Many Del Mar spouses have litigated or settled civil disputes. How these civil judgments can impact community and separate property is important throughout the dissolution process. Upon divorce, each community property asset is divided equally between both spouses. Community property is generally all property acquired during the marriage. All property acquired before marriage and after the date of separation is separate property. Additionally, all property acquired by gift, devise, or bequest is separate property. This system leaves many couples wondering whether community property or separate property is liable for the tort judgment.

Surprisingly, all of the community property is subject to the civil liability of either spouse. As a general rule, a spouse’s separate property and all of the community property is liable for a debt incurred before or during marriage. As a debt owed by one spouse, the same rules apply to debts owed to plaintiffs in civil cases. The innocent spouse’s separate property is not liable for any debts that he or she did not incur. However, whether the plaintiff can collect from the separate or the community property first depends on how the liability was incurred. The following example will best illustrate this principle: Husband was driving to pick up Daughter from daycare when Pedestrian stepped of the curb. Husband struck Pedestrian and Pedestrian incurred $100,000 in medical bills which Husband was ordered to pay. In this scenario, Husband has incurred liability for a tort judgment. Wife may be curious about whether Pedestrian can collect the $100,000 from community assets such as the family home.

For the Benefit of the Community: If the court determines that Husband incurred this liability while performing an act “for the benefit of the community,” then Pedestrian can collect his judgment from the family home first and then, if any debt is left unsatisfied, from Husband’s separate property. Pedestrian will argue in the above scenario that because Husband was picking up Daughter from daycare when the accident occurred, he was performing an act for the benefit of the community.

Real Housewife of Orange County Vicki Gunvalson is joining her Beverly Hills counterpart Camille Grammar as a recent blonde divorcé. Vicki filed for divorce from her husband Donn in October 2010 after 17 years of marriage. Although the couple continued to live together throughout the divorce process they are adamant that reconciliation is not in the works. In fact, Vicki has been dating a new man, Brooks Ayers.

The Gunvalson’s agreed to proceed with their divorce using mediation. Currently, the two are still working out all the details of their divorce settlement but have reached an agreement regarding one very large asset. The family home, shown often on The Real Housewives of Orange County, will be awarded solely to Vicki. Vicki and Donn attempted to sell the 5,400 square foot mansion for $2.695 million last year. Although this asset is just one consideration in a portfolio likely filled with numerous assets and debts, it is a victory for Vicki.

Often in San Diego, one or both spouses are awarded stock options from their employer. A stock option gives the employee a right to purchase stock in the company at a later time and for a specified price. All property acquired by either spouse during marriage is presumed to be community property. If a stock option is awarded and vests during the marriage, it is community property and each spouse is entitled to a one-half distribution of the asset. What if a stock option is awarded during marriage but vest after the date of separation? The community still has an interest in the stock option to the extent it was acquired during the marriage as earnings of the spouse. In determining the community portion of the stock option, the court will examine the primary intent of the employer in awarding the stock options.If the court determines that the stock option was awarded primarily to reward the spouse for past services, the court will use the Marriage of Hug formula to calculate the community’s interest. In this case, the stock options are a form of deferred compensation and thus the community property earnings of the spouse and subject to division upon divorce. The court will multiply the value of the stock by a fraction. The fraction represents the total number of years the spouse worked until exercise of the stock option and the total number of those years in which he or she was married. Thus, the community’s interest will be proportional to the number of years the parties were married between the beginning of employment and the exercise of the option. Each spouse will be awarded a one-half interest of the community portion, and the employee-spouse will also be awarded the separate property portion.
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According to the data released for law school graduates in 2011, San Diego law students graduate with one of the highest debts in the country. California Western School of Law and Thomas Jefferson School of Law take spots two and three respectively on the list of the average indebtedness incurred. 89% of California Western and 94% of Thomas Jefferson graduates incurred debt during law school. The average debt incurred for a California Western education is $153,145 compared to $153,006 for a Thomas Jefferson education. With such high debts to consider, married students should know how this debt would be allocated upon divorce.

As a general rule, a debtor spouse’s separate property and all of the community property are liable for debt incurred before or during marriage. However, the non-debtor spouse’s is not liable for this debt. The California Family Code contains several special rules specifically regarding education and training. As an exception to the general division of debt, any student loan debt outstanding at divorce is assigned solely to the educated spouse. If a spouse is married when he or she receives his or education, community funds may have been used to pay for the education.

Education and training acquired during marriage is not treated as community property. Therefore the non-educated spouse can claim no interest in the education of the other. Instead, upon divorce, the community may be entitled to an equitable right to reimbursement with interest when: (1) community funds are used either to pay for the education or training or to repay a loan related thereto and (2) education or training substantially increased the earning capacity of the spouse. Therefore, in the case of law school debts, if the non-student’s earnings during the marriage contribute to the student’s education, the community may be entitled to repayment for this amount.The educated spouse may advance some defenses to reimbursement. If both spouses received a community-funded education then the community would likely not be entitled to reimbursement. Reimbursement may be reduced or modified if the community has already substantially benefitted from the education or training. There is a rebuttable presumption that the community has already benefitted if more than ten years have elapsed between the contributions and the initiation of divorce. This presumption enables the court to allocate an equitable division of property upon divorce. It assumes that the educated spouse has already returned the educations expenses to the community in the form of increased earnings.