As reprinted in Moore, Robert L. and James D. Whitney. Microeconomic Principles in Action. Englewood Cliffs, NJ: Prentice Hal, 1990, pp. 1-4. A Divorced Spouse's Professional
Degree: Is It Community Property?

By ROXANE ARNOLD

After 10 years working as an accountant while husband Mark completed medical school, an internship and residency in urology, Janet Sullivan decided their marriage was over. She walked out, taking their young daughter with her.

When the couple filed for divorce two years later in Santa Ana, there wasn't much to divide in the way of community property--some used furniture and two cars that weren't paid for.

Janet decided to try for more--a share of Mark's earnings as a doctor.

On Tuesday, the California Supreme Court is scheduled to take up the Sullivan case, which centers on Janet's claim that she should be compensated for putting her ex-husband through medical school. It is a contention that has jolted medical and professional groups and unleashed a storm of clashing views.

The case has become a cause celebre among those who see it as the "most important women's issue of the day" and has prompted at least one California assemblyman to draft so-called Sullivan legislation to take care of former spouses like Janet.

It also has spurred Mark's fellow doctors in Orange County to establish a legal defense fund to battle what they call a "threat to all people who have a degree'' and has convinced the powerful California Medical Assn. to enter the fray on behalf of its members.

"The ramifications of the case are shocking for some," said UCLA law professor Grace Blumberg. "It means that people could be paying through their noses for the rest of their professional lives."

Although a rash of cases involving professional degrees have been heard in courtrooms across the country in the last two years, few have been heard in state high courts and none is likely to have the national impact of a Sullivan decision, since the California Supreme Court is regarded as a trend-setter in family law.

Unlike most other states, where judges have discretion in dividing marital assets, California is bound by a no-fault divorce law that requires an even distribution of property accumulated during a marriage regardless of who wanted to end the marriage. The state definition of community property includes furniture, real estate and other tangible assets as well as intangibles such as pensions and professional reputations that have recognized value.

"California doesn't have the flexibility of other states," said Blumberg, the co-author of a friend-of-the-court brief on Janet's behalf. "The California Supreme Court is not going to be able to fudge the issue.

"In other states, courts can give her something without giving her too much. In California, it has got to be an all-or-nothing proposition. The future earnings represented by her husband's degree is either property or it isn't, and she gets half or she gets nothing."

The court actually faces two decisions. Justices must first determine whether Mark's medical degree is community property and if so, how to measure its future value.

 Ultimately, however, the court's decision will affect not only physicians but those who earn professional degrees while married.

Some argue that a degree-is-property ruling could apply to every faltering marriage, creating nightmares for the courts and never-ending entanglements for couples who just want to split. Others predict it will produce a booming market for pre-nuptial agreements and bring romance to an end.

"It's not going to be very good for the couples," said Sacramento attorney Fred J. Hiestand, who filed a brief for the California Medical Assn. Hiestand said that the association decided to become involved in the case when its members agreed "they didn't want their degrees to become a target for a vindictive spouse or a potential future creditor."

Hiestand said that "when you start considering a degree property, you open a potential floodgate .... I don't see how you can distinguish between a medical degree and any other kind of degree--a college degree, a junior college degree. There is going to be a burgeoning business in evaluating degrees.., it will take a lot more time to unwind a marriage."

When the Sullivans were divorced, there was no indication that theirs would become a landmark case. As Janet's attorney, Patticia Herzog, explains it, there was just a nagging feeling that something wasn't fair.

The judge who handled the Sullivan divorce trial decided not to consider the medical degree in the divorce settlement, based on then-existent case-law. Janet, who earns enough to support herself, was not eligible for alimony. She was, however, awarded $250 a month in child support payments even though the couple was awarded joint custody of their child.

In January, 1981, the 4th District Court of Appeal took Janet's side and sent the case back to the trial court to determine what was due to her.

Eight months later, the appellate court reversed itself, finding that professional training is not part of the marital kitty because it does not fit traditional concepts of property. The justices who changed their minds said that the unusual reversal resulted from a closer review of the case.

By the time the California Supreme Court agreed to hear the Sullivan case, more than a dozen other states were grappling with the same issue and a handful of high courts had rendered opinions. Most of the cases involved medical and legal degrees. In one state, though, it was a master's in business administration; in another, a doctorate of philosophy. Apparently the degree holders in these cases have been men.

Although few courts have ruled that a degree is property, most have tried to give the woman some reimbursement for her time and trouble. But the disparity in the judgments has resulted mostly in confusion.

Very Confusing

"Everyone is doing their own thing trying to fit in with traditional definitions of property.., to try to achieve equity in one way or another," said New York divorce layer Doris Freed. "It's very confusing and it's wrong.., you can get so hung up on terminology that you come up with zilch."

Two cases heard in New York last summer illustrate the chaos. One trial court judge, calling a husband's medical license the only valuable asset of the nine-year marriage, awarded the schoolteacher wife almost $190,000. Weeks later, an appellate court considering another case held that a medical license was not property and gave the wife nothing.

The record is just as muddled in other states. In Minnesota, one wife received $11,400 after a court determined she was due reimbursement for the amount she contributed to her husband's education. In a similar case in Kentucky, the spouse was awarded $11,600. In Illinois and Arizona, two wives came away empty-handed. In Oklahoma, a doctor's wife was awarded an extra $39,000 in alimony based on the husband's increased earning ability.

A few states have tried to legislate consistency. Lawmakers in Wisconsin added a statute providing for some compensation for spouses who have contributed to their mates' education. In Indiana, legislators enacted a provision calling for reimbursement of tuition, books or other fees if there is little else to divide.

