Articles Posted in Business Interests

The question of a party’s income available for support has been the scourge of many attorneys and forensic accountants for a long time. It is a difficult and evolving issue, with new cases coming out honing and refining the interpretation of Family Code section 4058. Below, we take a look at a few common topics that are raised in child and spousal support cases.file0002132358706


If one party gets a seven figure inheritance from Great Aunt Birgit, is that income available for support? This was the question raised in County of Kern v. Castle. The Court determined that inheritances are not income available for the purposes of child support. Continue reading

emailMany people understand that, generally, confidential communications between a person and his or her attorney are protected by an evidentiary privilege called the attorney-client privilege. Evidence Code section 950-962 lays out in detail how the privilege works.

What this means is that if a party or attorney wanted to know the substance of a confidential communication between the other party and that party’s attorney, an objection of attorney-client privilege can be raised and the Court should sustain that objection (i.e. grant the request).

Only “confidential communications” are subject to the privilege and what defines a “confidential communication” has been up for debate. Certainly, there is a case that everyone should know about and those cases are the focus of this blog post. It turns out there are probably countless people sending communications to their attorneys thinking they are confidential when they are really not!

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In Family Law, tracing is the method by which a party proves that funds in a particular account are, or were, used to acquire separate property.  Family Code section 760 holds that all property acquired during a marriage, regardless of source, is community property, it can sometimes be a difficult and expensive endeavor to try to perform a tracing. In California Family Law, there are three ways to prove a tracing: 1) Direct Tracing; 2) Exhaustion 3) Total Marital Recapitulation.

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heidi-klum-seal-divorce.jpgHeidi Klum and Seal are officially divorced and back on the market. TMZ reports that their split was actually quite amicable and they had no issues with dividing property and figuring out spousal support thanks to a post-nuptial agreement that they signed after marriage. Although they did not have a pre-nup, their post-nup kept most of their earnings separate and their divorce process was streamlined because they didn’t fight over money. It is reported that neither party will get spousal support from the other and they have even worked out a custody agreement for their four children.

If couples, like Klum and Seal, marry without a prenuptial agreement (aka “pre-nup”) there is still an opportunity to enter into a legally binding agreement regarding property division and support in the event of a divorce. They can do so after they are already married in what is known as a post-nuptial agreement (aka “post-nup”). This is common when couples don’t like the stigma attached with a pre-nup, have a very short engagement and don’t necessarily have time to draft a pre-nup, have children from a previous marriage or perhaps their circumstances have changed such that they wish they would have taken the step to sign a pre-nup. Really the only difference between a pre-nup and a post-nup is that a post-nup is signed after marriage, rather than before. Other than that, it is still a legally binding agreement should the parties decide to get divorced later on.

A post-nup must be in writing and signed by both of the parties. While the parties are free to negotiate the terms of their post-nup, they should be fully informed about all of their assets and debts and they should be represented by independent counsel. Drafting a post-nuptial agreement is an opportunity for married couples to analyze their assets and debts and then set terms that are acceptable to both parties. It will allow the parties to gain a common understanding of how to handle contentious financial issues.

postnup-couple.jpgA post-nup might include designations regarding which assets and debts are to be considered separate property, the amount of spousal support to paid to one party, the right to manage or dispose of property, the role of a spouse in a business, and division of community property in the event of a divorce or separation. A post-nup might also address how to divide money in a blended family where one or both spouses have children from a previous marriage. However, a post-nuptial agreement cannot address child custody or child support. If the parties’ marriage does eventually dissolve, the post-nup will essentially serve as the framework for drafting a marital settlement agreement.
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Neelys-divorce-001.jpgStars of the hit Food Network show Down Home with the Neelys, Gina and Pat Neely are getting divorced after twenty (20) years of marriage. Gina and Pat were high school sweethearts and have built a family brand consisting of products and restaurants across the United States. The Neely’s show Down Home with the Neelys is a cooking demonstration show that features the fun banter between husband and wife. Gina and Pat’s careers are so carefully intertwined with their relationship as a married couple that they will each have to pursue a new path after separation. In addition, the Neelys will have to divide up the empire they established throughout their twenty (20) years of marriage.

