso?

26

Resulting Trusts and C/P Presumption




W’s parents (Ps) enter into K to purchase condo.

Cannot qualify for loan due to bad credit.

W obtains loan in her name and takes title as single woman.

Problem: she’s married to H!

28

H wrote down payment check using $$ loaned by P’s brother.

C/p advanced $4,230 for purchase. P opened bank account for W into

which he deposited $$ for mortgage payments.

Statement came to W, and she paid with P’s $$.

Ps took mortgage interest deduction.

29

W didn’t list condo as property. H claimed it to be c/p. Ps were joined in disso. H testified:◦ He was a broker.◦ He set deal up.◦ W took in own name so she could

qualify for an “owner occupied” loan.

30




C/P presumption rebutted. H was a willing participant. H suggested that house be purchased in W’s name so she could quit claim it to Ps later.

Ordered W to reimburse c/p for $4,230.

Denied H any apportionment in condo.Court of Appeal AFFIRMS!

31

Resulting Trust: When transfer of real property made to one person and consideration paid by another, a trust is presumed to result in favor of person by or for whom payment was made.(Compare Constructive Trust: Usually

imposed to rectify fraudulent behavior.)

32

H argued from old cases that events after purchase were irrelevant to Resulting Trust.

BETTER RULE: Stone v. Lobsien (1952) 112 CA2d 750.◦ Payments made after purchase were sufficient to show resulting trust where parties promised to and did make payments.

33




H argued since c/p contributed to purchase, condo had to be apportioned.

NOPE T/ct had discretion to fashion appropriate division of c/p.

Here, c/p reimbursed by requiring W to reimburse it for $4,230 it contributed.◦ W did not appeal.

34

S/P Interest in C/P Residence

Old Law (pre-1984 acquisitions) Marriage of Lucas: S/P contributions

were deemed a gift absent “agreement or understanding” to the contrary.

New Law (starting 1/1/84): Fam. Code §2640 (b) (former Civ. Code §4800.2) now provides for reimbursement.

Cannot be applied retroactively. (p. 14)

36




"[U]nless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party's contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source...."

37

The right of reimbursement for s/p contributions to the acquisition of c/p assets only applies in dissos.

N/a to probate proceedings. Need to consider this if a client is infirm.

38

The right of reimbursement is a California-specific rule.

(Most) other states do not recognize this right.

Has the potential to wipe out the c/p interest.

Consider this when deciding on whether to file in CA when offered choice of venues.

39




Statute says: “to the extent the party traces the contributions to a separate property source.”

How do you “trace” a s/p contribution?◦ If in cash, the traditional way.◦ If based upon adding name to title, “tracing” =

equity in residence on date of transmutation. Appraisal. Opinion of owner. Marriage of Stoll (p.25.)

40

“The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division.”

Hypo: Parties bought $30K car.◦ W contributed $10K s/p. (1/3) ◦ C/p contributed $20K. (2/3)◦ FMV trial = $9K

$9,000(Marriage of Walrath: S/p preserved at expense of

c/p)

41

Hypo: H used $25,000 of s/p as the down payment on a residence taken in jt. names.◦ FMV now $500,000.

$25,000 Hypo: H put W’s name on s/p residence

during refi. ◦ FMV on date of refi $250,000. ◦ FMV now $500,000.

$250,000

42




W deeded s/p farm to herself and H. W intended on making gift to H. FMV on date of gift $807K. On date of trial, FMV $300K. Character?

All W’s s/p(Marriage of Witt, p. 26)

43

H writes “for a gift” on deed. Does this change result?

No (Marriage of Perkal, p. 23)

But see Marriage of Weaver, p. 27, strongly criticizing this interpretation of FC 2640 …

But followed it

44

Statutory requirements are strictly construed. If requirements are met, reimbursement mandatory, regardless of donor’s intent.

