CA Community Property

Question 1

General Principles of Community Property Law –> Introduction

Answer 1

CA is a CP state!

• –> Marriage is viewed as a COMMUNITY (like its own entity), and each spouse is an EQUAL PARTNER in the community.
• –> The characterization of property as owned separately by one spouse or belonging to the community is important when dividing property upon the termination of the community (e.g., by divorce or death of a spouse).

Factors determining the characterization of property include:

(1) HOW the asset was ACQUIRED;
(2) WHEN the asset was ACQUIRED;
(3) Whether some action/agreement has caused a CHANGE in its CHARACTERIZATION; and
(4) Whether any legal PRESUMPTIONS affects the asset’s characterization.

Characterization is important bc it determines spouse’s rights in the following situations:

(1) Management and control of property;
(2) Creditor’s rights;
(3) Divorce; and
(4) Death.

Question 2

General Principles of Community Property Law –> Statutory Basis in CA

Answer 2

The CP system is primarily created by statute.

• –> The statutory CP scheme in CA is set forth primarily in the CA Family Code.
• –> A lot of governing law is also set forth by cases.

The property rights of spouses are governed by STATUTE, UNLESS there is:

(1) an enforceable premarital or marital AGREEMENT;
(2) a marriage K or settlement containing stipulations contrary to the general statutory scheme; or
(3) an enforceable agreement between spouses made during marriage.

Question 3

General Principles of Community Property Law –> Definitions: Property

Answer 3

Property means an interest, (present/future; legal/equitable; vested/contingent) in real or personal property, including income and earnings.

• –> EXS: real property such as houses, condos, ranches, cottages, and personal property such as IRAs, stocks, cattle, cars, royalties, and bank accounts.
• –> There is not much that is not property.

Question 4

General Principles of Community Property Law –> Definitions: Separate Property (verbatim)

Answer 4

Separate property of a married person includes all of the following (fact-sensitive analysis):

(1) All property owned by the person BEFORE marriage.

(2) All property acq’d by the person after marriage by GIFT, BEQUEST, devise, or descent.
- –> A gift between the spouses during marriage will be deemed a spouse’s separate property under the following circumstances:
a. The gift is clothing, wearing apparel, jewelry, or other tangible articles of a personal nature used solely or principally by the spouse to whom the gift is made; and
b. The gift is not substantial in value taking into account the circumstances of the marriage.

(3) The RENTS, ISSUES, and PROFITS of separate property are separate property.

(4) Property received in EXCHANGE for separate property is separate property.
- –> Either spouse may (without the consent of the other spouse): convey, charge, encumber, or dispose of his/her separate property.

(5) EARNINGS and other acquisitions of either spouse AFTER the date of separation of the spouses are separate property.
- –> NOTE: The “after the date of separation of the spouses” test is a recent change in the Family Code.
- –> Previously the test was “living separate and apart.”
- –> To be safe, you should include both the “date of separation” language and “living separate and apart” language.

(7) Separate property also includes the EARNINGS of any MINOR children living with, or in the custody of, a spouse.

Date of Separation
Defined as: the date that a COMPLETE and FINAL break in the marital relationship occurred.
—> Must have both of the following:
a. The spouse EXPRESSED to the other spouse the intent to end the marriage; AND
b. The CONDUCT of the spouses is consistent with the intent to end the marriage.

Question 5

General Principles of Community Property Law –> Definitions: Community Property (verbatim) - Definition

Answer 5

CP: Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person, during the marriage while domiciled in this state is CP.

• –> This includes earnings, wages or income of either spouse from labor or efforts during marriage.
• –> Other terms for income include rents, revenues, and earnings.
• –> Income may also be described as profits, but be careful about this word if it means a return on a sale (i.e. an increase in value) rather than an earning.

Therefore, the definition of separate property must be known in order to know what is CP.
—> “Except as otherwise provided by statute” in the CP definition is a reference to the carved-out exceptions for separate property.

Question 6

General Principles of Community Property Law –> Definitions: Community Property (verbatim) - Presumption

Answer 6

Always remember that all property acq’d during marriage, as well as all wages/income produced by the labor of either spouse during the marriage, is presumptively CP.

• –> A spouse challenging the CP presumption has the burden of proof to est separate character.
• –> The standard of proof req’d to prove separate character is POTE.
• –> A spouse seeking to prove that property is separate in character is called the separatizer.

Question 7

General Principles of Community Property Law –> Definitions: Community Property (verbatim) - Characteristics of Community Property

Answer 7

CP is owned EQUALLY by the spouses throughout the marriage regardless of whose labor produced it or who holds title.
—> Each spouse holds a present, existing, and equal interest in the CP, subject to the control of CP provisions.

Either spouse, acting alone, may manage and control CP, w/ the same power of disposition as the acting spouse has over his or her separate property, except in certain situations:

(1) A person cannot GIFT CP to oneself; the other spouse must join in or consent to the gift to make it valid.
- –> There is an exception to this rule with regard to items of a personal nature as discussed above.

(2) A spouse may not make a GIFT of CP w/o the other spouse’s consent.

(3) CP rights affect the DISTRIBUTION of property when the community is dissolved by death, as well as by divorce.
- –> At divorce, CP is divided equally.
- –> Separate property belongs to each spouse and is not divided.

(4) CP rights can affect a CREDITOR’s rights to a claim.

Question 8

General Principles of Community Property Law –> Definitions: Quasi-Community Property (verbatim)

Answer 8

Applies to all real or personal property no matter where its located.

Property acq’d in a non-CP state that would have been CP if acquired in CA, OR
—> Property acq’d in exchange for property that would have been CP if acq’d in CA.

NOTE: Property is still characterized as quasi-CP even if one spouse acted alone to acq it out of state so long as the property was acq’d during the marriage w/ funds or other property that would have been characterized as CP in CA.

Question 9

General Principles of Community Property Law –> Definitions: Mixed Character Property and Tracing

Answer 9

We can characterize property different ways:

(1) The separate property estate of Spouse 1.
(2) The separate property estate of Spouse 2.
(3) CP

There can also be some admixture of separate and CP estates.

• –> Mixed character property is created when property from different marital property estates is used to initially acq another property.
• –> An asset is of “mixed character” when it is acq’d w/ both separate property and CP funds.
• –> It is part CP and part separate property.
• –> Typical examples of mixed character property include bank and retirement accounts.

We can use tracing to characterize the community and separate property portions of these accounts.
—> If the property is commingled such that it is not possible to trace to separate or CP sources of acquisition, then the CP presumption applies, and the asset will be treated as CP at divorce.

Question 10

Prerequisites to Application of Community Property Principles –> Marriage

Answer 10

CP regime reqs that the parties be legally married or registered domestic partners, but most of the principles of the CP system are applicable to putative spouses and spouses by estoppel as well.

Valid marriage reqs CAPACITY and COMPLIANCE w/ certain formalities issuance of a license and solemnization by an authorized official.

A marriage contracted OUTSIDE CA that is VALID under the laws of the jdx where it was contracted is valid in CA, UNLESS it violates some strong public policy of CA.

Question 11

Prerequisites to Application of Community Property Principles –> Void and Voidable Marriage

Answer 11

Void marriages
—> Incestuous and bigamous marriages.

Voidable marriages
—> Where one party was incapable of consenting due to minority or unsound mind, or consent obtained by fraud or force, unless party who was not capable of or did not freely consent afterwards freely cohabitated with the other as spouses.

Question 12

Prerequisites to Application of Community Property Principles –> Alternatives to Marriage: Common Law Marriage

Answer 12

Common law marriage has been abolished in CA.
—> However, if a couple followed the rules in another state where CL marriages were permissible, they will be considered validly married in CA.

Question 13

Prerequisites to Application of Community Property Principles –> Alternatives to Marriage: Putative Spouse

Answer 13

When a marriage is void/voidable but the ct finds that either party or both parties believed in GOOD FAITH that the marriage was valid, the ct will declare the relationship that of putative spouses.
—> Property that would have been deemed CP or quasi-CP if the marriage had not been void/voidable is divided according to the same principles as CP.

