Articles Posted in Separate Property Assets

The Valuation Dilemma

The most contentious business issue in many divorce proceedings is the value of the business that must be divided as part of the divorce settlement. Valuation is an inexact science, and the divorcing couple can easily spend hundreds of thousands of dollars on expert and legal fees battling it out over the value of one or more private companies included in the marital estate. This challenging issue is not subject to any easy fix. But there are some options the couple may want to consider before engaging in an expensive and time-consuming valuation battle.

Marital settlement agreements are common documents used to mitigate problems with divorce litigation.  While a pre-nup is more common, couples can also agree to enter into a post-nup that details a property division and removes any conflict regarding the valuation of specific assets. Texas statutes set forth strict requirements to follow for marital agreements be enforceable.

A couple in Canada who decided to divorce after 35 years of marriage had to go to court to settle one of the more important aspects of their separation: Who gets their Edmonton Oilers season tickets? Often during the divorce there are issues regarding the division of property.  Usually the house is the main issue.  In others people have to divide personal property such as jewelry, cars, dogs and cats and other belongings people acquire over there long term marriage.

Often people have to deal with other financial issues such as spousal support and in long term marriages that can be a huge issue.

Beverly and Donald McLeod separated in 2015, with Donald agreeing to pay Beverly $15,000 per month in spousal support. But they needed a court order to decide what to do with the hockey tickets they had shared for the past 11 years.

A recent Florida Supreme Court case has been published that reviewed a case regarding Hooker v Hooker.  The issue of Donative Intent became an issue of the parties.  The Supreme Court of Florida did not decide the fate of the issue of donative intent of the spouses but rather the appellate standard of review of the trial courts decision on donative intent.

The Florida Supreme Court said in its opinion that the trial court was correct in using “competent and substantial evidence.” “So instead of just determining whether or not there was competent evidence to support the trial court’s decision, the 4th (District) erred by actually reweighing the evidence and substituting their own judgment,”

In California if an order is appealed, the appellate court must use a standard of review of determining if there is substantial evidence that will support the family law courts orders. The appellate court cannot retry the case they are only to make inferences to make sure the trial court did not error on the use of the law.

The concept of proving goodwill in divorce proceeding seems rather complex and vague.  The idea that a business can be divided as community property is a relatively new idea that the courts have to deal with.  How to determine the valuation of a business requires alot of time and forensic accountants.  The arguments laid out by each party drive the Courts to have to decide what is separate property and what is community property.  A long term marriage makes this descision even more complicated. The complication lies in the evaluation of a community property asset that sometimes does not have a easy financial determination.  It may be even considered speculative to determine what is goodwill of a business.  Is it the receipts that come in monthly? minus the costs and expenses.  Or is it something more vague and uncertain that must be evaluated on a case by case basis?

To place more complication on the matter.  The goodwill might not all be community property but also separate property thus tracing property to its source will be another issue that must be determined by the court.  This often cannot be an easy task given the length of marriages and the commingling of separate property assets over a period of time while the couples are married. In addition the earnings of a business and the future receipts that will occur although speculative seem to be the only way to evaluate a business. However, Courts still will only use this future earning determination as a factor and not the only method to evaluate a business because of its uncertainty.

In addition, the Courts still cannot determine goodwill based on economic future earnings alone.  The Court must also consider such factors as the parties age, health, past proven earning power and professional reputation in the community.  And the Court must consider the personality traits of the professional involved. The Court must examine the professional judgment, skill and knowledge of their business which would be rather complicated and require expert witnesses to cooberate the actual veracity of the skills of the professional.   Once the expert witnesses are testifying the Court will continue its investigation into the professionals experience by comparing their skills to other professionals.  Also the Court will look at the nature and duration of his business so that they can determine whether goodwill even exists in the business.

An excellent article published earlier this month by Fox Business News outlines some of the pitfalls that dissolving a marriage holds for one’s credit rating. The article makes several points that anyone contemplating an Orange County divorce would be well-advised to keep in mind.

First and foremost – and, it must also be said, unfortunately – it pays to be a bit wary of your soon-to-be-ex while going through the divorce process. “People do unpredictable things during emotional times,” the article notes, citing a credit counselor. It goes on to describe a woman whose husband apparently ruined her credit on purpose by failing to honor a number of bills he had promised to pay.

From the perspective of an Orange County family law attorney, this is a reminder of why care and caution are always important. If a couple holds joint credit cards or other accounts it is critical that there be a written understanding of who will become responsible for what, and equally critical that each party prove to the other that its joint credit obligations have been met. Changing the names on everything from utility bills to in-store loyalty cards can be a surprisingly lengthy and frustrating process. The sooner it begins – and the more carefully each party monitors it – the smoother it is likely to be.

