Determining If Property Is Community Is Not Always So Easy

Under Family Code, Section 760, generally, property that is acquired during marriage is considered community property. This is a pretty straight forward definition. However, many cases have been litigated and appealed because determining when property is acquired, in reality, is sometimes not so easy to determine. For example, in In re Marriage of Green, husband was in the military prior to marriage. During the marriage, he was employed as a firefighter. Because of his employment with the city as a firefighter, husband was allowed to purchase 4 years of additional retirement credit because of his pre-marital military service. So then at dissolution, the question became: Was the 4 years of additional retirement credit community or separate? Under the community property definition, wife argued that because the military credit was acquired during the marriage when he was a firefighter, the credit should be community. Well, not so much. The court held that the key factor to determine when a property item was acquired is the marital status when services on which benefits are based were rendered. Thus, the court looked at what husband’s status was when he rendered the services to obtain the 4 years of retirement credit. Under this question, since husband rendered his military service (the benefits are based upon this military service) before marriage, the 4 years of retirement credit is separate. The mere fact that he was finally able to purchase the retirement credit during the marriage did not make them community.

Another recent case, In re Marriage of Finby, looked at whether or not a book of business or client list is a community or separate property item. Here, wife was a financial advisor with a client list that she developed during the marriage that approximated $192 million under her management. Wife signed a contract agreeing to work for another bank as a financial advisor. The issue was whether or not the client list was a community asset. The trial court ruled that the client list was not a community asset and husband did not have any interest in it because it could not be sold nor valued. Wife was paid a high salary because she was successful at what she did, which was reflected in her client list and the assets under her management, but the list itself did not have any value. The appeals court again said ‘no, it is community property’! The court agreed with husband’s argument that said her book of business was similar to goodwill that is found in other professions such as doctors and lawyers. Goodwill is the expectation of continued public patronage. Goodwill has always been divided in doctor and lawyer professions, so it was no different here. The court looked at the fact that financial advisors were professionals in that they hold various licenses and have special education. In fact, wife was paid a bonus that was related to the value of her client list. Thus, because the client list was created during the marriage and it was valued in the industry, it is community property and that community property can be valued.