Family Law Section Webinar

ORANGE COUNTY BAR ASSOCIATION

FAMILY LAW SECTION WEBINAR

QDROs, Fluctuating Markets, and COVID-19

Thursday, April 23, 2020

COVID‐19 QDRO TOPICS

David T. Ruegg and John Madden  IRMO Janes 217 Cal.Rptr.3d 916 (Cal. Ct. App. 2017)  Stipulated agreement awarded Wife a fixed dollar amount of $113,392 from husband’s 401(k) in March 2010.  In 2014 Wife requested a QDRO and that gains/losses on her interest be factored into the QDRO. Husband claimed that no gains/losses should be factored in because this was an JUDGMENT equalization award.  Court: Wife should receive gains on her interest from March LANGUAGE: BE 2010 to the date of transfer. Not equitable for Husband to keep CAREFUL the gains because a QDRO had not yet been processed to move Wife’s interest. ABOUT YOUR  NOTE: This case came out of 4th Appellate District, Division Three. Another case, In re Marriage of Heggie (2002) 99 FIXED DOLLAR Cal.App.4th 28, 120 Cal.Rptr.2d 707 out of 4th Appellate District, Division Three, comes to a different conclusion. The AWARDS rapid change in value over a short period of time does not require an adjustment of the award.  The distinguishing feature between these two cases seems to be the passage of time.  Best practice‐specify if market adjustment should apply and if so from what valuation date.  Normal Early Withdrawal Rules: 10% Federal penalty ON TOP of ordinary income rates.  No penalties if cash out is pursuant to a QDRO. See IRC §72(t)(2)(c). However, the cash out will be treated as ‘ordinary income’ for purposes of income DEFINED taxes. A 20% mandatory IRS withholding for CONTRIBUTION: estimated taxes will apply.  Account holder can not ‘cash out’ via QDRO under CASHING OUT ERISA. However, Parties are free to discuss “side agreements.” (Agreement to pay ‘out spouse’ more AND THE QDRO than community entitlement with agreement to EXCEPTION ‘pay back’ employee spouse the net of any overpayment)  QDRO ‘cash out’ exception does not apply to IRA accounts. See IRC §72(t)(3)(A).  Strategy if possible‐Complete IRA rollover to 401k FIRST, then use the cash out exception. DEFINED CONTRIBUTION: OFFSETTING, EQUALIZING AND BUYOUTS, OH MY!

 Offsets: Let's just total up the community in both retirement accounts and only divide the larger account with an adjusted percentage. It's simple math‐let's not complicate things with more QDROs! What can go wrong?  When you offset‐consider the fact that you are mathematically making two accounts equal in terms of the rate of return‐when in reality‐they are not equal. You could be allocating a large share of ‘better performing’ investments to one party and a large share of ‘crummy investments’ to the other! (See Handout)  Equalizations: My client owes $10,000 in child support arrears and $40,000 from a buyout of the family residence. Let's just take an additional $50,000 from the tax deferred 401(k) plan. That’s a fair trade, right? Oh and let’s stipulate that the QDRO attorney will figure out how to take out the money tax free‐I hear QDRO attorneys can do that sort of thing. What can go wrong?  In this scenario‐you are combining a post tax child support obligation, a capital tax asset house, and a pre‐tax 401(k) and ‘mashing’ them all together, all while ignoring any tax implications.  Buyout of Spousal Support: Consider whether spousal support will or will not be deductible when doing a buyout against a pre‐tax/deferred tax asset.  Consider‐In re Marriage of Fonstein (1976) 17 Cal.3d 738 does not allow the Court to consider tax ramifications that are not immediate and specific. ACTUAL VALUE VS ESTIMATED VALUE‐ UNDERSTANDING ACTUARY ‘LUMP SUM VALUES’

 Actuaries are used to calculate the lump sum values of streams of payments.  If someone offered you a choice between $100,000 today OR $500/month for the rest of your life‐what would you need to know to make the decision? Answer: Your Date of Death. “Tell me when you plan to die and I’ll tell you the value of these benefits.”  Actuaries use ‘death tables’ and ‘discount rates’ to determine what is better: $500/month for the rest of your life or $100,000 today. Example: If you are 35 years old‐likely $500/month is the smarter decision. If you are 85 years old, likely $100,000 today is the smarter decision THANK YOU!

David T. Ruegg, QDRO Attorney Law Offices of Ruegg & Ruegg 19510 Van Buren Blvd., Ste #488 Riverside, CA 92508 Telephone: (951) 523‐7376 Fax: (855) 880‐0098 [email protected]

John Madden, Valuation Expert Moon, Schwartz & Madden 3333 Vincent Ave., Ste 260 Pleasant Hill, CA 94523 Telephone: (925) 258‐7100 [email protected] 1 of 2

Tool Created By Law office of David T. Ruegg (951) 523‐7376 [email protected] For questions on how to use this Tool, email: [email protected] (See tabs below for with/without statements)

Enter applicable amounts above the black line. Date of Marriage: 1/1/2000 Date of Separation: 1/1/2010Valuation Date)

Note: For use during marriage; assumes contributions are community property and split 50/50 Date Of Statement: Beginning Value$ 10,000.00 1/1/2000

Contributions Ending Balance Date of Statement: Period $ 3,134.00 $ 15,000.00 1/1/2001 Period $ 5,835.00 $ 20,000.00 1/1/2002 Period $ 5,000.00 $ 30,000.00 1/1/2003 Period $ 10,000.00 $ 50,000.00 1/1/2004 Period $ 100.00 $ 51,000.00 1/1/2005 Period $ 5,000.00 $ 60,000.00 1/1/2006 Period $ 100.00 $ 55,000.00 1/1/2007 Period $ 500.00 $ 56,000.00 1/1/2008 Period $ 100.00 $ 56,000.00 1/1/2009 Period $ 400.00 $ 60,000.00 1/1/2010 2 of 2

Trace

Party 1 Party 2 Total Party 1 % Party 2 % Period 1 Balance$ 10,000.00 $ ‐ $ 10,000.00 100.00% 0.00% Contributions$ 1,567.00 $ 1,567.00 $ 3,134.00 Gains/Losses$ 1,866.00 $ ‐ $ 1,866.00 Period 2 Balance$ 13,433.00 $ 1,567.00 $ 15,000.00 89.55% 10.45% Contributions$ 2,917.50 $ 2,917.50 $ 5,835.00 Gains/Losses$ (747.77) $ (87.23) $ (835.00) Period 3 Balance$ 15,602.73 $ 4,397.27 $ 20,000.00 78.01% 21.99% Contributions$ 2,500.00 $ 2,500.00 $ 5,000.00 Gains/Losses$ 3,900.68 $ 1,099.32 $ 5,000.00 Period 4 Balance$ 22,003.41 $ 7,996.59 $ 30,000.00 73.34% 26.66% Contributions$ 5,000.00 $ 5,000.00 $ 10,000.00 Gains/Losses$ 7,334.47 $ 2,665.53 $ 10,000.00 Period 5 Balance$ 34,337.88 $ 15,662.12 $ 50,000.00 68.68% 31.32% Contributions$ 50.00 $ 50.00 $ 100.00 Gains/Losses$ 618.08 $ 281.92 $ 900.00 Period 6 Balance$ 35,005.96 $ 15,994.04 $ 51,000.00 68.64% 31.36% Contributions$ 2,500.00 $ 2,500.00 $ 5,000.00 Gains/Losses$ 2,745.57 $ 1,254.43 $ 4,000.00 Period 7 Balance$ 40,251.53 $ 19,748.47 $ 60,000.00 67.09% 32.91% Contributions$ 50.00 $ 50.00 $ 100.00 Gains/Losses$ (3,421.38) $ (1,678.62) $ (5,100.00) Period 8 Balance$ 36,880.15 $ 18,119.85 $ 55,000.00 67.05% 32.95% Contributions$ 250.00 $ 250.00 $ 500.00 Gains/Losses$ 335.27 $ 164.73 $ 500.00 Period 9 Balance$ 37,465.42 $ 18,534.58 $ 56,000.00 66.90% 33.10% Contributions$ 50.00 $ 50.00 $ 100.00 Gains/Losses$ (66.90) $ (33.10) $ (100.00) Period 10Balance$ 37,448.52 $ 18,551.48 $ 56,000.00 66.87% 33.13% Contributions$ 200.00 $ 200.00 $ 400.00 Gains/Losses$ 2,407.40 $ 1,192.60 $ 3,600.00 Ending Balance$ 40,055.93 $ 19,944.07 $ 60,000.00 66.76% 33.24%

Tool Created By Law office of David T. Ruegg (951) 523‐7376 [email protected] For questions on how to use this Tool, email: [email protected] (See tabs below for with/without statements)

Enter applicable amounts above the black line. Date of Marriage: 12/31/1990

Date of Separation: 12/31/1999 Date of Valuation: 10/1/2000

Note: For use after marriage; assumes contributions are separate property of contributing spouse

Date Of Statement: Beginning Value$ 39,888.15 12/31/1999

Contributions Ending Balance Date of Statement: Period 1$ 21,111.85 $ 60,000.00 1/1/2000 Period 2$ 1,000.00 $ 62,000.00 2/1/2000 Period 3$ 1,000.00 $ 65,000.00 3/1/2000 Period 4$ 1,000.00 $ 70,000.00 4/1/2000 Period 5$ (1,000.00) $ 69,000.00 5/1/2000 Period 6$ 5,000.00 $ 73,000.00 6/1/2000 Period 7$ 100.00 $ 85,000.00 7/1/2000 Period 8$ 500.00 $ 90,000.00 8/1/2000 Period 9$ 200.00 $ 92,000.00 9/1/2000 Period 10$ 400.00 $ 100,000.00 10/1/2000 2 of 2

Trace

Party 1 Party 2 Total Party 1 % Party 2 % Period 1 Balance$ 19,944.08 $ 19,944.08 $ 39,888.15 50.00% 50.00% Contributions$ 21,111.85 $ ‐ $ 21,111.85 Gains/Losses$ (500.00) $ (500.00) $ (1,000.00) Period 2 Balance$ 40,555.93 $ 19,444.08 $ 60,000.00 67.59% 32.41% Contributions$ 1,000.00 $ ‐ $ 1,000.00 Gains/Losses$ 675.93 $ 324.07 $ 1,000.00 Period 3 Balance$ 42,231.86 $ 19,768.14 $ 62,000.00 68.12% 31.88% Contributions$ 1,000.00 $ ‐ $ 1,000.00 Gains/Losses$ 1,362.32 $ 637.68 $ 2,000.00 Period 4 Balance$ 44,594.18 $ 20,405.82 $ 65,000.00 68.61% 31.39% Contributions$ 1,000.00 $ ‐ $ 1,000.00 Gains/Losses$ 2,744.26 $ 1,255.74 $ 4,000.00 Period 5 Balance$ 48,338.43 $ 21,661.57 $ 70,000.00 69.05% 30.95% Contributions$ (1,000.00) $ ‐ $ (1,000.00) Gains/Losses $ ‐ $ ‐ $ ‐ Period 6 Balance$ 47,338.43 $ 21,661.57 $ 69,000.00 68.61% 31.39% Contributions$ 5,000.00 $ ‐ $ 5,000.00 Gains/Losses$ (686.06) $ (313.94) $ (1,000.00) Period 7 Balance$ 51,652.37 $ 21,347.63 $ 73,000.00 70.76% 29.24% Contributions$ 100.00 $ ‐ $ 100.00 Gains/Losses$ 8,420.04 $ 3,479.96 $ 11,900.00 Period 8 Balance$ 60,172.41 $ 24,827.59 $ 85,000.00 70.79% 29.21% Contributions$ 500.00 $ ‐ $ 500.00 Gains/Losses$ 3,185.60 $ 1,314.40 $ 4,500.00 Period 9 Balance$ 63,858.01 $ 26,141.99 $ 90,000.00 70.95% 29.05% Contributions$ 200.00 $ ‐ $ 200.00 Gains/Losses$ 1,277.16 $ 522.84 $ 1,800.00 Period 10 Balance$ 65,335.17 $ 26,664.83 $ 92,000.00 71.02% 28.98% Contributions$ 400.00 $ ‐ $ 400.00 Gains/Losses$ 5,397.25 $ 2,202.75 $ 7,600.00 Ending Balance$ 71,132.42 $ 28,867.58 $ 100,000.00 71.13% 28.87%

Note: Allocation of contributions maybe different depending upon the period before, during and after the date of marriage, marriage and date of separation. Please contact David Prenovost, CPA for any questions regarding this worksheet at [email protected] Whenever you combine and equalize accounts-what you are doing is mathematically saying that $1 in investments in one account is equal to $1 in investments in the other account-which is mathematically inaccurate-the degree to the inaccuracy depends on the investments, but one party will be 'shorted' on the investment gains and the other party will receive a 'windfall'. Here is a fake example:

Wife has an account worth $50,000 as of date of separation

Husband has an account worth $100,000 as of date of separation

To "save on fees" they agree not to QDRO both accounts, but to instead award wife 25% of husband's account (Thinking both parties will end up "equal" with $75,000, each).

At the time of the QDRO division a year has passed and Wife's account performed at a 10% market rate (current value $55,000) and Husband's account performed at a 20% market rate (Current value $120,000). Neither party contributed or withdrew funds.

Wife receives her 25% interest in husband's account, as promised, and receives $30,000 from the $120,000 in investments

The end result is:

Wife now has $85,000

Husband now has $90,000

If both accounts were QDRO-ed individually, the additional QDRO fee would be about $750 ($375 each) and both parties would receive $87,500.

End result: Wife saved $375 on 1/2 the QDRO fees and lost $2,500 in market appreciation. (and husband saved $375 on QDRO fees and received a windfall of $2,500)

Obviously-I'm biased as a QDRO attorney, but that doesn't mean I'm wrong. Be careful equalizing accounts-the larger the accounts and the more varied investments between the accounts, the larger the "error factor" will be compared to dividing the accounts separately by 'standard QDRO' (which provides an accurate community split of not only the underlying investments as of separation, but also the proportional gains/losses).

1 David T. Ruegg (CSB#255912) The Law Office of David T. Ruegg 2 19510 Van Buren Blvd., Ste 488 Riverside, CA 92508 3 Ph: (951) 523-7376 4 Fax: (855) 880-0098

5 Limited Scope Attorney For {AlternatePayee}

6 7 SUPERIOR COURT OF THE STATE OF CALIFORNIA 8 FOR THE COUNTY OF {COUNTY} 9 10 ) Case No.: {CASENUMBER} 11 In Re The Marriage of: ) ) NOTICE OF ADVERSE INTEREST 12 Petitioner: {PETITIONER} ) ) (FAMILY CODE §755) 13 -and- ) ) 14 Respondent: {RESPONDENT} ) ) 15 ) 16 17 YOU ARE HEREBY NOTIFIED that {AlternatePayee} is claiming a community 18 property interest in {Participant}’s pension, 401(k), stock option, deferred compensation, or 19 retirement benefits (both qualified and non-qualified) under any Plan which you maintain for 20 the benefit of {Participant}, SSN# {ParticipantSSN}, DOB {ParticipantDOB}. This notice is 21 under California Family Code §755. 22 Should you pay any such claims following this notice, you and/or the plan will be 23 subject to liability for such payments under In re Marriage of Baker (1988) 204 Cal.App.3d 206, 24 251 Cal.Rptr. 126. and will not be eligible for the protection afforded by California Family 25 Code §755(b). 26 /// 27 /// 28 ///

1 NOTICE OF ADVERSE INTEREST

1 You are instructed to pay no claims and allow no elections (excepting therefrom 2 investment choices which may be exercised by participants under Internal Revenue Code 3 §404(c)) under any plans, policies or accounts which you may maintain for the benefit of 4 {Participant} 5 6 Date:______David T. Ruegg, Attorney for {AlternatePayee} 7

26 27 28

2 NOTICE OF ADVERSE INTEREST

RE: Coronavirus Impact on Defined Contribution Accounts

Dear Client(s):

THIS IS A GENERAL LETTER - NOT ALL COMMENTS BELOW APPLY TO YOUR CASE AND THE HYPOTHETICAL QUESTIONS HAVE NOT NECESSARILY BEEN ASKED BY THE PARTIES IN THIS MATTER.

David your advice in this letter is going to cause problems in my case! I thought you were neutral; how can it be that you are giving my ex 'advice' against my permission? I do not want you to send my ex this 'Covid-19' letter!

It is my policy to avoid 'injecting problems' where there are none present, but at the same time-it is my duty and responsibility to be honest and to serve as an 'expert sounding board' to answer expert questions with information/case law/codes that may or may not be readily or accurately available through a 'google search' of these Q&As.

Being a neutral expert does not mean avoiding questions and answers that might lead to litigation/cause problems-it means having a consistent response/expert opinion to similarly situated legal fact patterns-no matter who is asking the question. It means giving my opinion as to both sides of a legal argument-including providing code sections/cases that support each side and it means giving 'guidance' as to what is a practical solution and what I think a judge may do-but carefully advising clients that I am not their judge and if they don't like my responses-then the 'higher authority' to go to-is the assigned judicial officer in their case. If my responses/opinions push a case into litigation or a 'deal falls apart' because of my responses-then the 'deal or court order' was likely unstable to begin with and “it is what it is-that's how family law rolls”. I HAVE to stand by my words/legal positions and can NOT 'change my viewpoints' based on who is asking me the question or if it might cause problems. If I am 'picked apart' on the stand in a litigious trial at a later point in time-I consider that a cost of doing business 'the right way'.

If my ex manages my money poorly in this turbulent time-do I have a claim against my ex and can I demand a higher percentage out of the 401k-because I don't manage it or have control over it?

I think the Kamgar case is the best/most recent case we have that is instructive as to fiduciary duties and breach of fiduciary duties related to 'management of community investments' in equity markets. As a starting point-I recommend all counsel/parties reread this case. Use your legal research tools to look up or read it here:

www.qdrodivision.com DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 2

https://www.leagle.com/decision/incaco20171117070

While the Kamgar case is instructive-I think the fundamental question that is an unknown is “what is the definition of risk and what classifies a transaction as too risky such that liability is triggered for the party who has their finger on the buy/sell button in their community 401k account or brokerage account”?

I think risk is a very subjective term whose definition can vary widely between judges. I used to think 'bitcoin' was a risky investment and an investment of any community funds in the crypto-currency markets without consent of the 'other spouse' could trigger liability. Recently-oil volatility indexes have surpassed bitcoin volatility. Digest that for a minute. Is it now considered 'unsafe' to invest in oil and such an investment could trigger 'liability' due to volatility risk? There is no case to my knowledge that 'benchmarks' and draws a line in the sand for what is and is not 'too risky' to invest in.

Remember-there are two ways to 'lose substantial sums of money' in current times: (1) You have already lost 20-30% of your portfolio over the past 2-4 weeks and you leave your investments in the stock market-and as a result of the coronavirus, you lose another 20% to 30% over the next 2-4 weeks; (2) You have already lost 20-30% of your portfolio over the past 2-4 weeks and take your money out now and put it in mutual funds/bonds and the equities market bounce back up 20%-30% as the markets recover. (2) Is called a 'lost opportunity cost' and I think it could be argued in court that this also creates a liability for the account holder.

The point I'm trying to make-is we are all sailing into uncharted territories here and my advice is it is entirely possible that you are 'darned if you do and darned if you don't' for the buy/sell moves our clients are making or moves our clients are making by omission (not making a buy/sell move is also a choice with ramifications)-and a judge could go either way. I think the definition of 'risk' has changed overnight and as a result, the liability that flows from what is 'too risky' has also changed. Is it too risky to pull your money out? Is it too risky to leave your money is? Who knows-maybe Warren Buffet but certainly not David Ruegg and probably you will not find a consensus among judges when litigating this issue.

Can I divide the funds without a QDRO since the Courts are closed?

Maybe-but with some difficulty and complication-certainly. Account holders *might* be able to roll out one-half of their 401k accounts into IRA accounts in their own names (some plans require termination of employment, first)…but consider the following before you recommend this strategy to 'separately manage' investments to your clients: (1) If ANY contributions or withdrawals were made outside of the marriage, such as after separation- then to figure out the exact amount to 'roll out' would require a separate property tracing of a forensic CPA; (2) You cannot 'roll out' from Husband's account into Wife's account and avoid a QDRO-that would trigger penalties and taxes by the IRS and a whole host of tax related problems-so Husband can ONLY roll from his 401k into another IRA in Husband's

DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 3

name. This means a post judgment modification would then be required to complete an IRA to IRA transfer-since you would then no longer be doing a QDRO as ordered in the judgment, but would rather be doing an IRC 408(d)(6) division order ('IRA QDRO' if you want to call it that); (3) if you 'roll out' into an IRA account with the intention of 'separating out' the investments of the parties for the purpose of having different investment strategies in different accounts-you are 'giving up' the right of the out spouse to do a partial or full cash out via QDRO-because the “QDRO Cash Out Tax Penalty exception” does not apply to IRA accounts. So you are losing some rights by doing this. See IRC 72(t)(2)(C) for QDROs and compare that to IRC 72(t)(3)(A) for IRAs for verification of these comments.

You can also take a loan out-but remember-loans are 'after tax' and QDROs divide 'pre-tax' so you are not trading apples for apples here….A 'loan-ed dollar' is worth $1 and I can buy $1 worth of candy with it. A '401k dollar' is worth $1 – tax liability on $1 (maybe 25 cents) and I can probably only buy 75 cents worth of candy with a 401k dollar after it's taken out of the retirement account. Loans are also 'capped' at $50,000 and so in many cases-are not enough to do a proper split between parties.

Can I direct my ex to manage my money in a specific way and do they have to comply?

You most certainly can and you most certainly should and your ex has fiduciary duties to you-so yes-they must listen to you and the investment strategies should be joint. I think that if an 'out spouse' wants to 'hold accountable' the investment moves of the account holder spouse-then a written instruction that is specific and direct is recommended. It creates a record to show the judge which party is actively working with their former spouse to preserve the community assets and manage the community assets appropriately and which parties are working unilaterally to the detriment of the other party or assigning blame unilaterally. While 401(k) plans are not houses-the same concepts apply. You would not take a wrecking ball to your family residence and if your ex told you they planned to take a wrecking ball to your family residence-you would not stay silent. I think if you want to protect your 401(k)-you need to be vocal about what you want and advise your ex that you don't want them to take a wrecking ball to the 401(k) via a 'buy/sell' move or you ex needs to make a 'buy/sell' move to avoid the next coronavirus wrecking ball that is coming.

What if they don't-what recourse do I have?

You *might* be able to freeze up investment portfolio allocations via joinders and notice of adverse interests being sent to the plans-but I would not count on it. 401(k) Plans are governed by ERISA and are federally preempt from joinders and compliance with notices of adverse interest and generally DO NOT freeze up the ability to re-allocate investment portfolios. In fact-they could be found liable for doing so under the 'safe harbor' provisions of ERISA 404(c). Some DO freeze up investment allocation moves, however. If you believe the best thing to do is 'shelter in place' your retirement assets, then try it and see-there is no 'uniform policy' across different 401k and other defined contribution accounts. It might work-it might not. If the plan admin will 'freeze it up' with a notice of adverse interest, the

DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 4

plan admin will probably also 'unfreeze it up' with a 'notice of release of community hold request'.

Your ONLY recourse if the plan admin does not respond with a freeze in response to a notice of adverse interest-is likely going back to court and asking the court to assign liability for losses at a later date in time when the courts 'reopen' to litigating these sorts of issues….which may be a long time because it's possible that these financial issues will be 'de- prioritized' against all the custody issues that are most certainly building up during this time and require the court's attention upon reopening. In other words-it's possible the courts will 'reopen in stages' and the QDRO stage may be later in time then the custody dispute stage….be prepared for 'justice to shelter in place' on these QDRO issues for awhile….

Can you-David Ruegg-freeze up my ex's account?

As I stated above-there are x2 ways you can 'lose money' in this market-by making active buy/sell moves (getting out of the equities market right before the 'bounce back up' – and realize a 'lost opportunity cost')…or by NOT making buy/sell moves (i.e. by not selling the equities you have to get out of the way of the next coronavirus wrecking ball).

As a QDRO attorney and as a neutral in most of these cases-it is above my pay grade and certainly NOT within the scope of my retention to make the 'financial call' on what the “right move” financially and therefore I decline to participate in an active role to direct parties how they should or should not invest their money and I decline to participate in freezing account investment reallocation.

HOWEVER, I have tools that *might* accomplish this task of 'freezing up' account investment moves-such as joinders and notices of adverse interest. As a neutral attorney-I offer these tools to anyone and everyone who wishes to use them. Joinders likely cannot be filed right now with court closures, but un-filed notices of adverse interest can be sent to the plan and may work in a lot of cases and I will provide a template to all parties and attorneys who believe 'freezing up' accounts is the 'right' move to make. But YOU-the client/attorney must make these decisions to send or not send out the joinders/notices of adverse interest and YOU will be held accountable for these decisions, I will not participate or put myself in the middle of this decision making process that has deep ramifications in these turbulent times.

I hope this letter provides those who work with me guidance on how I operate, and I hope this minimizes the need for the frequency of these appointments I am being flooded with on these questions.

Thank you, wash your hands, stay safe, and be civil with each other,

Moon, Schwartz & Madden QDRO and Valuation Consultants

3333 Vincent Road, Suite 260 • Pleasant Hill CA 94523 • (925) 258-7100 17901 Von Karman Avenue, Suite 600 • Irvine CA 92614 • (714) 430-8984

Eric J. Moon (retired) Fax (925) 258-3969 Matthew H. Schwartz www.msmqdros.com John C. Madden writers direct email: [email protected]

April 16, 2020

Mr. Joe Mediator (via e-mail only)

Re: Marriage of Smith

Dear Mr. Mediator:

I have evaluated the California Public Employees’ Retirement System (CalPERS) pension benefits for Joe Smith, as you requested.

Since Mr. Smith is still some years away from retirement, I have calculated two values. The first value is based on the assumption that either his employment would terminate immediately, or that it would continue but without additional salary increases through his assumed retirement at age 55. The second value is based on the assumption that his employment would continue with future salary increases through his assumed retirement at age 55. The actual value of the benefit depends upon the probability of continued employment with or without additional salary increases. Valuation of Benefits

In my opinion, the actuarial present value of the benefits accrued as of 3/2/2019 (the date of the pension statement provided), assuming either immediate termination of employment or continued employment but without additional salary increases through his assumed retirement at age 55, is $506,2391. The community share proportion is .57887, which makes the community share worth $293,044 and the former spouse’s share worth $146,522. This would be the value for purposes of immediate offset or buyout.

In my opinion, the actuarial present value of the benefits accrued as of 3/2/2019 (the date of the pension statement provided), assuming continued employment with additional salary increases through his assumed retirement at age 55, is $635,971. The community share proportion is .57887, which makes the community share worth $368,141 and the former spouse’s share worth $184,071. This value is provided for your understanding of how salary improvements could increase the community pension.

The community share was estimated based on 9.997 years of full-time employment between the date of marriage and date of separation, divided by a total of 17.270 years accrued as of 9/30/2018.