The divorce rate in America – roughly half of all marriages – is a well-known statistic. So how does one guard against the prospect of losing control of one’s small business as part of an Orange County divorce?

A recent article in Entrepreneur magazine offers a number of tips. Some – such as signing a California prenuptial agreement – are straightforward, even obvious. Others come across as a bit Machiavellian, such as the suggestion that while your marriage is collapsing your first concern should be finding an angel investor to buy a stake in the business.

There is a broader point here, however; one which all business-owners contemplating an Orange County divorce need to keep in mind. Advance planning is key – and for many Orange County couples that means thinking ahead not only to where a marriage may end up, but also to where a business may be many years down the line. As Entrepreneur notes, “you have a $100,000 business… not anticipating that 20 years later it’s a $5 million business.” Advance planning can make sorting out a development like this a lot less painful.

The seemingly endless, and endlessly acrimonious, California divorce of Frank and Jamie McCourt is due back in Los Angeles family court later this month. According to Bloomberg News, a judge has scheduled the couple’s latest hearing to consider Jamie’s request that Frank be forced to sell the Los Angeles Dodgers immediately “so they can divide the proceeds.” The agency reports that the judge “will at the same hearing consider an earlier request by Jamie McCourt for information about the Dodgers’ business.”

Frank, in turn, is asking the judge to rule that Jamie has no right to be involved in the media rights deal he is reportedly close to completing with Fox Entertainment.

And so it goes. Legally-speaking the couple have been divorced for some time, but a lengthy fight over a post-nuptial agreement (the court eventually ruled in Jamie’s favor – throwing the agreement out) as well as deep differences over the future of the baseball team have prevented them from reaching a final settlement.

When last we left Frank and Jamie McCourt – a couple who, over the last 18 months, have engaged in what is arguably the biggest, bitterest and highest profile Southern California divorce in recent memory – Jamie had just won a major victory with a Los Angeles family law court’s ruling that a disputed post-nuptial agreement is valid and she, therefore, is a co-owner of the Dodgers.

That made last week’s headline in the Los Angeles Times a bit surprising: “Frank and Jamie McCourt working quietly on a settlement.” ‘Quiet,’ ‘settlement’ and ‘McCourt’ are words we are not accustomed to seeing together in the same sentence. The confluence of that headline and Opening Day made this seem like a good time for an update.

The Times report says attorneys for the couple sought and received postponement of a hearing scheduled to take place early next week regarding settlement issues. The hearing had been scheduled to consider Jamie’s demand “that Frank be ordered to provide her with extensive financial documentation regarding the Dodgers’ business operations.” The Times notes that media reports over the winter have indicated that Jamie is willing to cede her share of the team back to Frank in exchange for a payout “but she has balked at the proposals he has offered” so far. The postponement request, coming after about a month of renewed settlement talks, may indicate that the two sides are making progress.

The Huffington Post’s divorce section (a relatively new, but fast-growing, addition to the site) offers an extremely useful primer on the difference between separate and marital property and how those differences can impact your Orange County Divorce.

As the article, written by Jeffery Landers, a financial planner who specializes in divorces, notes, “depending on your individual circumstances, your spouse may be entitled to as much as 50% of your business in a divorce.” Since divorce is governed by state law the precise circumstances will vary widely from place to place. California, of course, is one of the nation’s nine community property states. Having said that, Landers offers some good, basic advice on protecting your business during a divorce – advice that applies as much here in Orange County as it does anywhere else in the country.

First and foremost, he talks about the importance of prenuptial agreements. While the law is relatively clear on the difference between a separate property asset and a marital asset that does not mean that individual things are not open to debate during the California divorce process. The more of those debates you can foreclose through legal agreements negotiated long before either spouse is contemplating divorce, the smoother the ultimate Orange County Divorce process is likely to be. Of course, agreements are not foolproof (ask the McCourts!) – particularly if one party can later make a case to a California family law court that the agreement is grossly unfair, was entered into under duress or is the product of misrepresentation.

An essay on the subject of pets and divorce published earlier this month at The Huffington Post has been blogged and commented-upon widely over the last ten days or so. The article, by Jill Brooke (an author who describes herself as a “Blended Families Expert”), looks at the increasing prevalence of pet-related issues in divorce cases.

“According to the American Academy of Matrimonial Lawyers, attorneys have seen a 23 percent jump in pet custody cases,” Brooke writes. A similar analysis at the pet-focused website Paw Nation notes that “today half of the 190 accredited law schools in the United States, including Harvard and Yale, offer courses in animal law” – a field that barely existed as recently as a decade ago.

Brooke presents a long string of anecdotes outlining the strife that pet custody can cause in a divorce proceeding. She writes that “dogs used to be viewed as property… But now courts realize that pets are members of the family and their best interests are being considered.” That, however, is not an entirely accurate reading of the law, at least here in Orange County and elsewhere in California.

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