Quasi Marital Property
Any property acq’d that would have been CP or quasi-CP if the marriage had not been void/voidable.
—> The ct may divide any such property.

Question 14

Prerequisites to Application of Community Property Principles –> Alternatives to Marriage: Marriage by Estoppel

Answer 14

A marriage by estoppel allows for the CP protections to attach to an otherwise invalid marriage if one party INDUCES the other party into marriage, KNOWING that the marriage is invalid, by MAKING PROMISES that are subsequently not kept.

Question 15

Prerequisites to Application of Community Property Principles –> Alternatives to Marriage: Cohabitation

Answer 15

Unmarried cohabitants ordinarily have no CP rights absent some ENFORCEABLE AGREEMENT.
—> All property is presumed to be the SP of each and the manner in which title is held presumptively controls.

Marvin Actions

• –> Marvin v. Marvin: the ct held that parties can K w/ each other to create a support obligation or other ownership relationship.
• –> Under such circs, the ct has the power to divide the property according to the couple’s reasonable expectations during cohabitation.
• –> While CA, like CL states, does not enforce Ks based on sexual acts, as consideration; however, the mere fact a sexual relationship is involved does not in itself invalidate the agreement.

Question 16

Prerequisites to Application of Community Property Principles –> Alternatives to Marriage: Domestic Partnership

Answer 16

Available to: “Two adults” in a committed, intimate relationship of mutual caring.
—> No longer limited to elderly opposite-sex couples, or same-sex couples.

Registered DPs have the same rights, protections, and benefits as married spouses, and subject to the same responsibilities, obligations, and duties under the law.

• –> A former DP has same rights and responsibilities as a former spouse.
• –> A surviving DP has same rights and responsibilities as a widow/widower.

Legal unions lawfully contracted in other states that are substantially equivalent to CA DPs are recognized in CA as DPs.

Question 17

Prerequisites to Application of Community Property Principles –> End of Marital Community

Answer 17

(1) Separation/Dissolution

(2) Death

Question 18

Characterization of Property –> In General

Answer 18

Characterization is the process used by cts to determine if:

(1) Property in a marriage is CP.
(2) Separate property of a spouse.
(3) Some mixture of both.

Characterization
The process of characterization is a contest between the general CP presumption and the means for rebutting the presumption that have been recognized by CA law.

Question 19

Characterization of Property –> Basic Rules of Characterization: Time of Acquisition

Answer 19

Characterization of property is determined by when it is acq’d.

• –> There are 3 points in time that we look at:
  (1) Before marriage
  (2) During marriage
  (3) After the date of separation

“Inception of title” is what we call the method by which we decide how to characterize property.
—> Under the “inception-of-title” method, the character of property is fixed as of the time the property is acq’d.

If property is acq’d (owned or claimed) BEFORE marriage or AFTER the date of SEPARATION, it is always SP.
—> If property is acq’d during marriage, you must always begin with the presumption it is CP.

Tracing is the means by which we can trace to the documentary evidence that shows how and when property was acq’d to get to characterization via inception-of-title.
—> Remember w/ earnings and creations, “acquisition” of that property is about when the labor was performed, not when the $ was received.

Question 20

Characterization of Property –> Basic Rules of Characterization: Manner of Acquisition

Answer 20

Characterization of property may also be determined by how it is acq’d.
—> This rule applies most often to property acq’d during marriage.

Property acq’d by GIFT, BEQUEST, DEVISE, or DESCENT is separate property.

If the property is obtained in exchange for SP, the asset acq’d is SP even if the acquisition occurred during the marriage bc it can be traced to a SP source of acquisition.

Labor performed during marriage is considered CP.

• –> It belongs to the marriage.
• –> Labor can be a source used to acq property during marriage.
• –> We often think of resources for acquisition of property as $, but remember, that labor (such as building and managing a business) is a community resource that can be used to acq property.

Question 21

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Generally

Answer 21

CA CP law uses evidentiary presumptions in the characterization process.

Question 22

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - The General Community Property Presumption

Answer 22

Except as otherwise provided by statute, all real and personal property ACQUIRED during marriage by a couple domiciled in the state of CA is presumed to be CP, no matter where it’s located.

• –> Moreover, property POSSESSED during marriage is also presumed to be acq’d during the marriage.
• –> The starting point for determining ownership.

Rebuttal
Absent a successful rebuttal of the CP presumption by the separate property proponent, the CP presumption will prevail.
—> The presumption in favor of CP must be rebutted by a POTE.

Tracing
Tracing the source of funds that were used to acq the asset during marriage and showing that those funds were separate property is a way to rebut the general CP presumption.

Separate Property
Includes all property:
(1) acq’d before marriage;
(2) after marriage by gift, bequest, devise or descent;
(3) the rents, issue, and profits of separate property; and
(4) acquired after the date of separation.

Question 23

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Presumptions When Title is in One Spouse’s Name and Tracing

Answer 23

Even when property is titled in one spouse’s name, the general CP presumption applies.
—> Property acq’d (or possessed) during marriage is presumed to be CP.

Important principles to remember regarding characterization of property titled in one spouse’s name:

(1) Property titled in one spouse’s name is treated differently from jointly titled property.
(2) Title in one spouse’s name does not defeat the CP presumption.
- –> It does not mean that the property is the separate property of that spouse.
(3) One spouse cannot appropriate CP by placing title in his or her name alone.

Tracing
Tracing to the funds used to acquire the property can be used to defeat the CP presumption.
—> Title in one spouse’s name may be evidence of a gift to that spouse or of a transmutation (change in character of the property).
—> Gifts and transmutations can take the form of:
(1) SP to CP
(2) SP to SP
(3) CP to SP

Caveat
For the protection of 3rd parties relying on real property records, there is a presumption that real property to which title is recorded or registered in the name of one spouse is his/her separate property, vis-à-vis a third-party lessee, purchaser, or encumbrancer in good faith w/o knowledge of the marriage relationship.

Question 24

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Presumptions for Property Held in Joint Title Forms (Generally)

Answer 24

When property is held in a joint title form, there are specialized rules that apply.

At divorce and for the purpose of dividing property, property acq’d in joint form is presumed to be CP.

• –> There are 4 ways that spouses can hold property in joint forms:
  1. Joint tenancy
  2. Tenants in common
  3. Community property
  4. Community property with right of survivorship

Question 25

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Presumptions for Property Held in Joint Title Forms (Joint Tenancy + Tenancy in Common)

Answer 25

The presumption that property acq’d in joint form is presumed to be CP only applies at divorce (death is a different story, at death, the form of title controls).

• –> Joint tenancy is a common form of property ownership among married couples in CA bc of the survivorship feature: if one title holder dies, the other title holder takes the whole property w/o having to go through probate.
• –> Joint tenancy is a form of separate property ownership: A joint tenant can unilaterally transfer his interest in a joint tenancy, but if he does so, then the joint tenancy is destroyed, it becomes a tenancy in common instead (this means the joint tenant title holder can sell, convey, or encumber his half of the property).

Question 26

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Presumptions for Property Held in Joint Title Forms (Community Property + CP w/ Right of Survivorship)

Answer 26

CP cannot be severed.
—> One spouse cannot transfer or encumber his 1/2 interest in the property without the consent of the other spouse because the law provides that both spouses must join in any sale, conveyance, or encumbrance on the property of longer than one year.

There is a difference with regard to creditors as well.

• –> Generally, the community estate is liable for any debts of either spouse, whether acq’d before or during marriage.
• –> In contrast, the separate property (ex. property held in joint tenancy) of a married person is not liable for a debt incurred by the person’s spouse before or during marriage.

With a pure Community Property title, the title holders can bequeath their 1/2 share to someone else.