1 All values stated in this report are pre-tax except as noted otherwise.

Statistical Information and Valuation Assumptions

For purposes of my report, I assumed no Additional Retirement Service Credit (ARSC), redeposits for previously withdrawn contributions, military service or service prior to membership occurred within the account. If this is incorrect, please let me know immediately so that I may update my report as necessary.

The valuation and community share proportion therein were based on the following:

Date of Birth: 09/06/1975 Date of Hire: Prior to marriage Date of Marriage: 11/01/2008 Date of Separation: 10/29/2018 Date of Accrual: 03/02/2019 Benefit Payable: $3,261.69 per month @ 55 Pre-retirement growth: 2.00% (compounded), where applicable Cost-of-Living: 2.00% (compounded)

The amount of the pension benefit accrued as of 3/2/2019 was calculated from the 2% @ 55 formula in the plan booklet, based on salary information provided by your office and www.transparentcalifornia.com. Mr. Smith’s current average salary excluding overtime is $8,201 per month (coordinated with social security).

Mortality Table: RP-2014 mortality (male), projected to 2020 using Mortality Improvement Scale MP-20192

Discount Rate: Segment Rates (IRC 417(e)(3)) Tier 1 = 1.73%, Tier 2 = 2.72%, Tier 3 = 3.35%

Due to the severe drop in interest rates the present value of pension benefits, which has an inverse relationship to interest rates, has increased.

The values stated within this report represent the estimated actuarial present value of the monthly benefit and does not represent an actual lump sum amount payable by the plan. The values given above are for the defined benefit pension plan only, and do not include the value of benefits expected from participation in any other plan. Feel free to call me if you have any questions, and thank you for the opportunity to be of service.

Sincerely,

John C. Madden

2 Based on 26 CFR 1.430(h)(3)-1 - Mortality tables used to determine present value, and “Actuarial Standard of Practice No. 34” from the Actuarial Standards Board.

Not$the$total$value$

@$55$=$16.638$X$$9,164$x$.03$=$$$4,574/mo$

Present$value$=$$1.3$million$

RE: CalPERS/CalSTRS Shared Interest vs Account Segregation vs Cash Out Options

Dear Client(s):

This letter explains the difference between the Shared Interest, Account Segregation, and Cash Out Options under CalPERS or CalSTRS. Note that this decision belongs to the Non- Member/Non-Employee spouse (See Family Code §2610(a)(3)). Note that if the Member is already retired there are no options and the 'already retired' format option must be used.

Unless otherwise directed, my office assumes the Non-Member Spouse desires the shared interest option.

Shared Interest Option

This is the most common option picked by the Non-Member Spouse. Under this option the Non-Member Spouse is able to “piggy-back” on the raises and promotions of the Employee Spouse to enhance the Non-Member's interest. If-for example-the Member was married and earned 20 years of service-then the Non-Member spouse would be entitled to 10 years of service. The value of those 10 years could be 2.5% x 10 years x highest pay of member spouse at time of retirement. Under this formula, the Non-member Spouse's benefits 'promote' with the Member Spouse. The downside to this approach is that CalPERS/CalSTRS will not pay the Non-Member Spouse directly until the Employee Spouse actually retires. Gillmore rights, however, are still retained.

Account Segregation Option

This option is less common, but if there is a substantial age gap or health concerns of the Non-Member Spouse or some other reason (there is no expectation of promotions/pay raises in the future), it might make sense to pick the account segregation option. Under this approach, the years of service are segregated into a separate account for the Non-Member Spouse. While the Non-Member Spouse will be able to 'retire' and commence benefits independent of the Member Spouse, the downside to this approach is that the benefits are 'frozen' and any post-dissolution enhancements to the benefits due to pay raises/promotions will be the Member's Separate property. If we use the same 20 year example, the formula changes to: 2.5% x 10 years of service x pay at time of dissolution…you can see the downside to the Segregation Approach for Non-Member Spouse if pay raises are significant.

www.qdrodivision.com DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 2

Cash Out Option

The 'Cash Out' option is really a sub-option of the account segregation approach. If the Non-Employee Spouse choses to segregate, one possible pay out option CalPERS/CalSTRS will offer to the Non-Employee Spouse will be 'cashing out' the mandatory service contributions made during the years assigned to the Non-Member Spouse. Note that this would include mandatory contributions plus interest, but not any of the employer-side contributions to the benefits (which WOULD be included in a shared interest division or account segregation division where monthly checks are chosen). Choosing to cash out is almost always fiscally irresponsible and AGAINST MY ADVICE absent extreme circumstances (the non-employee spouse has a terminal disease, for example). The value under a cash out is far less when compared to choosing a life-time payment under the segregation approach.

By copy of this letter I am notifying you that if you decide to choose account segregation and 'cash out' for your payout option-I am not liable for the financial ramifications of such a decision. I am notifying you now that to make this decision is likely not in your best interest and you would be forgoing a great deal of money by making this decision.

Call me with questions if you wish to discuss these options further. As discussed, my office's default selection is shared interest, absent different instructions from the Non- employee spouse.

Enclosure: Proposed QDRO/DRO(s) cc: Attorney(s) of Record

QDRO CASH OUTS, EQUALIZATIONS, AND TAX RAMIFICATIONS

by David T. Ruegg Perhaps one of the most frequent questions that both allow for an early distribution, such as first time homebuy- attorneys and potential clients want to know about the ers or higher education expense exceptions. QDRO (Qualified Domestic Relations Order) process is: TIP: Oftentimes, the Alternate Payee is not the Can we use the QDRO process to resolve XYZ obligation? only party that is seeking a “cash out.” Many times, the The answer to this question, like the answer to many legal Participant also wants to know if he/she can take money conundrums is: it depends. In discussing this topic, it is out of his/her own account via the QDRO process to avoid important to understand both the type of account and the tax penalties. The answer is “maybe” because it depends type of obligation client is trying to satisfy. on how willing both parties are to work with each other. I. Defined Contribution Accounts Under the Employee Retirement Income Security Act of Falling under the umbrella of defined contribution 1974 (ERISA), an Alternate Payee cannot be anyone other accounts are accounts such as 401(k), 403(b), 457(b), IRA, than a spouse, former spouse, child, or other dependent of Thrift Savings Plan (TSP), and similar. These accounts are the Participant [ERISA § 206(d)(3)(K), IRC § 414(p)(8)]. As “investment in money” accounts because their value is Participant cannot also be an Alternate Payee of his/her own completely dependent on how much money employee client plan, Participant cannot directly “cash out” via the QDRO (“Participant”) invested in the account. Employee’s final pay order. grade, rank, or years of service are irrelevant to the value of However, there is nothing stopping Alternate Payee these accounts. from voluntarily turning over funds received to a third A. Cashing Out To Pay Bills party, even back to Participant. You might be able to guess what I am hinting at… For example: Participant and When a client on the receiving end of the QDRO (the Alternate Payee agree that Alternate Payee shall receive 50% “Alternate Payee”) asks if they can “cash out,” what they of the community interest in the 401(k) plus $50,000. They mean is: Can I spend my money right now? A “cash out” is further agree that after the QDRO is complete, Alternate different from a “rollover” where the client wants to main- Payee will pay back to Participant the net on $50,000. tain the tax-deferred status on the funds by transferring While there are no tax penalties triggered in this fact pat- into another deferred tax account. A common question that tern (only ordinary taxes on funds received), there is a real comes up when discussing “cashing out” is whether or not danger if the parties are not completely cooperative. ERISA Federal and State tax penalties will be assessed if Alternate provisions have strict anti-alienation rules which prevent Payee is under the age of 59 ½. Plan Administrators from turning over funds except in If payment is made pursuant to a QDRO, then pursuant very specific circumstances. Translation: If Alternate Payee to Internal Revenue Code 72(t)(2)(c), Alternate Payee falls decides to break the agreed arrangement and roll over the within an exception to the normal penalty rules; meaning funds into a traditional IRA account, Participant is going to no tax penalties are assessed. However, ordinary income have to overcome some additional hurdles for a safe return taxes will apply based on Alternate Payee’s tax bracket. As of funds. required by IRS rules, Plan Administrators withhold 20% of Also, calculating proper allocation of income tax can be the funds distributed to Alternate Payee for estimated taxes. Actual taxes are determined after Alternate Payee files his/ a real headache when this “creative” procedure is employed. her tax return. Depending on Alternate Payee’s personal Alternate Payee is still personally responsible for ordinary tax bracket, the 20% withholding may be an overestimate income taxes on all the funds Alternate Payee receives. or underestimate-resulting in a refund or additional tax Since the Plan Administrator withholds 20% of the funds liability. payable for estimated taxes and actual taxes will not be This tax exception does not apply to IRA accounts [See determined until tax filing in the upcoming year, figuring Internal Revenue Code 72(t)(3)]. IRA funds can be trans- out who should pay what for income taxes, and at what rate, ferred pursuant to Internal Revenue Code 408(d)(6), but can be quite confusing. funds cannot be “cashed out” via the same “divorce excep- B. Equalizing Against Other Assets tion” of a true QDRO. An Alternate Payee should talk to a The most important question that needs to be asked CPA to find out if special IRA exceptions apply which would when talking about utilizing a defined contribution account

10 Riverside Lawyer, April 2016 for equalization against other assets is: Is the asset we are The point being: be very careful when equalizing larger equalizing against pre- or post-tax? retirement assets. A 401(k) held at one company is not the Fox example, when a vehicle is sold, the funds received same as a 401(k) held at another company, unless they are for that vehicle are after-tax, since the vehicle was pur- invested the exact same way. When possible, retirement chased with after tax money. This means if an equalization assets should be divided in kind and equalization should be is made for a vehicle, the equalization should be adjusted used sparingly or only for smaller accounts where the risk up to account for the fact that the funds received from the is lower that a market swing will cause a grossly inequitable defined contribution account will be pre-tax (the exception result, as in the hypothetical above. is Roth accounts). II. Defined Benefit Accounts — What About By contrast, equalization for spousal support arrears Buyouts? would be a pre-tax payoff from a pre-tax account. Just as In general, defined benefit accounts have much less recipient spouse must include timely spousal support pay- flexibility for “creative ideas” when talking about equaliz- ments as additional gross income, the recipient spouse ing or offsetting for other assets. The main reason for this must include received QDRO funds for support arrears in is that these accounts are difficult to accurately obtain an his/her gross income (included at the time the funds are exact value before retirement. Many defined benefit plans cashed out). are based on final pay, rank, or position in a company. Who TIP: Judicial Council Form FL-460 is an excellent form can accurately predict how quickly or slowly an employee for collection of child, spousal, and family support. It is very will climb the “career ladder”? detailed regarding the proper tax allocations and withhold- That being said, agreeing to a buyout of a pension plan ings the Plan Administrators should make depending on the type of support. This form can be a very useful tool and is common in many divorce cases and will likely continue should not be neglected when considering options regard- to be common. I would encourage any party or attorney ing child, spousal, or family support arrears. considering a buyout not only to seek a valuation through a licensed actuary, but also to make sure the client under- C. The Equalization Trap Between Retirement stands how benefits are accrued and the potential monthly Accounts income that is being waived by the buyout. Often times I see dissolution judgments that lump An understanding of the pension plan means knowing together large retirement accounts with the intent to if the plan offers Alternate Payee a separate versus shared “simplify” the QDRO process by reducing the number of interest division approach, offers a lump sum payout of QDROs required. While it may seem like a smart idea to Alternate Payee’s share directly from the Plan, and what combine multiple accounts into one QDRO to save on happens in the event of employee’s death; i.e., are survivor QDRO Attorney fees and Plan Administrator fees, consider benefits available to former spouse? These are just a few of this hypothetical: the questions that should be discussed for purposes of trying Husband has a 401(k) worth $150K as of date of separa- to evaluate a pension buyout as part of a global settlement. tion September 1, 2015 and all $150K is comprised of large A partial buyout is also within the realm of possibility index fund holdings. Wife also has a 401(k) worth $100K for purposes of global settlement. Alternate Payee may agree as of date of separation September 1, 2015 but all of her to give up some, but not all, of Alternate Payee’s community $100K is comprised of employer company stock. In an effort interest in the Participant’s pension plan for a certain sum to “simplify” the process, Husband and Wife’s attorneys of money. For purposes of calculating what that buyout agreed that as of date of separation the community property scale should be, an actuary should to be hired to convert interest is $250K and in order to equalize, Husband shall percentages of future streams of income into present values pay to wife via QDRO $25K. Fast forward to March 1, 2016, such that each percentage point Alternate Payee is willing the parties are now ready to proceed on the QDRO. Neither to give up is worth a specific dollar value. party invested further money into their respective accounts When dividing retirement accounts, if a “creative” pro- after date of separation because “the divorce process was so posal is made that deviates from a standard 50-50 split of the expensive.” Husband’s account stayed relatively the same and is now valued at $151K. However, wife’s company community property, it is imperative that the attorney and recently lost a huge contract and as a result her company client understand how that retirement account functions stock took a significant hit. Wife’s account is now valued at and is valued, before signing off on that division method. $79K. Although both accounts should still be categorized David T. Ruegg is a Riverside QDRO attorney and Co-Chair as 100% community property (combined $230K), because of the RCBA Family Law Section with his wife, NaKesha S.D. of the way the judgment is written, Wife ends up with only Ruegg. David can be reached through his website – www. $104K after receiving $25K and Husband ends up with qdrodivion.com. $126K.

Riverside Lawyer, April 2016 11 Common QDRO Judgment Language Errors and How to Fix Them

by David T. Ruegg and NaKesha S.D. Ruegg A QDRO (Qualified Domestic Relations Order) is a public information websites such as www.freeerisa.com judgment, decree or order for a retirement plan to pay or www.brightscope.com, which aggregate information child support, alimony or marital property rights to a on IRS 5500 forms, required by all ERISA plans. There is spouse, former spouse, child or other dependent of a no cost to use either website and they both contain useful participant. A common problem for QDRO attorneys is information regarding retirement assets such as names, unclear judgment language that leaves too much room addresses, and phone numbers of the plan administrators. for interpretation by parties at odds with each other. This Use of the QDRO attorney as your only ‘safety net’ to catch article will cover some of the more common mistakes that all the potential retirement accounts, is not a great strat- should be avoided. egy and should be avoided. The Unspecific “Catch All” Error The Specific Dollar Award Error “Any and all of Petitioner’s retirement accounts, “Respondent is awarded $25,000 via QDRO from including but not limited to pension plans, profit Petitioner’s 401(k) Plan, payable via QDRO.” sharing plans, IRAs, 401(k)s, deferred compensa- The problem with the above format is twofold: it lacks tion, or other retirement accounts shall be divided direction on the inclusion or exclusion of gains/losses and by QDRO.” it lacks specificity regarding a valuation date. The problem with the unspecific “catch all” strategy On the market fluctuation (gains/losses) point, the is that it lacks specificity on what plans exist that should question becomes: Is the $25,000 award supposed to adjust be divided. The job of a QDRO attorney is not to conduct for market fluctuation of the underlying investments or discovery for the underlying case or to act as a “detective” not? 401(k)s and other defined contribution accounts are for the non-employee spouse. Discovery of retirement invested in stocks, bonds, mutual funds, and other invest- assets is the job of the family law attorney and by the time ment vehicles that fluctuate daily with the rise and fall of the judgment is entered, the retirement accounts should the stock market. Is the intent that the $25,000 should be already be discovered or disclosed, so the exact plan names the exact amount down to the penny that should be leav- of all retirement assets are identified in the final judgment. ing the retirement account at the date of transfer? Was the While the QDRO attorney has some ‘tricks’ and ‘tips’ intent that the $25,000 should ride the waves of market for uncovering previously unidentified retirement assets and might be able to uncover hidden assets in some fluctuation? A QDRO attorney is not a judicial officer, so instances, keep in mind the ethical considerations the the QDRO attorney should not be “ruling” on this ques- QDRO attorney must consider. The QDRO attorney is tion. commonly appointed as a neutral expert and as a neu- The second layer of complexity with the above lan- tral expert, the QDRO attorney cannot advocate for one guage is the valuation date. Let’s assume for a moment party over the other. The act of poking around looking the parties have agreed the $25,000 should fluctuate with for previously undiscovered retirement accounts after the market. That might be great progress for parties who entry of final judgment is a form of discovery, which could do not always get along, but now the question becomes: put the QDRO attorney in a tough spot if the employee From what date should the gains/losses be tracked? From spouse claims the act of discovery only benefits one party. date of separation? From the judgment entry date? From The QDRO attorney should not be forced into conflicting the date the parties calculated the “specific dollar” award? roles of neutral expert and “detective/retirement discovery Each date will cause a different mathematical result, expert.” which leads to problems when the date is not specified in If family law counsel has difficulty discovering retire- the judgment. ment accounts, family law counsel should contact a Unfortunately for the QDRO attorney trying to prob- QDRO attorney for advice before entry of final judgment. lem solve these situations, case law is not settled on this Family law counsel should also consider utilization of quandary.

14 Riverside Lawyer, November 2018 From the Fourth Appellate District, Third Division, Use of the Word “Half” Error In Re Marriage of Heggie (2002) 99 Cal.App.4th 28, 120, “Petitioner’s 401(k) shall be split in half between Cal.Rptr.2d 272 discusses a “specific dollar” award from the parties as of date of separation, via QDRO.” the husband to the wife, to equalize the values of their This language may not cause a problem in all cases. respective IRA accounts. After the entry of judgment, Where there is no pre-marital separate property interest the husband’s IRA account sharply increases over a short to be considered, half of the total vested account balance period, while miscommunications between the parties pre- as of date of separation IS ONE AND THE SAME as half of vents the IRA funds transfer from finalizing. Attempting to the total community property interest, since 100% of the “re-equalize” at the higher values, the wife requests a set total account balance as of date of separation is also 100% aside of the judgment. The Heggie court found that a set community property. 50% of the total vested account bal- aside request based on subsequent circumstances casing ance is equal to 50% of the community property portion. the division of assets and liabilities to become inequitable, However, this language becomes problematic when was not sufficient grounds for set aside under Family Code there is a pre-marital separate property claim. It seems the section 2123. The court stated that the wife’s strategy of door is open for the non-employee spouse to argue that the “wait-and-see, have-your-settlement-and-set-it-aside-too- account owner “waived’ his/her pre-marital separate prop- if-stock-prices-go-up position” would be an unfair result. erty interest. The judgment language states the 401(k) The court ruled that the wife only could have her specific account shall be split “in half” between the parties. How dollar award without market appreciation. many ways can the word “half” be interpreted, really? In a The Heggie ruling is contrasted with the Fourth dispute between the parties, at least two ways. The account Appellate District, Second Division case, In Re Marriage holder argues the word “half” means half of the commu- of Janes (2017) 11 Cal. App. 5th 1043 (Cal. Ct. App. 2017), nity interest, and the non-account holder argues “half” which also deals with a “specific dollar” award. In Janes, means half of the total underlying account value, either the wife received a specific dollar award from the hus- interpretation is not unreasonable, and that’s the problem. band’s 401(k), and then a delay of over four years occurred The best way to avoid a debate over the meaning of the before the QDRO was pursued. Similar to the facts of word “half” is to properly define the division method. If the Heggie, in Janes the underlying account investments in parties intend that half of the total vested account value be the husband’s account increased in value over the four- split, then the phrase “half the total vested account value” year passage of time and the wife requested a share of is clear. If half of the community interest is intended, then those gains. The court in Janes concluded the wife was using the phrase “half of the community interest” is clear. entitled to a proportional share of the gains in the underly- By keeping these easy fixes in mind, many headaches can ing investments. The court pointed out that no valuation be avoided at the QDRO stage. date was specified in the judgment for the specific dollar Loan Language Errors 1 award, and no directions regarding inclusion/exclusion of “The loan against petitioner’s 401(k) account shall gains and losses was specified. Due to the lack of direction be paid off through the QDRO process, and the in the judgment, the court concluded that the wife’s “spe- remaining balance of the 401(k) shall be split via cific dollar interest” was vested as of date of the judgment QDRO.” (the valuation date), and the wife’s investments fluctuated Please do not ask the QDRO attorney to “pay off’ the with the market inside the husband’s account (gains and 401(k) loan via QDRO; that is not an available option to losses were included). The Janes court directed that absent the QDRO attorney. Loans from a 401(k) can only be “paid a specific valuation date and instructions on gains/losses, off’ with outside funds, which are part of the underlying the valuation date shall be the date of entry of judgment account. and gains/losses will be included from the date of judgment to the date of account division. Loan Language Errors 2 Since the Janes and Heggie cases are out of different “Respondent shall pay back the loan on petition- appellate divisions, they are both good law. It seems the er’s 401(k) account and the community property distinguishing factor between the two cases is the pas- interest shall be split equally via QDRO.” sage of time between the judgment date and the account The core of the confusion on the “payback of loans” is division date. To avoid an unnecessary analysis of the the QDRO attorney must think in terms of “including the Janes and Heggie cases in a court hearing, counsel should loan” (mathematically adding the loan value back in as an specify inclusion/exclusion of gains and losses, and a valu- asset of the 401(k) before division) vs. “excluding the loan” ation date for any “specific dollar” award in the judgment. (not adding the loan value back in as an asset of the 401(k)

Riverside Lawyer, November 2018 15 before division). This does not translate with “the loan example. Another common mistake is always adding in should or should not be paid back” by the non-employee language for the ‘time rule’ formula, no matter what type spouse. of retirement account is being divided. The time rule for- The concept often lost with parties/attorneys is that mula is more commonly used for division of a pension plan loans against retirement accounts differ from loans against (and it is not appropriate for all pension plans) and should credit cards or other third-party obligations. Loans against rarely be utilized for division of a 401(k). Unless the fam- defined contribution accounts are BOTH an obligation ily law attorney is intimately familiar with the differences AND an asset to the employee spouse. The reason is between various retirement accounts and how they func- that the loan payments are due FROM the employee tion, additional mechanical instructions on how the com- spouse (obligation) and TO the employee spouse’s account munity interest shall be calculated, can be very confusing (receivable/asset). The employee spouse is both the “bank” to the parties and the QDRO attorney. loaning the money and the “debtor” borrowing the money. Because of this dual characteristic, 401(k) loans differ So What Language Does Work? from third-party loans, where the third-party retains the [NOTE: This language SHOULD NOT be used for divid- repaid principal and interest. With 401(k) loan, each paying an Armed Forces Retirement System account (military ment increases the underlying value of employee’s 401(k) pension). Special language is required in military cases account and reduces the outstanding balance of the loan. and a competent QDRO attorney should be consulted The employee retains the repaid principal and interest. before entering a bifurcated or final judgment.] The best advice for handling loans in a judgment, is to “The community property interest in petitioner’s describe how the loans are classified: Are they community ABC and XYZ retirement accounts and the com- or separate property loans? If the QDRO attorney knows munity interest in any survivor benefits in the the loan is a community or separate property, then no accounts will be equally split between the parties matter when the loans are taken out (before or after date via QDRO/DRO. For purposes of the QDRO/DRO of separation), the QDRO attorney can properly account the parties’ date of marriage is [DOM] and the par- for handling the loan following community property prin- ties’ date of separation is [DOS]. [Favorite QDRO ciples. attorney] will be the Evidence Code section 730 Adding Too Many Directions Error expert for the division order(s) and the parties will retain QDRO attorney’s services within 30 days “The community property interest in Petitioner’s of entry of judgment. QDRO attorney’s fees will 401(k) account shall be defined as the contribu- be split equally between the parties. Both parties tions between date of marriage and date of separa- will cooperate with QDRO attorney’s requests for tion. Contributions prior to marriage or after separation shall be confirmed as petitioner’s separate records to complete said divisions, including any property. Petitioner’s 401(k) account had a value records that may be needed for separate property of $100,000 as of date of signing this agreement tracing analysis.” and the parties agree a 50-50 split is appropriate.” This language is ideal for several reasons. The above language has a conflict in it. Can you spot (1) This language can be used for any plan (other than it? This language suggests two methodologies for splitting military) where the desired outcome is a community split- the underlying account. The first part the instructions defined benefit/defined contribution/union/non-union/ appear to intend a standard community split. However, the state/federal/etc. Unless the Parties want to deviate from a second half of the QDRO instructions appear to define the standard community split, there is really no reason to go 50-50 split value as $100,000, implying each party should into extreme detail regarding how the plan will be divided receive $50,000. What is it? A 50-50 split of the commu- or change the marital settlement agreement language nity? Or $50,000 to each party as of judgment entry date? depending on what type of account is being split. “Equal Is the $100,000 a ‘for your information only’ fact? Or is split of the community” means the QDRO attorney follows the $100,000 what the parties agreed community value is established California community property law to divide for purposes of the QDRO? If contributions or withdrawals the account and any potential disputes between the parties were made between the separation date and date of judg- can be resolved by pointing to established codes and case ment, then the mathematical result of a ‘community split’ law. This way of problem solving is much easier than try- vs a $50,000 award to each party would be different. ing to piece together what was or wasn’t said in settlement Many family law attorneys believe they are being negotiations, when the judgment language is ambiguous, helpful by adding additional details, such as in the above and parties are questioning the drafting of the QDRO.

16 Riverside Lawyer, November 2018 (2) This language includes an award of the community David T. Ruegg and NaKesha S.D. Ruegg are partners at the property interest in survivor benefits (which under Family Law Offices of Ruegg & Ruegg, a QDRO law firm. David and Code 2610, the non-employee spouse is entitled to as a NaKesha are also the current RCBA family law section co- matter of right.) This can be important where an untimely chairs. They can be reached by phone at 951/523-7376, or by email at [email protected] and nakesha@qdrodivision. death occurs, and that language becomes critical to pre- com. serve jurisdiction to prepare a ‘post death QDRO’. When a remarriage occurs, this language is critical to preserve a former spouse’s survivor rights. Absent this language, the new spouse’s survivor rights would supersede the former spouse’s rights. This hypothetical horrible became a reality Membership for one such former spouse in the case of In re Marriage of Padgett (2009) 172 Cal. App.4th 830, where the judgment The following persons have applied for membership in the “reserved” over the retirement benefits and no mention Riverside County Bar Association. If there are no objec- was made regarding survivor benefits. tions, they will become members effective November 30, (3) This language includes a provision that the parties 2018. will provide any records requested by the QDRO attorney, which is critical in high conflict cases where one party simply refuses to provide necessary documents because Sean C. Florence – Law Student, Whittier “the judgment does not order it.” Sarah A. Hodgson – Riverside Superior Court, Riverside Another great place to lift language is from the rarely Tara L. Urban – Office of the District Attorney, Riverside used Judicial Counsel Form FL-348. Better yet, attorneys and parties may want to use FL-348 as a standard attach- David Vasquez – Law Offices of David Vasquez, Redlands ment to their marital settlement agreements. Be a leader Jeffrey M. Zimel – Office of the Public Defender, Riverside and start a new trend! FL-348 is an excellent form and avoids all the unnecessary errors discussed in this article.