45




Burden is on Separatizer to “trace” s/p into residence. ◦Marriage of Geraci (p. 23)

Burden is on spouse to show waiver.◦ Waiver must be in writing.◦ Must evidence knowledge of right and

intent to waive it. Marriage of Perkal (p. 27)

46

Downpayment?◦ Fam. Code §2640 (b)

Construction payments?◦ Marriage of Cochran (p. 31)

Building permit fees?◦ Marriage of Cochran (p. 31)

Payment of c/p debt to qualify for loan?◦ Marriage of Nicholson & Sparks (p. 29)

47

Improvements?◦ Fam. Code §2640 (a)

S/P gifts?◦ Marriage of Martinez (p. 28)

Portion of debt that is forgiven after s/p payments made?◦ Marriage of Tallman (p. 29)

FMV of residence on date goes into jt. names?◦ Marriage of Neal (p. 32)

48




Principal paydown? Interest?Appreciation? Property taxes? Insurance? Rental value?What if equity is less than amount contributed?

49

Can trace FC §2640 right of reimbursement into other capital assets.

Trace s/p pro rata into each asset purchased or debt paid.◦ This is mandatory absent writing.◦ i.e., no need to show intent.

Total reimbursement cannot exceed original s/p interest.

50

Equity $500,000 on date of refi. H had $200,000 s/p interest. $200,000/$500,000 = 40% s/p interest. $100,000 borrowed.◦ Car: $20,000.◦ XYZ stock:$30,000.◦ Vacation home down payment: $40,000.◦ Visa bill: $10,000.

51




Car◦ Purchase price: $20K◦ FMV today: $6K◦ H’s s/p share: $20K X 40% = $8K◦ H’s FC 2640 reimb. = $8K◦ $8K > $6K◦ Car is H’s s/p

Why?◦ S/p preserved over c/p.◦ Remb. cannot exceed FMV.

52

Purchase price: $30K FMV today: $100KH’s s/p share: $30K X 40% = $12K

H’s FC 2640 reimb. = $12K Stock is $88K c/p and $12K s/p

53

◦ Downpayment: $40K◦ H’s s/p share: $40K X 40% = $16K◦ H’s FC 2640 reimb. = $16K◦ Balance = c/p

VISA bill paydown◦ Amount paid down: $10,000◦ H’s s/p share: $10K x 40% = $4K◦ H’s FC 2640 reimb.?

ZERO◦ Why? ◦ S/p used to pay off c/p debt = gift absent written

agreement.

54




H’s s/p interest was $200,000. $100K cash out in refi. 40% deemed H’s s/p ($100,000 x 40%). H’s remaining 2640 reimb. in resid. = $160K. Recap:◦ Residence: $160K◦ Car: $ 6K (lost $2K)◦ XYZ stock: $ 12K◦ Vacation home: $ 16K◦ Visa: $ 0 (lost $4K)◦ Total: $ 194K

Cannot exceed $200,000

55

C/P Interest in S/P Residence

Moore: A method of allocating appreciation between c/p and s/p when c/p makes payments on s/p residence.

Marsden: Same except that premarital appreciation assigned 100% to s/p.

Sine qua non: Title must be in one name only.

Once title goes into jt. names FC §2640.

57




Step 1: How much of pur. price did c/p pay?

Step 2: What % of pur. price did c/p pay? Step 3: How much appreciation during

marriage? Step 4: Multiple c/p % times marital

appreciation Step 5: Add Step 1 plus Step 4. …

Voila’58

59

60




Starting date?◦ Date of purchase (Marriage of Frick pp. 44)

Date of valuation?◦ Date of trial (Marriage of Sherman p. 46)

Rental value?◦ Ignored (Marriage of Nelson p. 47)

Home equity loan paydown?◦ Ignored (Marriage of Nelson p. 47)

Unfairness of formula.

61

Hypo: ◦ H bought house the day before marriage to W1 $500,000 Zero down 4% 30 years Payments $2,387/mo. House appreciated $10,000/yr.◦ H married to: W1: 10 yrs. W2: 10 yrs. W3: 10 yrs.

