Leslie J. Shaw is the founder and owner of the the Law Offices of Leslie J. Shaw in Reno, Nevada. With the experience and knowledge to handle all kinds of divorce and family law disputes including litigation, property division, child custody and spousal support, Leslie is certified to practice family law in both California and Nevada. This podcast discusses the topic of property division as the result of divorce in Nevada and California. Leslie answers questions about community property, the process of discovery, and business valuation.
Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Leslie J. Shaw is a divorce attorney located in Reno, Nevada with over 40 years of experience as a lawyer. Practicing law in both Nevada and California, Leslie has extensive experience litigating complex divorce and can serve clients across all areas of family law.
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Read the Transcript of this Podcast Below.
Property Division in Nevada and California
Diana Shepherd: What’s the difference between an equitable distribution state and a community property state? Which kinds of states are California and Nevada?
Leslie J. Shaw: As I understand your question, the distinction we’re looking at is a state that makes an equitable distribution of property versus an equal division. You’ve asked the question comparing an equitable distribution with community property and I want to point out the difference between California and Nevada law which explains why I choose to answer that question a little differently.
Both California and Nevada, like most of the western United States are community property states, with California having some exceptions that aren’t of any moment to of our discussion today. California compels an equal division of community property. Nevada on the other hand favours an equal division of community property but will allow for an unequal division if the appropriate legal standards are met. That is therefore referred to an equitable division state. So, I answer your question in terms of equitable division rather than equitable versus community property. And I hope in doing that I’ve explained the differences between the two states.
In terms of property division, is there any advantage of moving from California to Nevada or vice versa before filing for divorce?
There certainly are differences in the legal systems between California and Nevada even though as I’ve explained they are both community property states. And those differences may favour one spouse on one issue versus another spouse in another issue.
But in answering your question I want to make clear that a spouse residing in either of those states is not in and of itself enough to extend to that court the jurisdiction. I’m using the word jurisdiction, I use it synonymously with the word power, to decide all issues. So, if we had a couple that lived in Connecticut and the husband decided for tactical purposes he was going to move to Nevada and file a divorce action in Nevada; understand that if that was the only connection that this marriage had with Nevada, Nevada would only have the jurisdiction or power to terminate the marriage, to dissolve the bonds of matrimony and restore each of the spouses to the status of an unmarried person. The court doesn’t necessarily have the power to decide things like property division, spousal support, so on and so forth.
Now stating that, and that’s an important first consideration, the fact that you, as a husband or wife, live in one state or another doesn’t mean that your spouse will be subject to adjudication of all issues in that state in which you reside. There are some significant differences and just to highlight a few, in California, the community of state, the marital partnership, what I’ve told you is an equal division type of partnership begins at the date of marriage and ends on the date of separation.
And in California there’s been some recent activity both in the California Supreme Court in the legislature to define separation. But understand that parties might separate and they might not file for divorce for some time and even after the file, the process itself may take some time. So, in California, by the time you get to maybe a trial of a divorce action, the marital partnership property wise may have ended six months, eight months, a year before. In Nevada the marital partnership, like California, begins on the date of marriage but it does not end till the date of divorce.
And so, you can understand by considering those differences that there may be things that are community property in Nevada acquired during a separation period, separation being largely irrelevant to Nevada community property law. That would be separate property or post separation acquisition in California and that is significant by that system.
Again, another example would be that in California there’s a mandatory reimbursement right to somebody who uses separate property, that would be non-community property, separate property to acquire or improve a community asset. You just prove you did it, you have to get your money back unless you’ve signed a written waiver. In Nevada the court’s power toward reimbursement is discretionary, not mandatory. So, those are important distinctions between the two states that bear some comment in our discussion today.
How do you know if an asset is community or separate? If the spouses are arguing over this, do you need to prove which spouse is correct?
Well, that’s a problem that exists commonly in divorces and dissolutions of marriage again using those references synonymously. There are a number of presumptions that help us. Presumptions are a feature of law that if you prove underlying facts you get the benefit of presumed facts.
So, I’ll give you an example. In California and Nevada there are presumptions of title. If property is held and titled by a husband and wife as community property, it is presumed that that property is community in nature. A broader presumption goes to the time of acquisition, not title, but time. If property is acquired by a husband or a wife during the marriage or during the time of the community, and I’ve explained that that’s defined differently between the two states, then by the time of acquisition it’s presumed to be community.
In other words let’s assume that a husband earns a paycheck during marriage. Because he acquires that compensation during the time of marriage the fact that it is acquired during the date of marriage and the end of the community, whether it separation or divorce gives rise to the presumption that it’s community in nature. So, presumptions help us a lot in determining whether something is community or separate. Time of acquisition in title would be the most common.
Typically the party who has the claim before the court, that property is either community or separate will have the burden of proof. They will need to convince the court to a preponderance of the evidence, 50.1% just more likely than not that the property is of the character that they advocate. So, they have the burden of presenting evidence and presumptions help us.
And so too does a process called tracing, where we can go back and we can follow the flow of property, the flow of cash that was used to acquire property and we can see where that property or money came from and what the original character of that would be. And then we can see whether the marital partners have during the course of the marriage done something to alter that original character. So tracing along with presumptions is very, very helpful in resolving those kinds of disputes.
If there are bank accounts or assets that one spouse knows nothing about, how would you go about finding them or even learning that they exist?
