TRACING HIDDEN ASSETS: BREACH OF DUTY

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There are times when a spouse or partner hides assets from the other.  This may be done intentionally or absentmindedly, by failing to fully disclose all assets, as required by California family law.  At other times, a party to a divorce might commingle their separate property assets, which makes it difficult to determine exactly what belongs to which party.

If one spouse intentionally hides assets from the other, a CPA or forensic accountant may be brought in to help trace these carefully hidden assets.  It can be a difficult process to separate true ownership when separate property, such as stock portfolios or real property, has been commingled.

Tracing is the term used for tracking the source of funds used for the acquisition of any asset.  In California, tracing rules have been established entirely by case law.  There is no California tracing statute.  The present law on tracing separate and community assets developed prior to the enactment of the current fiduciary duty statutes.

If a party can prove a breach of duty by the other, it may provide a good defense to a property claim based on tracing.  Due to the fiduciary duty requirements placed on spouses, courts may impose upon a party the additional burden of demonstrating that in tracing separate funds, he or she did not usurp a community opportunity.

There are three requirements to a successful tracing of separate contributions to assets presumed to be community property:

  • Proof that separate property funds were available at the time of the
    acquisition of the property;
  • Proof that the separate funds were used to make the contribution or
    acquisition;
  • Proof that the party claiming a separate interest used the separate funds with the intent of acquiring a separate property asset.

PRACTICING COLLABORATIVE DIVORCE

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There’s a wide range of options available to families who are undergoing the difficulties of breaking apart.  They range from settlement negotiations between the parties to hostility-filled adversarial litigation. The collaborative option is more akin to mediation than an adversarial contest.  The lawyers involved in the collaborative approach continue to represent their client’s best interests, but the difference is that they have contracted not to go to court at any time during the collaborative process.

This non-hostile approach requires lawyers to work hand-in-hand with their clients in pursuing a just resolution for the myriad of issues they might face.  The client is also required to participate in this process toward resolution.  The lines of communication between lawyer and client are critical to success.  Sometimes, this can be a very creative process, especially for those who come to the table with an open mind.  Collaborative lawyers are specially trained in ‘interest-based’ communication and negotiation skills.  They have to be prepared to share the controlling interest in the case with their clients and be ready to integrate the expertise of other family law professionals, when the case might call for it.

What separates the collaborative process from formal mediation is that the collaborative attorney must be willing to work with their client in an effort to bring them closer to the decision-making process.  The parties are encouraged to take responsibility for their proposed outcome.

Collaborative lawyers are also required to work ethically in a cooperative manner with one another to ensure both parties are playing fairly in the process – which includes full disclosure.  The difficult part of the process is that if negotiations should reach a dead-end, both lawyers must withdraw from the case, leaving the clients with the need to seek new attorneys to represent them through the adversarial system in family law court.

COLLABORATIVE LAW

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One of the growing areas of family law (both in California and around the nation) centers on the idea of collaboration instead of litigation. Collaborative law, also known as Collaborative Divorce, and Collaborative Practice, derives from the desire of parties who do not want to go to court and engage in an emotional legal battle.

The collaborative process, when done correctly, helps the parties avoid the debilitating process of litigation, which often exacerbates family disputes rather than healing or resolving them. What distinguishes collaborative divorce from hostile litigation is the concept of a collaborative process – one that not only includes collaborative attorneys, but also other team members from other professional disciplines, who are sometimes referred to as the interdisciplinary team.

The unique outcome one can anticipate from the collaborative process is that of an agreed upon settlement formula that works fairly for both sides. Both sides take a “want” list into negotiations, and both sides have to chisel away until all issues are agreed upon. Instead of litigating every single aspect of an agreement, the parties and their counsels work out an amicable solution. The collaborative attorneys work hard to generate a fair settlement, which allows the family to move forward in a healthy and constructive way.

PARENTS’ EARNING CAPACITY CAN AFFECT CHILD SUPPORT ORDER IN CALIFORNIA

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One of the many important decisions any parent suffering through a divorce will have to face is how to best care for their children. In California, both parents have the legal responsibility to provide their children with financial support. As defined in California, child support is the ongoing monetary expenditures and payments necessary to cover a child’s living and medical expenses.

There are many criteria that go into calculating child support, including, but not limited to, the parents’ custodial time, earnings, and other income. Two important cases have been handed down that deal directly with a parent’s earning capacity, as opposed to their actual income, when determining child support.

The first case is Marriage of Mosley (2008) 165 Cal.App.4th 1375, wherein it was decided that the court, when computing child support, has discretion to consider a parent’s earning capacity “in lieu” of income “but must consider children’s best interests.” A child’s best interests will always be at the center of any child support order, but what is distinguishable about this case is the fact the court is now allowed to look beyond a parent’s actual income, when determining child support. The court may now consider the capacity a parent has to earn, whether he or she is actually earning it or not.

In Marriage of Cohn (1998) 65 Cal.App.4th 923, 932; Marriage of Hubner (2001) 94 Cal.App.4th 175, 187, it was determined that the imputation of earned income must be based on actual evidence not drawn “from thin air.” In other words, it is not legally sufficient for one party to claim that the other party earns a certain amount of income – they must prove it, with legally recognizable proof or documentation. If not, the court will not have the sufficient evidence it needs to form a proper basis for a child support order.

CALCULATING CHILD SUPPORT IN CALIFORNIA

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A marital dissolution can be one of the most traumatic experiences divorcing parties can face in life. The very foundation they had built over years of hard work and cooperation has now begun to crumble. Separation and anxiety have replaced togetherness. Property and support issues are now the center of discussion, replacing grocery lists and family outings as topics of integral familial importance.

When dealing with support issues, a newly single mother or father may be forced, for the first time, to deal with the issue of which parent will pay the other for the support of their child(ren). In California, child support is calculated using a formula that takes into account many relevant factors, including the parents’ incomes. In determining a parent’s available income for child support calculations, the court will utilize California Family Code § 4058, and its definition of gross income.

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