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Arbitration and Mediation in California: What’s The Difference in These Forms of Dispute Resolution?

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by Diana L. Martinez Collaborative Lawyer and Mediator, Law and Mediation Office of Diana L. Martinez

As a family law lawyer, I really look forward to my time on duty to volunteer at Riverside County Superior Court for VSC (Voluntary Settlement Conference) day. It is offered two Fridays per month and is THE most successful mediation program in the nation with an over 90 percent success rate!

Why? Because, in order to be a mediator on this panel, you must have the highest training and qualifications as both a family law lawyer and as a mediator. Not only do we donate our time, we must be in practice at least 10 years and have hundreds of hours of mediation training and practice under our belts. Other family law mediation programs that either do not have a structured program with high mediator qualifications, or that pay retired judges to do this work, enjoy a success rate below 60 percent.

Judges have an incredibly difficult job. It takes very specific skill sets to be a good judge. But being a talented judge does not, in and of itself, make you a good mediator.

I also volunteer as a fee arbitrator in attorney-client fee disputes for the California State Bar and for the San Bernardino County Bar Association. My role as an arbitrator is that of a judge: to listen to testimony, review the evidence, and make a ruling based on the law. There is no facilitation or brainstorming to help the parties create agreements together. As a result, the parties tend to stay polarized, hoping I will rule in their favor.

In contrast, a mediator works to find common ground, and assists the parties in bridging gaps, focusing on their goals and the reality of the benefits and risks of resolving versus litigation.

During a recent mediation in Riverside*, I had to use my skills as an arbitrator to attempt to resolve a divorce dispute in mediation. In this particular case, the husband was represented by counsel. The wife was not. The couple was married in the Netherlands and moved to California two years prior to the divorce. They had been married for 15 years. They had already agreed to the division of their assets and debts. The final item preventing them from resolving their divorce for nearly two years (yes, they had been divorcing for two years) was spousal support. The wife was not a legal U.S. resident and had struggled finding employment. During the marriage, she worked as a babysitter. The husband ran his own consulting business and was always the higher income earner.

As an arbitrator, looking at the evidence presented, the ruling is quite simple. Based on California law, Husband would be required to pay spousal support until one of the normal, terminating factors in a long term (over 10 years) marriage: 1) death of either party; 2) remarriage of wife; or 3) further order of the court. Wife, however, would have to make reasonable, good faith efforts to become self-supporting, in order to continue to receive support.

As a mediator, it is important to help both husband and wife craft an agreement that factors in wife’s financial needs and goals, as well as husband’s sense of unfairness of having to pay for so long a time. In this case, wife appreciated this and proposed that husband pay her only what she was short in rent each month ($200) for five years. This would give her time allowing her to get her legal resident papers in order and find a stable job, as she explained it, after which she would agree to “terminate” support.

Relying on a judge for a “fair” decision on your financial settlement during divorce is an expensive roll of the dice.

In a long-term marriage, courts do not, generally, terminate support; they may reduce it to zero dollars, but they will leave open the ability to request it in the future. This proposal, legally, put a lot of value on the table for the husband.   As a neutral, and especially given that wife was unrepresented, I did have to educate both parties about that legal value and the implications of a spousal support termination. To all knowledgeable in family law, this proposal was golden.

Husband’s attorney instructed him to reject the offer as completely unreasonable. His argument? In the Netherlands, his wife would not have received spousal support at all. Since the parties lived there for most of their marriage, wife should not be allowed to benefit from California spousal support laws. They argued the wife should agree to no more than six months of spousal support, which would then end. This sounded logical to husband.

Sadly, the husband’s “logic” is not the basis upon which family law judges issue orders. My inner arbitrator asked husband’s lawyer to explain the legal basis for this argument. It was a novel argument to me, and I’ve been in practice for nearly 20 years. His response: “Yes, it is a case of first impression, so I have to research this more.”