If the California Supreme Court decides to classify degrees as property, some legal experts believe there would be a great impact on other states.

"It would be such an extreme, unusual step," said University of Missouri law professor Joan Krauskopf. "It would be highly significant because it would be the first Supreme Court in the country to classify a degree as property. It would highlight for the whole country how important this issue is.

Krauskopf acknowledged that the ramifications of legally recognizing one spouse's role in the education of the other are staggering, but she said it is "one of the most important women's issues in the country."

"It is still the woman who is putting the man through professional school, the woman who doesn't develop her own earning capacity.., the MDs around the country are scared to death they might have to give some reimbursement to that woman who put them through medical school, who suffered through an internship with them--the woman they then walked out on."

"The whole principle of community property in California is that all assets, all property belongs to both," said Stanford sociologist Lenore Weitzman. "Our courts are making a mockery of that.., by !et-ting the husband hide his gold behind his back. The educational degree is the jewelry in the marriage."

UCLA's Blumberg said that calling a degree property is the logical next step for a Supreme Court that already has classified intangibles such as pensions and professional reputation or goodwill as marital assets.

"The notion of a professional education kind of piggybacks on these earlier rulings," Blumberg said. "A professional degree is just another intangible, something you can't package, but it is still property."

To those who would argue that the value of a professional degree defies calculation, Blumberg answered, "it is a little complicated, but it is doable."

But California Medical Assn. attorney Hiestand predicts evaluating degrees will "open a real Pandora's box. It, will be a fight of the experts, a great boon to economists.., and a step backward."

Southwestern University law professor Max Goodman predicted that a court-ordered payoff to Janet will mean "you won't be able to settle any case... in every marriage, there is enhanced earning of some sort, either by way of education or more experience or promotions. If Mrs. Sullivan's theory is accepted by the court, you're going to have these problems of enhanced earning ability in every single dissolution case."

Economists and lawyers already have been working to come up with ways to value degrees and divide the earnings.

[A] One formula projects what an average degree holder would earn over a lifetime with the degree and subtracts projected earnings without it. The difference is reduced through a series of equations to its value in current dollars. A former spouse would get half that amount through installments with interest.

A second formula depends on the professional's actual work. The supporting spouse would be entitled to half of what is earned during a time span comparable to the period it took to earn the degree.

To make such formulas work, Blumberg says, the degree must be worth something. What sets professional degrees apart from job promotions earned during marriage or courses taken for fun is what she called the "opportunity cost."

"For Dr. Sullivan, the real cost of his education was not books, it was not tuition; it was being absent from the labor force for 10 years doing whatever he could have done as a bachelor of science," Blumberg said. "These people would have had lots of money if one of the spouses hadn't undertaken 10 years of self-enhancement."

Attorney Goodman, who will help argue Mark Sullivan's case before the Supreme Court, admits it is that kind of "perceived injustice" that has him worried as the court date nears.

"It's the gut-level reaction," Goodman said. "He walks out instant doctor and she walks out with a baby . . . and so she should get paid somehow." In the Sulli-vans' case, Mark is now a urologist in Laguna Hills and Janet is a medical accountant and living in a rented house in Laguna Beach.

Marriage Is Risk

Goodman argues that marriage is a risk under any circumstances. To deal with it otherwise would be unjust to Dr. Sullivan.

"Implicit in her (Janet's) theory is there is an obligation to work while you are married, and if you don't work, you can be sued for damages," he said. "That's not true.., there is the expectation that the marriage will last. But if it doesn't, that is the risk she took. That's the way the cookie crumbled, that's the way the marriage crumbled.., there is no injustice in this."

The California Legislature already has reached that same conclusion, Goodman said.

Lawmakers recently amended community property laws by making educational debts an exception to the 50-50 distribution rule. The spouse receiving the education must pay its costs as part of a divorce settlement.

"The Legislature could have said that education is an asset, but they didn't," Goodman said. "The courts should respect that."

Not all legislators agree.

Assemblyman Alister McAlister (D-Milpitas) is drafting a measure that includes earning capacity in community property.

[B] "The most important property that most couples have when they separate is the earning capacity of the husband," McAlister said. "The wife should not be left high and dry.., there is a need to protect her."

What sociologist Weitzman calls a "blueprint for marriage"--the pre-nuptial agreement--also would protect warring spouses.

Although many believe signing contracts does not make for a good marriage, others say the pacts simplify the ending of a relationship. Whether pre-nuptial agreements will be used widely is another question.

"Marriage contracts are one way of handling things, but they're not used that often and I don't think that's likely to change," attorney Herzog said. "People marry when their eyes are filled with stars and their hearts with love. They don't consider divorce."

Blumberg countered that a Supreme Court ruling that puts professional degrees up for grabs could change that.

"I suppose if people keep doing this," Blumberg predicted, "there will come a time when your indoctrination packet going into medical school will have information on how to write contracts. It will be there along with your Blue Cross card."

Los Angeles Times, February 7, 1983. Copyright, 1983, Los Angeles Times. Reprinted by permission.
 
QUESTIONS

    1. Suppose the court decided to award Janet a "refund" equal to half the investment the couple had made in Mark's medical training. What items should be included in determining the amount of this refund? In other words, what items make up the economic (opportunity) cost of Mark's medical training?

    2. If you had been the judge hearing the Janet Sullivan case, what would you have awarded Janet? Briefly support your decision.

    3. Passage A of the article covers two options for measuring the value of a degree:
    a. How do the two options differ?
    b. Which option more accurately measures the expected return on an investment in education (including your own)?

    4. For each of the two sentences in passage B of the article, decide whether the sentence constitutes a positive or a normative statement, and briefly explain your decision in each case.