62

W1: ◦ Total payments (P&I): $286,000◦ Principal paydown: $116,000◦ Moore/Marsden c/p share: $139,000

W2:◦ Total payments (P&I): $286,000◦ Principal paydown: $158,000◦ Moore/Marsden c/p share: $190,000

W3:◦ Total payments (P&I): $286,000◦ Principal paydown: $236,000◦ Moore/Marsden c/p share: $283,000

63




Premarital refi?◦ No case law to guide us.◦ Logically, treat refi data as original purchase for

subsequent M/M calculation. Postmarital refi? ◦ Marriage of Branco (p. 55)◦ S/P refi? I.e. Did lender rely on borrower’s s/p credit?◦ C/P refi? I.e. Did lender rely on c/p credit?

64

What was character of new loan? Marriage of Grinius (p. 57): Lender relied

solely on s/p. Gudelj v. Gudelj (p.57): Lender relied

primarily on s/p. What is effect of quitclaim deed?◦ Marriage of Branco (p. 55): Begin M/M

calculation from that date.◦ Marriage of Stoner: (p.58) Cuts off all

future interest.

65

Residence refinanced during marriage using s/p assets and credit

66




Residence refinanced during marriage using c/p assets and credit

67

Grinius or Gudelj ?? Did lender [solely or primarily] rely on s/p security? Need testimony from lender. Problem: Lenders want borrower to be able to pay

back with current income. Absent PMA, current income usually c/p. Mixed question of fact and law. Key: convince court that result makes sense

logically.Multiple refi’s?

68

S/P Interest in S/P Residence




No longer deemed a gift! Fam. Code §2640 (c) now treats the same way as s/p contributions to c/p residence.

Query: Is it retroactive?◦ Fam. Code §4 vs. Marriage of Buoland Marriage of Fabian?

70

Transmutationsand Fiduciary Duty

Interplay of various statutes and cases◦ Fam. Code §850 [Transmutations

permitted]◦ Fam. Code §852 [Writing req’d]◦ Fam. Code §1500 [Property rights may be

altered by agreement]◦ Fam. Code §721 [Fiduciary duty]◦ Evid. Code §662 [C&CE req’d to overcome

presumption of title]

72




Haines (1995): When an interspousal transaction advantages one spouse, the law presumes such transactions to have been induced by undue influence.

Lange (2002): A fiduciary obtains an advantage if his position is improved, he obtains a favorable opportunity, or otherwise gains, benefits, or profits.

Delaney (2003): W had burden of proof to prove that the transmutation of H's s/p to c/p was not the product of undue influence.

73

Marriage of Burkle [Burkle II] (p. 124): "[T]he ‘advantage’ which raises a presumption of undue influence in a marital transaction involving a contractual exchange between spouses must necessarily be an unfair advantage.“

74

Did one party benefit unfairly? If so, that party has burden of

proving agreement was: "freely and voluntarily made, with full knowledge of all the facts, and with a complete understanding of the effect of a transfer…." (Delaney, p. 1000.)

75




YES Examples of cases upholding interspousal deals against presumptions of U.I.:◦ Marriage of Mathews (p. 123): QC deed

from W ⇨ H◦ Marriage of Friedman (p.121): Postnup◦ Marriage of Burkle II (p. 124): Postnup

76

Consideration? Who benefitted? Did both benefit? Were the terms clear? Evidence of duress? Free & voluntary? Adequate disclosure? Full knowledge of the facts? Was effect of transaction understood? Did they agree no unfair advantage? Represented by counsel?

Burden of proof?77

Refinances: S/p owner wants to refi to obtain lower

interest rate, make improvements, etc. Title Co. either:◦ Simply prepares deed from s/p c/p, or◦ Spouse refuses to sign QC deed.

Effect?◦ Marriage of Neal (p. 32): C/P subject to 2640

reimbursement.

78




Wills: Fam. Code §853(a): “A statement in a will of

the character of property is not admissible as evidence of a transmutation of the property in a proceeding commenced before the death of the person who made the will.”

Marriage of Weaver (1990) 224 Cal.App.3d 478, p. 39.◦ Statements in will inadequate.

