The division of property in a California divorce is often achieved through a marital settlement agreement (MSA) between the parties. Once a judge incorporates an MSA into a final judgment, it becomes a legally binding contract between the parties. This means if there is later a disagreement as to whether one side is upholding its end of the bargain, a judge will interpret the agreement in basically the same manner as any other business contract.
California Judge Rules “Proceeds” of Sale Excluded Cash Dividend Payments
One thing to keep in mind with a settlement agreement is that each term needs to be precisely defined so as to minimize any misunderstanding. If there is any potential for ambiguity, it is always best to resolve it beforehand. Because once you sign on the dotted line, it may be too late to do anything about it later.
A recent California appeals court decision, Donohoe v. Zaorski, provides a helpful illustration of what we mean. This case involves a couple that separated in 2008 after approximately 21 years of marriage. At the time of the divorce, the husband was CEO of a company called Sequoia, which he had started in the mid-1980s.
The parties were ultimately able to resolve their issues with an MSA, which the court incorporated into a final divorce judgment. As relevant here, the MSA provided that in the event the husband disposed of or exchanged the stock in Sequoia, he would owe the wife a payment from the “proceeds” to maintain an equal division of marital property.
Several years later, the husband sold Sequoia. The purchaser paid $22 million for the company’s stock. The purchase agreement expressly stated that Sequoia’s existing cash reserves–about $5 million–would be retained and distributed to the existing shareholders as a cash dividend. The husband’s dividend under this provision was approximately $2.3 million.
A legal question then arose as to whether the now-ex-husband’s equalizing payment to the ex-wife following the sale of Sequoia included the cash dividend. The ex-wife basically argued the dividend was a “proceed” of the sale as defined by the MSA, as there would have been no dividend paid without the merger. The ex-husband argued the dividend was not money “brought in by the sale,” but rather a distribution of existing cash reserves that were not part of the sale.
A Superior Court judge sided with the ex-husband’s interpretation of the MSA. The California Sixth District Court of Appeal later affirmed that decision in an unpublished opinion. The appellate court noted that given how Sequoia’s sale was structured, it could not say the trial court’s interpretation of the MSA was incorrect.
Speak with a Campbell, California, Divorce Attorney Today
Even in a relatively civil divorce case, there may be disputes over questions such as how to properly value marital property. A qualified Campbell property division lawyer can review your situation and advise you on how best to proceed with your divorce case. Contact Hepner & Pagan, LLP, today to schedule a consultation with a member of our divorce law team.