California Marital Settlements: January 1998 Summary

Legal Developments

Tax-Deductible Family Support Must End on Death of Supported Spouse

In Wells v. CIR (1998) T.C. Memo 1998-2, decided on January 5, 1998, the Tax Court held that in order to qualify as tax deductible alimony, undifferentiated family support must expressly terminate on the death of the supported spouse. Lawgic will remind you of this requirement if your document contemplates an agreement or order for family support.

California Conforms to Federal Taxpayer Relief Act re Sale of Residence

California has passed legislation essentially conforming state law on the taxation of capital gains on the sale of the taxpayer's principal residence to the amended version of Internal Revenue Code section 121 adopted by the Taxpayer Relief Act of 1997. However, amended Cal. Rev. & Tax. Code section 17152 may differ from federal law under certain circumstances; a tax advisor should be consulted for details.

Family Code Sections 3780-3782 Repealed

Former Family Code sections 3780-3782 provided that a parent ordered to provide health insurance for children was required to assign to the non-covered parent the right to receive insurance reimbursements for covered health care expenses paid by the non-covered parent. These statutes have been repealed effective January 1, 1998. However, the program still provides the option to include a provision of this type in the document, since the parties can still agree to it, at least to the extent recognized by the insurer.

Case Law Developments

The commentary has been updated to include discussions of the following new cases:

• Gibbs v. CIR: Interest on property settlement equalizing payment installments is taxable to recipient.

• Dorn v. Solomon: Deed not recorded until a month after joint tenant's death did not sever joint tenancy.

• Seymour v. CIR: Interest paid on debt incurred to buy out other party's interest in home is deductible.

• In re Marriage of Chandler: Court cannot order portion of child support in excess of child's current reasonable needs to be paid into trust for specified expenses.

• County of Placer v. Andrade: Income for child support purposes includes overtime if regularly earned.

• In re Marriage of Perry: Parent's obligation to pay child support may be enforced against living trust.

• In re Marriage of LaBass and Munsee: Income properly imputed to parent receiving child support based on parent's earning capacity.

• d'Elia v. d'Elia: Remedies for misrepresentation re value of stock do not include action for securities fraud, but may include setting aside MSA and judgment and/or action for breach of fiduciary duty.

• Tanner v. Tanner: Agreement to pay attorney's fees applies to action in which agreement is reached, not to subsequent or related actions.

• In re Gibson: Debt for attorney's fees not "in the nature of support" can be discharged in bankruptcy.