79

Goals: ◦ Avoid probate◦ Minimize taxes How? Get step-up in basis for C/P when first spouse

dies. Problem: Doesn’t work for S/P. Solution: Make everything C/P. Fly in the ointment: What if they divorce before

one dies?

80

H heir to UPS fortune. Neither party worked during marriage. H had a revocable trust drafted that said all property transferred to trust was c/p unless identified as s/p.

H transferred property and failed to designate as s/p.

81




T/ct characterized trust provision as a “vacuum cleaner” that was insufficient for transmutation.

Court of Appeal agreed. Trusts purposes: ◦ Avoid probate.◦Orderly administration.◦Get stepped-up basis (IRC§1014).

82

Key provisions did not unambiguously establish that H was effecting a change of ownership in the entirety of his significant separate estate.

A review of other trust provisions supported t/ct’s interpretation: e.g.:◦ All s/p income to be paid to H: Unambiguously

established that H was NOT effecting a change of ownership in the entirety of his significant separate estate.◦ If insufficient, T/ee to invade principal of H’s s/p.

83

H & W see estate planner (EP) to “eliminate need for probate and to minimize taxes”◦ (sound familiar?)

EP drafts a trust and a Transmutation Agreement (TA).◦ 8 of H’s properties listed.

TA provides parties are “specifying the character of property pursuant to Cal. Fam. Code.”

EP explains “legal consequences” of TA.

84




TA specifies not in contemplation of disso; made solely for purpose of property disposition on death.

States H would not have done so but for disposition provided in Trust. …

But: Trust also provides that if Trust terminated, c/p remains c/p.

85

W claimed transmutation. H argued that his intent ambiguousdue to language that executed solely for estate planning.

Trial Judge: “A clearer statement of transmutation is difficult to imagine.”

Held: All c/p.◦ H to pay W $13K for experts to value.

H appealed.

86

Held that language in Trust did not transmute property.

This case goes to same panel (DCA 2/6).

Different result.

87




TA: “[H’s s/p] is hereby transmuted from his separate property to the community property of both parties.”

The word “transmuted” appear numerous times in TA.

Cf. Starkman: “T” word never used. What about H’s motivation? ◦ Regardless of motivation, documents “contain the

requisite express, unequivocal declarations of a present transmutation.”

88

Tough: He was fully advised of legal consequences of not having own atty by EP.

CONDITIONAL TRANSMUTATION? Transmutation was only for “estate planning

purposes.”“[W]e are not aware of any authority for the proposition that a transmutation, once effected, can be limited in purpose or otherwise rendered conditional or temporary.”

89

Is there a public policy to encourage spouses to provide for each other in estate plans?

Does this rule undercut it? NO, says Court w/o explanation. Isn’t this like Fam. Code §853 (a)?[Stmts. in wills cannot be used in dissos] NO, says Court.◦ Wills are different. Speak only at death.◦ Trusts convey present interest.

Up to Legislature to extend 853 to trusts.

90




H argued on rehearing that it would “create havoc” for 10,000’s of couples who have created revocable family trusts.

Court of Appeal disagreed, w/o explanation. Did W receive a windfall? Not as bad as you think.

Why? H got his Fam. Code §2640(b) reimb. rights.

91

If you are an Estate Planner …“Be Afraid, Be Very Afraid”

If you are a F/L atty.◦ Need to really look for Family Trusts.◦ Problems: May have been revoked. Can’t rely on current title. Need to look into title history. Get a full Title Report ($$$). Order a Marital Property Guarantee™ report ($175). Subpoena EP files.

92

Valuing the Residence




Real estate agent/broker◦Advantages:FreeReally knows areaHas toured all compsCan evaluate intangibles

94

◦ Disadvantages of broker: Assumed to have an interest in getting

listing (i.e., not impartial). Has no formal appraisal training. Not legally permitted to appraise

property for fee. Probably has never qualified as an

expert. Tougher to qualify.

95

Understand certifications, MAI, SRA, etc. Have the credentials. Have the experience. Easy to qualify. Expensive. Can be weak on the nuances of the area. Haven’t toured comps.

