California Marital Settlements: August 1998 Summary

Legal Developments

In re Marriage of Walrath - Tracing of Separate Property Contributions

The California Supreme Court recently reversed the lower court in deciding In re Marriage of Walrath (1998) 17 Cal.4th 907, 72 Cal.Rptr.2d 856. The Court held that if a party contributing separate property can adequately trace the money through subsequently purchased property, that party will be reimbursed, subject to certain limitations.

In re Marriage of Stoll - Tracing and Valuation of Formerly Separate Property Residence

The recent Court of Appeal decision in In re Marriage of Stoll (1998) 63 Cal.App.4th 837, 74 Cal.Rptr.2d 856,confirms that an owner of real property is competent to give opinion testimony as to its value, and discusses the recordkeeping requirements of the party seeking to trace separate property, drawing a distinction between a commingled bank account and a residence transmuted from separate to community property.

Armacost v. CIR and Seymour v. CIR - Tax Treatment of Interest on Note for Equalizing Payment

When an interest-bearing promissory note is used to equalize the division of community property, two recent Tax Court cases -- Armacost v. Commissioner (1998) T.C. Memo 1998-150, and Seymour v. Commissioner (1997) 109 T.C. No. 14, Tax Ct. Rep. (CCH) 52, 336) -- indicate that interest payments on the note may be deductible, if the taxpayer can establish that the note was used to buy out the other party's share of the family residence, or the other party's interest in business or investment property.

In re Marriage of Reynolds - Spousal Support Payor Entitled to Retire at Age 65

Although a party ordered to pay spousal support cannot avoid the obligation by declining to work, the Court of Appeal held in In re Marriage of Reynolds (1998) 63 Cal.App.4th 1373, 74 Cal.Rptr.2d 636, that after the usual retirement age of 65, the spousal support payor cannot be compelled to keep working in order to maintain the prior level of support.

In re Marriage of Lehman - Apportionment of Enhanced Pension Benefit for Early Retirement

The California Supreme Court has held, in In re Marriage of Lehman (1998) 18 Cal.4th 169, 74 Cal.Rptr.2d 825, that where an employed ex-spouse retires early under a voluntary retirement incentive plan, thereby realizing a higher level of retirement benefits, the enhanced benefits must be apportioned as between community and separate property, even when the incentive plan was adopted post-separation.

Meisner v. United States - Tax Liability for Assigned Royalty Income

The importance of considering the tax consequences of assigning future royalty income from community intellectual property assets assigned in the property division is underscored by Meisner v. United States (8th Cir. 1998) 133 F.3d 654. Who has to pay the taxes will depend on whether the asset or only the income is assigned, and on whether the assignor spouse retains any power or control over the income after the transfer.