• –> It does not have a survivorship feature.
• –> If one spouse dies, his or her interest must go through probate.
• –> Generally, spouses will devise their 1/2 interest to their spouse but that is not always the case.
• –> If the property passes in intestacy, then the decedent’s 1/2 share will go to the surviving spouse and the survivor will take the whole.

There is now a variation of the Community Property title, the Community Property with Right of Survivorship, that has a survivorship feature so that the property passes to the surviving spouse without the necessity of probate.

Question 27

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Presumptions for Property Held in Joint Title Forms (Defeating the Presumption)

Answer 27

Sometimes a spouse or spouses may want to defeat the CP presumption that arises at dissolution.
—> Under the law, if a couple acqs property in a joint form, like a Joint Tenancy, the Family Code presumes it is CP.

The presumption may be overcome by evidence indicating the spouses intend to hold the property under a different form of title, including either of the following:

(1) A clear statement in the deed or other documentary evidence of title that the property is separate property and not CP; OR
(2) Proof that the parties have made a written agreement that the property is separate property.

Mere tracing to a separate property source is not enough to overcome the CP presumption.
—> Taking title in joint form is an affirmative act that is inconsistent with maintaining any separate interest, thus there are more stringent req’ments to overcome the presumption.

Question 28

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Changes in the Law Affecting Title Presumptions: Lucas and Anti-Lucas (Generally)

Answer 28

Pre-1984
Is known as the era of easy transmutation, an oral or implied agreement is suff to rebut the form of title for property taken in joint tenancy.

Effective January 1, 1984
To rebut the CP presumption arising out of property titled in joint tenancy, the separatizer must provide:
(1) A clear statement in the deed that the property is separate property and not CP; OR
(2) Proof that the parties have made a written agreement that the property is separate property.

Pre-1987
Easy transmutation still applies to other forms of joint title (Tenancy in Common, and Community Property).
—> An oral or implied agreement is suff to rebut the form of title for property acquired up to January 1, 1987.

After January 1, 1987
To rebut the CP presumption arising out of other forms of jointly titled property, the separatizer must provide the clear statement in the deed or written agreement as discussed above.
—> If CP presumption is successfully rebutted, the property will be characterized according to the parties’ agreement.

Present Rule

• –> The presumption that ALL property acq’d in any form of joint title during marriage is CP may be rebutted by evidence indicating the spouses intend to hold the property under a different form of title, including either of the following:
  (1) A clear statement in the deed or other documentary evidence of title that the property is separate property and not CP; OR
  (2) Proof that the parties have made a written agreement that the property is separate property.
• –> Remember: When it comes to jointly titled property, mere tracing to a separate property source is not enough to overcome the CP presumption; taking title in joint form is an affirmative act that is inconsistent with maintaining any separate interest, thus more stringent reqments to overcome the presumption.

Question 29

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Changes in the Law Affecting Title Presumptions: Lucas and Anti-Lucas (Statutory Right to Reimbursement)

Answer 29

At divorce, a party shall be reimbursed for his/her separate property contributions to acquisition of CP to the extent he/she can trace the contribution to separate property sources.

The amount of the reimbursement is w/o:

(1) Interest;
(2) Adjustment for change in monetary value; and
(3) May not exceed the net value of the property at time of division.
- –> The reimbursement is treated like a no-interest loan to the community.

To assert a reimbursement claim, the separate property proponent must:

(1) Trace funds to a separate property source; and
(2) There cannot be a written waiver of reimbursement or have signed any writing that has the effect of a waiver.

Contributions include DIP:

(1) Down payments
(2) Improvements
(3) Principal payments on mortgage
- –> No reimbursement for separate property used to pay interest on mortgage, taxes, insurance, or maintenance.
- –> Why? Because those expenses are viewed as not contributing to the value of the property.
- –> Since this statute went into effect in January 1, 1984, courts have always construed the term “community property” w/in the statute to include only property that cannot otherwise be proven to be separate property.

Appreciation of the property remains CP.
—> Such appreciation is divided 50/50 upon dissolution.

If there is insufficient equity in a piece of CP to reimburse fully a spouse’s contribution of separate property used to acq the community asset, the ct may award the entire asset to the contributing spouse.

Question 30

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - Changes in the Law Affecting Title Presumptions: Lucas and Anti-Lucas (Reimbursement by Agreement [Lucas Rule])

Answer 30

Prior to 1984, reimbursement was only available if there is an agreement to that effect.
—> Otherwise, separate property funds are considered a gift to the community.

From January 1, 1984 on, a separate property contribution to the purchase of an entirely (100%) CP asset is presumed to be a loan from the separate property estate to the community and is reimbursable, dollar-for-dollar at divorce.
—> The presumption is rebuttable by proof that the separate property contributor intended to make a gift to the community.

Beginning January 1, 2005, the right of reimbursement was extended to cover separate property contributions to the other spouse’s separate property.
—> It is still treated as a no-interest loan.

Question 31

Characterization of Property –> Basic Rules of Characterization: Evidentiary Presumptions - The Married Woman’s Special Presumption

Answer 31

The only separate property presumption.
—> Applies in very limited circumstances: If property acquired prior to January 1, 1975, by a married woman in a written instrument, it is presumed to be her separate property.

Question 32

Characterization of Property –> Basic Rules of Characterization: Commingling and Tracing - Commingled Assets

Answer 32

In cases where properties become so intermingled that their source cannot be determined (most often the case with fungible items like cash in a bank account), separate funds may lose their separate character.

• –> However, merely commingling funds is not considered an automatic transmutation of separate property into community property.
• –> The source of the funds must be traceable.

However, if separate funds and community funds are so commingled that their origins cannot be traced; the entire asset will be regarded as CP.

Question 33

Characterization of Property –> Basic Rules of Characterization: Commingling and Tracing - Tracing (Generally)

Answer 33

There is a presumption that assets purchased with funds from a commingled bank account are purchased with community property.

To refute this presumption, a spouse can use two methods to trace the source of the funds: Exhaustion Method and Direct Tracing Method.

Question 34

Characterization of Property –> Basic Rules of Characterization: Commingling and Tracing - Tracing (Exhaustion Method)

Answer 34

This method relies on the FAMILY EXPENSE PRESUMPTION:

(1) Available CP funds are presumed to be used to pay for family expenses.
(2) SP funds are deemed to be used for family expenses only when CP funds have been exhausted.
(3) There is NO right to REIMBURSEMENT to separate estate for family expenses, unless the parties have agreed to such reimbursement.

Using the family expense presumption, a spouse shows that at the time of purchase, all CP funds had been exhausted to cover community living expenses.
—> Therefore, the purchase must have been made with separate funds.

Tracing must correlate to specific spending and cannot be done over a prolonged period of time.
—> Preferred method of tracing by cts, favors CP proponent.

Question 35

Characterization of Property –> Basic Rules of Characterization: Commingling and Tracing - Tracing (Direct Tracing Method)

Answer 35

The SP proponent attempts to identify w/ suff’ly accurate records the TIMING and AMOUNT of SP withdrawals from the commingled funds and tie it to the property acquisition in question.

• –> The spouse shows that, based on the timing of the deposit, there was a clear intent to use SP funds to acq the property.
• –> Adequate records are req’d and the method is strictly applied.
• –> An asset claimed as SP also can be traced back to its acquisition prior to marriage or to its receipt as a gift or inheritance.

Mutation
A term used for a change in the form of property w/o changing its character as separate or community.
—> Increases or decreases in value of property do not change the character of property.

Question 36

Characterization of Particular Assets –> Bank Accounts

Answer 36

Bank accounts are the prime example of commingled assets.
—> The rules of tracing apply.

Joint Bank Accounts
At divorce, the contributions to joint bank accounts are presumed to be CP.
—> Presumption can be overcome by:
(1) Tracing; or
(2) A written agreement by the spouses, separate from the deposit agreement, expressly providing that the sums on deposit are not to be CP.

