Marriage Of Fonstein

131 Cal. Rptr. 873 (1976)

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Nature of the Case

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Facts

H and W were married on January 30, 1954, and separated on September 15, 1972. There are three children born of the marriage. On February 5, 1973, W commenced the divorce. proceeding. One of the items of community property awarded to H was his interest in his law partnership. He became a partner in the firm in 1964, during the marriage. The parties do not dispute that his interest in the partnership if it has any value, is community property. The partnership operates pursuant to a written agreement dated May 25, 1972. The partnership agreement provides for payments to partners by the firm in the event of their death, disability, retirement, or voluntary withdrawal. H's equity percentage is 8 percent. For a voluntary withdrawal, H will receive a total payment equal to one-half of three times the average annual earnings of the firm over the preceding three years multiplied by H's equity percentage. The partner will also receive his capital account, which consists primarily of his unwithdrawn earnings. This total amount is paid in installments without interest over a period of five or nine years, depending upon whether more than one partner is being paid at any one time. These payments are not funded in any way and are to be paid from current partnership income. The trial court found H's partnership interest was $49,977. The court valued the interest from the stream of payments that would be due H and discounted at a 7 percent rate to a present value of $110,417. This amount was then further discounted in accordance with an estimate of the potential state and federal income tax consequences of H's receipt of withdrawal payments, resulting in the final figure of $49,977. W disputes the validity of this final step; the deduction for tax liability.