Monday, July 11, 2005
C.A. Rejects Man’s Bid for Half of Ex-Wife’s Tort Settlement
Claim That ‘Arose’ After Separation Not Community Property Regardless of Date of Injury, Justices Rule
By KENNETH OFGANG, Staff Writer/Appellate Courts
The date a tort cause of action arises, rather than the date of actual injury, determines whether the claim is separate or community property if the injured party separates from his or her spouse before the claim is settled, the Third District Court of Appeal has ruled.
The justices late Thursday affirmed a Placer Superior Court commissioner’s ruling that the $346,000 recovered by Lynn Klug from Roseville attorney Craig Christensen is her separate property.
Klug received the money in settlement of her claim that the attorney, retained by her husband to shelter community assets from the couple’s creditors, had a conflict of interest and did not explain to her that he was shifting the assets to overseas accounts over which she had no control.
In the family law action, Commissioner Colleen Nichols rejected Donald Klug’s contention that the tort claim, which he said he had no knowledge of when he signed a marital settlement agreement, was an omitted community asset that he was entitled to half of.
The Klugs were married in 1979. Donald Klug, a physician, hired Christensen in 1994, apparently in response to a potential medical malpractice claim. Christensen drafted documents creating a Klug Family Limited Partnership, with the husband as general partner and the wife as limited partner.
The Klugs separated in 1997 Among their assets was a 50 percent interest in two businesses that provided dialysis services, until that interest was sold for more than $2.5 million.
The money was placed in Christensen’s trust account until being transferred out, the bulk of it to accounts in Liechtenstein and on the Isle of Guernsey in Donald Klug’s name, although $388,000 went into a charitable remainder trust in Lynn Klug’s name in Roseville.
The Klugs divorced in 1999, with the court retaining jurisdiction to divide their property. Later that year, Lynn Klug sued Christensen and others, alleging that the attorney failed to protect her rights and interests, and to disclose an ethical conflict, in connection with the creation of the limited partnership, and that she gave up “legal rights and interest in community assets that she would not have otherwise relinquished.”
The Klugs executed their property settlement, which made no mention of the malpractice claim, in 2000—two years before Lynn Klug settled with Christensen. Four months after that settlement, Donald Klug moved for division of the settlement and alleged that he would not have signed the marital settlement agreement had be known about the lawsuit.
The commissioner, in denying the motion, reasoned that the malpractice cause of action did not arise until the money was transferred offshore. Since that occurred after the parties separated, the jurist reasoned, the claim was Lynn Klug’s separate property.
Justice Tami Cantil-Sakauye, writing Friday for the Court of Appeal, agreed.
The justice explained that a cause of action does not come into being until all of its elements have been established. While this will normally occur at the same time the claim accrues for statute of limitations purposes, she added, it will in some cases happen later.
In this case, the justice reasoned, Lynn Klug’s cause of action did not arise during the marriage because actual damages are an element of the claim and she did not suffer damages until the transfer of the funds. This is the case, Cantil-Sakauye explained, even though the lawyer’s breach of duty “undoubtedly occurred during the marriage.”
The justice also agreed with Lynn Klug that even if the settlement was an “omitted asset,” her ex-husband cannot claim an interest in it because post-judgment relief from an unequal division of assets, afforded under Family Code Sec. 2556, is an equitable remedy that requires clean hands.
Donald Klug, Cantil-Sakauye explained, “took full advantage” of Christensen’s conflict of interest, using his position as general partner of the family limited partnership to transfer community assets overseas without his wife’s approval.
The Christensen settlement, the justice noted, covered funds that would have been hers under the marital settlement agreement if the money had not been transferred offshore.
“By his section 2556 motion, Donald attempted to obtain at least a 50 percent share of this equalizing payment notwithstanding he already received his, if not more than, fair share of the community estate,” the justice wrote. “...Under these circumstances, it would be inequitable for Donald to benefit further by sharing in Lynn’s settlement in the malpractice action.”
The case is In re Marriage of Klug, 05 S.O.S. 3424.
Copyright 2005, Metropolitan News Company