Question 37

Characterization of Particular Assets –> Business Interests: Business Owned by One Spouse - Separate Property Business (Generally)

Answer 37

A business owned as SP by one of the spouses can occur in 1 of 2 ways:

(1) Separate property business started before the marriage.
(2) Started during the marriage w/ separate property funds.

In general, rents, issues, and profits from SP are SP.
—> But the time, effort and labor of a spouse during marriage is a community asset.

Profits
Profits generated by a SP business operated during marriage are produced by community efforts (efforts of one or both spouses while married) and community entitled to some interest in the business.
—> In this context the term profits is used to mean INCOME.
—> Income gained during marriage is CP.

Question 38

Characterization of Particular Assets –> Business Interests: Business Owned by One Spouse - Separate Property Business (Community Property Labor)

Answer 38

When CP labor is used to enhance the value of a SP business, the ct may apply 1 of 2 formulas (Pereira formula + Van Camp accounting approach) to calculate the CP interest in the appreciation of a business.

• –> The choice of test usually depending on whether separate capital or community labor was the CHIEF contributing factor.
• –> Cts may select whichever formula will achieve “substantial justice” between the parties.

PEREIRA
Reasonable rate of return-on-investment method: reimburses the separate estate for a return on the separate capital invested in the business and treats the remaining profits as CP.
—> (SP Investment) x (legal interest rate) x (years of business during marriage) = Separate property share
—> This is the method used when the owner-spouse’s labor is the major source of the increase in value.
—> Benefits the CP proponent by awarding greater amount of value and appreciation to community.

Van Camp
Gives the community a reasonable salary for the labors of the owner-spouse but awards the balance of the profit from the growth of the business to the separate property of the owner-spouse.
—> (Actual salary/Reasonable salary) x (years of business during marriage) – (any amounts paid for community expenses during years of business) = Community share
—> Cts are more likely to apply the Van Camp accounting approach when the increase in the value of the property is due to market forces or the nature of the capital, not labor of owner-spouse.
—> Generally benefits separate property proponent by awarding greater amount of value and appreciation to owner-spouse as separate property.

Question 39

Characterization of Particular Assets –> Business Interests: Jointly Owned/Community Business

Answer 39

Earnings from a jointly owned business during a marriage are presumptively CP.

If a community business is enhanced by separate labor, cts can reverse the Pereira/Van Camp formula to apportion enhanced value between separate and CP.
—> Ex: One or both spouses start a business during the marriage, then they separate. There is some time period between separation and dissolution. Ct will have to divvy up allocation of value of business based upon both what it was valued at while in the community and what the separate labor did to enhance the value after the economic community ended.

Simply invert the formulas
(1) Pereira
Initial investment x reasonable rate of return = community interest, remainder to separate property owner.
(2) Van Camp: Salary goes to separate property owner, remainder to community.

Question 40

Characterization of Particular Assets –> Business Interests: Jointly Owned/Community Business - Artistic Work

Answer 40

Any artistic work created by a spouse during the marriage, and any copyright obtained on such work, is CP.

Question 41

Characterization of Particular Assets –> Business Interests: Jointly Owned/Community Business - Business and Professional Goodwill

Answer 41

Difficult to define: It is an intangible asset that relates to reputation.

Cts use two different methods for valuing goodwill:

(1) Market sales valuation
- –> Goodwill is valued at the price it would command if the business were sold.
(2) Capitalization of past excess earnings
- –> Present value of a future stream of income that goodwill generates.

Characterization
Business and professional goodwill are considered CP if earned during the marriage.

Question 42

Characterization of Particular Assets –> Educational Degrees/Professional Licenses: Characterization

Answer 42

The value of an education and an educational degree is SP.

With the diploma goes the debt.

• –> Student loans incurred during marriage are assigned to student spouse without offset.
• –> Not considered part of community liabilities.
• –> Premarital loans also will be assigned to student spouse.

Question 43

Characterization of Particular Assets –> Educational Degrees/Professional Licenses: Reimbursement

Answer 43

Community will be reimbursed for community contributions made to the education or training of a party that “substantially enhances the earning capacity” of that party.

• –> Education or training done for “the love of learning” or that will not substantially enhance the earning capacity does not qualify for reimbursement to community.
• —-> Community contribution will be considered a gift.
• –> NOTE: Professional degrees, such as legal, medical, dental, and accounting degrees, are not presumed to result in a substantially enhanced earning capacity (have to establish this on case-by-case basis).

Community Contributions
Payments for education or repayment of premarital or marital student loans from community property- tuition, fees, books, supplies, transportation.
—> Does not include ordinary living expenses, but may include special living expenses related to education.

Interest
Interest is included.

Unjust Limitation
Reimbursement and loan assignment may be reduced or modified if “unjust.”

10-year Presumption:
It is presumed that the community has substantially benefited from its community contributions to education if they were made ten years or more prior to proceedings ending marital community.
—> Conversely, it is presumed that the community has not substantially benefited from such contributions if they were made less than ten years before proceedings ending marital community.

Question 44

Characterization of Particular Assets –> Stocks

Answer 44

Earnings on stocks are usually called dividends, and the terms “appreciation” or “capital gain” usually mean an increase in value.

Stocks owned in other corps are subject to a number of rules:

(1) Cash dividends on separately held stock are income, and therefore will be classified as separate property if paid during the marriage.
(2) Additionally, stock dividends or stock splits are considered an increase in value of the underlying stock and are classified as separate property if the stock is separately held.
(3) The capital gain from the sale of stocks represents the appreciation of the underlying asset and is separate if the stock is separately held.
- –> Similarly, any increase in value due to a merger, consolidation, or other change in corporate structure remains separate property.
(4) Any stock option or right to purchase additional shares associated with the ownership of stock remains the separate property of the SH spouse.
(5) Unvested stock options as an employee benefit may be treated as CP based on recitals in the stock agreements that the options are given for past services rendered during the marriage.

Question 45

Characterization of Particular Assets –> Stock Option Plans

Answer 45

Stock options are a form of compensation where an employee is given the option to purchase company stock at a certain price in the future.

• –> Similar to other forms of compensation, stock options are characterized as separate or CP based on when they become exercisable/vest.
• –> If the option vests during marriage, then it is CP.
• –> If the options are awarded during marriage but do not vest until after the divorce, the options are prorated based on the # of months from the date options were granted to the date of divorce divided by the # of months from the date the options were granted to the date the options became exercisable. This number is then multiplied by the number of options held.

As mentioned earlier, the community estate is terminated at the date of separation.

• –> So all earned income (including vested stock options) acq’d prior to the date of separation is CP, but if it is acq’d after the date of separation but before divorce is finalized, it will be separate property.
• –> The date of separation is a key event; the old rule required physical separation, but the new rule is that the date of separation is the date that there is a “complete and final break” in the marriage as evidenced by:
  (1) expression of intent to end the marriage by one spouse to the other, and
  (2) conduct consistent with the intent to end the marriage.

Question 46

Characterization of Particular Assets –> Retirement and Pension Benefits: In General

Answer 46

Retirement benefits are often the major asset owned at the dissolution of a marriage.
—> These benefits are CP to the extent that they were earned during marriage, regardless of whether vested or payable to the employee spouse after the divorce.

Retirement benefits earned during the marriage are CP bc they are a form of deferred compensation for income earned during the marriage.

Question 47

Characterization of Particular Assets –> Retirement and Pension Benefits: Valuation and Allocation

Answer 47

When benefits earned partly during marriage and in part before or after marriage, benefits must be allocated between community and separate property.
—> The ct must characterize the portion of the retirement benefits that is separate property and the portion that is CP.

Time Rule
Retirement benefits are calculated based on the time spent at the job.
—> Calculate how many years worked while married and how many years worked before/after marriage, and allocate benefits based on the time rule.

Contributions
Allocation based on amounts contributed while married compared to amount contributed while not married.
—> The separate property interest of the employee-spouse may be traced using the tracing and characterization principles that apply to other assets.

