BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 481 (Wright)
As Amended April 25, 2011
Hearing Date: May 10, 2011
Fiscal: No
Urgency: No
EDO
SUBJECT
Spousal Support
DESCRIPTION
Existing law, upon dissolution of marriage, authorizes a court
to issue an order for spousal support. Existing law requires
the court to consider various factors for determining spousal
support, including, among other things, the ability of the
supporting party to pay spousal support, and the obligations and
assets of each party.
This bill would require the court to also consider the extent to
which income for support was already capitalized and paid to the
other spouse in the division of community property, in order to
avoid double counting the income when the result would be
inequitable.
BACKGROUND
California is a community property state. "Community property
is generally defined under current law as 'all property, real or
personal, wherever situated, acquired by a married person during
the marriage while domiciled in �California] ...,' except as
otherwise provided by statute."(Fam. Code Sec. 760.) Under a
community property system, one-half of the earnings of each
spouse is considered owned by the other spouse. (1-20 Cal. Fam.
Law Prac. & Proc. 2d ed. Sec. 20.03.)
Upon dissolution of marriage, community property is divided
between the spouses based on the proposition that each spouse is
entitled to half of all the property accumulated during the
(more)
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marriage. Also upon dissolution, the court may order one party
to pay spousal support for the continued support of the other
party in an amount and for a length of time that the court deems
appropriate. The spousal support order is determined based on
many factors, including the standard of living established
during the marriage.
When the court is asked to divide a business owned by either
spouse during the marriage, the courts generally use one of two
formulas to determine the community property share of each
spouse. The first is the "Pereira" approach which requires the
court to determine how much of the increase in the value of the
business was due to normal capital appreciation of the initial
separate property investment. The court would then subtract
that amount out of the total value of the business and it would
be classified as community property. The "Van Camp" approach is
another common formula the courts use to determine the community
property value of a business. This approach requires the court
to determine the reasonable value of the spouse's service to the
business and then deduct that amount, and classify the rest as
separate property.
The formula the courts employ generally depends on the type of
business created and when it was created, either before or
during the marriage. For example, if the business is a
successful national restaurant franchise it can be presumed that
the success of the business is more likely based on the overall
success of the brand, rather than the individual effort of the
franchisee. In that case, the spouse-owner would prefer the
"Van Camp" method of accounting. However, if the business is a
shoe repair shop wherein the spouse does all of the repairs
himself or herself, then it can be presumed that the success of
the business is determined based on the spouse's service to the
business. In that example, the owner-spouse may prefer the
Pereira method, depending upon when the business was created.
In order to determine spousal support the court will look to
many factors and may draw upon several sources of income. In
cases where a family business is being divided in the
dissolution, the "property" being divided (i.e. the business)
may also be the source of income that the court will consider in
determining spousal support if that is the only source of
income.
This bill would require the court to consider the extent to
which income for support was already capitalized and paid to the
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other spouse in the division of community property, in order to
avoid double counting the income when the result would be
inequitable.
CHANGES TO EXISTING LAW
Existing law provides that, in determining an award of spousal
support, a court shall consider specified circumstances
including the age and health of the parties, their relative
earning capacity in light of their standard of living, the
marketable skills of the supported party, and the ability to pay
the supporting party, among other factors. (Fam. Code Sec.
4320.)
Existing law authorizes the court, in a judgment of dissolution
of marriage or legal separation, to order one party to pay
spousal support to the other party in an amount and for a
duration that the court deems just and reasonable based on the
standard of living established during the marriage. (Fam. Code
Sec. 4330.)
Existing law provides that an agreement for spousal support is
separate and severable from the provisions of the agreement
relating to property. (Fam. Code Sec. 3950.)
Existing law provides that the court must resort to the property
described below in the order indicated for the enforcement of
spousal support:
The earnings, income, or accumulations of either spouse, while
living separate and apart from the other spouse, which would
have been community property if the spouse had not been living
separate and apart from the other spouse.