Well, in the two states that I practice in, there is a duty of disclosure and the law has evolved over the years going back to the earlier chapters in my family law practice you had to make an affirmative demand for information from the opposing spouse in a divorce or dissolution in order to require them to disclose. So you might have to go to let’s say a wife and say tell us about every bank account you have.
Nowadays, and for quite some time now, the law has shifted in both states to where each spouse has an affirmative duty to disclose everything that they know about the nature, the character, the value, the liabilities of community assets, debts and separate assets. How do we get that information? There is a process called discovery, that’s the investigative phase of family law litigation.
But during that process to give you more specific examples in Nevada, through a financial disclosure form, and in California through both a preliminary and final declaration of disclosure, spouses have an affirmative duty to represent everything they have, everything they know, everything relevant about community property and separate property. Failure to do so carries very powerful consequences.
To give you an example, and this is obviously a case that very few California family lawyers will ever forget, the courts out of Los Angeles County decided that years ago that when a husband used a dollar from a community savings account or chequing account that existed on the date of separation, and then after separation bought a California lottery ticket, and then hit the California for millions and millions of dollars; the failure of the husband to disclose that event to the wife, and those facts to his wife, resulted in the court awarding not half, not a community share of the winnings to the aggrieved wife, but 100% of the lottery winnings because of the husband’s failure to disclose. And the trial judge’s decision to award 100% as a sanction, as a penalty, was upheld by the higher court. So, being transparent in divorce is very, very important and your failure to do so carries very powerful consequences.
If one or both spouses own a business, is it always necessary to hire a business
valuator? Is there a minimum size or potential dollar value to make it a worthwhile exercise?
Well, it’s never required that the parties engage in a business valuator. The parties agree to valuations. Unfortunately those agreements are not as forthcoming or as frequent and forthcoming as we might like. There are ways of looking at business value without hiring and obtaining the opinion of a business valuator.
Give you an example of a California approach that has been adopted by case law in Nevada, the courts have looked at the common components of many, many businesses being fixed assets, accounts receivable and goodwill. And fixed assets are fairly self explanatory, accounts receivable is what the business owner is owed, properly discounted for how long that debt has been owed. And then there’s good will and good will is often times cynically referred to as “blue sky,” but it is a measure of the momentum of the business value in place and its recognition and visibility in the community.
Both states have adopted a measure that you can in court, a trial judge is empowered in his or her discretion to use 25% of a year’s average gross receipts as a measure of good will. So in an instance where the spouses could agree upon that, they certainly wouldn’t need to hire a business valuator. Now the question of the cost effectiveness of a business valuator is really directly related to two things, the level of disagreement or contentiousness between the parties, and two, of course the value of the businesses.
Business valuation can be an expensive process, but that’s relatively speaking. If you have a business that may be worth a million dollars, spending 30 or $40,000 on a business valuation is money well spent. If you have a business that’s worth 30 or $40,000, that same expense makes no sense. So, I would agree that the value of the business has to be looked at to either justify or discourage the engagement of the business valuator, but the parties certainly have the option of agreement and that oftentimes, if the partiers are informed, if the parties are well aware of their respective activities, that’s oftentimes the most preferable way to go.
When dividing a pension during divorce, what are the most common errors to watch out for?
In dividing pensions I think the first place to look is whether or not the recipient spouse is in pay status or not. If the recipient spouse is in pay status, in other words they’re already receiving their monthly or quarterly or periodical benefit, however it’s paid. Then it’s just a function of figuring out whether it’s entirely community property in nature or whether there is some combination of separate and community property interest.
If the working spouse has not yet retired then there’s typically the engagement of someone like an actuary who can do an analysis based upon a number of factors, the age of the employee’s spouse, how much longer they have to work, what changes incrementally, individually across the board will take place with the benefit to which all the planned members are entitled. What survivor benefits will be chosen? In other words will the monthly benefit at some future date be maximised by an agreement of the working spouse that when they die all benefits will cease, or will the benefit be reduced because a survivor benefit will be elected that some portion of the retirement entitlement will go to the other spouse?
If you’re not in pay status the biggest mistake you may make is misunderstanding the assumptions and miscalculating how those assumptions project a future entitlement of a benefit that the client is not presently receiving. If you’re in pay status you really have a finite number to work with and the only thing you really need to focus on is to make sure that you quantify the community portion and the separate property if there is a separate property element separately. I should say accurately, we do that with something called the time rule. And the time rule is just a fraction that sets up how much of the total term of retirement services community versus separate and that’s how we come up with that percentage and that needs to be accurate.
Most people going through divorce are concerned about getting their fair share. What advice would you give them?
My advice would be to consider whether fair share is defined by a legal standard or defined by your own subjective expectation. What might be fair to you may not meet the legal standard of what is fair. As I have mentioned in both California and Nevada, the expectation of the court system will be to affect an equal division of community property.
And if clients can keep in mind that they’re entitled to no more or less than that, whatever their subjective standard of fairness may be, I think their expectations will more reasonably be met. But somebody who believes that what is fair is for the other spouse to have to give up a substantial portion of their right and entitlement under law, is not only going to be disappointed, but is probably going to be facing conflict with their own attorney. They should be giving advice to their client to dispossess themselves of that unreasonable standard, or maybe with a client who doesn’t want to listen to admonitions of their attorney, resulting in substantial and unnecessary attorneys fees and costs.