Options for unmatured benefits
Not yet eligible for payment.
—> Cts can retain jdx to supervise payments when retirement benefits are payable.
—> Present value of retirement benefits calculated and other spouse receives that amount upon divorce or assets of equal value.

Question 48

Characterization of Particular Assets –> Retirement and Pension Benefits: Refusal to Retire

Answer 48

If employee spouse continues to work past retirement age and retirement benefits have vested and matured, the ex-spouse is entitled to begin receiving his or her share.
—> Cannot refuse to retire as a way to deny benefits to your ex.

Question 49

Characterization of Particular Assets –> Retirement and Pension Benefits: Early/Enhanced Retirement Benefits

Answer 49

Even when such enhanced benefits are only offered and accepted after the end of the marital community, the non-employee ex-spouse is entitled to share in the enhanced benefits.

Question 50

Characterization of Particular Assets –> Disability Payments/Workers Compensation: Disability Pensions

Answer 50

Disability pensions designed to replace lost/reduced earning capacity should be characterized as CP to the extent that they are intended to replace lost earnings during marriage.

• –> To the extent that they compensate for future loss of earning capacity after the marriage is dissolved, disability pensions would be separate property.
• –> To the extent disability benefits may be compensating for pain and suffering, generally they would be separate property.

Military and veterans’ disability benefits are preempted by fed law from being distributed to anyone other than the military member.

Question 51

Characterization of Particular Assets –> Disability Payments/Workers Compensation: Workers’ Compensation Benefits and Disability Insurance

Answer 51

Workers’ compensation benefits and disability insurance payments similarly are CP to the extent that they compensate for lost earning capacity during marriage, but they are separate property to the extent that they replace earning capacity while the disabled or injured person is not married.

A lump-sum benefit or insurance proceeds received after divorce for an injury received during marriage should be apportioned between the community estate and the injured spouse’s separate estate in accordance with these principles.

Question 52

Characterization of Particular Assets –> Disability Payments/Workers Compensation: Election

Answer 52

Some situations enable a spouse to choose, if the disability allows them to retire, to classify the benefits as retirement or disability.

• –> Disability would be more likely classified as separate property.
• –> Retirement would be more likely classified as CP.
• –> Cts will not allow the insured spouse to choose disability over retirement if the sole reason is to cause a detriment to the community.

Question 53

Characterization of Particular Assets –> Disability Payments/Workers Compensation: Effect of Federal Law

Answer 53

Whether or not a particular fed pension or disability plan is subject to division at divorce is governed by the enabling legislation fed law preempts state law in this regard.

• –> Where CA CP laws would interfere with the uniform administration of a matter subject to ERISA, for instance, the state law is preempted.
• –> The right to receive Social Security benefits as controlled by fed law is not subject to division upon divorce.

Question 54

Characterization of Particular Assets –> Severance Pay

Answer 54

No clear rule- depends on how the payments are characterized.

• –> If the pay can be characterized as earned by the spouse while married- payment for services previously performed while married, will be characterized as CP.
• –> If benefits characterized as replacing future earnings (after end of marital community), characterized as separate property.

Question 55

Characterization of Particular Assets –> Life Insurance

Answer 55

A cash-value life insurance policy on the life of either spouse, paid for by community funds, is a CP asset subject to division upon dissolution of the marriage.
—> If the premiums were paid partly out of separate and partly out of community funds, the proceeds of a life insurance policy may be apportioned between the community and separate estates according to the ratio of the premiums paid from each estate.

Modern trends

(1) Whole life insurance policies
- –> Will be divided pro rata based on the # of premium payments.
(2) Term life insurance policies
- –> May be treated as a series of divisible Ks in which the final premium payment will dictate what the character will be (known as the Final Premium Rule).

Question 56

Characterization of Particular Assets –> Property Insurance

Answer 56

Two approaches for characterization

(1) Characterization of insurance follows the characterization of property covered by policy.
(2) Characterization of insurance follows the source of the payments for insurance policy.

Question 57

Characterization of Particular Assets –> Personal Injury Awards

Answer 57

Personal injury awards and settlements for CoAs arising before marriage are separate property, even if paid during marriage.

Personal injury awards and recoveries are generally characterized as CP if the CoA arose during the marriage.

• –> They will be characterized as separate property if the CoA for the damages arose:
  (1) After marriage (after the entry of a judgment for divorce or legal separation of the parties);
  (2) After the Date of Separation; or
  (3) As a result of the tortious conduct of the non-injured spouse.

If non-injured spouse paid the expenses resulting from the personal injury either from their separate property or from the CP, then that spouse is entitled to reimbursement from the damage award or settlement agreement.

Upon dissolution, even though personal injury recoveries are CP, a ct will generally assign damage awards to the injured party, as long as the award has not been commingled w/ CP funds.

• –> Ct can divide the award among spouses in the interests of justice. AND
• –> Injured spouse must still get at least 1/2 of the award.

Question 58

Characterization of Particular Assets –> Credit Acquisitions: “Intent of the Lender” Test

Answer 58

Using the “Intent of the Lender” test, characterization of property acq’d on credit is determined by what the lender is looking to for the repayment of the loan.
—> Did the lender look at separate property or CP?

When the lender relied on CP assets for repayment of the loan, the CP presumption is not rebutted and the property is characterized as CP.

Assets acq’d on credit during the marriage will be considered CP unless the creditor relied solely on separate property when extending credit.

CA Courts have applied two different approaches for applying the Intent of the Lender test:

(1) Test is whether creditor relied primarily on separate property- older case.
(2) Test is whether creditor relied solely on separate property- more recent case and thus, most current state of law.

Question 59

Characterization of Particular Assets –> Credit Acquisitions: Separate Property Loan/Community Property Repayment - Moore/Marsden Apportionment

Answer 59

“Moore/Marsden Apportionment” applies in a situation where a home is acq’d before marriage, title is in the name of the party who initially purchased the home (i.e., the separate property estate), and the mortgage was paid down w/ community funds during the marriage.
—> NOTE: Moore/Marsden apportionment applies even if the separate property owner/person that initially acquired the home, subsequently adds their spouse to the title after marriage.

By paying down the mortgage, the community estate acq’s a legal, reimbursable, interest in what would otherwise be the separate property of the titled spouse IF community funds (example, earnings during marriage) were used to pay the mortgage.

• –> In paying down the mortgage, CP funds are being used to benefit a separate property interest.
• –> To use CP funds to enrich one spouse’s separate property estate w/o compensation could be considered a misappropriation of community assets and a breach of fiduciary duty, so those CP funds are reimbursable.
• –> Thus, the law allows for the community estate to acq a proportional interest in the separate property estate to the extent that CP funds were used to pay down the principle on the home.

Any appreciation/increase in value, equity in the home, must also be apportioned between the separate and community property estates at dissolution.

• –> Important to remember that the calculation does not account for interest payments on the mortgage, home insurance, or property taxes.
• –> The community interest is based on the amount of principle that was paid down during the marriage.

A loan that was separate in its inception- down payment was separate property- may become partially community, requiring apportionment of the value of the asset, when community property payments reduce the principal balance of the loan.

• –> There is a calculation for this known as Moore/Marsden calculations.
• –> Effectively, acquisition of the asset is with both separate and community funds (paid in installments, paying off loan).

Question 60

Power to Manage the Community Estate –> Joint-Management of Community Property: Generally

Answer 60

Prior to 1975, husbands has sole management and control of CP.

• –> Now each spouse has equal power to manage and control the CP.
• –> Unless spouses provide otherwise by power of attorney in writing or other agreement.

Question 61

Power to Manage the Community Estate –> Joint-Management of Community Property: Making a Gift of Community Property

Answer 61

A spouse may not make a gift of the community personal property, or otherwise dispose of it w/o valuable consideration w/o the written consent of the other spouse.