The community property.
The quasi-community property.
The other separate property of the party required to make the
support payments. (Fam. Code Sec. 4338.)
Existing case law provides that "it is possible, without
committing the error of 'double counting' to treat a pension as
marital property, award it entirely to the earner spouse (with
off-setting award of marital property to the non-earner spouse)
and then to take the earner spouse's receipt of pension benefits
into account in determining whether there should be any alimony
award to either spouse." (In re Marriage of White (1987) 192
Cal.App.3d 1022, 1027.)
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Existing law provides that all property acquired during a
marriage is community property. (Fam. Code Sec. 760.)
This bill would require the court to consider the extent to
which income for support was already capitalized and paid to the
other spouse in the division of community property, in order to
avoid double counting the income when the result would be
inequitable.
COMMENT
1. Stated need for the bill
The author writes:
This bill would articulate a legislative intent to avoid
inequities that double counting of income can cause. Courts
would continue to be required to divide all community property
equally. However, they would also need to consider the impact
of any double counting of income when setting spousal support.
The bill does not propose a one-size fits all solution, but
instead calls for trial courts to consider the issue on a
case-by-case basis.
Double dipping, or the double counting of income, occurs when
divorcing couples have income-producing assets, such as a
pension or small family business. Such assets are to a great
extent valued based on their projected, future income. A
spouse who wishes to keep the pension or small business must
purchase the other spouse's share by pre-paying for that
future stream of income. The income is counted again for
purpose of setting spousal/partner support. A court may have
no choice but to count the income twice under existing law.
2. Courts already have discretion in awarding spousal support and
must divide all property acquired during the marriage as
community property upon dissolution
Under existing law, the court is required to divide all property
accumulated during the marriage equally between the two spouses.
The court may also award spousal support to a party based on
the other party's ability to pay and considering other factors.
This amount is discretionary for the courts. There are some
cases where the "property" being divided is a business or
pension that was acquired during the marriage. This business or
pension may be the only source of income during the marriage as
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well as after the dissolution. Existing law requires the court
to consider all sources of income and also provides that spousal
support shall remain under the jurisdiction of the court to
address any changes in circumstances that could alter the amount
of spousal support awarded. This bill would essentially meld
the doctrine of community property and spousal support by
additionally requiring the court to consider the income for
support that was capitalized and paid to the other spouse in the
division of community property. The proponents argue that this
would avoid the "double counting" of income.
a. Community property division and spousal support
Existing law classifies the division of community property and
spousal support as two separate issues. To that end, the
courts have found that "it must be kept in mind that spousal
support considerations are separate and distinct from property
division concepts. Because the division of community property
is premised on absolute ownership of community assets by both
parties, each must receive a respective full share. An award
of spousal support, in contrast, is broadly discretionary." As
further noted by the court this discretion is also codified.
(In re Marriage of White (1987) 192 Cal.App.3d 1022, 1026.)
This bill would blur the lines between community property and
spousal support by requiring the courts to consider the value
of the community property when assessing spousal support.
In opposition to the bill, the California National
Organization of Women (CA NOW) writes, "shared
income-producing assets are often the result of a joint effort
on the part of both spouses to support and sustain a business
or job that includes a pension, or to fund an annuity. A
spouse whose work and/or support during marriage enabled the
creation or acquisition of an income-producing asset is
entitled to a full share in the value of that asset." This
summary demonstrates the fundamental premise of community
property in California. If it were not for the joint effort
of the community, this asset would not exist or would not have
been successful.
Also in opposition the Commission on the Status of Women notes
"�this bill] would alter the way in which spousal support is
awarded in specified cases, unfairly targeting a spouse whose
work and/or support during a marriage helped to start a
business or create some other income-producing asset."
