CA Community Property Flashcards

Question

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

Answer 1

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).

Answer 2

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.

Answer 3

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.

Answer 4

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.

Answer 5

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.

Answer 6

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.

Answer 7

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.

Answer 8

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.

Answer 9

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.

Answer 10

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.

Answer 11

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.

Answer 12

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.

Answer 13

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.

Answer 14

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.

Answer 15

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.

Answer 16

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

Answer 17

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.

Answer 18

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.

Answer 19

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.

Answer 20

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.

Answer 21

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.

Answer 22

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.

Answer 23

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.

Answer 24

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.

Answer 25

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.

Answer 26

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.

Answer 27

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.

Answer 28

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.

Answer 29

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.

Answer 30

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.

Answer 31

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).

Answer 32

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.

Answer 33

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.

Answer 34

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.

Answer 35

“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).

Answer 36

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.

Answer 37

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).

Answer 38

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.

Answer 39

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.

Answer 40

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.

Answer 41

(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.

Answer 42

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.

Answer 43

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.

Answer 44

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

Answer 45

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.

Answer 46

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.

Answer 47

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.

Answer 48

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.

Answer 49

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.

Answer 50

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.

Answer 51

Traditionally, presumed to be a gift. Modern approach after 1/1/2005: Right to reimbursement.

Answer 52

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).

Answer 53

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.

Answer 54

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.

Answer 55

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.

Answer 56

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.

Answer 57

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.

Answer 58

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

Answer 59

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.

Answer 60

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.

Answer 61

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.

Answer 62

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.

Answer 63

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.

Answer 64

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.

Answer 65

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

Answer 66

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.

Answer 67

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.

Answer 68

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.

Answer 69

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.

Answer 70

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.

Answer 71

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.

Answer 72

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

Answer 73

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.

Answer 74

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.