• –> If a spouse makes a gift and the other did not consent, the non-consenting spouse will have the ability to ratify that gift OR revoke it and sue to recover the entire property.
• –> After death, the non-consenting spouse can act to void the gift up to 50% of the value (that is, for their one-half of the CP).

Question 62

Power to Manage the Community Estate –> Joint-Management of Community Property: Disposing of Community Property

Answer 62

This includes selling, conveying, or encumbering the community property real property.

Both spouses must join in any action to sell, convey, encumber, or lease for more than one year any of the community’s real property.

Consent Requirement
A spouse may not convey, sell, or encumber CP real property w/o the written consent of the other spouse.
—> The writing must comply with the SoF.
—> The ct may, upon motion by one spouse, dispense with the consent req/ment IF the proposed transaction is in the interest of the community AND consent is being arbitrarily withheld or is unobtainable due to physical or mental incapacity or a prolonged absence by the nonconsenting spouse.
—> When one spouse does not consent and the consent req’ment is not waived, that spouse can void the transaction.

Title in name of one spouse only
Remember that with regards to a transfer of such property to a 3rd-party, there is a presumption that the transfer is valid if the 3rd party acted in good faith and w/o knowledge of the marriage.
—> The non-consenting/non-title spouse only recourse is against spouse, not the 3rd party.

Question 63

Power to Manage the Community Estate –> Joint-Management of Community Property: Community Business

Answer 63

Primary management and control goes to the spouse actually operating and managing community business.

In this situation:
The managing spouse can act alone in transactions.
—> However, the managing spouse must provide prior written notice for major transactions.
—> If for some reason, there was a failure to notify, the validity of the transaction is not affected. The cause of action for that situation would be to bring a breach of fiduciary duty action.

Question 64

Power to Manage the Community Estate –> Fiduciary Duties Among Spouses (Generally)

Answer 64

As a matter of law, CA recognizes that a confidential relationship exists between spouses.

• –> This confidential relationship arises out of the marital state itself.
• –> The nature of the marriage K involves mutual obligations of respect, fidelity, and support.

Each spouse must act in good faith with respect to the other spouse in transactions between themselves and in the management and control of the community property, in accordance with the general rules that govern the actions of persons in fiduciary or confidential relationships.

• –> This duty imposes a requirement of “the highest good faith and fair dealing” on each spouse (neither may take unfair advantage of the other).
• –> This fiduciary relationship is subject to the same rights and duties as those of business partners under the Corporations Code, including a right to inspect any books or records kept with respect to the community property and accounting to the spouse for any benefit or profit derived from any transaction by one spouse without the consent of the other.
• –> Also includes the obligation to make full disclosure to the other spouse of the existence of assets in which the community has an interest, and of debts for which the community may be liable, upon request.

A rebuttable presumption of undue influence arises when one spouse obtains an advantage over the other in a community property transaction.

A grossly negligent and reckless investment of community funds is a breach of fiduciary duty.

A spouse has a claim for breach of fiduciary duties if their undivided, one-half interest in the community estate is impaired.

Question 65

Power to Manage the Community Estate –> Fiduciary Duties Among Spouses (Remedies for Breach of Duty)

Answer 65

(1) Forfeiture of CP interest or greater share awarded to the non-breaching spouse if fraud is proven by clear and convincing evidence.
- –> The remedy may be 100% of the value of the asset.
(2) Accounting.
(3) Addition of name to property title.
(4) Attorney’s fees.

Question 66

Liability for Marital and Premarital Debt –> Characterization of Debt

Answer 66

Debt
A debt is an obligation of either spouse (can be in tort, contract, other obligations, child/spousal support).
—> A debt is incurred at the time the contract is made, the tort occurs, or the obligation arises.

Classifications of non-tort debts:

(1) If the debt is incurred by one spouse before marriage: it remains the separate property debt of that spouse.
(2) If the debt is incurred during marriage, before separation: the debts are classified according to the intent of the lender test.
- –> The same rule applies for credit purchases.
- –> We look at where lender is looking for satisfaction of debt- separate property or community property- to characterize the debt.
(3) If the debt is incurred by a spouse during separation: then the debt is assigned to the spouse incurring them.

Question 67

Liability for Marital and Premarital Debt –> Liability of Community Estate

Answer 67

Pre-marital debts are treated differently than pre-marital assets, in that the community can be liable for these debts (even though they are considered separate property), regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.

Generally, the community estate is liable for a debt incurred by either spouse before or during marriage.
—> “During” marriage does not include time after the date of separation.

Earnings of a spouse can be shielded from other spouse’s premarital debt as long as the earnings are held in a deposit account in which the person’s spouse has no right of withdrawal and are not commingled with community property.
—> Quasi-community property is liable for debts in the same manner as community property.

Right of Reimbursement
As discussed previously, the community estate generally has a right of reimbursement for debts paid and in some other instances as well.

Question 68

Liability for Marital and Premarital Debt –> Liability of Spouse’s Separate Property (Personal Liability): Generally

Answer 68

Spouse’s separate property is liable for any debts incurred by that spouse, but not for debts incurred by the other spouse.

Question 69

Liability for Marital and Premarital Debt –> Liability of Spouse’s Separate Property (Personal Liability): Exception - Liability to Third Parties and the Doctrine of Necessaries

Answer 69

A spouse’s separate property is liable for the living expenses/necessaries of life for the other spouse during marriage and while they are living together and for “common necessaries” if they are living apart (after the date of separation).

Third parties providing “necessaries of life” to one spouse can recover the reasonable value of necessaries from other spouse’s separate property if community property is not sufficient to cover expenses.

Question 70

Liability for Marital and Premarital Debt –> Liability of Spouse’s Separate Property (Personal Liability): Tort Liability

Answer 70

The tort was incurred for benefit of community:

• –> Creditor must first go after community property.
• –> Then go after separate property of tortfeasor spouse.

If the tort was not incurred for benefit of community:

• –> Creditor must first go after separate property of tortfeasor spouse.
• –> Then go after community property.

Creditor cannot go after the separate property of non-tortfeasor spouse in either case.

Benefit of Community
Hard to define- some things clearly go to the benefit of the community such as going to work.
—> Some things clearly do not, such as committing crime or adultery.
—> Many things all somewhere in between.
—> This is a fact-sensitive analysis.
—> If presented with this issue, make sure to state reasons why an activity can or cannot be considered for economic benefit of community.

Spouse v. Spouse
If one spouse negligently or wrongfully injures the other spouse, the community property may not be used to discharge the liability of the tortfeasor spouse to the injured spouse until the separate, non-exempt property of the tortfeasor spouse is exhausted.

Question 71

Liability for Marital and Premarital Debt –> Post-Divorce Rights of Creditors

Answer 71

A creditor’s rights are not extinguished by a divorce.

• –> A creditor can reach any assets after divorce that could have been reached during the marriage, such as certain contractual and tortious liabilities.
• –> However, to reach property awarded to one spouse in the divorce, the creditor must sue that spouse individually.
• –> A judgment against an ex-spouse cannot be enforced to recover property awarded to the other spouse.

Question 72

Liability for Marital and Premarital Debt –> Reimbursement: Separate Property Contributions to Community Property

Answer 72

Reimbursement for contributions include:

(1) down payments;
(2) payments for acquisition or improvement; and
(3) payments reducing the principal of a loan financing the purchase or improvement.

It does not include:

(1) interest;
(2) maintenance;
(3) insurance; or
(4) property taxes.

Prior to 1984, presumed gift.
—> No reimbursement available unless parties had such an agreement.

Question 73

Liability for Marital and Premarital Debt –> Reimbursement: Community Property Used to Improve Own Separate Property

Answer 73

If other spouse did not consent, then there is a breach of fiduciary duty between spouses and community has right to reimbursement.
—> Community is entitled to reimbursement for either the value of community property funds expended or the enhanced value of the separate property, whichever is greater.

If other spouse consents, no reimbursement under traditional rule.
—> Remember, under modern rule as of 1/1/2005: Right to reimbursement.