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WOULD THIS BILL INAPPROPRIATELY BLEND THE DOCTRINES OF
COMMUNITY PROPERTY AND SPOUSAL SUPPORT THEREBY BLURRING THE
LINES BETWEEN THE TWO?
b. Double counting fallacy
Under existing law, as it relates to the division of a pension
benefit in a dissolution, the courts have found that "it is
possible, without committing the error of 'double counting' to
treat a pension as marital property, award it entirely to the
earner spouse (with off-setting award of marital property to
the non-earner spouse) and then to take the earner spouse's
receipt of pension benefits into account in determining
whether there should be any alimony award to either spouse."
(In re Marriage of White (1987) 192 Cal.App.3d 1022, 1027.)
This example is equally applicable to a business owned during
the marriage. The proponents of the bill argue that this is
double dipping. They write "double dipping, or the double
counting of income, occurs when divorcing couples have
income-producing assets, such as a pension, annuity, or a
small family business, which is community property. Such
assets are to a great extent valued based on the income which
the asset produces or which is expected to be produced in the
future. A spouse/partner who wishes to keep the asset must
purchase the other party's share by paying that party one-half
of the present value of the future stream of income. That
same stream of income is often counted again for purposes of
spousal/partner support. In other words, when the court
determines each party's ability to pay spousal/partner
support, it will include the full stream of income which the
other party has already purchased from the other party."
In response, CA NOW contends that "spouses undergoing a
divorce may choose to buy out assets from one another in order
to maintain an asset as their own property. However, choosing
to buy out an income-producing asset at current market value
does not alter the fact that this asset will produce income in
the future. As such, that income is rightly considered as
part of spouse support determinations." CA NOW continues with
"a simple current market value assessment does not take into
account the future income production of a shared asset, which
is why the current valuation system exists, and has been
upheld in appellate cases."
WOULD THIS BILL RESULT IN UNINTENDED CONSEQUENCES THAT COULD
BE DETRIMENTAL TO THE SPOUSE IN NEED OF SUPPORT?
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c. Modification of support award
Under existing law, "the change of circumstance which
authorizes a court to modify a support order means a change in
the circumstances of the respective parties, i.e., a reduction
or increase in the husband's ability to pay and/or an increase
or decrease in the wife's need." (In re Marriage of Cobb
(1977) 68 Cal.App.3d 855, 860-861.) Spousal support awards
remain under the jurisdiction of the court in order to address
any changes in circumstances, including a change for which the
proponents are concerned. If, at a later time a business or
pension decreases in value resulting in the owner-spouse
having a less available income they are entitled to return to
court and ask for a modification of the spousal support award.
Alternatively, if the spouse receiving support needs more or
less support, he or she may also return to court and request a
modification of the spousal support award.
DO COURTS ALREADY HAVE DISCRETION IN AWARDING SPOUSAL SUPPORT?
Support : Association of Certified Family Law Specialists;
Eckhoff Accountancy Corporation; Family Law Section of the
California State Bar; Law Office of Buddy Jaquith; Law Offices
of Frederick S. Cohen; Law Office of Linda L. Seinturier; Law
Offices of Peter G. Loewenstein; Law Offices of Ronald E.
Champoux; Law Offices of Susan L. Jeffries & Associates; Miod
and Company, LLP
Opposition : California National Organization of Women;
Commission on the Status of Women
HISTORY
Source : Michelene Insalaco
Related Pending Legislation : None Known
Prior Legislation :
SB 1482 (Wright, Chapter 297, Statutes of 2010) extended the
sunset date by three years on provisions regarding change of
circumstances that may be the basis for a request for
modification of spousal support.
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SB 415 (Harman, Chapter 247, Statutes of 2007) provided that in
a proceeding in which a spousal support order exists is in
effect, the termination of child support by operation of law
shall constitute a change of circumstances that may be the basis
for a request for modification of spousal support.
AB 391 (Jackson, Chapter 846, Statutes of 1999) among other
things, exempted marriages of long duration (10 years or more)
from the marriages for which a "reasonable length of time" to
attain the goal of becoming self-supporting is defined as
one-half the length of the marriage.
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