According to media reports covering the Neely divorce, the Neely’s were on the verge of separation when they were discovered by the Food Network and offered their own show in 2009. The Neelys were surprised when the show became a fast hit and decided to ride the wave out and garner fame. Pat Neely believes that his former wife will not sustain the same level of success after their separation because he was the only trained chef and because most of the recipes the couple featured are owned by his family. Gina plans to branch out and develop her own brand of Green Giant products.

Although the Neelys are getting a divorce, they do not plan to sell their popular barbeque restaurants. If the parties to a divorce reach an agreement regarding asset division outside of the courtroom, they have the ability to craft creative terms that fits the best interests of both parties. In the Neely divorce, the parties will be able to create a marital settlement agreement that allows them to keep their restaurants in tact while dividing responsibilities and income accordingly. The lawyers will have the difficult task of drafting appropriate enforceable provisions that allow the parties to continue to jointly own their restaurants.

When divorcing parties want to work towards an agreement whereby they continue to jointly own an asset after separation, an experienced family law attorney will carefully discuss the pros and cons of that arrangement with his or her client. While it will seem appealing for the parties to keep their assets in tact and still reap the profits, it can become complicated when the relationship changes between the parties. Depending on the level of animosity and the level of involvement necessary for the parties jointly own an asset, it may or may not be beneficial for a divorced couple to jointly retain property. One possible solution to the issues that arise when divorced parties who wish to jointly own an asset is to create an arrangement where the parties have the least amount of interaction possible. Overall these agreements can be successful if they are drafted properly and each party clearly articulates his or her expectations.
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As one would expect, going through a divorce is typically a time of emotional upheaval and chaos. You will likely be required to spend a significant amount of time preparing legal paperwork, attending court hearings, going to your attorney’s office and dealing with the day-to-day drama that comes with a divorce. Your life might seem like one chaotic mess as a result of having to suddenly move out of your residence or divide up your belongings. And the time that you get with your children, well you surely won’t want to sacrifice a minute of that to focus on work instead. So with all of this going on during a divorce, how can you properly manage your career and avoid losing your job??

career-divorce.jpgKeep Your Professional Reputation Intact
If you are going through a very tumultuous and heated divorce, your soon to be ex-spouse may be inclined to attempt to ruin your reputation in the workplace. He/She may feel the need to reach out to your boss or your coworkers and make disparaging remarks about you. To avoid the potential aftermath of this, it would behoove you to take preventative steps and pull your boss aside for a private meeting to let him/her know that you are going through a divorce but that it will in no way, shape or form affect your work ethic. Although it’s really none of your boss’s business perhaps giving him/her a heads up that your spouse is not in a good place emotionally, will prepare your boss in case a phone call or email comes his/her way from your spouse.

Another way of keeping your professional reputation intact is to not allow your performance to slip. Although your mind might be focused on the divorce, try to keep your attention on the job during working hours. One motivator to keep your performance at its peak is the potential that you will be paying spousal and/or child support to your ex-spouse. It is likely a critical time for you to be sure that you have a continuous stream of income.

career-vacation.jpgSave Your Vacation and Sick Days
During the divorce, you might need to take partial or whole days off to attend court hearings, meet with your attorney, attend mediation, pick your children up from school, etc. You are probably limited on the number of paid vacation and sick days that you are allowed to take from work so do your best to save those while going through a divorce. Having to take an unpaid day off or jeopardizing your career is just added stress that you will want to avoid during a divorce.

Separate Work and Family
Although easier said than done, you should focus on separating your work and family life as much as possible. Working on divorce papers or taking phone calls from your soon to be ex-spouse while at work will only serve to distract you from getting your job done. Also, keeping your personal life to yourself will help avoid unnecessary gossip around the office. It’s also important to leave your work at work when you come home. Your custody arrangement might not provide you with as much time with your children as you would like, so every moment you spend with them should be cherished and not distracted by work. If you don’t have children, then your alone time is still critical to allow you the time to cope with your divorce emotions or perhaps meet new people.
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hidden-income.jpgIt is a common fear in family law cases that one spouse will lie about his or her income in order to avoid a high child support or spousal support order. This can become a serious concern if the spouse is self-employed or a business owner who can manipulate evidence regarding his or her income. Especially in the case of a long-term marriage, the parties believe they can make a good approximation regarding the income of their former spouse. Often, spouses are shocked when they receive a copy of the income and expense information form prepared by the other party. Although there may be a disconnect between what you believe your spouse earns and what your spouse is telling the court he or she earns, it is important to do your due diligence and investigate your suspicions before making accusations to the court.