Question 74

Liability for Marital and Premarital Debt –> Reimbursement: Community Property Used to Improve Other Spouse’s Separate Property

Answer 74

Traditionally, presumed to be a gift.
—> Presumption could be rebutted by agreement for reimbursement.

Modern approach after 1/1/2005
—> Right to reimbursement.

Most likely the community is entitled to a reimbursement for community property funds expended but it is possible to argue community should share in enhanced value of separate property.

Question 75

Liability for Marital and Premarital Debt –> Reimbursement: Separate Property Used to Improve Other Spouse’s Separate Property

Answer 75

Traditionally, presumed to be a gift.

Modern approach after 1/1/2005: Right to reimbursement.

Question 76

Liability for Marital and Premarital Debt –> Reimbursement: Community Efforts/Funds Causing Separate Corporation to Appreciate

Answer 76

If a spouse owned an incorporated business before marriage, under inception-of-title rules, the business is separate property.
—> If spouse’s labor increased the value of the business during the marriage, business is still separate property, but the community has a claim of reimbursement for spouse’s time, toil, and talent used to increase the value of the incorporated business.

Reimbursement
If the owner of a separate corporation spends more than a reasonable amount of time maintaining and improving his business, the proper remedy is not to award the community some ownership interest in the business, but to give the community a right of reimbursement.
—> The measure of this reimbursement is the value of the services performed (cost), not the enhanced value of the corporate stock (enhancement).

Question 77

Liability for Marital and Premarital Debt –> Reimbursement: Debts

Answer 77

As discussed above, community property is also responsible for premarital debts of the other spouse, even though they are separate debts.

• –> If property exists that may be better suited to satisfy that debt, community will be reimbursed.
• –> If community pays for separate debt but there was separate property available, community is reimbursed.

Question 78

Changing Character of Property By Agreement –> Generally

Answer 78

Spouses can change character of property by agreement, thus, opting out of California community property rules in two ways:

(1) First, globally, by premarital agreement.
(2) Second, on an asset-by-asset basis by making a deal to control the character of a particular asset via transmutation.

Question 79

Changing Character of Property By Agreement –> Premarital Agreements: General

Answer 79

Premarital agreements (PMAs) are also known as antenuptial agreements or prenuptial agreements.

• –> A PMA is an agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage.
• –> PMAs generally must abide by contract law, but consideration is not required.
• –> If properly executed, a couple can use a PMA to alter the rights and obligations of each of the parties: in any property of either or both of them, whenever and wherever acquired or located, as well as their rights to manage such properties.

PMAs made on or after January 1, 1986 must be:

(1) in writing; and
(2) signed by both parties.

PMAs made on or after January 1, 1986 may only be amended or revoked by written agreement signed by parties.

PMAs include a writing requirement and is also subject to most Statute of Frauds exceptions (promissory estoppel, partial performance).
—> For example, “partial performance” is sufficient to get around writing requirement if a party “irretrievably” changed position based on the PMA.

Question 80

Changing Character of Property By Agreement –> Premarital Agreements: What May Parties Contract

Answer 80

Parties to a PMA may K with respect to almost anything:

(1) the rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located;
(2) the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property;
(3) the right to the disposition of property upon separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event;
(4) the modification or elimination of alimony or support or maintenance of a spouse;
(5) the making of a will, trust, or other arrangement to carry out the provisions of the agreement;
(6) the ownership rights in and disposition of the death benefit from a life insurance policy;
(7) the choice of law governing the construction of the agreement.

Exceptions (inapprop topics)

(1) Against public policy or illegal.
(2) A waiver of child support.
- –> *Can: waive spousal support.

Question 81

Changing Character of Property By Agreement –> Premarital Agreements: Spousal Support

Answer 81

Provisions regarding spousal support may not be enforceable if:

(1) No lawyer
Any provision in a PMA involving spousal support (like a waiver of spousal support) is not enforceable if the party against whom enforcement of spousal support is sought -that is the person who is giving it up- did not have independent counsel (a lawyer), at the time the agreement with the spousal support provision was signed.

(2) Unconscionable
Provisions involving spousal support may not be enforceable if the provision is unconscionable at the time of enforcement.

(3) Other reasons
Just because the person against whom enforcement is sought (the person waiving support), had independent counsel at the time he or she signed it, it doesn’t mean the provision is enforceable; there could be other reasons deeming it unenforceable.

Question 82

Changing Character of Property By Agreement –> Premarital Agreements: Unenforceable Agreements - Unconscionability and Voluntariness (General)

Answer 82

A PMA is not enforceable if the party resisting enforcement proves either of the following:

(1) Party did not execute the agreement voluntarily; or
(2) The agreement was unconscionable when it was executed and before execution of the PMA, IF all of the following applied:
- –> The party was not provided a fair, reasonable, and full disclosure of the property or financial obligations of the other party;
- –> The party did not waive, in writing, any right to the disclosure of the property or financial obligations of the other party;
- –> The party could not have, or reasonably could not have, an adequate knowledge of the property or financial obligations of the other party

Question 83

Changing Character of Property By Agreement –> Premarital Agreements: Unenforceable Agreements - Unconscionability and Voluntariness (Determining Voluntariness)

Answer 83

A court must find all of the following:
Had a lawyer and at least 7 calendar days to consider the final agreement.
—> Specifically, the party against whom enforcement is sought was represented by independent legal counsel at the time of signing the agreement OR after being advised to seek independent counsel, expressly waived, in writing, representation by independent legal counsel.

The advisement to seek independent legal counsel must be made at least seven (7) days before the final agreement is signed. AND

• –> For agreements executed between January 1, 2002 and January 1, 2020, the party resisting enforcement had at least seven (7) calendar days from the time the party was first presented with the final agreement and advised to seek independent legal counsel and the time the agreement was signed.
• –> For agreements executed on or after January 1, 2020, the party resisting enforcement had at least seven (7) calendar days between the time the party was first presented with the final agreement and the time the agreement was signed, regardless of whether the party is represented by legal counsel. *So even if the party resisting enforcement had legal counsel, there still needs to be that 7 day waiting period before presentation of the final agreement and signing it after January 1, 2020.

If the party resisting enforcement was not represented by legal counsel, then the party must have been fully informed of the terms and basic effect of the agreement as well as the rights and obligations the party was giving up by signing the agreement. AND

• –> The party resisting enforcement must be proficient in the language in which the explanation of the party’s rights was conducted and in which the agreement is written. AND
• –> The explanation of the rights and obligations relinquished must be in writing and delivered to the party before signing the agreement. AND
• –> The unrepresented party shall execute a document declaring that the party received this information and who provided it.
• –> This document must be executed before or at the signing of the PMA.

The PMA and other documents must not have been executed under duress, fraud, or undue influence, and the parties did not lack capacity to enter into the agreement.
—> Any other factors the court deems relevant.

Question 84

Changing Character of Property By Agreement –> Marital Agreements / Transmutations

Answer 84

What is a transmutation?
It is an agreement whereby the spouses agree to change the character of a particular asset.

Before 1985
Transmutations could be oral or written, by express or implied agreement.

After January 1, 1985

(1) Transmutation must be in writing;
- –> Usual exceptions to Statute of Frauds do not apply (estoppel, partial performance).
(2) A transmutation must be signed by spouse whose interest is adversely affected;
(3) The transmutation must include an express declaration- must explicitly state a change in characterization ownership interests is being made.

Relevant date to determine which rule applies (pre 1985/after 1985) is the date of the alleged transmutation, not the date of the acquisition of the property.

• –> Applies to all transmutations.
• –> Remember, there are several kinds of transmutations:
  (1) CP –> SP;
  (2) SP –> CP;
  (3) SP –> SP.

Transmutation does not require consideration.

Gift Exclusion
Exception to writing requirement for gifts between spouses.
—> The gift must be of tangible personal property and for the personal use of the recipient spouse; and
—> The gift must not be of substantial value as measured against the lifestyle of the parties.