Excuse me? You have no legal basis for this argument, which means your client will be paying you for research that will very likely not result in the expected outcome. In addition to this expense, Husband’s lawyer planned on having a vocational evaluation done on wife to determine how much she could reasonably be earning. Really? She’s undocumented, and lawyer wants to do a vocational evaluation. Husband, as the sole income earning, would have to front this cost.

The court had already told the litigants prior to sending them off with their mediators that, if they do not resolve their matters, the next available court date would not be for another six months. This meant that husband will continue to pay his lawyer during that time, for research on an issue that has no support in law. If we calculate the legal fees at $1,750/month (lawyer rate of $350/hour, at five hours of legal work per month, including research on the foreign marriage issue, gathering information on wife’s earning ability, history of income during the marriage, and so forth), for six months, it will cost the husband $10,500 prior to his trial readiness conference. This is not the trial itself. It is a court hearing to confirm you are ready for trial.

The trial would likely be set within the following one or two months after that hearing, and trial preparation by his attorney would be far greater than five hours. But let’s keep it conservative for this discussion and add only another $1,750 to finish this case through trial. Now we have $11,750 in legal fees for the husband, in the hopes the judge will side with him and terminate spousal support, despite the law.

Let’s compare this with the wife’s proposal to resolve their case through mediation, six months before trial readiness. She proposed $200/month for five years = $12,000, and a signed, binding, agreement to terminate spousal support. That’s a guarantee, folks. Remember, by terminating, no court, in any state, would have the legal ability to order more support, ever!

Sadly, husband trusted his lawyer in the above mediation. The parties will end up going to trial, based on his lawyer adding to husband’s sense of unfairness, rather than educating his client as to the reality of the law. Logic would dictate that it would be better to take a sure bet for $250 more, than pay almost the same amount and risk the judge applying the law, as they are required to do.

In mediation, husband had the ability to cut his losses and be done. As a judge, there is no such flexibility. The judge or arbitrator (same function) is required to apply the law. But when emotion (that sense of unfairness) takes over, and a lawyer creates a false hope by feeding into that emotion, the only “winners” are the lawyers. There is no benefit to either spouse. There is no benefit to their families. The court battle continues.

If you expect a judge or arbitrator to “do the right thing” because he or she will see and understand the unfairness of it all, you will be disappointed. A judge does not have that kind of flexibility. They may find one argument more persuasive than another, but that means it follows the law more closely than the other. It does not factor in emotion or “fairness.”

In the above example, the law does not look at where you were married and apply the rules of a foreign country. If you lived in California six months prior to filing your petition for divorce, you fall under the laws of California – no exceptions based on “it’s not fair.” A judge must render decisions based on the law and the evidence properly presented. Don’t forget to factor in the financial and family relationship costs of the continued battle.

*I’ve changed certain facts of the case to protect confidential information, but have kept the substance the same.

The Effect of California Propositions 60 and 90 on Your Divorce

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by Diana L. Martinez Collaborative Lawyer and Mediator, Law and Mediation Office of Diana L. Martinez

When you are trying to navigate a divorce, there are many issues you need to address. If you own property in California, your decisions about your real estate can be among the most challenging, and perilous, if you are not fully informed.

One area often overlooked when making decisions about real property are the tax consequences. The tax implications can end up making a significant impact on your financial well-being, especially if you are part of the current wave of “gray divorces” among adults 55 years and older.

Many older couples who own property qualify for a lower property tax rate under California’s original Proposition 13. At the discretion of each county in California, Proposition 60 and Proposition 90 allow qualifying sellers to carry their Proposition 13 tax base on their original property with them towards the purchase of a new property of equal or lesser value. (Prop 60 governs real estate sales and purchases in the same county; Prop 90 governs real estates sales and purchases between two California counties).

Proposition 13 protects longtime homeowners against escalating property taxes as the value of their property increase. Base year values cannot go up by more than two percent per year, keeping the tax increase at a manageable level. Unless there is a change of ownership, or new construction, the base year value does not change. Unfortunately, this discouraged many people from selling property as their family circumstances changed.