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Riverside Lawyer, November 2018 17 FL-348 PETITIONER/PLAINTIFF: CASE NUMBER:

RESPONDENT/DEFENDANT:

PENSION BENEFITS—ATTACHMENT TO JUDGMENT (Attach to form FL-180)

This order concerns the division of retirement and survivor benefits between the following two parties: Name of petitioner: Name of respondent: Address of petitioner: Address of respondent:

Date of marriage or registration of domestic partnership: Date of separation:

TO THE EMPLOYER/PLAN ADMINISTRATOR OF EACH PLAN IDENTIFIED BELOW: Each party identified above is provisionally awarded without prejudice, and subject to adjustment by a later domestic relations order, a separate interest equal to one-half of all benefits accrued or to be accrued under any retirement plan in which one party has accrued a benefit, including but not limited to the plans listed below, as a result of employment of the other party during the marriage or domestic partnership and before the date of separation. In addition, pending further notice, the plan must, as allowed by law, or as allowed by the terms of the plan in the case of a governmental plan, continue to treat the parties as married persons or domestic partners for purposes of any survivor rights and benefits available under the plan to the extent necessary to provide for payment to the surviving spouse or domestic partner of an amount equal to that separate interest or of all of the survivor benefits if at the time of death of the participant there is no other eligible recipient of the survivor benefit.

TO THE PARTIES: Each party must provide the information and take the required actions listed below to protect the other party's interest in retirement benefits: 1. List below (or on a page attached) the name and address of each employer for which you or the other party work or worked where either of you participated in a retirement plan during the marriage and before your separation. Include the name (or a description if you do not have the name) of each of these plans.

See Attached

2. For each plan you listed under item 1, promptly deliver a copy of this order to the plan's administrator. You can deliver a copy of this order in person or by mail. Provide a proof of service to the court and the other party. If you do not know the plan's administrator, deliver a copy to • the employer or plan sponsor, or, if unknown, • the trustee or custodian of any assets of the plan.

3. Each party who is a participant in a plan listed under item 1 must join that plan as a party to this case when joinder is required by law. (See Retirement Plan Joinder—Information Sheet [form FL-318-INFO].)

4. If you are not the party who participated in a plan listed in item 1 and are concerned that you have not received proof that notice of your interest has been delivered to that plan, you are encouraged to deliver a copy of this order to the appropriate plan administrator as described in item 2. You also have a right to join any plan that requires joinder in the event that no joinder documents have been filed with the court or served on the plan's administrator.

5. Each party must promptly let each plan representative know of any change in that party's mailing address until all benefits due that party under the plan have been paid.

Page 1 of 1 Form Approved for Optional Use www.courtinfo.ca.gov Judicial Council of California PENSION BENEFITS—ATTACHMENT TO JUDGMENT Family Code, §§ 2337, 2610 FL-348 [New January 1, 2009] NOTE: This language does not apply to military pensions.

The community property interest in Husband's ABC and XYZ retirement accounts and the community interest in any survivor benefits in the accounts will be equally split between the parties via QDRO/DRO. For purposes of the QDRO/DRO the parties’ date of marriage is DOM and the parties’ date of separation is DOS. [Optional at the preference of the attorney/parties] Attorney David T. Ruegg 951-523-7376 will be the Evidence Code 730 Expert [CCP 638 Special Master for Orange County cases] for said division order(s) and the parties will retain Attorney Ruegg's services within 30 days of entry of judgment. Attorney Ruegg's fees will be split equally between the parties. Both parties will cooperate with Attorney's Ruegg's requests for records to complete said divisions, including any records that may be needed for separate property tracing analysis.

The reasons I suggest this language is for several reasons:

1. You can use it for any plan where the desired outcome is a community split-Defined Benefit/Defined Contribution/Union/NonUnion/State/Federal/ect. (alternate splits based upon global settlement-adding in equalization or unequal splits-would be different-and I can assist with that language-as well). Unless you want to deviate from a standard community split-there is really no reason to go into extreme detail regarding how the plan will be divided or change the language from plan to plan. (I have countless judgments that fall on my desk that misapply the time rule or talk about months of service when the plan is not earned on the basis of months.) The major disputes arise where the judgment says 'half' and the parties disagree as to whether that means half of the community/half of the account value/half as of date of separation/half as of judgment/half as of retirement. ‘Equal split of the community’ means that the QDRO attorney follows established California community property law to divide the account-any disputes between the parties can be resolved by pointing to established case law vs. trying to piece together what was or wasn't said in the negotiations because the judgment language has wiggle room to interpret two ways.

2. It includes an award of the community property interest in survivor benefits (not always critical but a good practice). This can be important for certain plans that are underfunded that may try to fight a 'post death qdro'- claiming no benefits are payable because survivor benefits were not awarded to the former spouse before death and all benefits vested upon death. Even more important than that-preserving surviving spouse benefits of a former spouse if a remarriage of the employee spouse occurs and then the employee spouse dies before a QDRO is entered (in which case the new spouse's rights would trump the former spouse's rights without a specific award of survivor benefits to the former spouse before the death of employee-in some cases).

3. It includes a provision that the parties will provide any records requested by the QDRO attorney-critical in high conflict cases where one party simply refuses to provide necessary documents because 'the judgment doesn't say I have to'.

4. It is specific enough that any reputable QDRO attorney would interpret the award as a community property split and all the 'default rules' would be followed for division of that plan.

5. It is always correct regarding the terms QDRO vs DRO because it uses the term QDRO/DRO. This is not that important-but it is nice to know you would always be technically correct.

Another great place to 'lift language' is from Judicial Counsel Form FL-348 (see attached). Not commonly used by attorneys in judicial counsel form (I'm not sure why it's a great form) but great language.

FORMER SPOUSE LETTER Jane Doe 123 Frozen Benefits Lane San Diego, CA 92118

RE: Changes to Military Law

Dear Ms. Doe:

If you are not already aware-I want to make sure you are alerted to recent laws that impact your case. [If Applicable] National Defense Act of 2017

The National Defense Act of 2017 (NDAA2017) impacts all dissolution matters where judgment was or will be entered after December 23, 2017 and where the service member has not yet retired. Since your ex is actively serving, your case is impacted by this new law.

From a legal standpoint, NDAA2017 restricts the definition of disposable pay by adding sub-paragraph (B) to the definition of disposable pay under 10 U.S.C. 1408(a)(4)(A) as follows:

(B) For purposes of subparagraph (A), the total monthly retired pay to which a member is entitled shall be— (i) the amount of basic pay payable to the member for the member’s pay grade and years of service at the time of the court order, as increased by (ii) each cost-of-living adjustment that occurs under section 1401a(b) of this title between the time of the court order and the time of the member’s retirement using the adjustment provisions under that section applicable to the member upon retirement

From a practical standpoint, this means the Military Pay Office will not recognize enhancements to your community interest in your ex’s Military Retired Pay resulting from promotions or pay raises after final judgment is entered. Since under California Law, you are entitled to those enhancements, you will be ‘shorted’ every month if we do not make special arrangements.

www.qdrodivision.com DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 2

Some of the options to consider are: (1) An actuary buyout, (2) an adjustment to spousal support, (3) trusting your ex will pay you the shortfall each month, or (4) relying on ‘enforcement’ remedies such as bank levies to collect the shortfall.

The strategy we employ will depend on how cooperative your ex is and what leverage we have to persuade him/her to agree to court orders that account for this new law. You have the uphill battle with this law, but I am confident together we can come up with practical options to protect your interests.

I look forward to discussing our strategy further on this issue and other issues in your matter. Please contact my office to set an appointment so we can discuss.

[If Applicable] Howell v. Howell

The Howell vs Howell case came down on May 15, 2017 and impacts all dissolution matters where the Military Spouse may have an opportunity to waive retirement pay in favor of receipt of disability payments. We need to discuss if this is a possibility in your matter.

From a legal standpoint, the Howell Case held that a state court may not order a veteran to indemnify a divorced spouse for the loss of the divorced spouse’s portion of the veteran’s retirement pay caused by the veteran’s waiver of retirement pay.

From a practical standpoint, this means if we do not insert specific provisions protecting you into your court orders, you may lose your right to receive some or potentially all of your entitled community interest in your ex’s Military Retired Pay, should your ex qualify for certain disability payments.

Some of the options to consider are: (1) An actuary buyout, (2) an adjustment to spousal support, (3) contractual indemnification if your ex voluntarily agrees, or (4) taking a risk and hoping that your ex will never waive a portion of his/her retired pay in the future.

I look forward to discussing our strategy further on this issue and other issues in your matter. Please contact my office to set an appointment so we can discuss.

DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 3

[If Applicable] Blended Retirement System

It is my understanding your former spouse entered the Blended Retirement System in this matter, which is the Military’s new retirement system as of January 1, 2018.

From a legal standpoint, there are still many unknowns regarding how the Blended Retirement System will be implemented. The basic changes are (1) an enhanced thrift savings plan (TSP), (2) a reduced defined benefit plan, (3) a mid-career incentive bonus/continuation pay option, and (4) an option to receive an immediate or partial lump sum payment in exchange for a reduced defined benefit plan upon retirement.

From a practical standpoint, our strategy at this point is to put in place a contingency plan to protect your interests. The questions we will have to address with your ex and the Court are “What portion of the mid-career incentive bonus/continuation pay should be considered community property? What happens if Service Member takes an immediate partial lump sum payment against the defined benefit plan? Should the reduction in the defined benefit program trigger some other offset to Former Spouse?”

I have different thoughts on how to approach the contingency plan if your ex elects to enter the program that we should discuss. The strategy we employ will depend on how cooperative your ex is and what leverage we have to persuade him/her to agree to court orders that account for this new law. You have the uphill battle with this law, but I am confident together we can come up with practical options to protect your interests.

I look forward to discussing our strategy further on this issue and other issues in your matter. Please contact my office to set an appointment so we can discuss.

MILITARY SERVICE MEMBER LETTER John Doe 987 Frozen Benefits Lane San Diego, CA 92118

RE: Changes to Military Law

Dear Mr. Doe:

If you are not already aware-I want to make sure you are alerted to new laws that impact your case.

[If Applicable] National Defense Act of 2017

The National Defense Act of 2017 (NDAA2017) impacts all dissolution matters where judgment was or will be entered after December 23, 2017 and where the service member has not yet retired. Since you are actively serving, your case is impacted by this new law.

From a legal standpoint, NDAA2017 restricts the definition of disposable pay by adding sub-paragraph (B) to the definition of disposable pay under 10 U.S.C. 1408(a)(4)(A) as follows:

From a practical standpoint, this means the Military Pay Office will not recognize enhancements to the community interest for the benefit of your ex resulting from promotions or pay raises you earn after final judgment is entered. While this may seem like great news, under California Law, your ex is still entitled to those enhancements, and so you will be responsible every month out of pocket to ‘make up’ the shortfall amount if we do not make special arrangements.

www.qdrodivision.com DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 2

Some of the options to consider if you do not want to be responsible for this monthly obligation are: (1) An actuary buyout if you have the money to buy out your ex, (2) an adjustment to spousal support or (3) Paying your ex the net amount of the ‘shortfall’ monthly as a nondeductible property division (which may leave you in a higher tax bracket as a result).

I look forward to discussing our strategy further on this issue and other issues in your matter. Please contact my office to set an appointment so we can discuss.

[If Applicable] Howell v. Howell

From a practical standpoint, this means you have a right to receive the FULL amount of your disability payments, even if that means a monthly reduction results to your former spouse from a future waiver of Military Retired Pay. While this might seem like great news, you should keep in mind that family law cases are not analyzed in a vacuum. This is not a ‘golden ticket’, it is just one aspect of your case we should consider as we work towards resolution of your matter.

Some of the options that may be available to us in light of the Howell case: (1) An actuary buyout of your military pension may be more attractive to your ex, (2) we might consider an adjustment to spousal support as form of indemnification that you voluntarily agree to (perhaps in a negotiated settlement of all issues), or (3) we do not account for it and you may receive a windfall in the future.

I look forward to discussing our strategy further on this issue and other issues in your matter. Please contact my office to set an appointment so we can discuss.

[If Applicable] Blended Retirement System

It is my understanding you entered The Blended Retirement System.

From a legal standpoint, there are still many unknowns regarding how the Blended Retirement System will impact dissolution matters. The basic changes are (1) an enhanced thrift savings plan (TSP), (2) a reduced defined benefit plan, (3) a mid-career incentive bonus/continuation pay, and (4) an option to receive an immediate or partial lump sum payment against the defined benefit plan upon retirement.

DAVID T. RUEGG LAW OFFICE OF DAVID T. RUEGG Page 3

The questions we must anticipate your ex asking us/the court are “What portion of the mid-career incentive bonus/continuation pay should be considered community property? What happens if Service Member takes an immediate partial lump sum payment against the defined benefit plan? Should the reduction in the defined benefit program trigger another offset to Former Spouse?”

I have different thoughts on how best to approach these issues from the perspective of your family law case that we should discuss.

I look forward to discussing our strategy further on this issue and other issues in your matter. Please contact my office to set an appointment so we can discuss.

Military MSA Language Flow Chart-NDAA 2017 Is Military Spouse Retired AND In Pay Status as of Date of Judgment?

Yes. No.

NDAA 2017 Frozen Benefit Is Military Spouse Active OR a Rules WILL NOT impact Retired Reservist waiting for age this case. 60 to start pension payments?

Retired Reservist Use language from Active. waiting until age 60. Section 1.A.

NDAA 2017 Frozen Benefit Will Military Spouse Yes. Agree to special Rules WILL impact this language in MSA? case.

Use language from Use language from No. Section 1.B. Section 1.C.

Phone (Riverside/Main): (951) 523-7376 Facsimile: (855) 880-0098 [email protected] Military MSA Language Flow Chart-Disability Related Waivers Is Military Spouse Actively Serving?

No. Yes.

Is a VA disability rating Loss of interest in Military Retirement is a HIGH risk between 10% -40% to Former Spouse. likely to happen? Yes.

No. Is qualification for Combat- Is Military Spouse Related Special Compensation willing to put special No. likely to happen? language in the MSA to protect Former Spouse?

Loss of interest in Military Yes. Retirement is a LOW risk No. to Former Spouse.

Use language Use language from from Section 2.A. Section 2.B.

Phone (Riverside/Main): (951) 523-7376 Facsimile: (855) 880-0098 [email protected] Military MSA Language Flow Chart-Blended Retirement Has Military Spouse entered the ‘Blended Retirement System’ yet?

No. Yes.

The Military Spouse is stuck in the ‘old system’.

Use language from Section 3. No special MSA language needed.

All NEW service members entering Military after December 31, 2017 are automatically enrolled in the ‘new blended retirement system’.

Phone (Riverside/Main): (951) 523-7376 Facsimile: (855) 880-0098 [email protected]

1 PICK OPTION A, B, OR C FROM SECTION 1 AND 2 OPTION A OR B FROM SECTION 2 IN EVERY SINGLE MILITARY CASE. 3 USE SECTION 3 ONLY IF APPLICABLE. 4 5 [Optional at the preference of attorney/parties] Attorney David T. Ruegg 951-523-7376 6 will be the Evidence Code 730 Expert [CCP 638(b) Special Master for Orange County cases] for 7 the division of Military Spouse’s Armed Forces Retirement System account and the Parties will 8 retain Attorney Ruegg's services within 30 days of entry of judgment. Attorney Ruegg's fees will 9 be split equally between the Parties. Both Parties shall cooperate with Attorney's Ruegg's requests 10 for records to complete said division. 11 12 SECTION 1 - OPTION A 13 The community property interest in Military Spouse’s Armed Forces Retirement System 14 account will be equally split between the Parties via Military Division Order (MDO). For the 15 MDO, the Parties’ date of marriage is [DOM] and the Parties’ date of separation is [DOS]. 16 [If SBP is to be awarded] Military Spouse shall elect Former Spouse SBP coverage 17 utilizing the required Military DD forms forthwith. Should Military Spouse fail to elect Former 18 Spouse SBP coverage as ordered, Former Spouse may complete a ‘deemed election’. The Parties 19 are cautioned to pay close attention to the statutory deadlines regarding SBP coverage, 20 specifically, the ‘one year’ SPB election requirements. The cost of the SBP coverage shall be 21 allocated under In re Marriage of Smith (2007) 148 Cal.App.4th 1115. 22 [If SBP is not awarded] Former Spouse is not awarded SBP coverage and Military Spouse 23 is not require to elect SBP coverage for Former Spouse. 24 The court shall retain jurisdiction to make any orders to effect an equal division of the 25 community interest in Military Spouse’s Military Retired Pay. 26 /// 27 /// 28 ///

1 REGARDING THE DIVISION OF MILITARY RETIRED PAY

1 SECTION 1-OPTION B 2 As Former Spouse’s community property interest in Military Spouse’s Armed Forces 3 Retirement System, Former Spouse is awarded a portion of the “Military Retired Pay” calculated: 4 5 Accrued retirement benefits earned by Former Spouse’s 6 Military Spouse during percentage interest 7 50% x marriage/community time period = in Military Retired

8 Total accrued retirement benefits earned Pay* 9 by Military Spouse upon retirement 10 11 *“Military Retired Pay” means the Gross Monthly Military Retired Pay Military Spouse 12 is or would be entitled to receive before any statutory, regulatory, or elective deductions are 13 applied. It includes retired pay for active duty and/or reserve component military service. 14 Treatment of disability related benefits received for a waiver of disposable retired pay is addressed 15 in SECTION 2 of this Order. 16 [If SBP is to be awarded] Military Spouse shall elect Former Spouse SBP coverage 17 utilizing the Military DD forms forthwith. Should Military Spouse fail to elect Former Spouse 18 SBP coverage as ordered, Former Spouse may complete a ‘deemed election’. The Parties are 19 cautioned to pay close attention to the statutory deadlines regarding SBP coverage, specifically, 20 the ‘one year’ SPB election requirements. The cost of the SBP coverage shall be allocated under 21 In re Marriage of Smith (2007) 148 Cal.App.4th 1115. 22 [If SBP is not awarded] Former Spouse is not awarded SBP coverage and Military Spouse 23 is not require to elect SBP coverage for Former Spouse. 24 Military Spouse and Former Spouse understand that under The National Defense 25 Authorization Act for Fiscal Year 2017 (NDAA 17), the definition of disposable pay has been 26 modified and places additional restrictions on what might be acceptable to the Military Pay 27 Offices. The Parties understand that California Community Property law principles have not 28 changed.

2 REGARDING THE DIVISION OF MILITARY RETIRED PAY

1 Military Spouse and Former Spouse recognize that due to drafting limitations of NDAA 2 17, it may difficult or impossible to draft a Military Division Order that is both acceptable for 3 processing by the Military Pay Office and that fully pays Former Spouse his/her entire community 4 property award in the form of a direct payment from the Military Pay Office. To effectuate this 5 judgment, Military Spouse shall be personally responsible for any direct payment shortfalls 6 between the amounts awarded in this judgment and the amounts actually paid to Former Spouse. 7 After the shortfall is determined, the Parties may agree to alternative solutions, such as an 8 actuarial buyout of the shortfall, an adjustment to spousal support tied to the shortfall, execution 9 of a voluntary allotment form, a superseding Military Division Order that adjusts the percentage 10 award to former spouse, or any other reasonable solution to which both Parties agree. For 11 purposes of solving the shortfall issue, the Court’s jurisdiction over spousal support shall not 12 terminate on the remarriage of Former Spouse. 13 For the purposes of drafting a Military Division Order which meets the requirements of 14 NDAA 17 rules, Military Spouse shall provide to Former Spouse documentation showing rank, 15 total years (or points) of creditable service, and pay base (High-3) which Military Spouse attained 16 as of the date of entry of final judgment or date of bifurcation. Military Spouse shall provide said 17 documentation forthwith after entry of final judgment or the date of bifurcation. 18 The Parties Understand NDAA 2017 went into effect as of December 23, 2016 and this is 19 an evolving area of law. This Court shall retain jurisdiction over all retirement benefits to effect 20 an equal division of community property. The Court retains broad authority to adjust orders as 21 necessary to enforce the terms of this agreement. 22 SECTION 1 - OPTION C 23 The community property interest in Military Spouse’s Armed Forces Retirement System 24 account will be equally split between the Parties via Military Division Order (MDO). For the 25 MDO, the Parties’ date of marriage is [DOM] and the Parties’ date of separation is [DOS]. 26 [If SBP is to be awarded] Military Spouse shall elect Former Spouse SBP coverage 27 utilizing the Military DD forms forthwith. Should Military Spouse fail to elect Former Spouse 28 SBP coverage as ordered, Former Spouse may complete a ‘deemed election’. The Parties are

3 REGARDING THE DIVISION OF MILITARY RETIRED PAY

1 cautioned to pay close attention to the statutory deadlines regarding SBP coverage, specifically, 2 the ‘one year’ SPB election requirements. The cost of the SBP coverage shall be allocated under 3 In re Marriage of Smith (2007) 148 Cal.App.4th 1115. 4 [If SBP is not awarded] Former Spouse is not awarded SBP coverage and Military Spouse 5 is not require to elect SBP coverage for Former Spouse. 6 Military Spouse and Former Spouse understand that under The National Defense 7 Authorization Act for Fiscal Year 2017 (NDAA 17), the definition of disposable pay has been 8 modified and places additional restrictions on what might be acceptable to the Military Pay 9 Offices. The Parties understand that California Community Property law principles have not 10 changed. 11 Since Military Spouse is actively serving, it is impossible to calculate Former Spouse’s 12 Community Interest specified as a percentage of disposable pay at the time of entry of this 13 judgment. Therefore, the only practical drafting option that may be utilized at this time is a 14 “hypothetical award” as that term is used by the Military Pay Offices under Federal Regulations. 15 Under the hypothetical award format, Former Spouse’s interest will not enhance as Military 16 Spouse receives promotions/pay raises and therefore Former Spouse will not receive his/her full 17 community interest as a direct payment from the Military Pay Office. 18 Former Spouse understands he/she may need to utilize collection remedies to make up the 19 shortfall between his/her community interest and the amount paid from the Military Pay Office, 20 if Military Spouse does not ‘make up’ the shortfall amount. Military Spouse understands 21 California Community Property principles have not changed and he/she remains responsible to 22 Former Spouse for those shortfall amounts. 23 Should Military Spouse not retire as of Military Spouse’s earliest retirement date under 24 the Armed Forces Retirement System, then Former Spouse shall retain all rights under IRMO 25 Gillmore (1981) 29 Cal.3d 418 and IRMO Cornejo (1996) 13 Cal.App.4th 381 to seek payment 26 of Former Spouse’s share of benefits directly from Military Spouse anytime thereafter. 27 /// 28 ///

4 REGARDING THE DIVISION OF MILITARY RETIRED PAY

1 For the purposes of drafting a Military Division Order which meets the requirements of 2 NDAA 17 rules, Military Spouse shall provide to Former Spouse documentation showing rank, 3 total years (or points) of creditable service, and pay base (High-3) which Military Spouse attained 4 as of the date of entry of final judgment or date of bifurcation. Military Spouse shall provide said 5 documentation forthwith after entry of final judgment or the date of bifurcation. 6 The Parties Understand NDAA 2017 went into effect as of December 23, 2016 and this is 7 an evolving area of law. This Court shall retain jurisdiction over all retirement benefits to effect 8 an equal division of community property. The Court retains broad authority to adjust orders as 9 necessary to enforce the terms of this agreement. 10 SECTION 2 - OPTION A 11 Both Parties know of the U.S. Supreme Court Case Howell v. Howell 581 U.S. ____ 12 (2017), 137 S.Ct. 1400, wherein the Court held that State Courts do not have jurisdiction to order 13 indemnification or reimbursement to a Former Spouse divested of his/her community interest in 14 Military Retired Pay, because of a Military Spouse’s unilateral waiver of disposable retired pay 15 for disability payments-no matter if the waiver occurs prior to or after a final dissolution of 16 marriage judgment. 17 Military Spouse understands he/she is not required by current law to indemnify or 18 reimburse Former Spouse, should Military Spouse later waive a portion of his/her disposable 19 retired pay for receiving disability related benefits. 20 In the interest of global settlement, Military Spouse voluntarily and contractually agrees 21 to indemnify and reimburse Former Spouse for any reduction in benefits payable to Former 22 Spouse because of Military Spouse’s waiver of disposable retired pay. Said reimbursement shall 23 be a dollar for dollar reimbursement and this dollar for dollar reimbursement may be made 24 through an adjustment of spousal support. 25 At the time of execution of this marital settlement agreement, any disability related 26 benefits received by Military Spouse because of a prior waiver of disposable retired pay (if any) 27 are confirmed as Military Spouse’s separate property and no offsets/reimbursements for the prior 28 waiver shall be required.

5 REGARDING THE DIVISION OF MILITARY RETIRED PAY

1 The Parties agree this Court shall retain jurisdiction over spousal support to effect any 2 adjustment that may be required due to a waiver of disposable retired pay and this Court shall 3 have the authority to make adjustments on a dollar for dollar basis. For purposes of solving any 4 shortfall issues that may arise due to a disability waiver, the Court’s jurisdiction over spousal 5 support shall not terminate on the remarriage of Former Spouse. 6 SECTION 2 - OPTION B 7 Both Parties know of the U.S. Supreme Court Case Howell v. Howell 581 U.S. ____ 8 (2017), 137 S.Ct. 1400, wherein the Court held that State Courts do not have jurisdiction to order 9 indemnification or reimbursement to a Former Spouse divested of his/her community interest in 10 Military Retired Pay, because of a Military Spouse’s unilateral waiver of disposable retired pay 11 for disability payments-no matter if the waiver occurs prior to or after a final dissolution of 12 marriage judgment. 13 Military Spouse understands he/she is not required by current law to indemnify or 14 reimburse Former Spouse, should Military Spouse later waive a portion of his/her disposable 15 retired pay for receiving disability related benefits. Military Spouse exercises his/her right to 16 reject any Court Order requiring indemnification or reimbursement for this purpose. 17 The Court reserves jurisdiction over spousal support and may order an adjustment of 18 support under Family Code §4320. Both parties understand the Court does not have authority to 19 use spousal support as a tool to compensate Former Spouse dollar for dollar for any divested 20 amounts resulting from a waiver of disposable retired pay. Any adjustment to spousal support 21 may only be made by findings under Family Court §4320 factors. 22 SECTION 3 23 The Parties understand Military Spouse in this matter is serving under the “Blended 24 Retirement System.” Both Parties understand Military Spouse may elect to receive a mid-career 25 incentive bonus/continuation pay bonus under the Blended Retirement System rules. Should 26 Military Spouse elect to receive said bonus, both parties understand a portion of that bonus 27 accrued during marriage and therefore a community interest exists. Former Spouse shall be 28 awarded his/her proportional interest in the incentive bonus/continuation pay bonus.