96




Always adjust the comparable to the subject property.

Thus, if comparable has one less bath, you add value of extra bath to comparable’s sales price.

If comparable has better view, you subtractthe value of view from comparable’s sales price to get indicated value for subject.

97

98

99




Main differences: ◦ Roof◦ Design and appeal

Appraisal 1 Appraisal 2Sales Price 825,000$ 825,000$ Site 7,038 / 4,100 5,000$ 14,700$ Design & Appeal Same / inferior 5% -$ 41,000$ Condition Superior Roof / similar (35,000)$ -$ Room Count (7)(8) / 6 25,000$ 20,000$ Gross Living Area 2,345' / 1,735' 61,000$ 45,800$

Adjusted sales price 881,000$ 946,500$

100

Roof:◦ Get two estimates for their appraiser to

rely on.◦ Take pictures of obvious roof damage. Then ask other appraiser how it was

missed. Design and appeal:◦ Very subjective. Take pictures of the two so your expert

can compare side-by-side. Credibility of expert very important.

101

102




103

Fam. Code §2552◦ Value as near as practicable to DOT.◦ Alternate valuation date motion.

Hypothetical◦ H deserted W 15 yrs ago.◦ She has maintained residence and paid

mtg. w/o help.◦ Value has increased 500%.◦ Date of valuation?

104

Marriage of Priddis (p. 76)Why?

Increase in value due to market factors.

Not due to W’s efforts. How about Epstein credits for payments?◦ Sorry – she had use of it.

105




Costs of sale? Real estate commissions?◦ Marriage of Stratton (p.78)◦ Marriage of Denney/Drivon (p.78)

Costs of repairs?◦ Roof◦ Plumbing◦ Painting◦ General fix-up

106

Opinion of owner?◦ Evid. Code §813

Opinion of spouse?◦ Evid. Code §813◦ Marriage of Stoll (p. 79)

Real estate agent?◦ Evid. Code §720◦ Naples Restaurant, Inc. v. Coberly Ford (p.

80)

107

Makes sense. Both want it. Let them bid for it.

NOMarriage of Cream (p. 82)

But see discussion of alternative methods (p. 83)

108




Watts and Epstein

Marriage of Watts (p. 106) Party may be charged for use of C/P pendente

lite. Elements of proof:◦ One party excluded from using.◦ Fair rental value of asset.◦ Costs associated with maintaining it.◦ Watts charge is the difference.

Courts vary in receptiveness to this charge. Put other party on notice.

110

Problems with Watts charge:◦ Someone has to use and maintain asset.◦ Creates an asset (i.e., value of use) that:Doesn’t exist.Can be a huge number. Is going to be very contentious.

If appropriate, ask for it and prove elements.

111




Reimbursement for payment of c/p debts after DOS with s/p is mandatory, absent exception. (Marriage of Rosen, p.111)

But, there are a lot of exceptions.◦ Payment was in the nature of support.◦ Payor had use of asset. Unless cost exceeds value of use.◦ Gift intended.◦ Unreasonable to expect reimbursement.

112

Was it in the nature of support?◦ If it was a preexisting bill, then not in

nature of ongoing support.◦ If it is for an asset other party is using,

e.g, a car, then probably is in nature of support.◦ How was it treated at temporary support

hearing?◦ What makes sense logically?

113

W had possession and made payments --NO: Payor had use of asset.

Did cost exceed value of use? W had possession and H made payments --

Was it in the nature of support?◦ Was H also paying support?◦ Was support appropriate?◦ Were payments considered when support set?

114




Improvements

Fam. Code §2640 (a): "Contributions to the acquisition of

property," as used in this section, include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property ….

If so…◦ Reimbursement

116

Hypo #1: H spends $20K s/p making improvements to c/p residence that are so bad that they reduce the value of the residence.

Hypo #2: H spends $20K on a swimming pool that adds $10K value to residence.

How much is he reimbursed? ◦ Hypo #1: Zero (Marriage of McNeill, p. 61)

117




Hypo #2: Unclear Since the s/p expenditure did improve the

residence, does H get reimbursed for the entire $20K or just the amount that it increased the value of the residence?