Consider the following example:

Jason, 56, and Julia, 53, want to sell their five bedroom home on a large lot since their children are now grown and have homes of their own. They have lived in their current home for many years. The Proposition 13 base year value of $40,000 from 1975 grew to $66,000 by 2002. Their property tax bill is approximately $700 per year. Their current home assessment value is $400,000. Jason and Julia have found a two-bedroom townhouse for $370,000. But they are unwilling to move because this change of ownership will establish a new tax assessment for the townhouse based primarily on their purchase price, and their tax bill will jump from $700 to approximately $3,700 per year. They are on a fixed income and cannot afford the additional $3,000 per year in taxes.

To resolve this problem, Propositions 60 and 90 permit people over age 55 to sell one home and buy another of equal or lesser value within two years and take the Proposition 13 base value with them. Using the above example, Jason and Julia could move to the townhouse and still pay $700 per year in property taxes (tax rate and fees may make the total bill smaller or larger), plus the future increase of no greater than two percent. There are many requirements to qualify for the tax base transfer, and it can be used only once.

Why is this important in a divorce situation? It can only be used once and it cannot be divided between the spouses. This is the real kicker: family courts do not have this issue on their list of items requiring resolution. In all of my years of practice, I have never heard a judge ask about the tax base transfer.

In recent years, California has seen a sharp increase in gray divorces. Many of these couples are retired or near retirement age. This issue rarely came up in early years since most divorcing couples did not meet the age qualification.

We live in a different world today. What happens if this issue is not resolved or even addressed in your contested, mediated, or Collaborative divorce? The first person to apply for the transfer will get the transfer.

Real Estate Agent Julaine Wagonner of ReMax College Park Realty says often the ex-spouse won’t know his or her ex filed the application first until as late as the end of the year or until they receive their own rejection notice. It can take several months before the county updates the tax records to reflect a reduced/carried over tax base.

This is just one of several financial risks often missed during a divorce. Others include how to allocate any capital gains tax, for example. It is easy for even the most experienced family law attorney to overlook these issues. Confer with a financial professional who can assess your personal circumstances and work with your family law attorney to address and resolve these issues before you sign any judgment or make any requests for orders of the judge related to your real estate. Get the information from the expert to make sure your decisions are as complete as they can be, to set yourself on a path for a successful future.

Social Security and How It Affects Your Divorce

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by Tracy S. McKenney, CFP®, CDFA™
Irvine, California

When a couple divorces, you may wonder whether anything happens to their Social Security benefits.  What if the husband has been employed the entire marriage and the wife has stayed home with the children?  Do they split the husband’s Social Security benefit at retirement?  What if one of them remarries?

First, divorce laws are different from state to state.  Social Security is a federal program and can’t be overridden by

Orange County Divorce Financial Analyst Tracy McKenney
Tracy McKenney

divorce laws or a divorce judgment in any individual state including California.  California courts cannot issue a divorce judgment to ‘split’ Social Security payments at retirement, because the federal rules governing Social Security override them.

What does the law say about Social Security and Divorce?

As of summer 2016, if a person has been married longer than 10 years and then gets divorced, the ex-spouse can receive 50 percent of their former spouse’s Social Security benefit –OR- 100 percent of their own Social Security benefit.  Notice: you can collect only ONE benefit, not both.

For example, “Dolly” and “Dennis” got divorced when Dolly was age 52, and Dennis was age 54.  Dennis decided to start collecting Social Security when he turned 67.  Dolly only worked part-time for most of their 27 year marriage.  She decided to start collecting Social Security benefits as soon as possible, at age 62.  Dennis collected on his own benefit because it was higher than ex-spouse Dolly’s benefit.  Dolly made an appointment with her local Social Security office two months before she turned age 62.  Dennis’s benefit was higher than hers so she collected based upon his benefit.  Note: Anytime you start social security earlier than your full retirement age (see more below), you will receive a reduced benefit.

Before your ex-spouse gets angry over losing half of his or her government retirement benefits, the Social Security Administration is willing to pay out 100 percent to your ex-spouse and 50 percent to you from your ex-spouse’s work history.  Yes, Social Security will pay 150 percent if you meet the qualifications.

