CA Community Property Flashcards
Assertions for Introduction of Community Property Essay
1. California is a CP state.
2. There is a presumption that all assets acquired during marriage are community property.
3. Assets that are not classified as CP are separate property (SP)
4. Separate Property = (a) property owned before mariage, (b) property acquired by inheritance or gift, (c) property acquired with separate funds, or (d) “rents, issues, and profits” earned from SP.
Factors Used to Characterize Assets
In characterizing assets as community property or separate property, courts look to three factors:
- The source of the asset,
- Any actions that may have altered the character of the asset, AND
- Any statutory presumption that may apply to a particular asset.
Community Property Presumption + Exceptions
CP Presumption = all assets acquired during the marriage are presumptively CP.
- Without a showing of an existing agreement, property acquired during the marriage is CP and the burden of proof is on the party contending the characterization of CP.
Exceptions to CP Presumption
- Statutory facts, e.g., the property was acquired by will; the property can be traced back to an SP source, OR
- Agreement between the parties that the property would not be treated as CP, OR
- Both spouses knowingly took title jointly in a form other than CP (e.g., property taken in joint tenancy with a collateral written agreement that the property was not CP).
Title Presumption Rule
When an asset is acquired during marriage and titled in one spouse’s name, the unnamed spouse obtains an equitable ownership in the acquisition.
Creation and Conclusion of Marital Economic Community
Marital Economic Community = begins at marriage and ends upon the death of the spouse or the date of separation.
Date of Separation: 2-Part Showing
- Intent not to resume the marital relation (unilateral intent is kosher), AND
- There is conduct consistent with the intent to separation.
General Rule re: Allocation of CP at Divorce
In general, community property must be divided equally and each asset and liability must be divided equally.
General Exceptions to Rule re: 50/50 Allocation at Divorce
Family Residence: (e.g., W gets house and H gets other assets of comparable value).
Close Corporation: (e.g., W gets shares of company and H gets other assets of comparable value)
Pension Benefits: (e.g., H gets entire pension, wife gets other assets of comparable value)
Economic Circumstances: where economic circumstances warrant, a court can make a non-pro rata division to effect substantially equal division of the community estate; a court may give a particular whole asset to one spouse, and cash the other out so that each gets 50% value of the estate.
Statutory Exceptions to Rule re: 50/50 Allocation at Divorce
Misappropriation of CP: one spouse may end up with more than 50% of the CP is the other spouse misappropriates CP during marriage or divorce process.
Education Debt: usually not assignable as CP upon divorce; the debtor assumes it all (and the other spouse may be reimbursed under certain conditions).
Tort Liability: W is not liable for the tort liability of H if the liability is not based on activity for the benefit of the community .
Negative Community: when liabilities exceed assets.
Rule re: Unauthorized Inter Vivos Gifts of CP
One spouse may not make an inter vivos gift of CP without written consent from the other spouse. If the unauthorized inter vivos gift was not voided by the non-conseting spouse during the donor spouse’s lifetime, then the gift is treated as a valid testamentary transfer of the donor’s 50% interest in the CP.
Exception – US Savings Bonds federal law trumps state law, and thus, this rule does not apply to U.S. savings bonds.
General Rule re: Testamentary Gifts of CP
A married person may transfer HALF of the CP and ALL of their SP by will; the surviving spouse owns the other 50% of the CP.
Testamentary Gifts: Survivor’s Duty to Elect
Rule: a testator may insert a clause in their will (“no election clause”) that states that the surviving spouse must either elect to take under the will or assert their rights to CP.
- If No Election Clause: the surviving spouse may assert BOTH CP rights and rights under the will unless doing so would upset the testamentary plan of the deceased spouse.
- Widow’s Election: if there is an election clause in the will, the surviving spouse must choose between the rights and interests conferred by will OR their 50% interest in CP proceeds.
Testamentary Gifts: Designation of Third-Party Beneficiary of Insurance Policy
A community funded life insurance policy = CP
If someone other than the surviving spouse is named as the beneficiary under the plan, the deceased spouse made a testamentary transfer to a third-party beneficiary of their 50% interest in CP insurance proceeds.
Characterization of Assets Obtained on Credit During Marriage
General Rule: funds borrowed and assets attained during the marriage are generally deemed CP, however the primary interest of the lender may rebut this default presumption.
Primary Interest of Lender: a showing that the lender is looking at the satisfaction of debt from one party specifically may rebut presumption of CP.
- Example - loan is backed by land that is SP; loan is therefore SP.
- Example - however, if loan was issued because of W’s creditworthiness, the loan is CP (because the personal credit of either spouse during marriage is deemed CP based on earning capacity).