6 REGARDING THE DIVISION OF MILITARY RETIRED PAY

1 Both Parties understand Military Spouse may elect to receive an immediate lump sum 2 payment of his/her retirement entitlement, in exchange for a reduced monthly annuity, under the 3 Blended Retirement System rules. Should Military Spouse elect to receive said lump sum 4 payment for a reduced monthly annuity, both Parties understand a portion of the payment was 5 accrued during marriage and therefore a community interest exists. Former Spouse shall be 6 awarded his/her proportional interest in the lump sum payment. 7 The Parties Understand the Blended Retirement System went into effect January 1, 2018 8 and regulations are still evolving to adapt to resulting impacts. This Court shall retain jurisdiction 9 over all retirement benefits to effect an equal division of community property rights. The Court 10 has the authority to adjust its orders as required to conform to rules and regulations not yet 11 released as of entry of this judgment. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

7 REGARDING THE DIVISION OF MILITARY RETIRED PAY

Filed 11/17/17; pub. order 12/8/17 (see end of opn.)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

In re Marriage of FRED and MOIRA KAMGAR. G052024 ______(Super. Ct. No. 13D001145) FRED KAMGAR,

Appellant, O P I N I O N

MOIRA KAMGAR

Appellant

Appeal from a judgment of the Superior Court of Orange County, Thomas R. Murphy, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed. Law Offices of Marjorie G. Fuller and Marjorie G. Fuller for Appellant Fred Kamgar. Minyard Morris, Lonnie K. Seide, Fabio F. Foti; Snell & Wilmer, Richard A. Derevan, Todd E. Lundell; and Garrett C. Dailey for Appellant Moira Kamgar. * * * Fred Kamgar appeals from a judgment ordering him to pay Moira Kamgar $1,952,056.50 for breach of his spousal fiduciary duties in failing to disclose to her that he risked in options trading an additional $8 million more than the $2.5 million in community assets she agreed he could trade in their investment account. The trial court determined Fred’s undisclosed and reckless trading resulted in a loss of almost $4 million, in addition to losing the initial $2.5 million.1 Fred contends the evidence does not support the conclusion he violated his fiduciary duties. Moira in her appeal contends she was entitled to more than the $1.9 million award she received as her community interest in the $4 million loss. But as we explain, the law and the evidence amply support the court’s award, and we therefore affirm the judgment. I

FACTS AND PROCEDURAL HISTORY Fred and Moira were married in May 1990 and had four children together before they separated in late January 2013. Highly educated, Moira began her studies at Harvard University at 16, then transferred to Sarah Lawrence College, where she received a bachelor’s degree in international relations and Russian language studies. She also earned a joint juris doctorate and master’s degree in taxation. Moira had not worked outside the home for over 20 years by the date of the couple’s separation, but previously held positions at the Depository Trust Company and the law firm of Best, Best and Krieger. Fred earned a bachelor’s degree from USC in Electrical Engineering and Computer Science, as well as an MBA from UCLA. During their marriage he ran several businesses, the sale of which enabled him to stop working over the last ten years of the marriage.

1 We use the parties’ first names for clarity and ease of reference, and intend no disrespect. (In re Marriage of Olsen (1994) 24 Cal.App.4th 1702, 1704, fn. 1.) 2

Beginning in 1999, the parties had their liquid assets professionally managed successively by JP Morgan, Merrill Lynch, and then Bessemer Trust. Tiffany Barbara, who managed the Kamgars’ funds at JP Morgan and Bessemer Trust, explained the Kamgars charged her to preserve their wealth, which aligned with the conservative financial strategies she pursued on their behalf at JP Morgan and Bessemer Trust. Moira did not have much to do with the couple’s finances from this point on, and left Fred with the basic management and control of the finances. Moira had not seen bank statements or financial documents since 2003, when Fred rented an office away from home and she did not have time to review the parties’ tax returns each year. Fred made the investment decisions for the family during the last five years of their marriage, some of which were discussed with Moira. He occasionally would sign Moira’s name to financial documents. Fred stated that he did not involve Moira with the family’s finances because she was not interested. In 2010, Fred began to research options trading, educating himself about the topic by taking investment classes, reading publications, and meeting with other investors. Fred had been investing community funds in Apple, Inc. stocks since 2002 or 2003, in part because he believed the company and its stock performance were predictable. With Moira’s consent, Fred opened a self-directed trading account at TD Ameritrade (Ameritrade) and did some practice trades during the last half of 2011. Both Fred and Moira signed the Ameritrade account application and opened the account in the name of Kamgar Trust. Both Fred and Moira’s consent was required for any transfer or withdrawal requests. Fred explained his reasons for using Ameritrade to Moira, which included research showing it was the best platform for trading options and it charged a lower fee for trades; Moira did not object to his proposal. She agreed he could deposit $2.5 million in Apple stock into the account, which she believed represented a “sliver” of their net

3 worth. As Moira later explained in her deposition testimony, Fred was free to use the $2.5 million to “try his hand at doing something that he would find interesting or amusing.” red chose this amount, which represented 24 percent of the parties’ net worth, because it would create a dramatic profit if it “worked out,” but losing the sum would not affect their lifestyle. Fred’s goal was to maximize the return on his trades. He wanted to make enough money so the parties could live for the rest of their lives without needing to work. Fred transferred 6,000 shares of Apple stock, which was worth about $2.43 million, into the Ameritrade account in December 2011. Fred then applied to Ameritrade for a “Portfolio Margin Upgrade Request” to allow enhanced margin trading, which dramatically increased the potential return — and risk of loss — in his option trading by using funds borrowed through the investment account to increase the value of the trades. As a prerequisite for the upgrade, Ameritrade required Fred and Moira to pass a test demonstrating their financial knowledge and awareness of trading risks. Fred testified that because Moira was not interested, he took the test for her and signed her name to the upgrade application. Moira claimed she never authorized Fred to sign her name to the application. Fred falsely represented on the application that he and Moira both had extensive options trading experience. Fred also stated the couple’s financial goals were growth, income, and conservation of capital, but not speculation. In February 2012, Fred changed the Ameritrade account so he no longer would need Moira’s signature to make withdrawals or transfers to the account. Over the next 13 months, Fred converted the Apple securities in the account to cash and then, without telling Moira, deposited another $8,188,605 in community funds into the account, for a total community investment of $10,618,605. Moira did not know until just before their separation in January 2013 that Fred had replaced their professional financial managers, moving virtually all of the community’s

4 liquid assets into the Ameritrade account. The trial court found Moira only authorized Fred to invest up to $2.5 million in the Ameritrade account. Between the additional deposits and increases in value through options trades, often on margin, the Ameritrade account increased in value from the original $2.43 million in converted Apple stock to $2,691,000 in December 2011, then to almost $13 million at the end of February 2012. The account value declined in March and each of the next four months to an initial low of $10,046,000 in June 2012. Then it jumped slightly in value in July 2012, growing to about $10.5 million. The account value exploded in August 2012, reaching a peak end-of-the month balance of $16,322,000. As the court observed, Fred earlier withdrew more than $3 million, so the total account value likely crested above $19 million. Factoring in the withdrawal and trading losses, the next month saw the account balance decrease to $14,163,000 in September 2012. October was catastrophic, with a $10 million loss dropping the account value to $4,144,000. In November and December it dropped further, to $1,950,000 and $998,000, respectively, before Fred ceased trading in January 2013, with $409,000 left in the account. Fred had continued investing in Apple options after the August peak because he believed the market would respond favorably to the pending release of new Apple products in the fourth quarter of 2012. The trial court found that, “[b]y August 31, 2012, all of the investments held in the brokerage account . . . were entirely concentrated in various call and put option positions held entirely in Apple stock (with about $502,000 of cash held).” Betting Apple stock would increase in value, Fred tilted his call option position to almost $10 million more than his put options, while also shorting put options. “But,” as the trial court described it, “between September 1, 2012 and January 31, 2013, the price of Apple shares dropped from about $642.14 to $441.68, a loss of 31.22%. [¶] By September 30, 2012, the account had borrowed $4.2 million of cash margin. In the month of October 2012, when Apple’s stock price dropped from

5 about $630 per share to $557 per share, the TD Ameritrade account lost $9,718,900. For the remainder of the periods, virtually all of the positions [Fred] held in the account remained various and sundry Apple option positions. Between September 1, 2012 through January 31, 2013, another $780,000 of cash was also withdrawn from the account.” Based on the initial deposit of almost $2.5 million in Apple stock, plus Fred’s additional deposit of more than $8 million, the trial court observed that, “[i]n short, $10,618,605 of community funds are at issue, of which $3,805,000 was withdrawn and $6,404,113 was lost in trading activities.” At trial, Moira’s financial expert testified that Fred’s option trading was so highly speculative, particularly for lack of diversification, that it amounted to gambling. He explained that trading can still be negligent despite “exhaustive” research, but acknowledged there was no standard or definition in the financial industry for when ill- conceived trading amounted to gambling. Fred’s financial expert observed that Fred’s investment strategy had worked well in the first three quarters of 2012. He believed Fred had carefully managed the account and explained that there is a direct correlation between risk and making “serious money.” The expert concluded Fred had not been negligent or grossly negligent in his investment strategy, noting that Fred had relied on other analysts who predicted a fourth quarter rise in Apple’s stock value. Moira testified Fred told her the account was performing “fine.” Ameritrade sent the account statements to Fred’s office in Corona Del Mar. Fred testified that by the time he received the statements in the mail they were outdated because he had online access to information. He acknowledged the couple’s communication channels were “not that great.” The couple had been in marriage counseling from May 31, 2012, through early January 2013. The therapist noted that Moira had stated more than once during the sessions that “[s]he had no idea re[garding] the parties’ finances.” The therapist advised

6 them it was important to exchange information. The therapist did not recall whether she had urged the exchange “as early as summer 2012” or later, “on November 6, 2012,” but was sure “only that both were advised re[garding] the importance of sharing financial information.” Fred never told Moira of any of the 2012 increases or decreases in the account value. In mid-January 2013, after the couple had been living in separate residences since October 2012, he texted Moira that there were financial “challenges” he needed to discuss with her. He wanted to meet in person, but she did not feel it would be “productive yet” for them to do so, requesting instead, “Just explain simply and generally.” Fred declined, instead pressing in text exchanges over the next 10 days for an in-person meeting, while also urging Moira to sign the necessary paperwork to sell their Emerald Bay property. When Fred offered no explanation, Moira asked him who their current financial advisor was so she could get the information that way, but Fred eventually disclosed that he exclusively made the family’s investment decisions. After fruitless text exchanges in the ensuing days, Fred wrote: “Moira, I’ve been trying to talk to you for quite a while but you refuse. So here’s the gist of our financial issues via t[e]xt. Unfortunately we are running out of money and really need to close the [Emerald Bay] sale. Between large investment losses, very high expenses, [a] Viva Terra [investment], construction, your 2nd house, carrying costs for 3 properties, . . . we will run out of cash in the next 2 mo[nths] which will create a financial disaster[.] So please sign the doc and let the sale close asap. We have major changes we need to make here soon for all our futures[’] sake so please also start talking to me so we can work on them together[.]” Moira responded: “This is not a financial challenge,” but rather a “disaster,” remarking, “You have given no indication of this at all, either in your communication nor in your behavior.” She also noted, “As for your options trading, you told me you were being prudent.”

After trial, the court in a detailed statement of decision determined that Fred had breached his fiduciary duty to Moira by failing to disclose the “series of investment transactions made by him within the Ameritrade account between December 2011 and January 2013.” Alternately, the court also ruled that Fred breached his fiduciary duty to Moira by grossly negligent mismanagement of the parties’ assets in the trading account, and awarded Moira $1,952,056.50 as her share of community funds lost in Fred’s undisclosed and reckless trading. II

DISCUSSION A. The Trial Court Did Not Err in Finding Fred Breached His Fiduciary Duty to Moira Fred contends the trial court erred in concluding he owed Moira a fiduciary duty of disclosure though the parties agreed he would manage and control their Ameritrade account. He characterizes the court’s finding he breached his duty of disclosure as tantamount to holding he was required to continuously update Moira on the daily performance of their investments and on each transaction in their investment account, at or near the time it occurred. He argues the purported duty of continuously updating a spouse on changes in investment values, or requiring his or her express permission for each and every transaction, is (1) impractical in today’s fast-moving electronic market, (2) contrary to statutory provisions allowing each spouse to manage community assets, and (3) contrary to the everyday reality of marriage, which includes “an ongoing conglomeration of hundreds, if not thousands of overlapping financial decisions made by one or the other of the spouses.” Fred also challenges the alternative basis on which the trial court concluded he breached his fiduciary duty to Moira, namely, that Fred’s “management of the parties’ investment portfolio was reckless and grossly negligent.”

The existence and scope of a fiduciary duty is a question of law that we review de novo. (Castaneda v. Olsher (2007) 41 Cal.4th 1205, 1213.) However, “the factual background against which we [answer that question] is a function of a particular case’s procedural posture.” (Id. at p. 1214.) Thus, to the extent the court’s decision below “turned on the resolution of conflicts in the evidence or on factual inferences to be drawn from the evidence, we consider the evidence in the light most favorable to the trial court’s ruling and review the trial court’s factual determinations under the substantial evidence standard. [Citation.]” (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 892 (Baker).) Where there is a fiduciary duty, breach of the duty is a question of fact. (In re Marriage of Duffy (2001) 91 Cal.App.4th 923, 929-930.) We review the trier of fact’s finding a breach occurred for substantial evidence, resolving all conflicts and drawing all reasonable inferences in favor of the decision. (Ibid.) We first address Fred’s claim the trial court erred by adopting an overly rigorous duty of disclosure, which led the court to erroneously conclude Fred breached this duty. Family Code section 1100 specifies that each spouse is mutually entrusted with full individual authority to manage and control community property, including disposing of or otherwise alienating it (id., subd. (a)), but each spouse also mutually owes the other a fiduciary duty with respect to the property (id., subd. (e)).2 Specifically, subdivision (a), provides in pertinent part that “either spouse has the management and control of the community personal property, whether acquired prior to or on or after January 1, 1975, with like absolute power of disposition, other than testamentary, as the spouse has of the separate estate of the spouse.” (§ 1100, subd. (a).) In turn, section 1100, subdivision (e), sets out in general terms that spouses owe each other a fiduciary duty in the management and control of their assets. That

2 All further statutory references are to the Family Code, unless noted. 9 subdivision provides: “Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.” (Italics added.) With exceptions not pertinent here, section 721 states that “in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following . . . .” Section 721 then specifies certain enumerated but nonexclusive fiduciary duties, including: “(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying. [¶] (2) Rendering upon request, true and full information of all things affecting any transaction that concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions. [¶] (3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived

10 from any transaction by one spouse without the consent of the other spouse that concerns the community property.” (§ 721.) Of the Corporations Code sections referenced in section 721, section 16403 sets out the disclosures required between partners. As pertinent here, it establishes in subdivision (c) the following rule: “Each partner . . . shall furnish to a partner, and to the legal representative of a deceased partner or partner under legal disability, . . . the following . . . : [¶] (1) Without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partners’ rights and duties under the partnership agreement or this chapter . . . .”3 (Corp. Code, § 16403, subd. (c)(1), italics added [hereafter, section 16403(c)(1)].) Quoting a respected practice guide, the trial court observed: “‘The phrase in Corporations Code § 16403(c)(1) “reasonably required for the proper exercise of the partners’ rights and duties” probably means, in the family law context, “reasonably required for the proper exercise [of the spouse’s rights and duties in the management and control of community property].” Since each spouse has equal management and control rights, it appears they must provide the other ‘without demand, any information concerning’ the management and control of the community property. The failure to do so would be a breach of his or her fiduciary duty.’” (Citing California Family Law Prac. & Proc. (Matthew Bender & Co., 2d. ed. 2014) § 24.11, original brackets.) Similarly, another treatise restates the statutory duty as follows: “Duty despite no request: Fam. C. § 1100(e) specifically adopts the scope of spousal fiduciary duties set forth in Fam. C. § 721(b) . . . . As amended effective 1/1/03, § 721(b) incorporates provisions of the Corporations Code . . . that impose fiduciary duties of

3 The partners also must disclose to each other: “On demand, any other information concerning the partnership’s business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.” (Corp. Code, § 16403, subd. (c)(2), italics added.) 11 disclosure even if there is no demand therefor.” (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2014) ¶ 8.605.1, pp. 8-220 to 8-221, original bold and italics). Fred repeatedly argues throughout his brief that the trial court’s judgment amounts to imposing an unwarranted, expanded disclosure duty on the spouse managing a couple’s financial affairs to “continuously update the other spouse as to changes in value of all assets under management.” Phrased differently, he suggests the court’s ruling requires “continuous updating of value during marriage on pain of sanction,” makes a managing spouse who fails to provide continuous updates a “guarantor” of community assets invested in the stock market, and effectively held him “liable for failing to continuously disclose Apple’s changing value to Moira,” though the nature of contemporary investments is that their value changes “second by second in today’s electronic market.” Fred emphasizes the utility and efficiency in having one spouse manage certain financial decisions and notes section 1100, subdivision (a), confers on the investing spouse “equal management and control of the community property, subject to certain restrictions.” Indeed, that section grants the managing spouse authority to dispose of community assets. (Ibid.) Fred acknowledges as an overriding restriction the married couple’s “governing fiduciary relationship[],” but contends, “Surely the appropriate interpretation is not that if the spouse who contemplates making a financial investment fails to have it continuously approved by the other spouse, he or she is guilty of a breach of fiduciary duty, subject to sanction if the investment loses money. If this were the case, no spouse would take on management of any asset of the community.” Fred creates a straw man by his repeated references to an asserted duty of continuous updating. The trial court in its detailed statement of decision never mentioned or imposed any such duty. Fred infers the court found a duty of continuous updating

12 because the court “did not identify at what point this breach of fiduciary duty occurred.” Absent a specified date or dates on which the breach occurred, Fred apparently supposes the trial court believed the breach occurred every day — indeed every moment — he did not affirmatively disclose to Moira the Ameritrade account’s performance in 2012. But the trial court found Fred beached his fiduciary duty of disclosure when he unilaterally decided to put at risk and lose in options trading a sum beyond the amount Moira agreed to risk. The evidence at trial showed Moira knew and agreed to depositing up to $2.5 million in the Ameritrade account and that Fred was free to, in her words, “try his hand at doing something that he would find interesting or amusing.” That expressly included options trading, as reflected in a later text message with Fred in which she referred to “your options trading.” Accordingly, the trial court did not hold Fred liable for the eventual loss of the initial $2.5 million the couple mutually agreed to put into the account because she agreed to risk that amount. But unbeknownst to Moira, in addition to the nearly $2.5 million initial sum, Fred unilaterally deposited an additional $8,188,605 of community funds into the investment account, and then saw those twin deposits (the initial $2.5 million and additional $8 million) both skyrocket and fall in recurring periods of gains and losses in options trading. Over the course of these fluctuations, Fred withdrew $3,805,000 of the $8 million amount, and then eventually lost all but $409,492 of the total community funds deposited in the account. The net result was that of the additional, undisclosed $8,188,605 Fred risked in options trading, he lost more than half, for a net loss to the community of $3,904,113. That loss did not include the loss of the initial $2.5 million because as the trial court specified in its calculation of damages, that $2.5 figure was the “Amt/invstmts agreed [to] by Moira.” The law and the evidence amply support the trial court’s $1,952,056.50 award in Moira’s favor against Fred for breach of his fiduciary duty of disclosure, as half

13 of the $3,904,113 loss incurred following his undisclosed decision to risk an additional $8,188,605 in community funds. Both parties overlook a key provision in the governing disclosure rules. Simply and quite obviously, the parties’ disclosure obligations in a partnership, and in a marriage partnership under the Family Code’s incorporation of Corporations Code section 16403, depends on their partnership agreement. Section 16403(c)(1) states this principle expressly by limiting a partner’s sua sponte duty of disclosure to “any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partners’ rights and duties under the partnership agreement . . . .” (Italics added.) The trial court reasonably could conclude Moira and Fred’s agreement concerning options trading was limited to investing $2.5 million in community funds. We must view the evidence in the light most favorable to the court’s judgment. (Baker, supra, 159 Cal.App.4th at p. 892.) Indeed, the evidence plainly showed the couple had discussed the trading account and Moira only agreed to that amount for Fred to “try his hand” at trading, including options trading, but no more. Consequently, the court also reasonably could conclude that in unilaterally deciding to risk the additional $8,188,605 in community funds, which was virtually all of the couple’s liquid net worth, Fred interfered with Moira’s equal right of management and control over those funds (§ 1100, subd. (a)). In other words, having secured Moira’s agreement to risk $2.5 million in options trading, Fred breached his fiduciary duty of disclosure to his spouse by failing to disclose his intention to put another $8 million into such trades. Absent disclosure, he thwarted Moira’s “proper exercise of [her] rights and duties” as a partner concerning those assets (§ 16403(c)(1)). Because the trial court properly found Fred breached his fiduciary duty of disclosure, we need not consider his challenge to the sufficiency of the evidence to

14 support the court’s conclusion he also breached his fiduciary duty in managing community assets by engaging in grossly negligent and reckless behavior.

B. Moira’s Appeal In her appeal, Moira argues the trial court erred in failing to credit her in the couple’s property distribution a one-half share of the initial $2.5 million Fred deposited in the Ameritrade account and one-half of the $16 million figure the account grew to in August 2012. As we explain, the evidence supports the court’s damage award. Moira argues that while she knew of the $2.5 million transfer to the Ameritrade account and that Fred would engage in options trading in the account, she “had no idea of the volume of trades and risk Fred would undertake.” Moira is correct that although “[s]pouses are not subject to the Prudent Investor Rule (which applies to trustees with regard to trust property) in managing and investing community property . . . , a spouse’s improvident C[ommunity] P[roperty] investments can amount to a breach of fiduciary duty if they rise to the level of ‘grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law’ (Corps. C. § 16404(c)).” (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2017) ¶ 8:606.2, italics in original.) Here, however, the trial court as the trier of fact reasonably could conclude that under the parties’ mutual agreement concerning the $2.5 million in the account, Moira had ceded management and control of those funds entirely to Fred. In other words, Fred held no sua sponte duty of disclosure for her to exercise her equal duty of control over those community funds because she had agreed to his use of those funds for options trading in his sole discretion. The court as the trier of fact also could infer from Moira’s description of the funds as a “sliver” of their assets with which Fred could “try his hand at doing something . . . interesting or amusing” that if he lost the funds, it did not

15 matter to her how it occurred. (§§ 721, subd. (b); Corp. Code, 16403(c)(1) [marital fiduciary duties defined by partnership agreement].) Supporting this conclusion, Fred testified he selected $2.5 million as the deposit amount with Moira’s agreement because losing it all would not require any change in the family’s standard of living. Accordingly, the court could infer from these comments that both partners recognized options losses could eradicate the $2.5 million and that in regarding the sum as but a “sliver” or trifling amount, Moira did not hold Fred to a fiduciary duty of care for those funds. To the contrary, she viewed the account total as a disposable amount set aside for Fred’s “amus[ement].” Because we must view the evidence in the light most favorable to the trier of fact’s conclusions, the deferential standard of review furnishes no basis to overturn the trial court’s judgment. (Baker, supra, 159 Cal.App.4th at p. 892.) Moira also argues she was entitled to half of the $16 million peak value of the Ameritrade account. She relies on the statutory remedy codified in section 1101, subdivision (g), which provides: “Remedies for breach of the fiduciary duty by one spouse, including those set out in Sections 721 and 1100, shall include, but not be limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney’s fees and court costs.” The “transferred in breach” language supports the trial court’s award of $1,952,056.50 because that is half of the nearly $4 million Fred lost of additional sums he transferred into the options account in breach of his mutual agreement with Moira. He transferred an additional $8 million beyond the $2.5 million to which Moira agreed, but of the $8 million, he managed to pull out or salvage around $4 million, resulting in a $4 million net loss, of which the court ordered Fred to reimburse Moira her half share. But in support of her claim the court instead should have awarded her $8 million as half the account’s peak $16 million value, Moira relies on further language

16 in section 1101, subdivision (g), pegging the undisclosed or wrongfully transferred asset at “its highest value.” Specifically, the statute provides: “The value of the asset shall be determined to be its highest value at the date of the breach of the fiduciary duty, the date of the sale or disposition of the asset, or the date of the award by the court.” (Ibid., italics added (hereafter § 1101(g)).) We review for abuse of discretion the trial court’s decision concerning the appropriate remedy for breach of fiduciary duty. (In re Marriage of Schleich (2017) 8 Cal.App.5th 267, 284.) The trial court reasonably could conclude the date of the breach was the date Fred unilaterally decided to transfer an additional $8 million into the account beyond the agreed-upon $2.5 million, and of that $8 million, Fred lost half. Apart from the breach of fiduciary duty on the transfer date, the other two dates in section 1101(g) do not support Moira’s argument for an award based on peak value of the account. In particular, an award of half the asset value at its disposition date would not support Moira’s claim because it was precisely in “disposing” of — i.e., fulfilling — the options contracts that their negative value was realized. Similarly, Moira does not identify the value of the lost assets on the date of the court’s award, but presumably there was no additional value to be realized because the option contract dates already had passed. Citing the trial court’s conclusion that Fred’s risky options trading strategy constituted a breach of his fiduciary duty because it was so reckless, Moira argues that “the date of the breach” under section 1101(g)’s first prong is better viewed as a continuing period rather than a fixed date because Fred engaged in his risky strategy over a continuous period of time instead of in a single trade. She then argues that because the Legislature decreed the “value of the asset shall be determined to be its highest value at the date of the breach” (ibid.), the court was required to use the $16 million figure as the basis for Moira’s award because that was the option account’s highwater value over the period in which the court found Fred engaged in reckless trading.

Although Moira’s interpretation is plausible, it does not comport with the Legislature’s intent, as revealed by section 1101(g)’s legislative history. We interpret statutes de novo. (Martin v. PacifiCare of California (2011) 198 Cal.App.4th 1390, 1399.) “The primary purpose of statutory construction is to ascertain the Legislature’s intent. . . . ‘If the language of the statute is not ambiguous, the plain meaning controls and resort to extrinsic sources to determine the Legislature’s intent is unnecessary.’ [Citation.]” (California School Employees Assn. v. Governing Bd. of South Orange County Community College Dist. (2004) 124 Cal.App.4th 574, 583.) But if the statutory language “‘leaves doubt about meaning, we may consult other evidence of the Legislature’s intent, such as the history and background of the measure.’” (Ibid.) Section 1101(g)’s use of “the date” of the breach, rather than “dates,” and its use of the disjunctive “or” between three specified dates — the date of the breach of fiduciary duty, the asset’s disposition date, or the date of the court’s award — do not tend to support Moira’s argument that the Legislature intended section’s 1101(g)’s remedy for breach of a fiduciary duty to be calculated over a continuing period. But the word “highest” introduces some doubt because it could operate to tether the court’s award to a particular date — the date of the asset’s highest value — within a period of a continuing breach. Section 1101’s legislative history, however, reveals the Legislature expressly contemplated and rejected Moira’s interpretation. Section 1101(g)’s current language was adopted in 2002. (Stats. 2001, ch. 703 (Assem. Bill 583), § 1.) Before the Legislature settled on that language, an earlier version of the bill used language consistent with Moira’s notion of valuing a fluctuating asset at its highest point over the course of a continuing breach. The bill’s draft language provided that “the value of the asset that is the subject of the breach shall be determined to be ‘its highest value from the time of nondisclosure to the time of the award.’” (Sen Com. on Judiciary, Analysis of Assem.

