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What to Do About Property Left Out of the Divorce Agreement

ThinkstockPhotos-526076097The parties thought they had covered everything (or maybe one party was being sneaky), but it turns out that some property was left out of the divorce proceedings and thus never made it into the judgment. Here’s how to deal with that situation—and how to better protect your client before this situation arises.

First, all is not lost: The court has continuing jurisdiction under Fam C §2556 to award community estate assets or debts not awarded in the judgment, regardless of whether jurisdiction to award those assets and debts was expressly retained by the court. You can seek such an award by either a postjudgment motion or an order to show cause, using a Request for Order (Judicial Council Form FL-300). You need not file an independent civil action to divide the property, which was required at one time.

Once you bring your postjudgment motion or order to show cause, the court will then have to divide each omitted or unadjudicated asset (or debt) equally unless it finds that the interests of justice require an unequal division. Fam C §2556. The court may also make an unequal division under other circumstances, e.g., to enforce a judgment against an abusive spouse’s share of community property under Fam C §2603.5.

Of course you don’t want to rely on making a motion under Fam C §2556 for omitted property; it’s always best that the parties try to discover and assert every tenable community property claim in the initial judicial proceeding. In ruling on a Fam C §2556 motion, a court may well consider whether a party’s failure to timely assert his or her rights warrants an unequal division in the “interests of justice.” Keep in mind, also, that a party’s intentional failure to disclose community estate property may give rise to significant monetary penalties or related remedies under provisions such as Fam C §1101 or Fam C §2107, or establish grounds to set aside the judgment under Fam C §2122.

Knowing that parties conceal or just plain forget about assets, you can take a proactive role when drafting the marital settlement agreement by including an omitted asset clause, such as the following example:

The court in the parties’ dissolution action will reserve jurisdiction to divide equally between the parties any assets omitted from division under this agreement that would have been their community _ _[or quasi-community]_ _ assets as of the effective date of this agreement. If, however, either party had any knowledge of any such asset on the effective date of this agreement, that party will transfer or pay to the other party, at the other party’s election, one of the following:

(a) If the asset is reasonably susceptible to division, a portion of the asset equal to the other party’s interest in it;

(b) The fair market value of the other party’s interest in the asset on the effective date of this agreement, plus interest at the rate of _ _[number]_ _ percent per annum from the effective date to the date of payment; or

(c) The fair market value of the other party’s interest in the asset on the date on which the other party discovers the existence of the asset, plus interest at the rate of _ _[number]_ _ percent per annum from the discovery date to the date of payment.

This provision will not be deemed to impair the availability, in a court of competent jurisdiction, of any other remedy arising from knowledge of an omitted asset.

A major benefit of such a clause is that, in the event of a concealed asset, it ensures that the innocent party gets to choose among the remedies it provides instead of leaving it to the court to decide.

Get much more practical advice and sample provisions in CEB’s California Marital Settlement and Other Family Law Agreements.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

2 Responses

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  2. […] What to Do About Property Left Out of the Divorce Agreement […]

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