Improve s/p residence with c/p money Traditional rule: Gift absent agreement◦ Marriage of Camire (p. 51)◦ Marriage of Jafeman (p. 67)◦ Marriage of Warren (p. 67)

118

Parties spent c/p enhancing H’s s/p residence (trailer on 46.5 acres).◦ FMV: $50K on DOM.◦ Sold for $550K after H’s death.

T/ct granted SAI to estate, holding that since W consented to the use of the c/p funds, she had no right of reimbursement.

Reversed The gift presumption for improvements made to

s/p with c/p had been discarded: ◦ Marriage of Wolfe ◦ Marriage of Allen

119

Held: If improvements did not enhance the property’s value, W limited to reimbursement of one-half of c/p funds spent on improving H’s s/p.

If improvements increased property’s equity value, then c/p will be entitled to a pro tanto interest in the property.

120




Pro tanto interest:◦ Applied a modified Moore/Marsden approach.◦ Added premarital appreciation: a) to the numerator of the separate property Marsden

fraction, and b) to the denominators of both the community property

and separate property Marsden fractions.◦ Problem: This gave the Separatizer a "double dip"

by: 1) confirming the entire premarital appreciation to the

Separatizer, then 2) using the premarital appreciation to increase the

Separatizer’s share of marital appreciation by adding the premarital appreciation to the Marsden fractions.

See Ron Granberg’s Comment on p.63.

121

Declined to follow two of Bono’s holdings:◦ Pro tanto period must end at date of separation,

instead of at date of trial. Bono was a probate case. F/L cases follow Fam. Code §2552.◦ Modified M/M formula. Sherman: Improvements made immediately. Bono: Improvements made 17 yrs. after purchase. ◦ Parties stipulated to use of a pro rata formula, so

no need to examine Bono’s basic premise.

122

Dividing the Residence




Hypo #1◦ H earns $5,000/mo.◦ W earns $750/mo.◦ W has 2 minor Cs, (10 & 12) (What if Cs ages were 2 & 4 or 18 & 19?)◦ H has 20% timeshare.◦ House has $400,000 equity.◦ No other significant assets.◦ Can W keep the house?

124

Deferred Sale of Family Home Order◦ “Duke” order (pp. 90)◦Fam. Code §§3800 - 3810

Loan from family Sale (Marriage of Davis, p. 84) Promissory Note◦ Marriage of Tammen (p. 87)

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Fam. Code §§3800 – 3810 A "deferred sale of home order" temporarily

delays the sale of the family home and awards its temporary exclusive use and possession to a custodial parent of a child entitled to child support because s/he is a minor, in high school and under the age of 19, or incapacitated, in order to minimize the adverse impact of the dissolution of marriage or legal separation of the parties on the welfare of the child. (FC §3801 (b).)

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Is it economically feasible to maintain the payments of any note secured by a deed of trust, property taxes, insurance for the home during the period the sale of the home is deferred, and the condition of the home comparable to that at the time of trial?

Consider the resident parent's income, the availability of spousal and/or support, and any other sources of funds available to make those payments.

127

Avoid the likelihood of defaults and resulting foreclosures;

Avoid inadequate insurance coverage; Prevent deterioration; and Prevent any other circumstance which

would jeopardize both parents' equity in the home. (Fam. Code §3801.)

128

Time child has resided in home. Child's grade in school. Accessibility and convenience of school, day care and other services or facilities used by child.

Modifications to home for physical handicap of child or custodial parent.

129




Emotional detriment to child of change in residence.

Whether location of home permits resident parent to continue employment.

Financial ability of each parent to obtain suitable housing.

Tax consequences to parents. Economic detriment to nonresident parent of

deferred sale of home order. Other equitable factors. (Fam. Code §3802.)

