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In re Marriage of Sivyer-Foley

October 21, 2010

IN RE THE MARRIAGE OF LINDA SIVYER-FOLEY AND MARTIN J. FOLEY.
LINDA SIVYER-FOLEY, APPELLANT,
v.
MARTIN J. FOLEY, APPELLANT.



APPEAL from a judgment of the Superior Court of Los Angeles County. Nori Anne Walla, Commissioner. Affirmed in part and reversed in part with directions. (Los Angeles County Super. Ct. No. GD035308).

The opinion of the court was delivered by: Johnson, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

Linda Sivyer-Foley appeals the judgment in this marital dissolution action awarding respondent Martin J. Foley partnership distributions from his law practice and allocating property and debts among the parties. The principal issue on appeal is whether the court erred in awarding Martin*fn2 as his separate property his share of partnership profits for the year in which the parties separated because the profits were not distributed until the following calendar year, after the parties' separation. Martin protectively cross-appeals, asking us to review the court's findings on support, reimbursement and taxes in the event we reverse the characterization of such law firm profits. We find the trial court erred in finding that all of Martin's partnership profits were his separate property, and reverse for a redetermination of the trial court's findings and orders that were based upon this conclusion.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY*fn3

Martin and Linda were married March 21, 1986. At the time, Martin was employed at the law firm of Bryan, Cave & McRoberts as a senior partner. Linda worked at TWA, and after retiring from TWA, became a housewife. On January 1, 1990, Martin joined Sonnenschein, Nath & Rosenthal (Sonnenschein) as an equity partner. Martin and Linda had a daughter, Michelle, born February 8, 1988. Child support for Michelle terminated in June 2006.

The parties separated on November 7, 2003, and Linda filed a petition for legal separation on January 20, 2004. On March 9, 2004, the parties entered into a stipulation and settlement providing for, among other things, spousal and child support. Trial commenced January 8, 2007 and concluded October 19, 2007. During trial, both the parties testified. Martin called as witnesses Edwin B. Reeser, the managing partner of Sonnenschein's Los Angeles office, and Thomas Pastore, a business evaluation analyst. Linda called as a witness Jack Zuckerman, who testified solely on the issue of the value of Martin's interest in Sonnenschein. The trial court issued its memorandum of decision on April 18, 2008, and entered judgment on December 23, 2008.

DISCUSSION

I. COMMUNITY'S RIGHT TO RECEIVE PROFITS FROM MARTIN'S LAW FIRM

Linda argues that the trial court's conclusion is contrary to In re Marriage of Brown (1976) 15 Cal.3d 838 (Brown), which held that non-vested pension rights represent a property interest that is subject to division during dissolution proceedings. (Id. at pp. 841-842.) Thus, part of Martin's post-separation partnership distribution was a right to receive a benefit that was earned during the existence of the community and belonged to the community even though he received it after the date of separation. Martin contends that the pension cases and their progeny are distinguishable because here, pursuant to the partnership agreement, he did not have a vested right to his partnership distribution until calculated and confirmed by the partnership, an event which occurred after his separation from Linda.

A. Factual Background

1. Trial Testimony

Martin was employed as an equity partner at Sonnenschein, an Illinois limited liability company. As an equity partner, Martin was allocated an ownership share in the partnership, which was adjusted every two years. Sonnenschein partners receive a percentage of the firm's profits as compensation, using a formula based on technical skills, hours billed, clients that the partner originated, quality of the partner's accounts receivable, and contribution to the firm's community through recruiting, pro bono work, and firm administration. Typically, the firm receives 40 percent of its income in the last three months of the year. During the year, Martin received semi-monthly draws against his share of the firm's future profits, calculated as 55 percent of his income for the year based on budget projections. The remainder of a partner's distribution is received in three installments: the first in December, the second around the 10th of January, and the third during the last week of January.

The firm's policy and planning committee determines partnership compensation at the end of the calendar year. If a partner leaves before the determination of the prior year's compensation, pursuant to the firm's partnership agreement, the partner forfeits the right to receive any amounts in excess of the bimonthly draws that the partner has already received.

2. Trial Court's Ruling

The trial court found that there was no community interest in Sonnenschein's January 2004 partnership distributions (2004 Partnership Distribution) to Martin. Relying on In re Marriage of Iredale & Cates (2004) 121 Cal.App.4th 321 (Iredale), the court reasoned that compensation was governed by the partnership agreement, which provided that partners have no vested interest in year-end distributions until such time as the distributions are approved by the partnership. Furthermore, the partnership agreement had been consistently applied to deny compensation to any partner who leaves the firm prior to year end. Finally, partners have no share in any of the firm's accounts receivable or work in progress, and thus have no income until the firm's profits are determined at the end of the year. The court concluded because Martin had no interest in the 2004 Partnership Distribution until January 2004, which was after the date of the parties' separation, the community had no interest in these partnership distributions.

B. Discussion

We hold that part of the 2004 Partnership Distribution is community property. Absent an agreement by the parties, Family Code section 2550*fn4 imposes on the trial court in marital dissolution proceedings a duty to value and divide equally the parties' community property estate. (§ 2550; In re Marriage of Walrath (1998) 17 Cal.4th 907, 924.) A spouse's time, skill, and labor are community assets and his or her earnings during marriage are community property, but after separation, earnings and accumulations of a spouse are separate property. (§§ 760, 771, subd. (a).) The trial court must characterize the property for purposes of this division as separate, community, or quasi-community. (In re Marriage of Haines (1995) 33 Cal.App.4th 277, 291.) The characterization of property as community or separate can be determined by the date of acquisition, the application and operations of presumptions, or whether the spouses have transmuted the property. (In re Marriage of Rossin (2009) 172 Cal.App.4th 725, 732.) In characterizing a benefit, courts consider all relevant circumstances. (In re Marriage of Horn (1986) 181 Cal.App.3d 540, 544-548.) The party claiming that property acquired during the marriage, which is presumed to be community property, is actually separate property has the burden of overcoming this presumption by a preponderance of the evidence. (In re Marriage of Ettefagh (2007) 150 Cal.App.4th 1578, 1586, 1591.)

The trial court has broad discretion to determine the manner in which community property is divided, although absent an agreement, it must be divided equally. (§ 2550; Brown, supra, 15 Cal.3d at p. 848, fn. 10.) Accordingly, we review the trial court's judgment dividing marital property for an abuse of discretion. (In re Marriage of Dellaria & Blickman-Dellaria (2009) 172 Cal.App.4th 196, 201; In re Marriage of Quay (1993) 18 Cal.App.4th 961, 966.) In addition, we review the trial court's factual findings regarding the character and value of the parties' property under the substantial evidence standard. (Dellaria, at p. 201; In re Marriage of Ettefagh, supra, 150 Cal.App.4th at p. 1584.) Ultimately we review characterization issues independently because they are a mixed question of fact and law involving application of the law to facts. (In re Marriage of Lehman (1998) 18 Cal.4th 169, 184; In re Marriage of Davis (2004) 120 Cal.App.4th 1007, 1015.)

Linda analogizes Martin's right to his compensation from Sonnenschein to the pension benefits at issue in In re Marriage of Brown, supra, 15 Cal.3d 838, where the court determined that because pension benefits represented a form of deferred compensation for services rendered, the employee's right to such benefits was a matter of contractual right derived from the terms of the employment contract. (Id. at p. 845.) Therefore, to the extent that pension rights, whether vested or not, derived from employment ...


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