Bill No. 583 (2001-2002 Reg. Sess.) July 17, 2001, p. 3, italics added (hereafter Sen. Judiciary Com. Analysis).) The judiciary committee’s analysis aptly observed: “A difficulty with the bill’s proposed valuation method, however, is that it appears to assume that the breaching spouse’s failure to sell an asset that may fluctuate markedly in value (such as stock) at a fleeting high point in that value represents a legitimate loss to the claimant spouse that must be recompensed, [but] the likelihood that the claimant spouse would actually have taken advantage of that limited opportunity may be speculative at best. For example, if the breaching spouse negligently managed, or fraudulently concealed, stock purchased at $50 a share, the stock climbed rapidly to $200 a share and immediately began to fall, reaching $5 a share at the time of the award, this bill’s proposed valuation assumes the claimant spouse has the right to the stock at a value of $200 a share, even though, for most private citizens who own stock, the failure to convert shares at the highest point of value is a tale of woe much more common than a successful conversion at the highest price.” (Sen. Judiciary Com. Analysis, supra., pp. 9-10.) The committee proposed alternative language to preclude this outcome, as follows: “A possible alternative definition might be to value the asset at its highest worth on one of three alternative dates: the date the breach occurred; the date of sale of the asset, if a sale occurred; and the date of the award. In the above example, a breaching spouse who sold the stock for any amount above its $50 purchase price would be liable for the value at sale, whereas one who did not sell the asset would be liable at the $50 share price, even though the price had fallen to $5 at the time of the award. Such a definition would protect the claimant spouse from some market fluctuations, while at the same time avoiding an unduly speculative valuation.” (Sen. Judiciary Com. Analysis, supra, p. 10.)

Because the Legislature not only reviewed the committee’s proposed language, but adopted it verbatim, we infer the Legislature intended to reject the interpretation of section 1101(g) that Moira now advances. (See People v. Wahidi (2013) 222 Cal.App.4th 802, 808 [“‘“[C]ommittee materials are properly consulted to understand legislative intent, since it is reasonable to infer the legislators considered explanatory materials and shared the understanding expressed in the materials when voting to enact a statute”’”].) As noted, the language the Legislature adopted at the committee’s suggestion is not free from ambiguity. But in the context of the legislative history, it reflects a clear intent to reject the notion that the proper remedy under section 1101(g) for a breach of fiduciary duty is simply to select a fluctuating asset’s highest value in the applicable period. Notably, the committee expressly proposed that the amended language would “appl[y] to all the duties subject to Section 1101 penalties, not just the duty to disclose assets.” (Sen. Judiciary Com. Analysis, supra, p. 10.) Consequently, there is no merit to Moira’s claim that the breach of fiduciary duty the trial court found in Fred’s reckless trading of the couple’s assets should result in a different award than for his breach by transferring additional funds into the account without disclosure. Moira’s reliance on In re Marriage of Hokanson (1998) 68 Cal.App.4th 987 (Hokanson) for the propriety of dividing marital assets based on unrealized gains is misplaced. There, the wife ignored the divorce court’s order for the expeditious sale of the couple’s home, which in the 18-month interim declined $30,000 in value by the time it sold. The higher potential price from a prompt sale under the court’s order formed a proper basis for an award to the husband of half the value lost due to the wife’s delay. (Id. at pp. 994-995.) But unlike in Hokanson, there was no court order here for the sale of assets. More to the point, the committee analysis noted above expressly considered Hokanson, viewed it as authority for an award when the “managing spouse’s conduct [is]

20 first considered to be in breach,” rather than for the highest asset value over a continuing period, and we presume the Legislature in adopting the committee’s exact proposed language similarly adopted this view. (Sen. Judiciary Com. Analysis, supra, p. 9, italics added.) III DISPOSITION The judgment is affirmed. Moira is entitled to her costs on appeal. Moira’s motion to strike two references in Fred’s reply brief to investment publications is denied as moot.

ARONSON, J.

WE CONCUR:

MOORE, ACTING P. J.

FYBEL, J.

Filed 12/8/17

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

In re Marriage of FRED and MOIRA KAMGAR. G052024 ______(Super. Ct. No. 13D001145) FRED KAMGAR, ORDER GRANTING REQUEST Appellant, FOR PUBLICATION v.

MOIRA KAMGAR

Appellant

The Association of Certified Family Law Specialists has requested that our opinion, filed on November 17, 2017, be certified for publication. It appears that our opinion meets the standards set forth in California Rules of Court, rule 8.1105(c). The request is GRANTED.

The opinion is ordered published in the Official Reports. (Cal. Rules of Court, rule 8.1105(b).)

ARONSON, J.

WE CONCUR:

MOORE, ACTING P. J.

FYBEL, J.

In re Marriage of Heggie, 99 Cal.App.4th 28 (2002) 120 Cal.Rptr.2d 707, 02 Cal. Daily Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317

Dissolution of Marriage; Separation § 60--Property Rights of Parties-- Division of Community Property--Revision of KeyCite Yellow Flag - Negative Treatment Division--Motion to Set Aside That Part of Judgment on Distinguished by In re Marriage of Carrino, Cal.App. 1 Dist., August 18, 2009 Ground of Inequality. 99 Cal.App.4th 28, 120 Cal.Rptr.2d 707, 02 Cal. Daily In a dissolution proceeding, in which the husband and wife Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317 entered into a stipulated judgment providing, as part of the community *29 property division, that the husband In re the Marriage of STACY and would transfer stock worth a specified cash amount from KEVIN DOUGLAS HEGGIE. his individual retirement account (IRA) to his wife's IRA, STACY HEGGIE, Respondent, the trial court abused its discretion in granting the wife's v. motion to set aside that part of the judgment pursuant to Code KEVIN DOUGLAS HEGGIE, Appellant. Civ. Proc., § 473 (relief from judgment taken by mistake, inadvertence, surprise, or excusable neglect), on the ground No. G027302. that the stock's value had risen significantly in the interim. Court of Appeal, Fourth District, Division 3, California. Fam. Code, § 2123, which prohibits inequity as a ground for June 6, 2002. relief from a dissolution judgment, necessarily superimposes a per se rule on a trial court's discretion under Code Civ. Proc., SUMMARY § 473. Even though a trial court's determination of a Code Civ. Proc., § 473, motion benefits from a highly deferential In a dissolution proceeding, the husband and wife entered into standard of review, the determination cannot offend fixed a stipulated judgment providing, as part of the community legal principles. Fam. Code, § 2123, which represents a fixed property division, that the husband would transfer stock legal principle that cannot be contravened, leaves a trial court worth a specified cash amount from his individual retirement with no discretion to grant a motion to set aside a dissolution account (IRA) to his wife's IRA. After the judgment was filed, judgment based solely on an imbalance in the division of the trial court granted the wife's motion to set aside that part community property. Further, the husband's three-week delay of the judgment pursuant to Code Civ. Proc., § 473 (relief in communicating the transfer directions to the wife was an from judgment taken by mistake, inadvertence, surprise, or insufficient ground for granting the wife's motion. excusable neglect), on the ground that the stock's value had risen significantly in the interim. (Superior Court of Orange [See 11 Witkin, Summary of Cal. Law (9th ed. 1990) County, No. 98D002876, Jonathan H. Cannon, Judge.) Community Property, § 210A; West's Key Number Digest, Divorce 254(2).] The Court of Appeal reversed the trial court's order granting the wife's motion to set aside the judgment and directed the COUNSEL trial court to enter a new order denying the motion. The George M. Kornievsky for Appellant. court held that Fam. Code, § 2123, which prohibits inequity Ian L. Flatley for Respondent. as a ground for relief from a dissolution judgment, leaves a SILLS, P. J. trial court with no discretion to grant a motion to set aside a dissolution judgment based solely on an imbalance in the In the final analysis, all that supported the trial court's decision division of community property. The court further held that to set aside the stipulated judgment in this divorce case was an the husband's three-week delay in communicating the transfer imbalance in the division of community property attributable directions to the wife was an insufficient ground for granting to a run-up in stock values subsequent to the filing of the the wife's motion. (Opinion by Sills, P. J., with Bedsworth and judgment. Not only is such an imbalance not enough to Moore, JJ., concurring.) support a motion to set aside a judgment under section 473 of the Code of Civil Procedure (cf. In re Marriage of Connolly (1979) 23 Cal.3d 590 [153 Cal.Rptr. 423, 591 P.2d 911]), but HEADNOTES section 2123 of the Family Code is plain that if a set-aside Classified to California Digest of Official Reports motion is supported only by an imbalance in the division of community property, the trial court cannot grant *30 the (1)

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 1 In re Marriage of Heggie, 99 Cal.App.4th 28 (2002) 120 Cal.Rptr.2d 707, 02 Cal. Daily Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317 motion. We therefore reverse the order and direct the trial “ 'execution instruction' ” already provided by the husband's court to enter a new order denying the set-aside motion. 1 erstwhile attorney.

On October 18 the wife's attorney replied that he had never Background received the transfer instructions. The husband called his The husband had an IRA account composed of two high-tech former attorney that day, who then “realized the oversight” stocks. The account was all community property. The wife and forwarded the rollover instructions in a letter dated also had an IRA account, of which a third was community. October 20. The wife's attorney received the instruction letter, according to his own declaration, in “late October of 1999” at In September 1999, after over a year of litigation and after which time he turned it over to the wife. trial had been continued to allow for settlement discussions, the couple entered into a stipulated judgment in which the It was another three weeks or so, on November 11, before husband was to “execute a rollover instruction transferring the the actual rollover from the husband's account to the wife's sum of $47,578.09” from his IRA to the wife's IRA in order to account occurred. The way the rollover worked was that “balance said accounts” based on the value of the two stocks $47,578.09 worth of stock was transferred to the wife's IRA as of June 30, 1999. 2 on November 11.

There was a delay of a little more than three weeks from On March 27, 2000, one day before the expiration of six the time the stipulated judgment was filed (Sept. 28, 1999) months from the date of the filing of the stipulated judgment, to the time when the husband's attorney forwarded the IRA the wife filed a motion to set aside that part of the judgment rollover instructions to the wife's attorney (Oct. 20, 1999). dividing the community property in the couple's respective Here are the circumstances behind that delay according to the IRA accounts. The wife presented evidence that the value of one of the high-tech stocks had increased 140 percent from uncontroverted declarations 3 on both sides of the set-aside June 30, 1999, to March 27, 2000, and the other stock had motion: increased 250 percent. She did not present any evidence of the value of the stocks on October 1 (the earliest date she On September 13 the wife's attorney approved the stipulated might have received the IRA rollover instructions) or in “late judgment. The husband's attorney learned of the approval October” when her counsel received them. that day and prepared the IRA rollover instruction letter. The next day, September 14, the husband signed the instruction In a very brief hearing the trial judge granted the motion, letter in his attorney's office. The husband's attorney kept the ordering that the portion of the judgment regarding the instruction letter in his file. *31 division of the IRA's be set aside. The trial judge did not explain his reasons, but did ask husband's counsel, “did *32 By September 17 all parties and their attorneys had signed you read the declaration?” which presumably referred to the the stipulated judgment, and it was submitted to the court that declaration of the wife and her counsel. This appeal followed. day. It was not filed until September 29, and a conformed copy was received by the husband's counsel on October 1. On October 1, the husband's attorney formally withdrew from the Discussion case and wrote wife's attorney, but neglected to include the IRA rollover instructions with his letter. Stock Market Fluctuations Cannot Serve as the Basis for a Set Aside Motion On October 14, the wife's attorney wrote to the husband, who (1) Traditionally, set aside motions in family law court have was now in propria persona: “Please provide me proof that been governed by section 473 when brought within six you have instituted transfer of the sum of $47,578.09, which is months after the entry of judgment, and by the common the amount due as of June 30, 1999, together with any interest law of extrinsic fraud when brought afterwards. (See In re which has accrued on that amount to date of transfer.” Marriage of Stevenot (1984) 154 Cal.App.3d 1051, 1068 [202 Cal.Rptr. 116] [after relief is no longer available under § 473 The husband wrote back two days later saying he didn't an otherwise valid and final judgment can only be set aside if believe it was up to him to take any “further action regarding obtained through extrinsic fraud]; see also In re Marriage of the IRA transfer” because it was up to the wife to use the

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 2 In re Marriage of Heggie, 99 Cal.App.4th 28 (2002) 120 Cal.Rptr.2d 707, 02 Cal. Daily Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317

Varner (1997) 55 Cal.App.4th 128, 138-140 [63 Cal.Rptr.2d because it was somehow “inequitable,” that discretion has 894].) now been expressly curtailed.

The line between what was “extrinsic” fraud and what wasn't, Put another way, section 2123 represents a fixed legal however, proved to be a “repetitively troublesome issue in principle that may not be substantively contravened by the the family law field” (In re Marriage Stevenot, supra, 154 trial court in considering a discretionary application for relief Cal.App.3d at p. 1056), and so in 1993 the Legislature under section 473. In that regard, it has long been a feature undertook to rationalize the area by enacting sections 2120 of section 473 discretionary set-aside jurisprudence that, through 2129 of the Family Code, also known as the “Relief even though the trial court's decisions benefit from a highly from Judgment” chapter. (See Stats. 1993, ch. 219, § 108, pp. deferential standard of review, they still cannot offend fixed 1615-1617; see generally Rubenstein v. Rubenstein (2000) 81 legal principles. (See Carroll v. Abbott Laboratories, Inc. Cal.App.4th 1131, 1143-1148 [97 Cal.Rptr.2d 707].) (1982) 32 Cal.3d 892, 898 [187 Cal.Rptr. 592, 654 P.2d 775]; accord, Lee v. Offenberg (1969) 275 Cal.App.2d 575, 582 [80 Section 473 and the Relief from Judgment chapter Cal.Rptr. 136] [where sole issue is one of law, result cannot (specifically Fam. Code, § 2122) now coexist, operating as contravene result demanded by law].) alternative bases for relief, depending on when the application is filed. Within the six-month time limit under section 473, Not that the case law prior to the enactment of section a litigant may seek relief from a family law judgment 2123 was particularly favorable to set-aside applications under either the statute's mandatory provisions (where the based merely on imbalances in the division of assets, litigant's attorney is willing to swear to his own fault 4 ) or particularly imbalances caused by, in the words of the its discretionary provisions (where the court “may” relieve statute, “subsequent circumstances.” The leading case on a party of the consequences of his or her own mistake, stock market fluctuations, In re Marriage of Connolly, supra, inadvertence, surprise, or excusable neglect). Alternativelty, 23 Cal.3d 590, was quite clear that if information concerning the litigant may seek relief under any of the specific grounds a stock's value is readily obtainable from newspapers, a trial specified in Family Code section 2122. However, after the court has ample grounds to properly deny a spouse's setaside six months pass, the litigant is limited to just the grounds request, even if the other spouse obtains what is, in hindsight, specified in section 2122, and still faces some time limits. (For a windfall. 6 And while Connolly could not stand for the example, mental incapacity is one of the specified grounds, proposition that it was an abuse of discretion for the trial court and subdivision (d) of the statute requires an action or motion to grant a set-aside motion under *34 such circumstances to set it aside “within two years after the date of entry of (because the trial court denied the set-aside motion, the high judgment.”) *33 court had no occasion to consider whether the trial court could have properly granted it), it is worth noting that section 2123 There is one interesting interaction between the two actually goes Connolly one better. It leaves a trial court with statutory schemes: Family Code section 2123 necessarily no discretion to grant a motion based solely on an imbalance superimposes a per se rule on the trial court's discretion or “windfall” theory. under section 473. 5 Section 2123 is plain that where the only reason to set aside a judgment is that it was “inequitable The Delay Here Was an Insufficient when made,” the trial court is affirmatively commanded not Ground for a Set Aside Motion to set the judgment aside under “any” law. Section 2123 So, besides the imbalance in the division of community reads: “Notwithstanding any other provision of this chapter, property caused by the run of the high-tech stocks in the or any other law, a judgment may not be set aside simply husband's IRA (which is clearly not sufficient under § 2123), because the court finds that it was inequitable when made, what was there to justify the trial court's set-aside order? nor simply because subsequent circumstances caused the division of assets or liabilities to become inequitable, or We begin by noting what wasn't there. the support to become inadequate.” (Italics added.) Thus to whatever degree section 473 jurisprudence might have, First, the great policy of the law favoring the resolution of prior to the enactment of the Relief from Judgment chapter, lawsuits on their merits (e.g., H. A. Pulaski, Inc. v. Abbey countenanced the setting aside of a family law judgment Contr. Specialties, Inc. (1969) 268 Cal.App.2d 883, 886 [74

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 3 In re Marriage of Heggie, 99 Cal.App.4th 28 (2002) 120 Cal.Rptr.2d 707, 02 Cal. Daily Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317

Cal.Rptr. 590]) was not applicable here. This case involves a amounted to a sum less than $300, and even that assumes a stipulated judgment after a period of litigation and settlement rate of interest of 10 percent (the legal rate on judgments), discussion with each side being represented by counsel, not a which the wife wouldn't have been able to get under market default done in a corner. conditions. There was, therefore, no reason for the trial court to set aside the bargain reached by the parties just for that lost Second, there was no hiding or lack of disclosure of assets interest. The court could have, under section 473 (“upon any (cf. Fam. Code, § 2120). The contents of the husband's IRA terms as may be just”) conditioned *36 denial of the motion were known to the wife and her counsel (a fact which parallels on payment of the interest, which in all likelihood the husband Connolly), and the information of the value and potential would have forked over immediately. 8 value of the stocks was public knowledge (ditto re Connolly). For the same reason, there is no basis for the application of Nor was there any basis to suppose bad faith in the delay. any of the law governing missed assets (e.g., Fam. Code, § The husband signed the rollover instructions before the 2556; *35 Henn v. Henn (1980) 26 Cal.3d 323 [161 Cal.Rptr. judgment was filed and gave it to his attorney. His attorney 502, 605 P.2d 10]). The high-tech stocks in the husband's IRA simply forgot to send it in the letter that he no doubt hoped were assuredly not missed. would conclude the case on October 1. When the matter was brought to the husband's attention 14 days later, the Third, along the lines of disclosure, there was no obligation husband responded just as one would expect of someone who on the part of the husband to update the wife on the fluctuating was genuinely surprised (he replied that it had already been values of the two stocks in his IRA. Both Connolly and provided to the wife's attorney), and, two days later, when the In re Marriage of Carter (1971) 19 Cal.App.3d 479 [97 fact that it hadn't been provided was brought to his attention, Cal.Rptr. 274] stand for the principle that a divorcing spouse he immediately called his attorney, who then took reasonably dealing at arm's length with his or her soon-to-be ex, has, prompt action. That is not a scenario at all consistent with a at least where the information is readily obtainable publicly, studied sluggardliness intent on vexing an ex-spouse. 9 no obligation to inform the other of market values of fully disclosed securities. Indeed, in Carter, the appellate court In sum, there was no substantial reason other than the prospect made a point that listing of certain bonds by their book of the husband's windfall to support the set aside motion. The value, as distinct from their fair market value, was sufficient, case thus transposes into a pattern similar to In re Marriage because if the other spouse had wanted to know their fair of Rosevear (1998) 65 Cal.App.4th 673 [76 Cal.Rptr.2d market value, all she had to do was look them up in the Wall 691] where the various bases for setting aside the judgment Street Journal. (See id. at p. 491; see also In re Marriage of vanished upon close inspection. (See id. at p. 685.) We are Melton (1994) 28 Cal.App.4th 931, 938 [33 Cal.Rptr.2d 761] left with the naked lopsidedness of the deal in hindsight, and [upholding determination that there was no extrinsic fraud under section 2123 that is not enough. where spouse could have conducted discovery concerning projected retirement benefits, even though the other spouse misrepresented the value of the plan].) The same could be said Disposition for the wife here. The abuse of discretion in setting aside the stipulated judgment is manifest. The set-aside order found support only What we do have is a delay of a little more than three weeks in a de minimis oversight, and thus contravened section 2123. in forwarding already signed IRA rollover instructions. It is therefore reversed, with directions to make a new order denying the set aside motion. It is at this point that the substance of the deal is important. The wife didn't bargain for X shares of stock. She bargained As it turns out, then, the fact that the wife waited until one day for the equivalent of a cash buyout, down to the last nine before the six-month period was to run to make her motion is cents. The nature of the bargain is confirmed by the wife's quite irrelevant to our decision. She might have brought the attorney's letter to the husband of October 14, asking for the motion in December and it would *37 make no difference IRA rollover instruction and lost interest. 7 to our decision today. Her belatedness does, however, expose her wait-and-see, have-your-settlement-and-set-it-aside-too- The lost interest attributable to the delay in forwarding the if-stock-prices-go-up position. In contrast, the husband and rollover instructions-a delay of less than a month-at most his lawyer acted with dispatch when the oversight concerning

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 4 In re Marriage of Heggie, 99 Cal.App.4th 28 (2002) 120 Cal.Rptr.2d 707, 02 Cal. Daily Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317 the instructions was brought to their attention. Accordingly, in the interest of justice the husband will recover his costs on appeal. Bedsworth, J., and Moore, J., concurred. *38

Footnotes 1 All statutory references in this opinion to section 473 are to the Code of Civil Procedure. Any other undesignated statutory reference is to the Family Code. 2 The IRA account statements of June 30 were the latest available at the time. 3 The declarations do not contradict themselves in any way as to any of the facts. Unfortunately, both declarations also include a considerable degree of substantive argument. For example, the declaration of the wife's attorney stated such things as “I believe that the interests of justice required the Court to order an accounting and further division of this asset [the husband's IRA] as of November 11, 1999” and “the Court may set aside this Judgment based upon mistake, inadvertence, or excusable neglect under the provisions of Code of Civil Procedure Section 473 et. seq.” The husband's attorney's declaration contained such statements as “Petitioner and her attorney are trying to change material provisions of the Further Judgment. This she cannot do.” and “it is respectfully suggested that Petitioner is being somewhat avaricious relative to the IRA.” We recognize that it is very common for family law practitioners to include argument in their declarations (we know it is done all the time, and we do not want to single out the trial lawyers in this regard), but it is a sloppy practice which should stop. Even at its most benign, it is a practice that forces the trial and appellate courts, and opposing counsel, to sort out the facts that are actually supported by oath from material that is nothing more than the statement of an opinion ostensibly under oath. More fundamentally, however, it makes a mockery of the requirement that declarations be supported by statements made under penalty of perjury. The proper place for argument is in points and authorities, not declarations. 4 When there is a proper affidavit of fault in the appropriate case, relief under section 473, subdivision (b) is mandatory and the trial court has no discretion (the “court shall ....”). The statute thus sets up one of the great zen paradoxes of the law-to be relieved of one's own malpractice one must first confess it. 5 We do not address the degree, if any, that section 2123 might affect applications for relief under the mandatory (attorney- falls-on-sword) provisions of section 473. 6 In Connolly, a couple owned 10,000 shares of stock in a company in which the husband was an outside director. The couple agreed to value the shares as of a certain date. The company had already made three unsuccessful attempts to go public. After the trial the court set a value on the stock based on the husband's accurate testimony concerning recent sales, which it awarded to the husband. As an equalizing payment, the wife ended up with a note for $37,500 at 7 percent interest. (See In re Marriage Connolly, supra, 23 Cal.3d at pp. 594-596.) Within a month of the filing of the judgment came yet another attempt at a public offering, this one (of course) being phenomenally successful, with the stock being traded at roughly four times the value at which the trial court awarded it to the husband. (See In re Marriage Connolly, supra, 23 Cal.3d at p. 596.) Just short of six months, the wife then filed a motion to set aside the judgment, on a fraud theory that he should have voluntarily revealed at trial (though he was never asked) the fact that the company contemplated a public offering. The trial court denied the motion to vacate the judgment, and the Supreme Court affirmed, reasoning essentially that the wife had everything she needed to discover the potential value of the stock (including just cross-examining the husband at trial), and if she and her counsel chose not to investigate, they really had nothing to complain about. (See In re Marriage of Connolly, supra, 23 Cal.3d at p. 602.) The high court also noted that the wife might rationally prefer an interest bearing note than non-income-producing stock in a company which could well face bankruptcy if it didn't raise some cash in a successful public offering. (See id. at pp. 603-604.) 7 The suggestion that was insinuated in the wife's moving papers is that she would get interest from June 30, 1999. The actual text of the stipulation (“shall execute a rollover instruction transferring the sum of”) belies any such idea, as do the events leading to it: The stipulation was, after all, not even approved by the wife's attorney or signed by her until mid- September 1999, and there is no express provision for interest from June 30. 8 And, in fact, our opinion is without prejudice to the wife seeking the lost three weeks' interest in subsequent proceedings. 9 Suppose there was evidence supporting an implied finding that the husband and his attorney had taken their languorous sweet time getting the IRA rollover instruction to the wife's attorney in the face of a linear increase in the values of the two high tech stocks in the husband's portfolio as one last nasty gesture to an ex-spouse? Would that, by itself, in light of the de minimis amount of prejudice and the ease by which it could be compensated for, be enough to bring the set

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 5 In re Marriage of Heggie, 99 Cal.App.4th 28 (2002) 120 Cal.Rptr.2d 707, 02 Cal. Daily Op. Serv. 4988, 2002 Daily Journal D.A.R. 6317

aside decision within the “bounds of reason?” Or would it just be an occasion for pique, better dealt with in an attorney fee or sanction motion? Given the record here, we do not address the issue.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

In re the Marriage of MISTI and TIM JANES.

MISTI JANES, E065668 Respondent, (Super.Ct.No. SWD018756) v. OPINION TIM JANES,

Appellant.

APPEAL from the Superior Court of Riverside County. James T. Warren, Judge.

(Retired judge of the Riverside Super. Ct. assigned by the Chief Justice pursuant to art.

VI, § 6 of the Cal. Const.) Affirmed with directions.

Hanson, Gorian, Bradford & Hanich and Erik J. Bradford for Appellant.

Walker Trial Lawyers, Barry M. Walker and Amy M. Oakden for Respondent.

In a 2010 marital settlement agreement, which was attached to a judgment of dissolution, respondent Misti Janes (Wife) was awarded $113,392 from the retirement account of appellant Tim Janes (Husband). In 2014, Wife’s $113,392 remained in the

1 retirement account. Wife sought the $113,392 and the gains or losses resulting from that money. The family court granted Wife’s request for a Qualified Domestic

Relations Order (QDRO) reflecting Wife was entitled to $113,392 and the resulting gains or losses dating back to the date of separation. Husband contends (1) the family court lacked jurisdiction to modify the 2010 judgment of dissolution by awarding the gains and losses to Wife; and (2) the family court erred by dating the gains and losses back to the date of separation, rather than the date of the dissolution judgment. We affirm the judgment with directions.

FACTUAL AND PROCEDURAL HISTORY

A. JUDGMENT OF DISSOLUTION

Wife and Husband married in September 1992. They separated on February 13,

2009. The dissolution judgment was filed on April 19, 2010, in Riverside County

Superior Court, with a marital termination date of April 13, 2010. The settlement agreement (the agreement) attached to the judgment, reflected “Petitioner, [Wife], is awarded and Respondent agrees to transfer, assign, and set over to Petitioner, the following community property assets . . . . [¶] h. $113,392 from [Husband’s] 401k retirement account through Sentinell Benefits.”