The first thing you can do to find out if your spouse is really lying about his or her income is to conduct formal and informal discovery regarding your claim. Informally, you can begin gathering documents which can provide you and your attorney with a snap shot of the monthly family spending. Review bank statements and credit card statements for information regarding how much money your family spends each month to maintain your current lifestyle. Once you have gathered documents which can provide you with information regarding your monthly family expenditures, you and your attorney can compare that information to the gross income your spouse is claiming he or she earns. In addition, you can gather joint tax returns and financial documents for previous years from your CPA or through your online tax service. It is helpful to compare prior tax returns with your spouse’s current claims regarding his or her income.

hidden-income-puzzle.jpgFormally, your attorney can propound demands for production of specific documents and requests for specific information. If you do not believe your spouse will be truthful, even under oath, your attorney can subpoena various entities which have relevant documents in its possession. If you determine that your spouse’s statements regarding his or her income are inconsistent with the evidence which has been acquired, you may have a cause of action against your spouse for breach of fiduciary duty. San Diego family courts impose a strict duty on spouses to disclose all material facts and information regarding income, expenses, assets and debts. If one spouse is not truthful with the other party and/or with the court he or she may face serious financial or criminal penalties.
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Financial-tug-of-war.jpgIt seems like we all spend so long trying to build good credit over the years just for it to be ruined with a snap of the fingers. A divorce doesn’t have to be the culprit in ruining your credit. If you take certain measures while going through a divorce, you can help protect your credit rather than sending it and your financial future to its demise.

Review Your Credit Report
The first step in protecting your credit is to get a copy of your credit report. Once you have a copy of your report it is important to thoroughly review it so that you are well aware of all individual and joint accounts. Perhaps you forgot about a department store credit card that you opened quite some time ago. Reviewing your credit report will get you up to speed on all of your accounts.

Closely Monitor Joint Accounts
financial-credit-cards.jpgAfter reviewing your credit report and refreshing your memory of all of your accounts, the next step is to closely monitor them, especially the joint accounts. During or after the divorce, transferring or closing accounts might not occur as quickly as you hope. During this time, it is important that you monitor those accounts closely and catch any missed payments (even if your ex-spouse has agree to make the payment) before your credit gets damaged. If you can’t access the account statements online it would behoove you to request the lender to send you a copy of the account statement each month.

Be Budget Savvy

During a divorce, many people tend to feel like they are drowning financially, either due to various expenses related to the divorce or from frivolous spending habits as a result of the emotional affect that divorce tends to have. The best thing to do in order to tackle the financial woes associated with divorce is to create, implement and track a post-divorce budget that takes into account your income and all of your expenses. Being budget conscious will help you to not allow your expenses to exceed your income and hopefully leave you with a whole lot less debt.

Be Mindful of Authorized Users on Credit Cards
After reviewing your credit report you will be able to note which accounts your spouse is listed on as an authorized user. Being listed as an authorized user means that the person has permission to use the credit card to rack up charged but that he or she is not responsible for paying the bill. This is different than joint credit in which both parties are responsible for paying. If you notice that your ex-spouse is listed as an authorized user, it might be worth it to give the credit card company a call and remove his or her name to avoid any additional problems.

Although divorces can be extremely emotionally draining and time consuming, it’s crucial to your future that you do not to push your finances to the back burner. Being proactive about managing your credit during your divorce will surely help you post-divorce.
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certificate-of-marriage.jpgA recent ballot initiative in Colorado might just make saying “I do” a little bit more complex by requiring couples engaged to be married to attend a designated number of hours of state-mandated pre-marital education classes before tying the knot. The ballot initiative was proposed by a California organization known as Kids Against Divorce. The organization intends to introduce similar measure across the country in the future. Perhaps California will be next.