Social Security payments can start as early as age 62.  Your monthly payments are reduced at age 62.  Full Retirement Age (FRA) is based upon your birth year.  FRA is age 65 for anyone born before 1937; 66 for anyone born 1943-1954; and age 67 for anyone born 1960 or later.  You can look up your own FRA at www.ssa.gov.  Be aware the FRA age for you personally is based upon YOUR age, not your ex-spouse’s age.  If you delay claiming Social Security benefits until age 70, you will receive additional income if you claim on your own work history, but will NOT receive additional income at age 70 if you claim based upon your ex-spouse’s work history.

Remarriage Affects Your Retirement Benefits

What happens if either ex-spouse remarries?  If you remarry before age 60, then you will not be able to claim benefits based upon the ex-spouse’s work history.  If you remarry after age 60, then you can claim based upon your ex-spouse, your current spouse or your own work history.  Choose wisely because you only get ONE benefit.  If you have been married over 10 years more than once, you can claim on either ex-spouse, whichever is more favorable to you.

What happens if your ex-spouse dies?

Social Security has survivor benefits if your ex-spouse dies.  If you are eligible to claim on your ex-spouse’s work history, then you also qualify for a survivor benefit.  You can receive the same benefits as the widow/widower of your ex-spouse.

For more information, go to www.ssa.gov and search ‘divorced spouse benefits’ or ‘divorced survivor benefits.’

Securities offered through Securities America, Inc., a Registered Broker/Dealer, Member FINRA/SIPC.  Tracy S. McKenney, Registered Representative.  Advisory Services offered through Securities America Advisors, Inc., an SEC-Registered Investment Advisor.  Securities America and its representatives do not offer tax or legal advice.  You should consult with and rely on your own legal and tax advisors.  6/2016

When 50/50 Isn’t Always Equal in a California Divorce

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by Diana L. Martinez Collaborative Lawyer and Mediator, Law and Mediation Office of Diana L. Martinez

California is one of nine “community property” states as it relates to divorce. This means that assets and debts acquired and incurred during your marriage will be divided equally upon divorce. Exceptions exist for specific items received during marriage that are deemed “separate property” under the law. This includes gifts and inheritance.

This is one of the most misunderstood concepts in divorce law. Spouses often believe their divorce will be easy if they just split all of their property in half, or “50/50.” While strong emotions present a barrier to resolving issues during a divorce, not far behind is the misunderstandings by couples about the concept of what is “fair” when it comes to dividing up assets and liabilities.

From extensive experience as a mediator, consultant, and Collaborative Divorce lawyer, I am a strong advocate for giving spouses a greater voice in the outcome of their divorce. I am also a strong proponent of ensuring divorcing spouses have as much information as possible to make the best decisions moving forward.

Although the courts are required to enforce the laws, spouses in a divorce, with few exceptions (typically related to minor children) are not limited by the law; they can create their own, unique, agreements, based on their goals and values. Laws controlling the division of assets and debts, the amount you receive or pay in support, and the amount of time granted with your children exist to guide you IF you and your spouse are not able to resolve these items together. If you can’t resolve your differences, a judge will make the decisions for you. He or she is required to enforce the law, regardless of your personal goals and values.

You and your spouse may have some understanding of the law. But in negotiating your agreement, you may be better served by accepting less than the law allows in return for a greater benefit elsewhere. The benefit could be a better co-parenting relationship, or the opportunity to reduce or eliminate spousal support. It may even be the creation of balance where the laws aren’t able to provide it.

Annette and John Peterson provide a case study worth discussing as an example. The Petersons were able to resolve all disputes in their divorce except one: Annette’s pension benefits of approximately $100,000. This roadblock stalled the Petersons’ divorce for six years, from February 2010 until the California Supreme Court rendered its decision in January 2016.

In retrospect, after nearly six years of legal fees, lost time from work, and stress, Annette and John might have preferred finding a compromise outside of the contested court process. State laws governing pensions and federal laws governing Social Security created the sense of imbalance that Mr. and Mrs. Peterson fought so hard to correct, as each, individually, deemed most “fair”.