The agreement also provided, “Respondent, [Husband], is awarded and Petitioner agrees to transfer, assign, and set over to Respondent, the following community property assets . . . . [¶] l. Balance of the community interest and Respondent’s separate property interest in the 401k retirement account through Sentinell Benefits.”

2 The agreement further reflects jurisdiction is “reserved to the Orange County

Superior Court” for supervising payments pursuant to the agreement and supervising the division of assets pursuant to the agreement.1

B. LETTERS

On February 26, 2014, Wife received a letter from Fidelity Investments (Fidelity) reflecting Fidelity was directed by the administrator of the HEICO Corporation plan, pursuant to a QDRO, to segregate $113,392 “with no earnings calculated through the date of segregation.” Fidelity wrote, “The QDRO provides that [Wife] is entitled to

$113,392.00 of the above referenced account as of 02/24/2014, with no earnings calculated through the date of segregation.” Fidelity informed Wife that it had established an account for her in the amount of $113,392.

On March 21, Wife’s attorney sent a letter to HEICO Corporation reflecting there was no QDRO. Wife’s attorney further asserted the correct date of segregation would be the date of marital separation in 2009. Wife’s attorney demanded the Fidelity transaction be unwound. HEICO Corporation complied.

C. REQUEST AND OPPOSITION

On December 12, 2014, Wife sought approval of a proposed QDRO directing

Fidelity Investments to segregate $113,392 “plus gains and losses (realized and

1 The parties do not raise the issue of jurisdiction being reserved to Orange County Superior Court. Because the judgment of dissolution was entered in Riverside County, and the ruling at issue in this case was made by the Riverside County Superior Court, we will give effect to what we infer was the parties’ intent—to reserve jurisdiction to the Riverside County Superior Court.

3 unrealized) income and expenses (accruals).” Wife asserted the relevant start date for the gains and losses was the date of separation, in February 2009.

Husband opposed Wife’s request. Husband asserted the dissolution judgment awarded Wife a lump sum amount of $113,392—not gains and losses. Husband explained that he tried to give Wife the lump sum amount, as demonstrated by the letter from Fidelity, but Wife rejected it, as demonstrated by Wife’s attorney’s letter.

D. HEARING

The family court held a hearing on May 20, 2015. Husband argued that Wife was awarded a lump sum from his 401(k) account, not a percentage of the account, and therefore, she was not entitled to gains earned on the account. Husband asserted that awarding gains to Wife amounted to a modification of the dissolution judgment, and the family court lacked jurisdiction to modify the judgment.

Wife asserted that if the 401(k) money had been segregated in 2010, then she would have earned the gains on her portion of the money in her separate account. Wife argued that Husband provided no authority to support his position that Wife was not entitled to the gains earned while the money remained comingled.

The family court responded, “The problem is [sic] the judgment specifically says

$113,392. That’s the amount. It doesn’t say anything about gains or losses. It’s not like she had a percentage interest in the 401K. It just says $113,392. That appears to be what she’s entitled to.”

The family court continued, “It seems to me the parties bargained for a specific amount, and it’s right here, and that amount for that matter the petitioner [in] this case

4 got $113,392 no matter what happened to the 401K, so if the 401K had lost money, she still would have gotten $113,392. So perhaps the parties just bargained for that amount, and it looks like that’s what she should get.”

Wife asserted she would have received less if the account suffered losses. The family court asked, “How can you say that?” Wife responded, “Because of the fact that it’s a retirement account, so when you transfer money from a retirement account from a

QDRO, it’s plus or minus the gains or losses on that amount of money.” The family court explained the judgment provides Wife was awarded $113,392.

Wife explained the problem resulted from the money not being segregated in

2010. Wife asserted that if the money had been segregated in 2010, then she would have earned gains on her separate account. Wife asserted that Husband should not receive the gains from Wife’s $113,392. The family court responded, “It might be if

[Husband] for any reason was deleterious and dilatory in giving this money to her, she might be entitled to interest on the money, but I don’t really have anything to show that’s the case.”

Wife asserted she had been e-mailing Husband “for years” asking him to segregate the money, but he failed to do so. Husband asserted Wife could have shown the judgment to Fidelity and had the money transferred herself.

The family court said, “I don’t think she’s entitled to any grains [sic]. I can’t modify the judgment. The judgment is a set amount.” Wife asserted she was not seeking modification of the judgment because the judgment is silent on gains and losses.

Further, Wife questioned why she would need to show a lack of diligence on Husband’s

5 part in order to be awarded interest. Wife asserted she should be awarded interest because the money had “been sitting in his account for all this time.” The court responded, “It seems to me that it would depend on what the problem was. If the problem was she wouldn’t accept it, then no. She’s not entitled to the interest on it.”

Wife asserted she could provide evidence of Husband standing in the way of dividing the account. The court offered to hold a hearing on whether interest should be awarded. Wife asked to brief the issue of whether gains could be awarded to Wife. The court responded, “You can brief it, but I don’t think you’re going to find anything that’s going to help you on the issue. It’s a modification of the judgment. It doesn’t say she gets a percentage. It says she gets a set amount. I’ll be glad to look at any case law on it that either one of you can provide me.” The court scheduled the hearing for July 22.

E. BRIEFS

Husband filed a trial brief. Husband asserted Wife was awarded a lump sum from his 401(k) account and an award of gains would be a modification of the judgment. Husband filed an updated trial brief in December, raising the same arguments. Husband included points and authorities. Husband explained a trial court cannot modify a final judgment.

Wife filed a trial brief. Wife asserted that equity required the court to award her the gains on the $113,392. Wife asserted she had been fine with the money staying in the Fidelity account because it was doing well in that account. However, if Wife had been aware that Husband believed all the gains belonged to him, she would have sought

6 to segregate the money sooner. Wife asserted Husband made no attempt to pay the

$113,392 until 2014.

F. RULING

On December 29, Wife and Husband submitted on the QDRO issue. On January

22, 2016, the family court issued a written ruling. The court concluded that awarding the gains to Wife would not be a modification of the judgment. The court explained,

“[T]here is no community interest in the growth of the separated 401k. The 401k was actually litigated and fully divided by the judgment with [Wife] to receive $113,000

[sic] as her community property interest and [Husband] to receive the balance. [¶]

Inasmuch as [Husband] is entitled to his separate proper[ty] interest in the 401k, so is

[Wife]. The $113,000 became [Wife’s] separate property and the capitalization growth and[/]or loss grew or were subtracted from her $113,000. That capitalization growth or loss rightfully and equitably belongs to [Wife] because it was produced by her separate property asset. [Husband] cannot justifiably claim that he is entitled to the growth merely because he received the remainder because the judgment does not mention that the growth would go to either party. The growth on the $113,000 is neither community property nor [Husband’s] separate property. It is [Wife’s] separate property and she is entitled to it.” The family court ordered Husband to execute the QDRO.

7 DISCUSSION

A. JURISDICTION

Husband contends the family court modified the 2010 judgment under the guise of enforcing it. Husband contends the family court lacked jurisdiction to modify the judgment.

The material facts are undisputed. Therefore, we apply the de novo standard of review. (In re Marriage of Blazer (2009) 176 Cal.App.4th 1438, 1443.) Community property becomes separate property upon execution of a marital separation agreement.

(Engelman v. Gordon (1978) 82 Cal.App.3d 174, 178; In re Marriage of Trantafello

(1979) 94 Cal.App.3d 533, 547.) Executing means signing and delivering the contract.

(Solano Concrete Co. v. Lund Construction Co. (1976) 64 Cal.App.3d 572, 575, fn. 2.)

Profits acquired on separate property are separate property. (Fam. Code, § 770, subd.

(a)(3).)

In the instant case, the agreement reflects it is “effective as of March 1, 2010.”

Wife signed the agreement on March 24, 2010. Husband signed the agreement on April

2, 2010. The agreement was attached to the final judgment, which was filed on April

19, 2010. Thus, the record reflects signatures were completed by April 2, and delivery was completed by April 19. Therefore, the $113,392 in the 401(k) became Wife’s separate property as of April 19, 2010, when the agreement was executed. The remaining money in the account on that day belonged to Husband as his separate property.

8 Husband has no legal right to the gains on Wife’s separate property. (Fam.

Code, §770, subd. (a)(3).) If Wife suffered losses on her separate property, she would have to bear those losses. In other words, the money became Wife’s separate property on April 19, 2010, and any gains or losses on that money belonged to her. (Fam. Code,

§ 770, subd. (a)(3).)

The judgment did not include a mention of the gains or losses; however, there was no need to include them. The judgment included all the necessary information—

$113,392 of the 401(k) account was Wife’s separate property as of April 19, 2010.

Whatever gains or losses occurred on that money after that date belonged to Wife—it was not necessary to include that information in the judgment. Accordingly, when the family court stated that Wife’s gains on her separate property were her separate property, the family court was not modifying the judgment.

Husband asserts the instant case is “on all fours” with In re Marriage of Thorne and Raccina (2012) 203 Cal.App.4th 492 (Thorne). In Thorne, the wife and the husband entered into a marital settlement agreement, in which the wife accepted 16 percent of the husband’s military pension. The wife sought to have the dissolution judgment set aside when she learned courts apply a time rule to divide a pension. (Id. at pp. 495-497.) The wife asserted she was “‘entitled to her one-half community share of

[the husband’s] disposable retirement pay.’” (Id. at p. 497.)

The trial court modified the judgment to comply with the time rule. (Thorne, supra, 203 Cal.App.4th at p. 496.) The appellate court explained that “once a marital dissolution judgment has become final, the court loses jurisdiction to modify or alter it.”

9 (Id. at p. 499.) The appellate court concluded the trial court erred by modifying the judgment because the court lacked jurisdiction to make the modification. (Id. at p. 500.)

The instant case is distinguishable from Thorne. Wife is seeking the same amount of principle that was awarded to her on April 19—$113,392 of the 401(k) account. In Thorne, the wife was seeking to change the amount of principle she received. The Thorne situation is a modification because the wife was seeking an entirely different division of the asset. In the instant case, Wife is not changing the division of the asset. Wife’s separate property is still $113,392. Wife will also take the gains or losses on that amount of money. The family court did not change anything about the judgment in issuing its ruling.

At oral argument in this court, Husband asserted (1) he and Wife had bargained for certainty, in particular, the certain sum of $113,392, and (2) the $113,392 was an equalization payment. Husband asserted that if the 401(k) account suffered losses after

April 19, then he still would have been required to pay Wife $113,392 because the bargain was for a certain sum and it was an equalization payment.

We see nothing in the agreement indicating the $113,392 was an equalization payment, as opposed to part of the regular division of community property. (See In re

Marriage of Bergman (1985) 168 Cal.App.3d 742, 761-762 [a spouse awarded more than 50 percent of the community property may be required to make an equalization payment])

Nevertheless, assuming Husband is correct, his argument fails to explain why he is entitled to gains earned on the $113,392. If the $113,392 were a certain sum

10 bargained for as an equalization payment, then that money was still Wife’s separate property on April 19. There is nothing indicating an equalization payment was to be delayed; therefore, we assume the payment was to be made immediately. The fact that

Wife’s separate property equalization payment remained in the 401(k) account does not entitle Husband to the gains earned on Wife’s separate property. (Fam. Code, § 770, subd. (a)(3).) Accordingly, we find Husband’s argument to be unpersuasive as it pertains to gains.

To the extent the account suffered losses, Husband’s argument is problematic. If

Wife bargained for a fixed sum of $113,392 as an equalization payment, it would be an odd choice to tie that fixed equalization amount to a 401(k) account, in which the possibility of loss is inherent. The agreement provides, Husband will pay Wife

“$113,392 from [Husband’s] 401k retirement account through Sentinell Benefits.” The agreement also reflects Wife was awarded an IRA, two investment accounts, and “[a]ll bank accounts presently in [Wife’s] name.” Husband was awarded an IRA account and

“[a]ll bank accounts presently in [Husband’s] name.”

Gains and losses are inherent in a 401(k) account. If the parties expected Wife to receive a fixed sum of $113,392, it stands to reason Wife would not have tied the funding of that fixed sum to a particular 401(k) account that could naturally depreciate in value due to market changes. Instead, one would expect the agreement to reflect

Wife was awarded an equalization payment of $113,392, not attached to any particular account, such that Wife could collect her equalization funds from any source. We are not persuaded by Husband’s interpretation of the agreement. (See Civ. Code, § 1636

11 [we interpret a contract to give effect to the parties’ intention as it existed at the time of contracting].)

In sum, we are not persuaded by Husband’s position that (1) the parties intended the $113,392 to be a fixed sum despite any gains or losses on the account, and

(2) Husband is entitled to the gains earned on Wife’s separate property.

B. DATE

Husband contends the family court erred by ordering that Wife is to receive gains from the date of separation, rather than the date of the judgment of dissolution.

Property is to be valued as close as possible to the time of trial. (Fam. Code,

§ 2552, subd. (a).) If Wife wanted the family court to apply an alternative date of valuation (e.g., the date of separation), she bore the burden of demonstrating good cause as to why the alternative valuation date is applicable in this case. (In re Marriage of

Reuling (1994) 23 Cal.App.4th 1428, 1435.) Additionally, a party seeking application of an alternative valuation date should file a noticed motion 30 days prior to the hearing, giving the opposing party notice of a possible alternative valuation date. (Fam. Code, §

2552, subd. (b).) The 30-day noticed motion is not mandatory, but “timely notice from the requesting party to the other party” is necessary. (In re Marriage of Bergman, supra, 168 Cal.App.3d at p. 760, fn. 15.) The notice should set forth the alternative date sought to be employed, the legal authority supporting the request, and the good cause supporting the use of the alternative date. (Ibid.)

There is nothing in the register of actions indicating Wife filed a noticed motion.

We do not see notice of an alternative valuation date included with her request for a

12 QDRO. In Wife’s trial brief, we see no discussion concerning why there is good cause for the family court to apply an alternative valuation date.

It appears from the record that, on Wife’s proposed QDRO, she used the date of separation as the date of valuation, and the family court approved the proposed QDRO as written without any substantive discussion of the date of valuation. Because Wife did not properly notify Husband of her request for the alternative valuation date, we conclude the family court erred by valuing the 401(k) account as of the date of separation. The account should have been valued close in time to the trial—April 19,

2010.

At oral argument in this court, Wife asserted Husband forfeited his contention concerning the alternative valuation date because, in the family court, Husband did not object to the alternative valuation date that Wife included in the proposed QDRO.

Wife’s proposed QDRO was attached to her trial brief. The trial brief did not discuss application of an alternative valuation date—no legal authority and no discussion of good cause. The only indication of an alternative valuation date was the date on the proposed QDRO.

Because Wife did not provide the required notice, e.g., legal authority and a discussion of good cause, we cannot conclude Husband forfeited the issue. In other words, Husband could not have forfeited an issue that Wife failed to properly raise.

13 DISPOSITION

The family court is directed to modify the QDRO to reflect that the relevant start date for the gains and losses is April 19, 2010. In all other respects, the judgment is affirmed. The parties are to bear their own costs on appeal.

CERTIFIED FOR PUBLICATION.

MILLER J.

We concur:

McKINSTER Acting P. J.

SLOUGH J.

14 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855

KeyCite Yellow Flag - Negative Treatment Affirmed in part, reversed in part, and modified. Distinguished by Marriage of Josefson and Huebner, Cal.App. 6 Dist., May 19, 2016 Boland, J., filed concurring opinion. 133 Cal.App.4th 1090 Court of Appeal, Second District, Cooper, P.J., filed opinion concurring in part and dissenting Division 8. in part.

In re the MARRIAGE OF John McTIERNAN and Donna DUBROW. John McTiernan, Appellant, West Headnotes (11) v. Donna Dubrow, Appellant. [1] Divorce Good will

No. B161255. The “excess earnings method,” which is | commonly used to determine the value of Oct. 28, 2005. the goodwill in a professional practice in | a dissolution proceeding, is predicated on a Review Denied Jan. 25, 2006. comparison of the earnings of the professional in question with that of a peer whose performance Synopsis is “average.” Background: In marital dissolution proceeding, the Superior Court, Los Angeles County, No. BD263827, Richard Montes, See Hogoboom & King, Cal. Practice Guide: J., assigned goodwill to husband's successful career as a Family Law (The Rutter Group 2005) ¶ 8:1445 motion picture director, divided community property, and (CAFAMILY Ch. 8-E). ordered spousal support payments and award of attorney fees 4 Cases that cite this headnote and costs to wife. Both spouses appealed.

[2] Marriage and Cohabitation Rents, profits, and products of separate property Holdings: The Court of Appeal, Flier, J., held that: There was no goodwill in husband's successful [1] there was no goodwill in husband's career; career as a motion picture director, to be divided as community property at time of [2] reimbursement of wife's share of lost profits was proper dissolution; although husband had “expectation restitution for husband's violating automatic temporary of continued public patronage” within meaning restraining order (ATRO) by selling community securities of statute defining goodwill, his career was not without her consent; a “business” within meaning of that statute, as it had neither assets nor transferable property. [3] portion of postseparation pendente lite spousal support West's Ann.Cal.Bus. & Prof.Code §§ 14100, payments to wife was properly characterized as community 14102. property distribution; See 11 Witkin, Summary of Cal. Law (9th ed. 1990) Community Property, § 69 et seq.; [4] imposing two-year limitation on spousal support, and Hogoboom & King, Cal. Practice Guide: Family failing to retain jurisdiction over further support, was abuse Law (The Rutter Group 2004) ¶ 8:1437 et seq. of discretion; and (CAFAMILY Ch. 8-E); Cal. Jur. 3d, Good Will, § 5. [5] attorney fees and costs award was properly conditioned on amount of wife's ultimate share of community property, as 8 Cases that cite this headnote determined following sale of certain community assets.

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 1 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855

Reimbursement of wife's share of lost profits [3] Statutes Clarity and Ambiguity; Multiple was proper restitution for husband's violating Meanings automatic temporary restraining order (ATRO) Statutes Plain language; plain, ordinary, by selling community securities without her common, or literal meaning consent, and thus trial court properly valued The key in statutory interpretation is applying stock as of date dissolution trial commenced, the rules in proper sequence, first examining the and as if it had not been sold. West's actual language of the statute, giving to the words Ann.Cal.Fam.Code §§ 233(a), 1101(f), 2040(a) of the statute their ordinary, everyday meaning (2). and, second, if the meaning is without ambiguity, 6 Cases that cite this headnote doubt, or uncertainty, then the language controls.

[8] Divorce Defenses and objections [4] Divorce Good will Portion of postseparation pendente lite spousal The expectancy of future earnings may not be support payments to wife was properly considered in determining goodwill of a spouse's characterized as advance community property business in a dissolution proceeding. distribution, rather than retroactive spousal support, during dissolution, where no request for, See 11 Witkin, Summary of Cal. Law (9th ed. or issue of, retroactive support was presented 1990) Community Property, § 71. when temporary support was ordered, and wife's needs were met by interim payments, which were 5 Cases that cite this headnote made without prejudice to spousal support.

[5] Property Subjects of property 3 Cases that cite this headnote Personal property may be incorporeal, i.e., without tangible substance, and it may be [9] Divorce Reservation of jurisdiction intangible in the sense that it is a right rather Divorce Rehabilitative awards; awards than a physical object. West's Ann.Cal.Civ.Code until self-supporting § 663. Imposing two-year limitation on spousal support, and failing to retain jurisdiction over further 1 Cases that cite this headnote support, was abuse of discretion, given trial court's failure to consider and apply statutory [6] Property Right of alienation factors of ability to pay and need, and Even if incorporeal or intangible, property also because of evidentiary uncertainty that must be capable of being transferred; it is a wife could and would independently support fundamental principle of law that one of the chief herself within two years, at level which incidents of ownership in property is the right to was appropriate given marital lifestyle. West's transfer it. Ann.Cal.Fam.Code § 4320(c, d).

1 Cases that cite this headnote See Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2005) ¶ 6:891 (CAFAMILY Ch. 6-B). [7] Divorce Injunction against disposition of property before award 20 Cases that cite this headnote Divorce Purchases and conveyances Divorce Stocks, bonds, and other [10] Divorce Attorney Fees investments Attorney fees and costs award to wife in dissolution proceeding was properly conditioned

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 2 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855

on amount of wife's ultimate share of community In her appeal, wife contends that the court abused its property, as determined following sale of discretion by limiting her postdissolution spousal support to certain community assets; provisional order that two years, and by characterizing several months of pendente husband pay $850,000 of wife's fees and costs, lite payments as community property distributions rather than pending disposition of community property temporary support. Wife also asserts that the judgment should ranch which had been listed for sale for $6 be modified to preserve jurisdiction over support beyond million, was properly conditioned so that if the two-year period. Finally, wife contends that the court wife's ultimate share of total community assets abused its discretion by reducing husband's obligation to pay following distribution exceeded $5 million, then wife's attorney fees, by reason of an irrelevant and inaccurate husband's obligation to pay fees and costs would reckoning of her postdissolution estate. be reduced by one-half of amount exceeding $5 million benchmark. We find merit in husband's contention that there is no goodwill in his career as a motion picture director. We also find merit in 1 Cases that cite this headnote wife's contentions regarding the duration of spousal support and retention of jurisdiction. We reverse the judgment as to [11] Divorce Counsel fees, costs and those elements, and affirm it in all other respects. allowances The appellate court reviews an award of attorney fees and costs in a dissolution proceeding for FACTS abuse of discretion. The parties were married in November 1988. They separated 1 Cases that cite this headnote in July 1997, and **290 husband commenced this proceeding the following month. The matter was extensively litigated, including 21 days of trial, conducted between June 1999 and June 28, 2000. The court's 34–page statement of Attorneys and Law Firms decision was filed August 23, 2000, and the judgment under review was entered on August 28, 2002. At that time, husband **289 Kolodny & Anteau, Stephen A. Kolodny, Lauren S. was 51 years old and wife was 59. Petkin and James L. Keane for Appellant John McTiernan. *1094 The evidence showed that, during and after the Dapeer, Rosenblit & Litvak and William Litvak for Appellant marriage and to some extent before, husband was a very Donna Dubrow. successful motion picture director, commanding six- to high Opinion seven-figure compensation per film, and having to his credit such blockbusters as Die Hard (20th Century Fox 1988), FLIER, J. The Hunt for Red October (Paramount Pictures 1990), and The Thomas Crown Affair (Metro–Goldwyn–Mayer 1999). *1093 John McTiernan (husband) and Donna Dubrow Wife also pursued a career in motion picture production, (wife) both appeal from a judgment in the dissolution of and before the marriage she was earning $195,000 a year their marriage. Their appeals raise distinct issues. Husband as a production company executive. She produced several primarily challenges the trial court's determination that there films during the marriage, while accompanying husband in existed goodwill in his business as a motion picture director, his directorial pursuits. The trial court found that during the and that all of the $1.5 million of goodwill constituted eight and three-quarter years of marriage before separation, community property. Husband also contests a ruling that husband had earned approximately $15 million, and wife had he must reimburse wife's share of profits that were lost earned about $1 million. Predictably, the parties' community after husband sold certain community securities without estate was substantial, as was the scale of their lifestyle. her consent, and in violation of the automatic injunctive order imposed upon commencement of the proceedings. Because the issues raised on these appeals largely involve (Fam.Code, § 2040, subd. (b).) distinct factual and legal bases, we will state the facts relevant

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 3 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 to each issue in conjunction with its discussion. We proceed been noted that the “excess earnings” method is a method to consideration of the issues. that is commonly used to determine the value of the goodwill in a professional practice. (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2005) ¶ 8:1445, p. 8–350.) Broadly put, the excess earnings approach is I. HUSBAND'S APPEAL predicated on a comparison of the earnings of the professional in question with that of a peer whose performance is A. Professional Goodwill “average.” 1 Using this method with some modifications, the trial court determined that husband's goodwill at the time of 1. The Trial Court's Ruling and Husband's Contention on separation was $1.5 million. Appeal The trial court found that husband “is a motion picture Husband contends that he does not possess an asset that can be director who has achieved exceptional success in that field. properly classified as goodwill. Relying on In re Marriage of His success is dependent upon his personal skill, experience Rives (1982) 130 Cal.App.3d 138, 153, 181 Cal.Rptr. 572, and and knowledge, and the Court finds that, in that respect, In re Marriage of Aufmuth (1979) 89 Cal.App.3d 446, 460– the profession which he practices is similar to that of an 2 attorney, physician, dentist, accountant, editor, architect, or 462, 152 Cal.Rptr. 668, among other cases, husband points any other professional who has established a successful out that skill, reputation and experience are not community professional practice, with quantifiable expectation of future property. Husband contends that the goodwill found to exist patronage, based upon his or her personal skill, experience in this case is in reality nothing other than his skill, reputation and knowledge.” and experience.

