Choose Your Spouse Wisely

Here is an example (PDF) where being in a community property state doesn't necessarily mean it gets divided evenly and fairly. Or at all. It's a case decided at the Ninth Circuit Court of Appeals.

In 1986, while Richard I. Berger (Richard) and Cornella were married, Richard joined a partnership (Partnership) known as 1748 North Verdugo Road, which he and others formed for the purpose of purchasing a 290-unit apartment complex (Property).

During the relevant period, Richard served as President, Chief Executive Officer, and Chairman of the Board of Craig Electronics (Craig), an electronics wholesaler. On March 19, 2003, a federal grand jury returned a first superceding indictment, charging Richard with thirty-six counts of conspiracy, loan fraud, falsifying corporate books, and other securities fraud violations committed at Craig from 1995 to as late as 1997. After a jury trial, Richard was found guilty on twelve of those counts. There is no evidence that Cornella was involved in any wrongdoing associated with the illegal scheme or that any proceeds therefrom were invested in the Property.

As a part of the restitution, their property was sold. The now divorced wife of the convicted man claims she was entitled to half the proceeds of the sale since they live in a community property state.

Cornella also argues that it would be unjust to punish an innocent spouse for her husband’s misdeeds. We sympathize with Cornella’s situation, but for better or worse, it has long been true in community property jurisdictions that both spouses assume the risks—and benefits—of that legal system. The case books are replete with examples of seeming injustices to innocent spouses where community property laws are applied. Nevertheless, we are bound by California’s community property laws, and they control the outcome in this case.

Ouch!