In California, pension benefits are community property when earned during marriage. Pension benefits are a form of deferred compensation for services rendered. Non-financial contributions to pension benefits, or “service credits,” are also considered “a form of deferred compensation for services rendered” and, therefore, community property.

But Social Security benefits are separate property under federal law. Federal law preempts state law. Social Security is not transferable, nor can it be assigned by the wage earner. There are, however, derivative rights upon divorce if:

  • you and your spouse are entitled to receive Social Security;
  • your marriage lasted 10 years or longer;
  • the ex-spouse did not remarry;
  • the ex-spouse is age 62 or older; and
  • the benefit the ex-spouse is entitled to received based on his/her own work is less than the benefit he or she would receive based on his/her former spouse’s work.

If each requirement is met, an ex-spouse could elect to receive either all of his/her own Social Security, or one-half of his/her former spouse’s Social Security, but not both.

As an employee of the County of Los Angeles, Annette did not contribute to Social Security. Instead, the County contributed to a defined pension plan for Annette through the Los Angeles County Employees Retirement Association (LACERA). As an attorney in private practice, John contributed to Social Security through mandatory payroll deductions.

Annette’s LACERA benefits totaled between $200,000 and $216,000. Based on Social Security calculations, John’s Social Security benefits totaled $228,000. Annette attempted to argue that the laws governing LACERA pensions and the laws governing Social Security created unequal benefits. Annette and John would split her LACERA benefits in their divorce (approximately $100,000 to each). But John would keep all of his Social Security benefits.

The trial court ruled in John’s favor, creating an actual 150% windfall for John ($328,000 from 50% of Annette’s LACERA and 100% of his Social Security). Annette asked the California Supreme Court to correct this unfair situation, suggesting the court give John less than half of her LACERA pension benefits.

The Supreme Court let the trial court’s ruling stand, citing the requirement under California law that community assets be divided equally in a divorce. Since Social Security is not a “community asset,” the court correctly divided the community assets and could not deviate from that equal division, even when it creates an unequal division overall.

But the Supreme Court pointed out that it was completely within Annette and John’s power to create their own, more equal solution, even though the court under the law could not.

So let’s go back to Annette and John’s original circumstances. What was the value to John if he had agreed to give Annette all of her LACERA benefits, instead of insist on following the state law giving him a far greater share? What would have been the value to Annette to propose an alternate payout to John to resolve this issue?

As of 2010 in California, the average cost of a divorce where the parties were represented by lawyers was approximately $50,000 each. This amount is on the low end for a contested divorce in Orange County, and it does not include the legal fees for an appeal. Over the period of six years, based on 2010 estimates, Annette and John would have spent more than $100,000 each. Resolving your divorce early and collaboratively can save on legal fees, lost work time, and other intangible and emotional costs.

Managing emotional trauma and stress for yourself and your family offers priceless benefits, far beyond feeling a sense of entitlement or unfairness. Attorneys frequently fail to focus on these practical impacts because they are hired as legal advisors and guides, not as therapists. Attorneys are not equipped to help people through their fears; they are not trained mental health professionals.

Alternative (also known as “consensual”) dispute resolution models often incorporate legal and non-legal professionals to help educate and guide couples through unexpected emotional landmines, often resulting in less, or better managed, conflict, and better informed and well reasoned results.

For example, the Collaborative Divorce model incorporates guidance from a “divorce coach” to help manage the emotions of divorcing spouses, often saving the spouses tens, if not hundreds of thousands of dollars, as well as years of stress embroiled in a contested divorce, and the subsequent modifications to orders after trial. The outcomes tend to be far more satisfying to both spouses, and result in fewer or no additional hearings after judgment to modify those orders.

Making decisions based on accurate legal and financial information, as well as balancing the practical impact on your family and finances often results in far greater and lasting benefit for you and your family. Sometimes, there is too high a price for the short-term gain of getting everything you can under the law.