Statement in a Will
If a statement in a will includes an express declaration changing the character of property, a statement in a will can effect transmutation.
—> Limitation: The will is not admissible as evidence of transmutation before death of spouse who made the will (that means it can’t be used in a divorce proceeding).

Other Estate Planning Documents (Trust)
Trust documents can be used as evidence of a written statement to effect transmutation.
—> Must have express declaration about changing character of property.
—> Simply adding property to a trust will not suffice.
—> Does not have the same limitation as wills: since wills are only effective upon death, while trusts and other estate planning documents have effects and advantages before death (that means they can be used as evidence of transmutation in divorce proceedings).

Contractual Agreements and Fiduciary Duties
Always remember to consider spouses’ fiduciary duties to one another.
—> With a transmutation, you must have a situation where there is not an unfair advantage.
—> Presumption of undue influence will arise where there is an unfair advantage.
—> The advantage must be an unfair advantage, not just an advantage.

Third party creditors
Transmutation agreements cannot be used to defraud or elude creditors.

Question 85

Effects of Divorce –> End of Marriage Community

Answer 85

Marriage community begins with marriage and ends at the date of separation; the date that a complete and final break in the marital relationship has occurred.

• –> Evidenced by both of the following:
  (1) one spouse has expressed an intent to end the marriage to the other spouse; AND
  (2) the conduct of the spouse is consistent with the intent to end the marriage.
• –> All relevant evidence will be considered.

Previously the standard was “living separate and apart.”

• –> Even though the standard is now date of separation as detailed above, it is recommended that you mention the change in the law and evaluate facts according to the “living separate and apart” standard as well.
• –> Factors that show that a couple is living separate and apart or conduct keeping with the intent to break up include: moving out, ceasing sexual relations, planning for divorce or filing for divorce may all be examples of a couple living “separate and apart.”

It is critical to establish the date of separation because all property acquired after the date of separation is considered separate property.
—> It is not the date of final divorce; it is date of separation that ends marital community and the community property presumptions stop applying.

Question 86

Effects of Divorce –> Division of Property at Divorce

Answer 86

Do not use the term “equitable distribution.” This is something different. It is equal division of assets- 50/50.

A divorce may be obtained for the following causes:

(1) Irreconcilable differences causing the irremediable breakdown of the marriage; OR
(2) Incurable insanity.

A fiduciary obligation to the other spouse continues until the property is divided, regardless of how long after separation or dissolution the division occurs.

Equal Division
In the absence of parties’ agreement about division of assets, community property is divided 50-50, regardless of fault.
---> Exceptions:
(1) Misappropriation;
(2) Economic fraud; or 
(3) Breach of fiduciary duty.

Generally, this means each and every community asset and debt is divided equally:

(1) Personal Injury Award: Characterized as community property but on divorce is awarded to injured spouse, unless interests of justice require otherwise.
(2) Economic Circumstances Exception: Can have non-pro rate division, giving particular asset to one spouse and other spouse receives value of 50% of asset. Examples include:
- –> Awarding one spouse the family home to allow spouse and children to stay in family home.
- –> Closely-held corporation: Where one spouse works at corp., allow that spouse to keep all stock.
- –> Pensions: Value of assets is divided, not necessarily the physical asset itself.

Quasi-community property also divided 50/50.

• –> California might not have jurisdiction over real property located out of state.
• –> Parties may be ordered to execute conveyances or change things so as to give the money value of the interest in the property that would have been conveyed to the other spouse.

Quasi-marital property divided according to community property principles set forth here.

Also, note that family law courts do not have jurisdiction over separate property.

Question 87

Effects of Divorce –> Time of Valuation: When Should Assets be Valued?

Answer 87

General rule: Assets are valued at the time of trial for purposes of determining an equal division.

But upon good cause shown…
The court may value all or any portion of the assets and liabilities at a date after separation and before trial to accomplish an equal division of the community estate in an equitable manner.
—> Sometimes a spouse may, in bad-faith, lay waste to a community asset such as a business because they would rather run it into the ground instead of sharing with their spouse.

Question 88

Effects of Divorce –> Debts

Answer 88

As discussed above, community property is also responsible for premarital debts of the other spouse, even though they are separate debts.

Upon divorce, court will characterize debt as separate or community and then divide.

Some debts excluded from division at divorce:

(1) Educational loans assigned to student spouse.
(2) Liability for tort not incurred for benefit of community, liability assigned to tortfeasor without offset- meaning debt will be excluded from community property.

Generally, debts are allocated based on when they are acquired.

• –> Debts incurred before marriage belong to spouse who incurred debt, without offset.
• –> Debts incurred during marriage and before separation- characterized as either community or separate.
• —–> Community debts divided equally.
• —–> Separate debts assigned to spouse who incurred debt, without offset (characterized as separate if not incurred for benefit of community).

Debts incurred after separation are generally assigned to spouse that incurred debt, without offset.
—> Debts for common necessaries (basic necessities of life) or necessaries of life (include items necessary for station in life) are assigned based on parties’ needs and ability to pay at time debt was incurred.

Debts exceed assets
Excess debt divided equally between parties, taking into account each party’s ability to pay.

Question 89

Effects of Divorce –> Tax Consequences

Answer 89

Property transfers between spouses due to divorce are not taxable events.

Question 90

Effects of Death –> Partition of Community Property

Answer 90

Upon the death of either spouse, an undivided one-half interest in the community property is the property of the surviving spouse and is his or her sole separate property.
—> The surviving spouse also maintains control over their one-half share of the community.

Question 91

Effects of Death –> Disposition by Intestacy

Answer 91

Community Property
If the decedent leaves a surviving spouse: surviving spouse gets one-half of decedent’s CP and already has other one-half as their CP. So gets ALL CP.

Separate Property:
If the decedent leaves a surviving spouse and no other heir: all SP to surviving spouse.
—> If the decedent leaves a surviving spouse and only one child, or the lawful issue of one child, SP goes: one-half to the surviving spouse and one-half to the child or the issue of the child.

If the decedent leaves a surviving spouse and more than one child living, or a child and the lawful issue of one or more deceased children, the SP goes: one-third to the surviving spouse and the remainder in equal shares to the children and the lawful issue of any deceased child by right of representation.

For more on intestacy, review section in Wills materials.

Question 92

Effects of Death –> Disposition by Will

Answer 92

Disposition of Property
When the decedent leaves a valid will, their separate property and their one-half interest in community property passes under their will.

Question 93

Effects of Death –> Surviving Spouse Election

Answer 93

If spouse attempts to devise surviving spouse’s share of the community property, the election forces the surviving spouse to take either under the will or against the will - under the community property system. Cannot take under both.
—> Spouse will generally elect whichever is more beneficial and provides higher value of assets.

Question 94

Effects of Death –> Putative Spouse

Answer 94

A putative spouse is treated the same as a legal spouse with respect to succession to the decedent’s separate property and quasi-marital property.

Question 95

Effects of Death –> Quasi-Community Property

Answer 95

If spouse is not on the title of property, spouse cannot dispose of quasi-community property in the will.

• –> Without one’s name on the title, the interest in quasi-community property is only an expectancy until the parties divorce or the titled spouse dies.
• –> Titled spouse can dispose of one-half of the quasi-community property by will.

Question 96

Effects of Death –> Joint Tenancy Property

Answer 96

At death, joint tenancy property passes according to title presumption to surviving joint tenants.

Question 97

Effects of Death –> Community Property w/ Right of Survivorship

Answer 97

At death, property passes according to title presumption to surviving spouse.

• –> Assures surviving spouse of ownership of entire property if the other spouse dies.
• –> Same beneficial tax treatment as traditional community property.

Question 98

Effects of Death –> Liability of Community Property for Debts

Answer 98

Debts incurred by decedent spouse are characterized as separate or community debt.
—> Separate property debt paid from separate property assets; community property debt paid from community property assets.