130

Must: ◦ State duration. (§3803)◦ Reserve jurisdiction to determine any issues that

arise including, but not limited to, the maintenance of the home and the tax consequences. (§3809)

May:◦ Include legal description and assessor's parcel

number. (§3803)◦ Be recorded. (§3804)◦ Specify responsibilities for payment of costs of

routine maintenance and capital improvements. (§3806)

131

Order is modifiable unless parties agree that it is nonmodifiable. (§3807)

If custodial parent remarries, or there is otherwise a change of circumstances affecting the economic status of the parties or the children on which the award is based…

Then it is presumed that further deferral of the sale is no longer an equitable method of minimizing the adverse impact of the dissolution on the children.

132




In re Marriage of Duke (pp.91-92) In re Marriage of Stallworth (pp.92-93) In re Marriage of Braud (pp. 92-95) In re Marriage of Boseman (p.95) In re Marriage of Herrmann (p.95) All predate Fam. Code §§3800 –3810.

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Fam. Code §4057 (b)(2): “The sale of the family residence is deferred pursuant to [Fam. Code §3800 et seq.] and the rental value of the family residence in which the children reside exceeds the mortgage payments, homeowner's insurance, and property taxes. The amount of any adjustment pursuant to this paragraph shall not be greater than the excess amount.”

134

Marriage of Stallworth: C/s reduced by 1/2 difference between rental value and cost of maintaining residence. (p. 98)

Marriage of Braud: C/s offset by 50% of net fair rental value (p. 99)

135




Long term note must have FMV = amount being deferred.

Determining FMV of note:◦ Factors considered: Remaining balance Time span Property value Financial stability of the payor, and Other intrinsic factors.

136

Marriage of Fink [II] (p.88): ½ yr @ 7% OK Marriage of Bergman (p.88): 3-yr @ 10% OK Marriage of Slater (p.88): 5-yr @ 10% OK But:◦ Note must have safeguards (Marriage of Hopkins

[p.88]) Due of sale or refinancing clause. Acceleration clause ? Atty fee clause? Deficiency judgment OK.

137

Income Tax Issues




Old law: IRC §1034: restrictive rules re: rollover of gain.◦ Outspouse generally couldn’t rollover gain.◦ Resulted in asymmetrical tax consequences.◦ Usually meant no Duke orders post-

Stallworth. New Law (1997): IRC §121 -- Much less of

an issue.

139

May exclude up to $500K gain on joint return◦ or $250K on a separate return

Residence must have been principal place of residence for either or both for 2 of last 5 yrs.

If transferred pursuant to disso, spouse’s time is added to TP’s time.

Spouse excluded per court order is treated as living there.

May use every 2 yrs.

140

Although court cannot consider potential tax consequences. (Marriage of Fonstein)

And there are no recognizable tax consequences from transfer as part of disso. (IRC §1041)

Tax consequences should still be considered:◦ If house may need to be sold. Sell before marital status terminated. $500K gain exclusion.◦ Selling spouse gets $$ tax free.

141




Current Challenges

Call lender and try to renegotiate loan. Agree to list house for sale ASAP. Seek a court order on shortened time.◦ Fam. Code §2108 (p. 128)◦ Lee v. Super. Ct. (p. 128)

Consider a short sale. If house lost pre-judgment.◦ Property must be redistributed.◦ Marriage of Olson (p. 129)

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HYPO: W wants residence.◦ FMV: $350,000◦ Mortgage: $450,000◦ All other assets $100,000

Possible results:1. W gets house, mrtg. and $100K2. W gets house, mrtg. and $50K; H $50K Problem:◦ FC §2550 mandates mathematically equal

division.

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Court can order residence sold.◦ Any other division unfair.◦ W could walk away from loan and keep cash.

Parties may stipulate to unequal division. If W wants residence, she stipulates to take it

for zero value.Problems:

H still liable on loan. Potential tax liability if W loses house.

See Granberg & Blevins article in materials

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Don’t Forget theYear in Review

Oakland: Friday January 16th

San Diego: Saturday January 24th

Sacramento: Friday January 30th

San Jose: Saturday January 31st

Costa Mesa: Friday February 6th

Los Angeles: Saturday February 7th

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That’s all folks

Thanks for coming

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