Loan Applications Can Come Back To Haunt

Many cases have been won or lost in both the child and spousal support arenas due to clever lawyers and their clients finding and introducing into evidence for the Court’s consideration recent loan applications where the adverse party claimed inflated income to secure approval of a loan application to a lender.

Now, that same person is in family court telling the judge, usually under penalty of perjury, that he or she has limited income for purposes of paying child or spousal support. 

Income stated on loan application is substantial evidence at trial supporting a court finding that it is the party's income.  A 2005 appellate court decision ruled that a trial court may properly rely on income stated on a loan application that was wildly different from that stated on tax returns.

Although case law permits a trial court to rely on income stated on a loan application, the trial court is not obligated to do so.  The trial court still has wide discretion to believe or not believe the statement of income on a loan application.  In fact, in a 2009 appellate case, In re Marriage of Berger, Mr. Berger had applied for a 1.8 million dollar construction loan.  The loan application listed his income at $65,000 per month.  The trial court did not adopt this figure as Mr. Berger’s income in the family law case.  This case went up on appeal.  The appellate court ruled that, like any other evidence, it is within the discretion of the trial court that hears and considers the evidence contained in the loan application to be persuaded or not be persuaded by the loan application evidence put before the court for review.

Nevertheless, loan applications and associated financial statements are one of the most fertile areas for discovery in support litigation. With the prevalence of refinancing, it is always a good idea to see if the other party has refinanced and, if so, to subpoena the loan records.


Richard Ross
Certified Family Law Specialist

Richard Ross is a certified family law specialist in California who is a member of the Collaborative Family Law Professionals in both Ventura and Los Angeles Counties.

Winning The Lotto Can Be Bad News If You're Not Divorced Yet

When Holly Lahti of Rathdrum, Idaho learned that she won $190 million in the Mega Millions Lottery in January 2011, it should have been the happiest day of her life.  Under normal circumstances, TV viewers all over the country could expect to see Lahti, smiling and posing with a giant check.  Instead, Ms. Lahti’s joyous win is plagued by a looming court battle with her long-estranged husband.  Although separated for a number of years, the couple is not divorced, and, under Idaho law, Lahti’s husband may be entitled to a portion of her winnings.

In California, income (including lottery winnings)a earned by a person after the date of separation is his or her separate property.  But how does one determine what that date is?  California Courts define separation as “that condition when spouses have come to a parting of the ways with no present intention of resuming marital relations. The fact that husband and wife live in separate residences is not determinative, althought it is usually considered an important factor. The question is whether the parties' conduct evidences a complete and final break in the marital relationship”. 

Determining what constitutes a complete and final break is often a complicated task. Since intentions are, by definition, subjective, courts examine whether the parties' conduct, objectively, reflects that the marriage is over.

For instance, imagine that a spouse moves out of the family home, and lives with a new significant other for the next four years.  Many of us would consider this to be a complete and final break-up of the marriage.  Not so, said the California Court of Appeal in In re Marriage of Baragry (1977) 73 Cal.App.3d 444. 

From 1971 to 1975, Mr. Baragry thought he had the best of both worlds.  He lived with his 28-year-old girlfriend, but continued to have dinner at his former home (with his children and his wife of 20 years) several times a week.  He took his wife to social and professional events, and gave her Christmas, birthday, and anniversary cards.  In 1975, Mr. Baragry filed for divorce and claimed that the substantial sum of money he earned after 1971 was his separate property. The Court disagreed, and ruled that the marriage remained intact until 1975.  The Court may have been persuaded by the fact that Mr. Baragry continued to bring his laundry for his wife to wash and iron twice a month during the entire 4-year period that he claimed they were “separated”.

The moral of this story is that establishing the legal date of separation can be a complicated factual determination, and one may or may not be considered “separated”, regardless of one’s living arrangements.  If Holly Lahti lived in California, this may have made the difference between enjoying a $190 million prize and engaging in a protracted legal battle with an estranged husband.

Check out our blog next month for another fascinating lottery story, and find out why a certain Mrs. Rossi had to give up not half, but all of her lottery winnings!

Marina Ayzenstein
Marina is an Associate Attorney with Richard Ross Associates.