The finding that husband has achieved exceptional success *1096 2. The Issue Defined as a motion picture director is based for the most part on [2] The trial court found that husband has a “quantifiable testimony presented by Arthur De Vany, Ph.D., an economist expectation of future patronage.” Future, or continued, who is a professor in the Department of Economics of the public patronage is one essential aspect of goodwill. “The Institute of Mathematics and Behavioral Sciences at the ‘good will’ of a business is the expectation of continued University of California, Irvine. The trial court found that public patronage.” (Bus. & Prof.Code, § 14100.) However, the “evidence presented by Dr. De Vany was persuasive ... there is more to goodwill than expectation of continued that Petitioner [husband] has developed an earning capacity patronage. “The good will of a business is property and is and reputation in his profession as a motion picture director transferable.” (Bus. & Prof.Code, § 14102, italics added.) which greatly exceeds that of most persons involved in that profession and that Petitioner commands a premium for Since the goodwill of a business is property (Bus. & his services. [¶] In addition, the evidence established that Prof.Code, § 14102), the question is: What is the meaning of Petitioner can reasonably expect to *1095 continue to enjoy “a business” in the definition of goodwill? said premium. In other words, he has expectation of continued patronage at his prior level of compensation.” There are two possible answers. The trial court detailed the facts upon which these conclusions One answer is that the term “a business” also includes “a were based. Among these facts are that husband is ranked person doing business.” This is the interpretation that the trial No. 13 among 1,058 motion picture directors in cumulative court adopted in this case. box office revenues during 1985–1996, No. 8 in terms of gross domestic revenues produced by movies he directed, and The other answer is that “a business” refers to a professional, No. 1 in terms of production budgets entrusted to his control. commercial or industrial **292 enterprise with assets, i.e., Husband does not contest the trial court's conclusion that all an entity other than a natural person. of this boils down to the **291 fact that he has, in the trial court's words, “elite professional standing.” There are three reasons why the second answer is the better one. First, it conforms to the historical understanding of [1] The trial court determined the value of husband's goodwill. Second, the plain text of Business and Professions goodwill by means of the “excess earnings” approach. It has

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 4 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855

Code sections 14100 and 14102, which, in this respect, have offered in Metropolitan Bank v. St. Louis Dispatch Co., supra, not been amended since their enactment in 1872, speaks of “a 149 U.S. at page 446, 13 S.Ct. 944 predicates the existence business,” and not of natural persons. Third, interpreting the of goodwill on the operations of a business entity with assets term “a business” as it appears in Business and Professions separate and distinct from the person or persons who operate, Code sections 14100 and 14102 to refer to a professional, own or manage the business. commercial or industrial enterprise with assets ensures that the interest that is divided as goodwill is “property,” as In this respect, nothing had changed since these early cases “property” is defined by law. were decided. No California case has held that a natural person, apart and distinct from a “business,” can create or generate goodwill. In the instance of professionals, the courts 3. The Historical Understanding of “a Business” have spoken of “the nature and duration of his business The precursors of Business and Professions Code sections as a sole practitioner” (In re Marriage of Lopez (1974) 38 14100 and 14102 were Civil Code sections 992 and 993, Cal.App.3d 93, 109–110, 113 Cal.Rptr. 58) and of the value which were enacted in 1872 as part of the Civil Code. 3 of a “professional practice” (Golden v. Golden (1969) 270 Contemporaneously with the enactment of the *1097 Cal.App.2d 401, 405, 75 Cal.Rptr. 735; see also Todd v. Todd California Civil Code in 1872, and as of the closing decades (1969) 272 Cal.App.2d 786, 792, 78 Cal.Rptr. 131). It is the of the 19th century, the courts spoke of goodwill as an incident business, i.e., the practice, that generates goodwill, even if the of an existing business; goodwill did not exist in the abstract, practice is conducted by a sole practitioner, as was the case apart from a business. “Undoubtedly, good will is in many in Golden and Todd. (See Annot. (1990) 76 A.L.R.4th 1025; cases a valuable thing, although there is difficulty in deciding Annot. (1990) 79 A.L.R.4th 171.) accurately what is included under the term. It is tangible only as an incident, as connected with a going concern or business having locality or name, and is not susceptible of 4. Business and Professions Code Sections 14100 and being disposed of independently.” (Metropolitan Bank v. St. 14102 Endow a Business, and Not a Person, with the Louis Dispatch Co. (1893) 149 U.S. 436, 446, 13 S.Ct. 944, Capacity To Generate Goodwill [3] “There is order in the most fundamental rules of statutory 37 L.Ed. 799.) 4 interpretation if we want to find it. The key is applying those rules in proper sequence. [¶] First, a court should examine California decisions echoed this view, rejecting that goodwill the actual language of the statute.... [¶] In examining the attaches to the shares of stock. “It would be strange to language, the courts should give to the words of the statute predicate good-will as pertaining to or extending to an their ordinary, everyday meaning.... [¶] If the meaning is abstraction, to an ‘artificial being, invisible, intangible, and without ambiguity, doubt, or uncertainty, then the language existing only in contemplation of law.’ ” (Spring Valley W.W. controls.” (Halbert's Lumber, Inc. v. Lucky Stores, Inc. (1992) v. Schottler (1882) 62 Cal. 69, 118, cited with approval in 6 Cal.App.4th 1233, 1238–1239, 8 Cal.Rptr.2d 298, citations Merchants' Ad–Sign Co. v. Sterling (1899) 124 Cal. 429, omitted.) 432, 57 P. 468.) 5 The courts spoke of the fact that **293 goodwill was not separable from the physical assets of There is no doubt about the “ordinary, everyday meaning” of the business that generated the goodwill. (E.g., Russell v. the term “a business,” nor is the term ambiguous or uncertain. Russell (1918) 39 Cal.App. 174, 176–177, 178 P. 307; Ward– In the term “a business,” the word “business” is a noun, Chandler Bldg. Co. v. Caldwell (1935) 8 Cal.App.2d 375, and means a professional, commercial or industrial enterprise 378, 47 P.2d 758.) This led text writers to state that goodwill with assets. It is also clear that “a business” is not a natural cannot be sold independently of the business or the physical person. elements or assets to which it is incident (35 Cal.Jur.3d (1988) Good Will, § 5, at fn. 43), which is a view supported by the **294 *1099 It may be asked whether the term “a court in Metropolitan Bank v. St. Louis Dispatch Co., supra, business” should be read to include “a person doing business,” 149 U.S. 436, 446, 13 S.Ct. 944, 37 L.Ed. 799. in which event Business and Professions Code section 14102 would effectively read: “The good will of a business or of a One of the classic definitions of goodwill in our case law person doing business is property and is transferable.” appears in In re Lyons (1938) 27 Cal.App.2d 293, 297–298, 81 P.2d 190. 6 This definition, *1098 which is the same as

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It is not within the powers of a court to amend the statute community property, it must be, in the first place, property, in such a fashion. And there is no doubt that this would be and, in the second place, it must have been acquired during an amendment of the statute. It would enlarge the scope of marriage. “Except as otherwise provided by statute, all the statute beyond the traditional understanding of goodwill, property, real or personal, wherever situated, acquired by a which anchors goodwill to a business establishment with married person during the marriage while domiciled in this assets. Nor can it be said that “a person doing business” is state is community property.” (Fam.Code, § 760.) 8 logically included in the term “a business.” In the ordinary, everyday sense, “a business” refers to an establishment, a [5] [6] Since every kind of property that is not real is thing, and not a person. With deference to our dissenting personal (Civ.Code, § 663), the property interest in this case, colleague, expanding Business and Professions Code section if it exists, must be personal. Personal property may be 14102 to state “[t]he good will of a business or of a person incorporeal (King v. Goetz (1886) 70 Cal. 236, 240, 11 P. 656), doing business is property and is transferable” should be i.e., without tangible substance, and it may be intangible in the left to the Legislature, especially since such an expansion sense that it is a right rather than a physical object. (Navistar involves considerations of social policy, as appears in the Internat. Transportation Corp. v. State Bd. of Equalization following paragraph. (1994) 8 Cal.4th 868, 875, 35 Cal.Rptr.2d 651, 884 P.2d 108.) But, even if incorporeal or intangible, property must be [4] Endowing “a person doing business” with the capacity capable of being transferred. “[I]t is a fundamental principle to create goodwill, as opposed to limiting goodwill to “a of law that one of the chief incidents of ownership in property business,” has wide ramifications. “A person doing business” is the right to transfer it.” (Bias v. Ohio Farmers Indemnity includes much of the working population. Notably, there Co. (1938) 28 Cal.App.2d 14, 16, 81 P.2d 1057.) “A common would be no principled distinction between husband in this characteristic of a property right, is that it may be disposed case, who is a director, and actors, artists and musicians, of, transferred to another.” (Douglas Aircraft Co. v. Byram all of whom could be said to be “persons doing business.” (1943) 57 Cal.App.2d 311, 317, 134 P.2d 15.) Thus, all such persons who would have the “expectation of continued public patronage” would possess goodwill. This Husband's “earning capacity and reputation in his profession would create a substantial liability, as in this case, without a as a motion picture director which greatly exceeds that of guaranty that the liability would be funded. It is clear that, most persons involved in that profession” or, in the trial from an economic perspective, the “goodwill” in this case is court's shorthand, his “elite professional standing,” cannot based on earnings, and that “goodwill” is an expression of be sold or transferred. His high standing among other husband's earning capacity. 7 However, there is no guaranty, motion picture directors is entirely personal to him. He especially in the arts, that earnings will not decline or even cannot confer on another director his standing as No. 13 dry up, even though expectations were to the contrary. In such in cumulative box office revenues during 1985–1996. He an event, a person would find him- or herself saddled with a cannot sell this standing to another, because a buyer would massive liability without the means of satisfying it. Putting not be John McTiernan, no matter how much the buyer was it another way, endowing directly persons with the ability to willing to pay. For the same reason, and unlike a law or create goodwill would create an “asset” predicated on nothing medical practice, husband cannot transfer his *1101 “elite other than predictions about earning capacity. professional standing.” That standing is his, and his alone, and he cannot bestow it on someone else. Thus, an essential aspect of a property interest is absent. *1100 5. Interpreting the Term “a Business” As It Appears in Business and Professions Code Sections The fact that husband's “elite professional standing” is not 14100 and 14102 To Refer to a Professional, Commercial transferable effectively refutes the trial court's conclusion that or Industrial Enterprise with Assets Ensures That the husband's “practice” as a motion picture director is like the Interest That Is Divided As Goodwill Is “Property.” “practice” of an attorney or physician. The practice of an The trial court found that husband “has developed an earning attorney, physician, dentist, or accountant is transferable, but capacity and reputation in his profession as a motion picture husband's “elite professional standing” is his alone, and not director which greatly exceeds that of most persons involved susceptible to being transferred or sold. in that profession **295 and that [husband] commands a premium for his services.” In order for this to be divisible as

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That husband's “elite professional standing” is not a property 14100.) However, the “expectation of continued public interest is also reflected by the trial court's calculation of patronage” must be generated by “a business.” A business husband's “goodwill.” Under the excess earnings method, the is a professional, commercial or industrial enterprise with court must deduct from the average net pretax earnings of the assets; “a business” is not earning capacity or professional business being valued the “fair return” on the “net tangible reputation. assets used by the business.” (Fn.1, ante.) No such deduction was made in this case, and the comparison was between Finally, the fact that the trial court was able to, and did, apply husband's pretax net income, and that of a motion picture the “excess earnings” method to calculate goodwill does not director who is compensated at minimum levels. Thus, the mean that there is goodwill in this case. Boiled down to its trial court's calculation of “goodwill” demonstrates that there essentials, the excess earnings method is a comparison of was no business—there were no assets—that would qualify husband's earnings with that of an “average” peer. The fact as property. that this calculation can be performed, as it was performed, does not convert husband's skill and reputation into “a Were we to construe the goodwill of a business as the business,” and does not transmute unique and idiosyncratic trial court did in this case, we would be faced with a talents into property that can be transferred or sold. conflict between Business and Professions Code section 14102 (the goodwill of a business is property) **296 and We conclude that the trial court erred in finding that there the fundamental concept that property is transferable. Under was goodwill in husband's practice or career as a motion section 14102, we would call “property” something that is not picture director. Accordingly, the judgment must be modified transferable, and therefore is not property. Instead, we anchor to eliminate $1.5 million in assets that are subject to division. goodwill to “a business,” as the statute requires. This ensures As noted in the text, post, this affects the calculation of that goodwill is attached to property that is transferable, attorney's fees under the formula crafted by the trial court. as a professional, commercial or industrial enterprise is transferable.

B. Remedy for Violation of Restraining Order In sum, adhering to the rule that property, in order to qualify as property, must be transferable is not a theoretical exercise. [7] Husband's final assignment of error concerns the remedy Something that cannot be transferred or sold has no value imposed for his violation of a restraining order. Pursuant on the market. Dividing such a nontransferable quantity as to sections 2040, subdivision (a)(2), and 233, subdivision community property therefore creates an obligation without (a), upon service of the petition for dissolution both parties ensuring that that obligation can be funded. However, when became subject to a temporary restraining order against “a business” with assets is divided, there is some assurance their transferring or disposing of any property, “whether that the obligation created by the division can and will be met. community, quasi-community, or separate,” without an order of the court or written consent of the other party, “except in the usual course of business or for the necessities of 6. Respondent's Arguments in Support of the Trial Court's life ....” (§ 2040, subd. (a)(2).) In April 1998, faced with Finding of Goodwill Are Without Merit a cash shortage, husband sold certain community property Respondent contends that the “existence of a business in the stocks, the proceeds **297 of which he used in part to pay traditional sense is not a prerequisite to finding professional community expenses. Husband did not inform wife or seek goodwill.” The contrary is *1102 true. As we have seen, the court approval of the stock sale before conducting it. plain text of Business and Professions Code sections 14100 and 14102, as well as its predecessors, refers to the “good *1103 Wife subsequently requested relief on account of the will of a business.” As we have shown, this is a reference to a sale, the stock's market price having increased substantially professional, commercial or industrial enterprise with assets. between the sale and the time of trial. In its statement of decision, the court found that husband had violated the Respondent contends that since there is substantial evidence restraining order by disposing of the asset, “although the court that husband has an expectation of continued public believes he did not do so maliciously or of ill will.” The patronage, husband has goodwill. This begs the question. It court noted that husband could have consulted wife, and if is true that “[t]he ‘good will’ of a business is the expectation she had not agreed to sell he could have sought court approval of continued public patronage.” (Bus. & Prof.Code, §

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—but “he did neither.” The court therefore ruled that the Wife filed an order to show cause (OSC) for pendente asset would be valued as if it had not been sold, and that lite spousal support in October 1997. Among other things, the valuation date for all securities controlled by either party wife declared **298 that during the marriage, husband had would be the date trial commenced. The outcome was that provided her $27,500 per month for her personal expenses the judgment awarded wife “Lost appreciation on community and those of her Brentwood residence, which she had property securities valued at $284,087 as of June 24, 1999.” acquired before the marriage. She also used credit cards, for The court did not obligate husband for the substantial further approximately $5,000 per month, which husband paid. appreciation that occurred during the extended trial, a remedy the court eschewed as “an unreasonable penalty on [husband] Wife's OSC was originally set for December 8, 1997, but for his violation of the ATRO....” on December 5 the parties stipulated that it be continued to January 13, 1998. Approved by the court, the stipulation Husband nonetheless contends that the award of wife's also provided that pending the hearing, husband would pay share of profits lost by his violation of the injunctive order wife $27,500 on each of December 1 and January 1. Wife constituted a form of punitive damages, unauthorized and also would retain her credit cards, for which husband would inappropriate for what husband terms “a technical violation” pay, but husband would receive credit for expenses charged of the order. But the violation could just as well be labeled during any period for which retroactive support (if any) was “a square one.” 9 And the remedy imposed was not a form later ordered. These payments were to be nontaxable to wife of punitive damages, but rather restitution of the loss caused and nondeductible by husband. They also were to be without wife by husband's violation. prejudice to the parties' positions regarding wife's needs, based on the marital standard of living and husband's ability In fact, the remedy here precisely paralleled the one provided to pay. by section 1101, subdivision (f), for breach of a spouse's fiduciary duty involving asset transfer that impairs the other A similar “Stipulated Order re Interim Payments and spouse's undivided one-half interest (see id., subd. (a)). Continuance of Hearing Date” was filed on January 13, 1998. Husband argues that he did not breach such a duty, especially It continued the OSC hearing to February 18 and provided, in light of the trial court's finding he did not act maliciously. inter alia, for another $27,500 payment to wife, on February But the statutory remedy applies to nonmalicious breaches 1. This order provided that the payments to wife were not to (In re Marriage of Hokanson (1998) 68 Cal.App.4th 987, be taken either “as a measure of pre-separation lifestyle or as 992, 80 Cal.Rptr.2d 699), and it was not inappropriate to establishing [wife's] need for spousal support or [husband's] treat in the same manner husband's violation of an injunctive ability to pay same.” order designed to preserve the parties' property interests from unilateral disposition. On February 18, 1998, the court ordered further monthly payments, as spousal support. In its ultimate statement of decision, however, the court ruled that husband's payments to wife from July 1, 1997, to March 1, 1998, (the first II. WIFE'S APPEAL payment ordered on February 18) were to be characterized not as retroactive support but rather as advances of community A. Spousal Support and Retention of Jurisdiction property, one-half of which wife had to reimburse husband. The court explained that neither wife nor husband had ever Wife raises three issues concerning spousal support: the requested that spousal support be granted retroactively from proper characterization of stipulated payments to her by its March 1, 1998 commencement, nor did the stipulations husband before interim support was *1104 ordered; the and orders re interim payments so provide, the orders having proper duration of postjudgment support, which was ordered been without *1105 prejudice to characterization. The court for two years; and the proper understanding and disposition stated it had been cognizant of those orders when it directed of the court's order regarding retention or relinquishment of support on February 18, without ordering retroactivity. jurisdiction. We address these questions in the order stated. [8] Wife contends that the court's refusal to characterize the interim payments as retroactive support was error, in 1. Initial Payments light of the fact that her need for support during separation

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 8 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 was as vital before March 1, 1998, as thereafter. She relies closest the statement of decision came to addressing this on In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, element was a finding that husband at that time had “gross 312–313, 111 Cal.Rptr.2d 755, which declared that “the monthly income of $115,640....” The court did not address trial court's exercise of its discretion regarding retroactivity husband's assets, nor did it refer **300 to his earning of temporary support must be guided by two overriding capacity (although it considered wife's at length). The latter concerns: the supported spouse's need and the supporting omission seems particularly odd because elsewhere in its spouse's ability to pay.” But in this case, no request for or issue statement of decision, on the issue of goodwill, the court of retroactive support was presented when temporary support documented that husband had developed and possessed an was ordered. Hence, Cheriton is not on point. Moreover, elevated earning capacity. Indeed, in its contemporaneous wife's needs were met by the interim payments, which were attorney fees order, the court referred to husband's earning made without prejudice to spousal support. The trial court's capacity as “enormous.” characterization of those nontaxable payments as community property advances was not an abuse of discretion. In In re Marriage of Cheriton, supra, 92 Cal.App.4th 269, 111 Cal.Rptr.2d 755, a similar failure to consider the “key factor” (id. at p. 304, 111 Cal.Rptr.2d 755) of the husband's ability 2. Permanent Support to pay was *1107 held an abuse of discretion, requiring Commencing March 1, 1998, wife was granted and received reversal of a spousal support judgment. The trial court had tax-free pendente lite support of $30,000 per month. Husband been aware of the husband's substantial assets, but had not paid that amount for 28 months, to July 2000. In its statement taken them into account. The reviewing court noted that of decision and judgment, the court ordered further support, in “[i]gnoring the ability to pay is particularly egregious in the same monthly amount (now taxable to wife), for two more this case, given the enormous financial disparity between the years, until July 2002. The judgment declared this duration to parties. [Citations.]” (Id. at p. 305, 111 Cal.Rptr.2d 755.) be “non-modifiable,” and used other language indicating that jurisdiction **299 to extend support further would not be Yet a second factor that received no explicit attention in the retained. In making this award, the court cited and discussed decision below were wife's needs, “based on the standard of various factors bearing on a spousal support order, provided living established during the marriage.” (§ 4320, subd. (d).) in section 4320, which is set forth below. 10 The court found that the marital living standard had consumed community expenditures of $147,000 or $170,000 monthly [9] *1106 Wife contends that the court abused its discretion (respectively exclusive or inclusive of private aircraft costs, by limiting her “permanent” support to two years. She which the court deemed business expenses). The court does not challenge the monthly amount of support, only further observed that neither party could presently enjoy its duration. Wife argues that the decision failed to take that lifestyle. That is a truism in most dissolved marriages. into account certain of the relevant circumstances set forth (Hogoboom & King, Cal. Practice Guide: Family Law, supra, in section 4320, and evaluated others insufficiently, or in ¶ 6:947, p. 6–346.) It does not, however, excuse consideration disregard of the evidence. We review the spousal support of the supported party's needs under the statute. (Id., ¶ 6:891, award for abuse of discretion, but with the understanding p. 6–319.) that a sustainable exercise of discretion requires that the trial court have considered and applied all relevant factors under Here, the court found husband's current monthly income section 4320. (In re Marriage of Smith (1990) 225 Cal.App.3d to be $115,640, or between 68 and 79 percent of the 469, 479–480, 274 Cal.Rptr. 911; In re Marriage of Cheriton, marital lifestyle expenditures. In contrast, wife was receiving supra, 92 Cal.App.4th at pp. 302–304, 111 Cal.Rptr.2d 755; “passive income” of $5,777 monthly, and the court found that see In re Marriage of Fransen (1983) 142 Cal.App.3d 419, she had the capacity to earn $11,000 a month (although she 425, 190 Cal.Rptr. 885.) had earned no income for two years). Wife's projected present income was thus 14.5 percent of husband's, and hardly one- That was not the case here. Strikingly absent from the tenth of the former lifestyle expenditures. Unless the marital trial court's analysis was any reference to the fundamental standard of living is to be ignored entirely when not fully factor of husband's ability to pay support, “taking into unattainable, these facts evidenced a question of wife's need, account [his] earning capacity, earned and unearned income, particularly should she not become fully employed. Failure to assets, and standard of living.” (§ 4320, subd. (c).) The

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 9 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 give direct consideration to that need worked another serious court's failure to consider and apply the factors of ability defect in the court's evaluation. to pay and need (§ 4320, subds.(c), (d)), and also because of the evidentiary uncertainty that wife could and would The finding that wife possessed a personal earning capacity independently support herself, at an appropriate level, within of $11,000 per month, or $132,000 annually, was critical the limited time. On remand, the trial court will be able to to the ruling that permanent support should extend for only assess the proper measure of support to be accorded for the two years. (See § 4320, subd. (a).) There were, however, period since June 30, 2002, as well as prospectively, in light of deficiencies in the premises underlying this finding. First, the present and intervening circumstances, as well as all relevant court noted that wife had been earning $195,000 annually statutory factors. when she married husband. But she had received this income as an executive of a motion picture production company, whereas her employment during the marriage, as well as her 3. Retention of Jurisdiction intentions after it, more involved acting as an independent Although wife urges otherwise, the text of the judgment producer. (and also that of the statement of decision) registers the trial court's intention to terminate any jurisdiction to extend Second, the court found that during the marriage wife had spousal support beyond June 30, 2002. Given the holding that earned an average of $125,000 per year, as a producer. permanent spousal support should not have been truncated However, almost all of the film projects that wife pursued at that date, reversal or modification of this aspect of and garnered earnings from during the marriage *1108 the judgment appears essential as a matter of consistency. also involved husband's participation, in one capacity or But even viewed in its original context, the retraction another. Wife testified that the few projects on which she of jurisdiction was overly restrictive, because the court's worked independently, without husband, together paid her expectations about wife's capacity to become adequately approximately $50,000. The court's finding that wife “has employed and self-supporting were tentative and untested. the capability to earn a similar amount that she did during Much as in *1109 In re Marriage of Frick (1986) 181 the course of the marriage” thus appears at best uncertain in Cal.App.3d 997, 226 Cal.Rptr. 766, the circumstances at support. Indeed, in its attorney **301 fees order, the court judgment made it inappropriate for the court then to “ ‘ stated that “[wife's] earning capacity is at this time almost “burn its bridges,” ’ ” by terminating the “jurisdiction to deal nonexistent.” with unforeseen eventualities.” ( Id. at pp. 1021–1022, 226 Cal.Rptr. 766.) 11 The court's evaluation of wife's existing and prospective separate property, as a factor affecting the need for support, also appears unnuanced. The statement of decision rather B. Attorney Fees casually reasoned that “someone coming out of divorce [sic] with 5 million dollars, when they entered the marriage with [10] Wife's final issues concern the court's assignment of one million dollars has the ability to provide for one's self.” responsibility for paying the approximately $5 million of This observation did not take into account that wife's assets attorney fees and costs, including experts' fees (hereafter included her home of many years, nor did it pay regard collectively attorney fees), that were incurred by the parties to the marital standard of living (except to say, once more below, particularly the approximately $2 million for wife's that both husband and wife were presently living below that representation. lifestyle). Furthermore, the gratuitous comparison of wife's assets before and after the marriage compounded a series of At the time of the orders in question, husband had assumed at best irrelevant findings about how wife had benefited from full responsibility for his attorney fees, much of which he being married to her prosperous husband, and how long it had already paid. He had also paid over $500,000 of wife's would have taken her to earn her share of the community fees. The ultimate disposition, about which wife complains, estate by working her premarital job. required provisionally that husband pay an **302 additional $850,000 of her fees. This ruling was made in advance of The foregoing deficiencies dictate that the judgment be disposition of the parties' Wyoming ranch, perhaps the largest reversed, insofar as it imposed a two-year limit on permanent single community asset, which had been listed for sale for spousal support. This disposition is required because of the over $6 million.

