Separate properties, including income from said properties, are also separate properties, unless the other spouse contributted labor in the separate property business during the course of the marriage (see more below). The court shall make the determination which community property goes to which spouse, so long as the valuation of all properties is relatively equal. For example, the court will not make the parties sell the house or the car if all is possible, so long as each spouse receive an equal amount of properties in value. For example, the husband takes the rental properties but the wife gets the cars and house, so long as the values are relatively equal.

The problem arises when separate and community properties are either transmuted or contributed into the other properties. Transmutation refers to the intent of the parties using one property as though it is the other property during the course of the marriage. When separate property is transmutated into community property, the court will look at the intent of the party who has ownership of the separate property. Did the spouse intend to use separate property as community property? If so, the court would consider that the spouse intended for the separate property to be used as community property; and therefore, it is community property. However, when a party argues that community property is transmutated into separate property, there is presumption is that undue influence exists. The party claiming separate property must overcome such presumption and show evidence that the community property was intended to be his or her own property.

Contribution refers to separate properties being used to acquire community assets, or vice versa, during the course of the marriage. When separate property is contributed into community property, the spouse who owns the separate property will get dollar for dollar off of the top. For example, the husband used his separate property acquired prior to the date of marriage to buy a house after he was married. Thus, essentially, the husband puts separate property into community asset (i.e. the house is community property asset because it was acquired between the date of marriage and the date of separation). Other examples of contribution include down payments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property. Contributions do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property. In the division of the community estate, unless a party has made a written waiver of the right to reimbursement, the party shall be reimbursed for the party’s contributions to the acquisition of the property to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or take account into inflation, and shall not exceed the net value of the property at the time of the division. That is, the contributing party will get dollar for dollar and nothing more.

On the other hand, it is most difficult to divide properties when community property is contributed into separate property. If the contribution is money, then the community property shall will get from the separate property dollar for dollar off of the top. However, the difficulty comes in when the contribution is labor and not money. When the contribution of community property into separate property is labor and not money (i.e. a spouse worked at a separate property business), two formulae are used:

• The Pereira Approach – The Pereira approach is used when there is a labor intensive business. This approach almost always favors the community property. To determine the value of the community property,
  
  
  • First, determine the value of the SP by taking the value of the business at the Date of Marriage, multiply by the reasonable rate of return, and multiply by the number of years. (Value of Business at DOM x RRR x Years).
    
    
  • Second, determine the value of the community property by taking the current value of the business – the value of the separate property. (Current value – SP = CP)
    
    
• The Van Camp Approach – Use for capital intensive business. This approach almost always favors the separate property
  
  
  • The value of the community property is the value of your service minus the compensation received from the business. (Value of Service – Compensation Received).
    
    
  • The rest is separate property.

The contribution and the rate of returns from the date of marriage to the date of separation are community properties. To determine community properties, simply, see how much was contributed during marriage and then figure out what rate of return is on them. Add the contribution with the rate of return and you will get the total CP.

The division of retirement accounts do not take place until (1) either the spouse retired (Use the Brown Formula, see below), or (2) the date in which the retirement fund (Pension) is matured, regardless of whether the employed spouse continues to work (Gilmore Election, see below).

• Brown Formula – Brown formula is used when the employed spouse is retired. Pension earned during the employed spouse’s lifetime is partially community property (DOM-DOS) and partially his/her separate property. To determine the value of the community property and separate property, the court has formulated the following formula.
  
  
  • Community Property Percentage (%) = retirement funds earned from DOM-DOS divided by funds earned from Date of Employment to Date of retirement (DOM-DOS/DOE-DOR).
    
    
  • Take the CP% multiply by total value.
    
    
  • The non-employed spouse receives ½ of the CP.
    
    
• Gilmore Election – Gilmore election is used when the employed spouse continues to work after the retirement age. The non-employed spouse can elect to force the employed spouse to pay the portion of the CP by electing to do call the CP due. This is called a Gilmore Election.
  
  
  • CP% = DOM-DOS/DOE-Date of Gilmore Election.
    
    
  • CP value belongs to the non-employed spouse is ½ of the CP.

The divisions of stock options are very similar to those of retirement accounts. Only the names are different because of the case in which the court created the formula. There are basically 2 types of divisions for stock options, the Nelson Formula and the Marriage of Hug Formula.

• Nelson Formula is used when there is labor intensive and the employed spouse contributed much of his labor to make the company profitable. The formula under such fact is as follows:
  
  
  • CP% = Date of Exercise or DOM (whichever is later) to DOS, divided by Date of Granting Stock Option to Date of Exercisability (DOG or DOM – DOS/DOE-DO Exercisability).
    
    
  • Take the CP% multiply by total value.
    
    
  • ½ of CP% is the value of community property for the non-employed spouse.
    
    
• Marriage of Hug Formula is used when the employed spouse was hired because of specialized knowledge or skills
  
  
  • CP% = DOE or DOM (whichever is later) to DOS, divided by DOE to Date of Exercisability (DOE or DOM – DOS/DOE-DO Exercisability).
    
    
  • Take the CP% multiply by total value.
    
    
  • ½ of CP% is the value of community property for the non-employed spouse.

The division of real property is not difficult if the property is solely community property or that it is the sole separate property and all improvements made were from separate property. More often than not, however, CP were being used to put into SP for improvements and now the property appreciated in value (capital appreciation) or that SP were being used to improve the CP. The court has come up with a very complicated formula, the Moore Formula, as follows:

Step 1 – This will give you a ratio over the percentage


• Purchase price – CP (or SP) payment / Purchase price = SP percentage or CP Percentage
  
  
Step 2 – Take %age and multiply it by Capital Appreciation


• CP = Capital Appreciation X CP%
  
  
  • Then,
    
  • CP + CP payment = Spouse gets ½
    
    
• SP = Capital Appreciation X SP%
  
  
  • Then,
    
  • SP + SP payment = Spouse gets all
    
  • Current Home Value = Outstanding principle + SP + CP
    

Facing dissolution of one’s marriage is a trying time for all that are involved, including the spouses as well as children. The last thing that the person should worry is the division of their properties, real and tangible properties, and debts and liabilities. The experienced family law attorney at Smith & Garg, LLC have the experience and knowledge to help you navigate through these difficult waters. The family law attorneys at Smith & Garg have experienced helping numerous residents of the greater Los Angeles and Orange County. Conveniently located in Long Beach, off of I-710 and W. Ocean Boulevard, Smith & Garg, LLC is easily accessible from Los Angeles County and Orange County alike. Please contact our office for a personal consultation with one of our attorneys.

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If you are considering getting a divorce in the Long Beach area, in the Los Angeles area, or in the Orange City area, contact the experienced and dedicated Dissolution of Marriage attorneys at Smith & Garg for a consultation. The process of getting a divorce in the State of California can be very complex. If you do not have the assistance of an experienced divorce attorney, you are definitely at a disadvantage. Contact Smith & Garg today to schedule a consultation.

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