(13) Community Property: Types of Properties Flashcards
Overall Rule:
Property Acquired with Comingled Funds
When property is acquired with commingled funds (using both community and separate property) and there is no title presumption, courts will apply the Moore principle. Under the Moore principle – community property and separate property are apportioned based on their respective contributions. If tracing is not possible, the entire asset will be treated as community property.
When does a Commingled Bank Account occur?
Commingled bank account occurs when the separate property of both spouses are combined or the separate property of one spouse and the community property are combined.
Commingled Bank Account Rule
The spouse who wants to claim an asset was purchased with separate property has the burden of tracing the asset back to their separate funds in the account using the following methods:
1. Direct Tracing Method
2. Exhaustion Method
Direct Tracing Method
Commingled Bank Accounts Rule
The spouse proves that there was sufficient separate property funds available at the time the asset was purchased and they intended to use their separate property funds to purchase the asset.
Exhaustion Method
Commingled Bank Accounts Rule
The spouse proves the community property funds in the account were already used by the time the asset was purchased. Community property funds are presumed to be used for family expenses.
Jointly Titled Property & Anti Lucas Statute - Upon Divorce Rule
Jointly titled property acquired by a married couple from 1987 on is presumed community property at divorce (this presumption can be rebutted by a writing). Any separate property used for the purchase is entitled to reimbursement. Reimbursement is calculated by the fair market value at the time of purchase.
Jointly Titled Property & Anti Lucas Statute - Upon Death Rule
Jointly titled property acquired by a married couple from 1987 on is presumed to be community property at death and the separate property used to acquire the jointly titled property is presumed to be a gift and no reimbursement is allowed unless otherwise agreed. (This was also the rule prior to 1987)
Personal Injury Award/Settlements - Against 3rd Party - During Marriage Rule - At Divorce Rule - Before/After Marriage Rule
During Marriage Rule: If the COA arose during marriage, personal injury awards and settlements are community property.
At Divorce Rule: At divorce they are assigned entirely to the injured spouse unless (a) funds were comingled; or (b) there is economic hardship to the other spouse.
Before or After Marriage/During Separation: If the COA arose either before marriage, after marriage, or after permanent separation then the award is separate property of the injured spouse.
Overall Rule:
Separate Property Business
If a separate business is enhanced by community labor during marriage, courts will determine community and separate property interests at divorce using either Pereira or Van Camp methods.
Van Camp Test
Separate Property Business
Rule: Courts apply the Van Camp method when business growth is mostly due to the character and nature of the business itself.
Formula: The community will receive a reasonable salary in return for the community labor MINUS any community expenses. The remaining value of the business is separate property of the owning spouse.
Pereira Test
Separate Property Business
Rule: Courts apply the Pereira method when business growth is mostly due to the spouse’s labor and abilities.
Formula: The owning spouse receives the original principal value of the business, PLUS an annual rate of return calculated at 10%. The remaining value of the business is community property.
Goodwill of a Business
Definition: Goodwill is the intangible value of the business reputation beyond personal skill or value of the assets.
Rule: When goodwill is generated by community labor, it is deemed community property.
Rule: Goodwill is valued by either (a) the market value method which is the price the goodwill in a sale of the business; or (b) the capitalization of excess earnings method which is the present value of the future stream of income that the goodwill developed during the marriage.
*Buy/sell options in a partnership agreement created by a spouses firm will not control the valuation of that spouses interest at divorce because of the risk of abuse.
Whole Life Insurance
For whole life insurance purchased with both separate and community property funds, courts use the buy-in rule to determine the community property interest. The formula: (# of premium payments made with community property) DIVIDED BY (the total # of premium payments).
Term Life Insurance
Term life insurance is designated as community property or separate property according to the characterization of the last payment made under the final payment rule.
General Rule
Stock Options
Stock options are a form of employee compensation and are entirely community property if they are exercisable during the marriage. If they are awarded during the marriage but become exercisable after the marriage then their character depends on how they were earned and the intent of the employer.