According to the Denver Post, the proposed initiative, known as the Colorado Marriage Education Act, would require first time couples to attend 10 hours of marriage education. For those planning to walk down the aisle for the second time, 20 hours of marriage education would be required. And for those walking down the aisle for a third time, 30 hours of marriage education would be mandated before being allowed to get their marriage license. There would of course be an exception for widows, who would be held to the same requirement as those getting married for the first time. After completing the required amount of education, couples would be issued a “Marriage Course Completion Certificate” by the Colorado State Board of Marriage and Family Therapist Examiners.

As with any proposed ballot initiative, requiring couples to attend pre-marital education classes has its pros and cons. Proponents of the ballot initiative argue that it aims to convey the message that a marriage license should be treated like a driver’s license, license to practice law, cosmetology license, or any other license. If these other licenses require a minimum amount of education to prepare a person to drive or practice in their career, why shouldn’t a marriage license require the same to prepare individuals to fulfill their future role as a spouse and potentially as a parent? Proponents further argue that the requirement wouldn’t be overly burdensome and it’s worth it to potentially help couples go into their marriage as a stronger couple unit with more knowledge and better prepared for the commitment they will be making. Furthermore, there is the high potential for a reduction in divorces and in turn a reduction in the significant amount of taxpayer dollars spent each year on courts that handle divorces. On another note, proponents argue that many people would benefit from the tax credit that the ballot initiative offers to married couples who voluntarily choose to complete continuing marital education.

However, as would be expected, there are some Colorado residents who vehemently oppose the proposed measure. These individuals are arguing that it is an overstepping of the government to decide what education people should or should not receive before getting hitched. Others seem to feel that they are ready to get married without the need for education classes or that education classes that they are already taking through their church should be sufficient. Or maybe it’s the cost associated with the education classes (and paid for by the couples) that is the source of outrage for opponents.
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San Diego point lomaIn divorce cases where the parties have offshore assets, those assets are generally not reported to the Internal Revenue Service (“IRS”). However, California family law imposes a strict fiduciary duty of disclosure on all divorcing spouses. Throughout the pendency of a divorce case, the parties are under an ongoing obligation to disclose all material facts and information regarding income, expenses, assets and debts.

This includes unreported income and assets hidden overseas. If a spouse has made efforts to conceal income or assets from the federal government he or she may feel very conflicted about disclosing that information in a state dissolution matter. Therefore, the spouse may be torn by a desire to cooperate with the divorce process and make full disclosures yet fearful of criminal and pecuniary penalties which may be imposed by the IRS. In many cases, both spouses may be aware of the offshore assets or at least suspect they exist.

If a California family court determines that a spouse has failed to meet the strict fiduciary disclosure requirements, he or she will likely be sanctioned in an amount sufficient to deter repetition of the impermissible conduct. In high asset/high income cases, the amount of the sanction could be staggering. In addition, failure to disclose an asset exposes the non-disclosing party to the possibility of the court awarding 100 percent or an amount equal to 100 percent of the asset to the other spouse. On the other hand, if a spouse’s failure to disclose offshore assets and/or reportable income to the IRS is discovered by federal authorities, the spouse will likely face time in jail in addition to substantial financial penalties.

In these cases, the client has limited options. The client could attempt to amend prior tax returns to fully comport with IRS requirements and immediately disclose all hidden assets/income in the divorce case. If a client pursues this option, there is still no guarantee of avoiding federal prosecution. If this option is no longer available, the client could enter the Offshore Voluntary Disclosure Program (“OVDP“). The OVDP was started in 2012 and allows taxpayers to voluntarily disclose offshore assets before they are uncovered by other means. Entering the OVDP can help taxpayers avoid criminal prosecution; however, they will likely still face harsh financial penalties for nondisclosure.

It is incredibly risky for a divorcing spouse with hidden assets or income to fail to make efforts to become compliant with IRS regulations. In a divorce proceeding, attorneys and clients spend substantial time and resources digging into the finances of both parties. It is unlikely that hidden assets or income will remain uncovered under such scrutiny.
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