OOPS! WHAT HAPPENS IF OUR MARITAL SETTLEMENT AGREEMENT OMITS AN ASSET?

As a San Diego divorce attorney, while recently reviewing a Marital Settlement Agreement with a client, the client asked what happens if one of us later realizes that we did not list an asset and it is missing from the Marital Settlement Agreement? A Marital Settlement Agreement is a document that is usually attached to a Judgment for Dissolution of Marriage setting forth the final agreement of the parties which, among other things, identifies and divides each marital asset, including bank accounts, investment account and retirement accounts.

Fortunately the California Family Code addresses this issue. The court has continuing jurisdiction to award community assets and debts to the parties that have not been previously adjudicated by a judgment in the proceeding.

For example, suppose Husband and Wife opened a 1-year term Certificate of Deposit (“CD”) when they married 25 years ago and each year the CD automatically rolled over into a new 1-year term CD. Over the years, the parties moved several times, did not update their address with the bank and the statements eventually stopped arriving. Both parties forgot about the CD. When the parties divorced, neither listed the CD on the Schedule of Assets and Debts and it was not identified or divided by the Marital Settlement Agreement. Five years later, Wife comes across a box of old bank records, including an old CD statement.

Suppose the parties are on good terms. Wife may call ex-Husband, tell him that she found the old bank records regarding the forgotten CD, propose they cash it out and equally split the proceeds. If Husband agrees, then the parties can simply file a Supplemental Judgment identifying and dividing the CD.

Suppose the parties are on bad terms and do not communicate. Wife may file a motion requesting the court adjudicate the asset or liability omitted or not adjudicated by the Judgment. In these cases, the court is required to equally divide the omitted or unadjudicated community estate asset or liability, unless the court finds upon good cause shown that the interests of justice require an unequal division of the asset or liability.

Thus, in the situation above where the parties legitimately forgot about the CD, the court would equally divide the CD one-half to each party. However, there are situations where the court may order an unequal division of an omitted or unadjudicated asset or liability.

One situation where the court may order an unequal division is if one party hides an asset from the other. For example, in the situation above, suppose Husband remembered the CD, decided not to list the CD in his Schedule of Assets and Debt or in the Marital Settlement Agreement to see if Wife would remember the CD. A few years after Judgment is entered, Husband has used a quarter of the monies from the CD, Wife finds the old box of bank documents, remembers the CD and files a motion for the court to adjudicate the CD. In that case, the court has discretion to award the remaining monies Wife. The court may also order Husband to pay Wife the amount of money he used from the CD. Husband may have also breached his fiduciary duties to Wife. If the court finds fraud on Husband’s part, it may award Wife 100% of the omitted or unadjudicated asset in question. The lesson to be learned is that full disclosure of all marital assets and debts is absolutely essential.

Another example where the court might not divide an omitted asset equally is when one spouse delays making a claim to divide an omitted asset, during which time the omitted asset greatly appreciates in value, perhaps due to the post separation efforts of the other. This may occur with a small home business that neither party bother listing on the Schedules of Assets and Debts or in the Marital Settlement Agreement, and that small home business is later developed into a giant successful internet business. For example, Husband may have a bee hive and harvests the honey which he sells at the swap meet on weekends under the name “Hubby’s Honey.”

Bee.jpg

After the parties divorce, Husband expands the business, develops a website and 5 years later, “Hubby’s Honey” becomes the largest online honey seller in the country. In that situation, it was Husband’s post-separation efforts that caused “Hubby’s Honey” to increase in value, and the court will likely award the majority if not all of “Hubby’s Honey” to Husband.

Another interesting wrinkle to “omitted assets” is a case called In re Marriage of Melton in which the court held that when a judgment divides only a portion of an asset, the undivided portion can be treated as an omitted asset. In Melton, only a portion of Husband’s pension was explicitly divided by the stipulated judgment. The bulk of it was left undivided. The Court of Appeal found no reason why the omitted portion of Husband’s pension should not be treated the same way as an omitted asset, and remanded the case back to the trial court to determine how to divide the omitted portion.

Photo by Peter Shanks http://www.flickr.com/photos/botheredbybees/245215850/

San Diego Family Law Attorney Nancy J. Bickford is the only board-certified divorce lawyer in San Diego who also holds an MBA and a CPA. Don’t settle for less when determining your rights post-Judgment. Call 858-793-8884 in Del Mar, Carmel Valley, North County or San Diego.