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lack thereof,” and that the statute “eschew[ed] any notion that The court's order recited that the court viewed wife's share a numerical standard should be applied.” (O'Connor, at p. 883, of that ranch “as the basis for [wife's] separate estate post- 69 Cal.Rptr.2d 480.) marriage and the source of the payment of attorneys' fees and costs.” The court also stated that its order for spousal Contrary to wife's contention, the court's order and judgment support had “posited that [wife] would have a substantial reflect a defensible rationale for choosing the $5 million estate made up of her share of the community estate and amount, namely the court's prior resolve to afford wife a full her separate property,” estimated to amount to a bit over $5 $5 million estate. And the court's positive focus on wife's million. Assuming that the ranch sale allowed wife to achieve situation was part of the consideration of assets and ability such a $5 million estate, the court stated, husband would have to pay, which wife contends was absent. We cannot say that to pay $850,000 of wife's attorney fees. However, if wife's the court's disposition was an abuse of discretion, that is, one estate exceeded $5 million, husband's fee obligation would be that “ ‘no judge could reasonably make.’ ” (In re Marriage of reduced by one-half of the additional amount. (For example, Sullivan, supra, 37 Cal.3d at p. 769, 209 Cal.Rptr. 354, 691 if wife's estate totaled $6 million, husband's responsibility for P.2d 1020.) the $850,000 fees would be reduced by $500,000, for which wife would be responsible). Wife further contends that even if her estate value was a proper basis for disallowing recovery of some fees, the court Ultimately, this arrangement proved unproductive for wife, **303 included in that estate several items that should as far as fee shifting was concerned. Husband bought out not have been so included. The first of these was $402,000 wife's share of the Wyoming ranch, for $2,825,379, and from the smaller ranch's sale, which had gone directly to the wife's estate as calculated by the court totaled $6,583,795. attorneys. We see no reason, however, why the court could The judgment therefore reduced husband's attorney fees not define wife's estate as including funds that were used to obligation by $791,897.50, to $58,102.50. Moreover, because defer existing expenses, even though she never physically husband had already advanced $200,000 for wife's fees (when possessed those funds. The same holds true with respect to the proceeds of sale of another ranch were deposited with the judgment's equalization payment. Wife also complains wife's trial attorneys), the judgment allowed him a *1110 about the inclusion of about $1.5 million of nonliquid assets, net credit of $141,897.50, to be taken against the judgment's arguing that they could not readily be spent for attorney fees. equalization payment to wife (originally $1,022,613 but now (Cf. In re Marriage of Kerry (1984) 158 Cal.App.3d 456, 464, $880,715.50). 204 Cal.Rptr. 660.) But the court was assessing wife's entire base of assets, not just what was available for fees. [11] Wife contends that use of what the court termed the “$5 million benchmark” was unfounded and improper, and Wife finally argues that by forcing her to pay about $795,000 that even if not, the court miscalculated wife's assets and thus of the attorney fees husband originally was to pay, the trial misapplied the benchmark. We review a matrimonial attorney court self-contradictorily *1111 diminished the very estate fees order for abuse of discretion. (In re Marriage of Sullivan on which it relied to justify her limited spousal support. But (1984) 37 Cal.3d 762, 768–769, 209 Cal.Rptr. 354, 691 P.2d in that connection, as in this one, the court had estimated 1020.) an estate of $5 million, and the attorney fees order did not infringe that amount at all. Wife first argues that there was no evidentiary or other rationale for pivoting husband's responsibility for her fees In view of our conclusion that there is, as a matter of law, no on the $5 million measure of assets. Wife relies primarily such asset as goodwill in husband's profession as a motion on In re Marriage of O'Connor (1997) 59 Cal.App.4th 877, picture director, wife's estate is necessarily diminished by 69 Cal.Rptr.2d 480. There the court rejected the argument $750,000. This requires a recalculation of attorney fees under that a spouse had not shown need for an award of attorney the formula adopted by the trial court, which we affirm. Under fees because those fees represented only 25 percent of his that formula, husband's obligation for attorney fees is reduced assets. Observing that under section 2032, an ability to pay by $416,897. We remand the matter for a modification of the one's own fees was not a bar to their award, the court stated judgment on the amount of attorney fees and the credit against that the Legislature had not “intended to endorse any fixed the equalization payments to wife. measure or percentage as a way to demonstrate need or the

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 11 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855

From these well-settled points, two other principles seem DISPOSITION clear: The judgment is reversed insofar as it limits to June 30, • Goodwill, as a divisible asset, does not exist apart from 2002, the obligation to pay spousal support and the court's the business or professional practice to which it attaches. jurisdiction to enlarge or extend such support. The superior court shall enter judgment retaining such jurisdiction, and • Because it is property, any business or professional providing for spousal support payable by husband to wife practice (along with any goodwill attached to it) is and for the period commencing July 1, 2002, and continuing as must be, at least in legal theory, transferable from one warranted. The judgment is to be modified by deleting $1.5 person or entity to another. (See Yuba River Power Co. million in assets, denominated as goodwill, from property that v. Nevada Irr. Dist. (1929) 207 Cal. 521, 523, 279 P. 128 is subject to division. The judgment is also to be modified as [citing a definition of the term “property” as “sufficiently to the amount of wife's attorney fees to be paid by husband, comprehensive to include every species of estate, real and the credit against the equalization payments. In all other and personal, and everything which one person can own respects, the judgment is affirmed. Wife shall recover costs and transfer to another”]; see also Douglas Aircraft Co. v. on both appeals. Byram (1943) 57 Cal.App.2d 311, 317, 134 P.2d 15[“[a] common characteristic of a property right, is that it may be disposed of, transferred to another”]; Bias v. Ohio BOLAND, J., Concurring. Farmers Indemnity Co. (1938) 28 Cal.App.2d 14, 16, 81 I concur in the judgment and write separately to state the P.2d 1057 [“it is a fundamental principle of law that one rationale I believe justifies the conclusion that, as a matter of the chief incidents of ownership in property is the right of law, John McTiernan's work as a movie director is not to transfer it”].) a business or professional practice to which goodwill may attach. Accordingly, in the first instance, the question is whether McTiernan—or, more properly, the marital community— Let me begin with several points on which there is no dispute. owned a business or a professional practice to which goodwill could attach. In my view, the answer is no, because McTiernan First, goodwill may exist in a professional practice or in a cannot—even in theory—sell or otherwise transfer his business which is founded upon personal skill or reputation. “professional practice” or “business” to a third party. This (In re Marriage of Foster (1974) 42 Cal.App.3d 577, 582, fn. is not because there is no market for the business, but 2, 117 Cal.Rptr. 49.) for the more fundamental reason that nothing exists to sell. McTiernan has only his talent as a director, and Second, the goodwill of a business is property and is he cannot transfer it to anyone else. In this, he is no transferable. (Bus. & Prof.Code, § 14102.) Otherwise stated, different from any other artist, entertainer or athlete with goodwill is an asset of a business or professional practice, a talent that commands high compensation. While the and where the business or professional practice is community occupations of these individuals, like most other occupations, property, it is a community asset. (Golden v. Golden (1969) are in common parlance denominated “professions,” they 270 Cal.App.2d 401, 405, 75 Cal.Rptr. 735.) are neither businesses nor professional practices that can be expanded beyond the individual in whom the talent *1112 Third, “[a]lthough the goodwill of a business may be resides. Unlike a doctor, lawyer, accountant or other business the result of the personal skill, talent, experience, or reputation person, McTiernan cannot hire someone else to direct a of an individual connected with the business, it may attach movie he has been hired to direct. He cannot expand his to and continue with the business **304 even after the “practice” or “business” because he has only his own artistic separation of the individual on whom it was founded.” (Smith talent to offer. Whatever we may call it—talent, *1113 v. Bull (1958) 50 Cal.2d 294, 302, 325 P.2d 463.) occupation, livelihood or profession—the creative processes of a movie director, like that of any other artist, cannot Fourth, “[w]hen goodwill attaches to a business, its value be bought, sold or given away, and therefore do not fit is a question of fact.” (In re Marriage of King (1983) 150 within any recognized definition of property. Consequently, Cal.App.3d 304, 309, 197 Cal.Rptr. 716.) no business or professional practice constituting property

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 12 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 exists in McTiernan's case, within the meaning of current employed the capitalized excess earnings method of statutory or case law. Goodwill as statutorily defined, as valuing the goodwill of a medical practice, a monetary merely an intangible asset of a business or professional value would have resulted. (Id. at p. 371, 217 Cal.Rptr. practice, necessarily cannot exist in the absence of a business 301.) The court concluded that, in the dissolution or professional practice. of *1114 marriage context, “the mere fact that a professional practice cannot be sold, standing alone, will The conclusion that, as a matter of law, McTiernan has no not justify a finding that the practice has no goodwill business or professional practice to which goodwill could nor that the community goodwill has no value.” (Id. at attach is not a departure from California precedents on p. 372, 217 Cal.Rptr. 301.) This conclusion was quite professional goodwill. Our dissenting colleague concludes proper, and is not in conflict with the principle that no that In re Marriage of Watts (1985) 171 Cal.App.3d 366, business or professional practice exists where nothing 217 Cal.Rptr. 301 and In re Marriage of Foster, supra, 42 can be transferred to a third party. Many reasons may Cal.App.3d 577, 117 Cal.Rptr. 49 teach that “professional exist why a professional practice “cannot be sold”—at a goodwill” need not be susceptible to transfer to another in particular time, in a particular place, or under particular order to be a divisible community asset. I do not so read circumstances. But medical practices, law practices, and either case. Both Foster **305 and Watts involved medical all other businesses are, in legal and economic terms, practices, and there is no question that medical practices, amenable to purchase and sale. McTiernan's work— including sole proprietorships, can be and are bought and his talent or livelihood—like that of any other artist or sold. Specifically: athlete, is not.

• In Foster, as the court observed, “the parties apparently A few additional observations are in order. concede that a medical practice has a goodwill and that such goodwill has a value.” (In re Marriage of First, I recognize that the existence and value of goodwill Foster, supra, 42 Cal.App.3d at p. 581, 117 Cal.Rptr. in a business are questions for the trier of fact. (Smith v. 49.) The issue in Foster was whether a proper method Bull, supra, 50 Cal.2d at p. 306, 325 P.2d 463 [“whether the of evaluating goodwill was used. Foster stands for the business possessed a goodwill is also a question of fact”]; proposition that the value of professional goodwill in a see In re Marriage of Rosen (2002) 105 Cal.App.4th 808, marital dissolution is not necessarily its market value. 817, 130 Cal.Rptr.2d 1 [no goodwill existed in husband's The court held that “[t]he value of community goodwill law practice; the trial court's finding that law practice was is not necessarily the specified amount of money that a worth $60,500, of which $42,000 constituted goodwill, was willing buyer would pay for such goodwill.” (Id. at p. reversed with instructions to assign a goodwill value of $0].) 584.) Foster explained: “In view of exigencies that are In this case, however, transferable goodwill, by statute, exists ordinarily attendant a marriage dissolution the amount only in a business or professional practice, and McTiernan, as obtainable in the marketplace might well be less than a matter of law, has no goodwill because he has no **306 the true value of the goodwill.” (Ibid.) Thus, Foster transferable business or professional practice. assumes that the sale of a medical practice is possible, and indeed we know this from our common experience Second, I likewise understand that some cases recognize the in the business and professional world. goodwill a lawyer possesses as an individual, even though the lawyer practices as a partner in a firm, and by agreement • In Watts, the court similarly rejected the notion that holds no entitlement to the goodwill of the law firm. (In re market value is the only method of evaluating the Marriage of Iredale and Cates (2004) 121 Cal.App.4th 321, goodwill in a medical practice, citing the analysis 329, 16 Cal.Rptr.3d 505; see also In re Marriage of Fenton in Foster. The husband's experts in Watts, utilizing (1982) 134 Cal.App.3d 451, 461, 184 Cal.Rptr. 597 [value of the market value or comparable sales method of the goodwill in husband's law corporation was not controlled valuation, concluded there was no goodwill in the by the amount a shareholder in the corporation was entitled to husband's medical practice because no market existed receive on withdrawal or termination].) These cases merely for the practice. (In re Marriage of Watts, supra, 171 recognize that the form in which a professional practice is Cal.App.3d at p. 369, 217 Cal.Rptr. 301.) The court carried on does not control the valuation of the goodwill that found that the trial court's factual findings were in attaches to the individual's professional practice, which would conflict with each other, and if the trial court had

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 13 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 exist “whether he stays with his firm or strikes out on his apply restrictive concepts that disregard established family own.” (Fenton, supra, 134 Cal.App.3d at p. 463, 184 Cal.Rptr. law precedent. Moreover, even under this legal revision, 597; see also In re Marriage of Nichols (1994) 27 Cal.App.4th substantial evidence still supports the trial **307 court's 661, 673, fn. 4, 33 Cal.Rptr.2d 13 [husband with shareholder findings that husband possessed goodwill in his professional interest in law firm “has personal goodwill regardless of business, in which wife was entitled to share. whether he remains with the firm, and this goodwill cannot be eliminated by a recital in the stock purchase agreement”].) Business and Professions Code section 14102 declares the These cases do not suggest that any individual, regardless of goodwill of a business to be property, albeit intangible. occupation, possesses transferable goodwill simply because Section 14100 of the same code compactly defines goodwill he or she is highly compensated in comparison with his or her as “the expectation of continued public patronage.” The peers. In each case, the underlying professional practice or United States Supreme Court has similarly stated, “Although business in which the individual is engaged is susceptible in the definition of goodwill has taken different forms over legal *1115 and economic theory of being changed in form, the years, the shorthand description of goodwill as ‘the expanded, bought and sold. None of those attributes adhere to expectancy of continued patronage’ [citation] provides a McTiernan's activity as a movie director. useful label with which to identify the total of all the imponderable qualities that attract customers to the business.” Finally, I return to the words of Smith v. Bull, supra, 50 Cal.2d (Newark Morning Ledger Co. v. United States (1993) 507 at page 302, 325 P.2d 463, which plainly demonstrate that U.S. 546, 555–556, 113 S.Ct. 1670, 123 L.Ed.2d 288.) goodwill is not a divisible asset unless it can be transferred from the person who created it. As the Supreme Court *1116 In California, spousal goodwill is uniformly observed, “[a]lthough the goodwill of a business may be the recognized as subject to assessment and award in proceedings result of the personal skill, talent, experience, or reputation for division of community property. (See 11 Witkin, Summary of an individual connected with the business, it may attach of Cal. Law (9th ed. 1990) Community Property, § 69, to and continue with the business even after the separation of pp. 461–462.) “Although community goodwill is usually the individual on whom it was founded.” (Ibid.) In this case, associated with a professional practice, it may exist in McTiernan cannot be separated from his “business,” either any business which is founded upon personal skill or practically or theoretically. reputation.” (Id. at p. 461.) Both the existence and the value of goodwill in a particular case are questions of fact, and their In short, the Legislature has defined goodwill as property determination is reviewed on appeal under the substantial only in connection with a business, and it has specified that evidence test. (E.g., Smith v. Bull (1958) 50 Cal.2d 294, 306, the goodwill of a business is transferable. Where there is no 325 P.2d 463; Mueller v. Mueller (1956) 144 Cal.App.2d 245, transferable business, there is no property to divide, and there 252, 301 P.2d 90 (Mueller ); In re Marriage of Slivka (1986) is necessarily no goodwill. The Legislature, of course, is at 183 Cal.App.3d 159, 162, 228 Cal.Rptr. 76.) liberty to define goodwill in a more expansive manner, so that it would include the ability of an artist or entertainer to Previous decisions have attributed goodwill to a variety of generate excess earnings by virtue of his or her talent and the professional individuals and situations, including an attorney resulting encomium of a receptive public. It has not yet done who worked at home on appointed criminal appeals (In so, and it was therefore error for the trial court to conclude re Marriage of Rosen (2002) 105 Cal.App.4th 808, 130 that McTiernan possessed professional goodwill that was a Cal.Rptr.2d 1), a computer consultant who worked at home divisible community asset. or at his clients' facilities, with “no plant, no commercial location, no employees and [no] office” (In re Marriage of King (1983) 150 Cal.App.3d 304, 310, 197 Cal.Rptr. 716), and a law firm partner who was found to possess professional COOPER, P.J., Concurring and Dissenting. goodwill as an individual (In re Marriage of Iredale & Cates I concur in the lead opinion and in the judgment with respect (2004) 121 Cal.App.4th 321, 16 Cal.Rptr.3d 505; accord, to all issues but one. I respectfully dissent from my colleagues' In re Marriage of Fenton (1982) 134 Cal.App.3d 451, 463, conclusion that husband has no divisible goodwill. The facts 184 Cal.Rptr. 597; see In re Marriage of Nichols (1994) 27 found by the trial court establish that husband possesses Cal.App.4th 661, 673, fn. 4, 33 Cal.Rptr.2d 13). valuable goodwill, as traditionally recognized by California case law. In holding otherwise as a matter of law, the majority

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In the present case, husband's business and profession were too is not a valid ground for reversing the present findings and that of a motion picture director. The trial court found, award for goodwill. after assessing extensive evidence, that husband possessed professional goodwill of a value of $1.5 million. Because all The lead opinion's treatment of this subject rests substantially of this value had developed during the parties' marriage, wife on the incorrect perception that husband's goodwill, as found was entitled to a compensatory payment of $750,000. below, consisted of the “elite professional standing” the trial court found he enjoyed. But the finding of “elite standing” The majority now set aside these findings by superimposing was only prefatory to the ultimate finding that husband on the concept of marital goodwill a novel set of elements. possessed goodwill, in the court's words, “an expectation of In brief, the majority opine that a professional individual continued patronage at his prior level of compensation.” (Cf. such as husband may not possess goodwill without having Bus. & Prof.Code, § 14100.) a “business” (which husband supposedly did not have), and that there can be no goodwill unless it, or the accompanying As for whether this goodwill is transferable and therefore business, can be sold (which husband's allegedly cannot). qualifies as property, the short answer is that the law has These artificial restrictions are legally unfounded and determined both questions. Business and Professions Code factually inaccurate; moreover, even were they correct, they section 14102 establishes, as a matter of law, that “The would provide no cause for reversing the award of goodwill good will of a business is property and is transferable.” That in this case as a matter of law. includes the goodwill of husband's business as a director. Whether or not a *1118 third party is willing to buy it is The lead opinion's effort to limit goodwill to a “business” not material. (Accord, In re Marriage of Watts (1985) 171 as opposed to an individual is semantic. Any professional Cal.App.3d 366, 372, 217 Cal.Rptr. 301.) who independently practices his or her profession, for profit —be it lawyer, doctor, computer consultant, or film *1117 There is a reason why the existence of goodwill in a marital director—thereby conducts a business, within the **308 context does not depend upon the practical transferability of lead opinion's own unattributed definition, as well as more the professional spouse's practice. Insofar as it is assessed and traditional ones. 1 It is therefore neither factually nor legally disposed of in a judicial proceeding upon dissolution of the correct to say that only a business, and not a natural person, marriage, goodwill is not a commodity in the marketplace, may generate or possess goodwill. When the consultant in but rather “a portion of the professional practice as a going In re Marriage of King, supra, 150 Cal.App.3d 304, 197 concern on the date of the dissolution of the marriage.” (In Cal.Rptr. 716, and the lawyers in In re Marriage of Rosen, re Marriage of Foster (1974) 42 Cal.App.3d 577, 584, 117 supra, 105 Cal.App.4th 808, 130 Cal.Rptr.2d 1, and In re Cal.Rptr. 49 (Foster ).) Marriage of Iredale and Cates, supra, 121 Cal.App.4th 321, 16 Cal.Rptr.3d 505, generated goodwill while practicing their Foster further explained, “As observed in **309 Golden [v. Golden (1969) 270 Cal.App.2d 401, 405, 75 Cal.Rptr. 735], professions, they did so as individuals. 2 ‘... in a matrimonial matter, the practice of the sole practitioner husband will continue, with the same intangible value as it But whichever view one takes of this issue, it cannot had during the marriage. Under the principles of community properly oust husband and wife of the palpable, valuable property law, the wife, by virtue of her position of wife, made goodwill that the trial court found husband had developed. By to that value the same contribution as does a wife to any of the any realistic understanding, husband earned his professional husband's earnings and accumulations during marriage. She compensation, and developed an expectation of continued is as much entitled to be recompensed for that contribution patronage, while practicing a business, of directing motion as if it were represented by the increased value of stock in pictures. This business comprised not just husband's talent, a family business.’ ” ( Foster, supra, 42 Cal.App.3d at p. but a series of corporations, one of which owned an airplane, 584, 117 Cal.Rptr. 49.) Accordingly, In re Marriage of Watts, which husband used to travel to and scout film locations. supra, 171 Cal.App.3d 366, 217 Cal.Rptr. 301, disposed of the Husband had as much a “business” as the professionals in the notion that transferability as a practical matter is a prerequisite cases last cited. of a business with goodwill: “In the dissolution of marriage context, the mere fact that a professional practice cannot be The second disqualifying element, in the majority's view, is sold, standing alone, will not justify a finding that the practice the notion that husband's goodwill was not transferable. This

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 15 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 has no goodwill nor that the community goodwill has no In this case the trial court properly determined value.” (Id. at p. 372, 217 Cal.Rptr. 301.) *1119 the existence and extent of husband's goodwill, in accord with substantial evidence and with California law, as Acknowledging that goodwill is transferable by law, consistently expounded for half a century. Even under the the concurring opinion yet pursues the question of majority's refashioning of that law, those determinations transferability, by asserting that husband cannot sell or remain sustainable. I respectfully dissent. transfer his professional business, because “nothing exists to sell.” (Conc.opn., p. 304.) As just explained, this would not be dispositive, even if correct. But the concurrence's assertion All Citations that husband's business is not amenable to sale or transfer is a supposition, grounded not in the record of this case but 133 Cal.App.4th 1090, 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. in speculation, about a business and craft that we appellate Serv. 9449, 2005 Daily Journal D.A.R. 12,855 jurists know very little about. 3 This is not a proper basis for reversal.

Footnotes 1 “Pursuant to this method, one first determines a practitioner's average annual net earnings (before income taxes) by reference to any period that seems reasonably illustrative of the current rate of earnings. One then determines the annual salary of a typical salaried employee who has had experience commensurate with the spouse who is the sole practitioner or sole owner/employee. Next, one deducts from the average net pretax earnings of the business or practice a ‘fair return’ on the net tangible assets used by the business. Then, one determines the ‘excess earnings' by subtracting the annual salary of the average salaried person from the average net pretax earning of the business or practice remaining after deducting a fair return on tangible assets. Finally, one capitalizes the excess earnings over a period of years by multiplying it by a factor equal to a specific period of years, discounted to reflect present value of the excess earnings over that period. The period varies according to factors such as the type of business, its stability, and its earnings trend.” (In re Marriage of Garrity and Bishton (1986) 181 Cal.App.3d 675, 688, fn. 14, 226 Cal.Rptr. 485.) As noted (Hogoboom & King, Cal. Practice Guide: Family Law, supra, ¶ 8:1445, p. 8–350), this description may be flawed, especially in subtracting the annual salary of the average salaried person, when the comparison should be with a peer who, in the usual setting, will not be salaried. (See In re Marriage of Iredale & Cates (2004) 121 Cal.App.4th 321, 329–330, 16 Cal.Rptr.3d 505.) 2 Disapproved on other grounds in In re Marriage of Lucas (1980) 27 Cal.3d 808, 815, 166 Cal.Rptr. 853, 614 P.2d 285. 3 Former Civil Code section 992 provided: “The good will of a business is the expectation of continued public patronage, but it does not include a right to use the name of any person from whom it was acquired.” Former Civil Code section 993 provided: “The good will of a business is property, transferable like any other.” These provisions, originally chaptered in the Civil Code under the heading “OTHER KINDS OF PERSONAL PROPERTY,” were repealed in 1941 and reenacted at the same time, respectively, as Business and Professions Code sections 14100 and 14102. Besides goodwill, the “other kinds of personal property” recognized in the 1872 enactment of the Civil Code were trademarks (Former Civ.Code, § 991) and instruments essential to the title deeds of real property (Civ.Code, § 994). 4 The court went on to give a definition of goodwill: “Mr. Justice Story defined good will to be ‘the advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessity, or even from ancient partialities or prejudices.’ Story Part. § 99.” (Metropolitan Bank v. St. Louis Dispatch Co., supra, 149 U.S. at p. 446, 13 S.Ct. 944.) 5 A commentator writing in 1908 summarized decisions handed down in Michigan, Nebraska, New Jersey, New York and by some federal courts, including those cited in the text, as holding that “[t]he right to good-will cannot exist as a mere abstract right independent of business, but is in the nature of appurtenance to business in connection with which it is used.” (Note 4, 2 Kerr's Codes of Cal. (1908 ed.) foll. § 993, p. 824.) 6 “Good will has been defined ‘to be the advantage or benefit which is acquired by an establishment beyond the mere value of the capital stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances, or necessities, or even

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 16 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855

from ancient partialities or prejudices. (Story on Part., Sec. 99.) ... According to Lord Eldon it is the probability that the old customers will resort to the old place. It is the probability that the business will continue in the future as in the past, adding to the profits of the concern and contributing to the means of meeting its engagements as they come in.’ ” (In re Lyons, supra, 27 Cal.App.2d at pp. 297–298, 81 P.2d 190, cited in 11 Witkin, Summary of Cal. Law, supra, Community Property, § 69.) 7 While we acknowledge that the “excess earning” method of valuing goodwill in a professional corporation is generally accepted, it is true that this method is not far removed from a prediction about future earnings. For good and sufficient reasons, the expectancy of future earnings may not be considered in determining goodwill. (See generally 11 Witkin, Summary of Cal. Law, supra, Community Property, § 71.) Whether categorized as “excess earnings” or “future earnings,” the point is that this type of goodwill is an expression of earnings that have not yet been paid. Thus, when, as here, a person “doing business” is found to have goodwill, and the goodwill is measured by the excess earnings approach, the “asset” that is created is a prediction, not a fact. This is quite a distance from an established business enterprise with assets, and a clientele, that has generated goodwill in the traditional sense. 8 All further statutory references are to the Family Code, unless otherwise noted. 9 As a matter of law, we reject husband's claims that community obligations ipso facto constitute “necessities of life” under section 2040, subdivision (a)(1), or that husband's selling the stock on advice of his business managers, without more, made the sale “in the usual course of business” under that subdivision. Similarly, we cannot accept husband's contention in reply, that the “usual course” exception applied because he had always managed the community property. Such a construction would nullify the plain purpose of the statutory restraining order. 10 “In ordering spousal support under this part, the court shall consider all of the following circumstances: [¶] (a) The extent to which the earning capacity of each party is sufficient to maintain the standard of living established during the marriage, taking into account all of the following: [¶] (1) The marketable skills of the supported party; the job market for those skills; the time and expenses required for the supported party to acquire the appropriate education or training to develop those skills; and the possible need for retraining or education to acquire other, more marketable skills or employment. [¶] (2) The extent to which the supported party's present or future earning capacity is impaired by periods of unemployment that were incurred during the marriage to permit the supported party to devote time to domestic duties. [¶] (b) The extent to which the supported party contributed to the attainment of an education, training, a career position, or a license by the supporting party. [¶] (c) The ability of the supporting party to pay spousal support, taking into account the supporting party's earning capacity, earned and unearned income, assets, and standard of living. [¶] (d) The needs of each party based on the standard of living established during the marriage. [¶] (e) The obligations and assets, including the separate property, of each party. [¶] (f) The duration of the marriage. [¶] (g) The ability of the supported party to engage in gainful employment without unduly interfering with the interests of dependent children in the custody of the party. [¶] (h) The age and health of the parties. [¶] (i) Documented evidence of any history of domestic violence, as defined in Section 6211, between the parties, including, but not limited to, consideration of emotional distress resulting from domestic violence perpetrated against the supported party by the supporting party, and consideration of any history of violence against the supporting party by the supported party. [¶] (j) The immediate and specific tax consequences to each party. [¶] (k) The balance of the hardships to each party. [¶] (l ) The goal that the supported party shall be self-supporting within a reasonable period of time. Except in the case of a marriage of long duration as described in Section 4336, a ‘reasonable period of time’ for purposes of this section generally shall be one-half the length of the marriage. However, nothing in this section is intended to limit the court's discretion to order support for a greater or lesser length of time, based on any of the other factors listed in this section, Section 4336, and the circumstances of the parties. [¶] (m) The criminal conviction of an abusive spouse shall be considered in making a reduction or elimination of a spousal support award in accordance with Section 4325. [¶] (n) Any other factors the court determines are just and equitable.” (§ 4320.) 11 Although In re Marriage of Frick involved a marriage of two months more than 10 years (see § 4336), that was not the linchpin of the decision's analysis and conclusion of reversal. 1 Thus, Webster's Third New International Dictionary (1993), page 301, defines “business” as “a commercial or industrial enterprise,” and then immediately offers as an example, “he's in [business] for himself....” The denotation does not include the lead opinion's element of “with assets.” 2 The notion that compensating for an individual's goodwill would create liabilities that might not be recoverable is also unrealistic. Assessments and valuations of goodwill, as in this case, take into account the individual or other business's apparent prospects, negative as well as positive. Any such assessment, whether for a doctor or a delicatessen, is a “predictio[n] about earning capacity” (lead opn., p. 294), based on prior experience.

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 17 In re Marriage of McTiernan & Dubrow, 133 Cal.App.4th 1090 (2005) 35 Cal.Rptr.3d 287, 05 Cal. Daily Op. Serv. 9449, 2005 Daily Journal D.A.R. 12,855 3 Thus, although irrelevant, it is by no means certain that husband could not procure someone else to direct one of his films. For example, John Frankenheimer replaced Arthur Penn as director of The Train (United Artists 1964), Otto Preminger replaced Rouben Mamoulian as director of Laura (20th Century Fox 1944), and Victor Fleming succeeded George Cukor as director of Gone With the Wind (Metro–Goldwyn–Mayer 1939). (See, respectively, < http://imdb.com/title/tt0059825/ fullcredits# directors> [as of Oct. 26, 2005], < http://imdb.com/title/tt0037008/fullcredits # directors> [as of Oct. 26, 2005], < http:// imdb.com/title/tt0031381/fullcredits# directors> [as of Oct. 26, 2005].)