Confidential Nature of Marital Relationships
A relationship between spouses raises a fiduciary duty that requires good faith and fair dealing.
- Presumption of Undue Influence: arises when one spouse gains an advantage; that spouse has the burden of proof to show that she did not breach her fiduciary duty.
- Gross Negligence with Funds: Gross negligent or reckless investment breaches duty.
General Rule re: Altering Character of Assets by Agreement
Parties can opt out of the CP and SP characterizations by agreement, either as to particular assets, or as to all acquisitions; agreements can be made:
- Before marriage (and thus governed by the Uniform Premarital Agreement Act), OR
- During the marriage.
Transmutation
Transmutation = when the character of an asset is changed; can occur either by gift or by agreement.
- No consideration required for transmutation or agreement prior to marriage.
General Rules re: Pre-Marital Agreements
General Rule: the agreement must be in writing and signed by both parties.
* Exceptions: (a) where agreement is executed by sufficient performance (e.g., H promised to assign W as sole beneficiary of life insurance policy and did so), OR (b) detrimental reliance (promisor is estopped from asserting SOF because promisee relied to their detriment on the oral pre-marital agreement).
Pre-Marital Agreements: Involuntary Signing
A DEFENSE.to enforcement of premarital agreement.
Rule: the signing of premarital agreements are PRESUMED INVOLUNTARY (if involuntary, unenforcable) absent a showing that the party challenging the agreement was:
- Represented by counsel OR waived that right in writing,
- Was given at least 7 DAYS to review and sign the agreement, AND
- If not represented, a showing that the unrepresented party was fully informed in writing of the terms and effect of the agreement. The party must execute declaration that they received this information.
Pre-Marital Agreements & Unconscionability
A DEFENSE to the enforcement of a premarital agreement.
There are two types of unconscionability:
Spousal Support: A provision in a premarital agreement regarding spousal support is unenforceable on one of two grounds:
- The party challenging the agreement was not represented by independent legal counsel at the time it was signed, OR
- The provision is unconscionable at time of enforcement (even if the party had independent legal counsel at the time of signing).
Other Agreements: agreement about matters other than spousal support is unenforceable if it was unconscionable when made, AND
- A full and fair disclosure of other party’s property or financial obligations WERE NOT MADE,
- The right to disclosure was not waived in writing, and
- The party challenging did not have adequate knowledge of the other party’s property or financial circumstances.
Transmutations: Express Writing Requirement
BEFORE 1985: oral transmutations were permitted, whether by express agreement or agreement-in-fact.
AFTER 1985: a transmutation must:
- Be made in writing,
- Expressly declare a change in the ownership of property is being made, AND
- Have the consent of the spouse whose interest is adversely affected.
Marriage of Lucas Rule
Marriage of Lucas: 1980s case that held that when spouses take title as joint tenants, the property is presumptively CP.
Rule: absent a showing of a contrary agreement, a contributing spouse that took title as a joint tenant with their spouse has no separate ownership interest and no no claim for reimbursement
Note: Lucas applies when a spouse dies.
Anti-Lucas Statute: Ownership
For purposes of division of property acquired during marriage in joint and equal form is presumptively CP and is subject to equal division on divorce, HOWEVER, the CP presumption may be rebutted by:
- An express statement in the deed or other legal document of title that the property or a portion of it is SP, OR
- A written agreement between the parties that designates the property as SP.
Anti-Lucas Statute: Reimbursement
For purposes of division upon divorce, a spouse who made contributions of SP to the acquisition or improvement of SP is entitled to reimbursement without interest for contributions to down payments, improvements, or payments going to the principal on the mortgage (DIP).
There is NO RIGHT to reimbursement used to pay:
– Interest on mortgage
– Taxes
– Maintenance
Community Funds Used to Improve Spouse’s Own SP
If a spouse expends CP to improve their own SP (“feathering their own nest”), the community has a reimbursement claim for the greater of the cost of improvements or the enhanced value.
- When the asset is realty, this situation is governed by the real property doctrine of fixtures: The improvements become part of the property.
Community Funds Used to Improve Other Spouse’s SP
If a spouse expends CP to improve the other’s SP, there is a split of authority on whether there is reimbursement or not.
Traditionally: a gift was presumed when the spouse uses CP to improve other spouse’s SP; the presumption can only be overcome with evidence of an agreement to reimburse.
- The terms of the agreement control the amount of the reimbursement; if the agreement does not specify the amount, the reimbursable amount is the cost of improvement.
Modern Departure: several appellate courts have rejected the no-reimbursement rule and reimbursed the community even absent a reimbursement agreement.
Spouse’s SP Used to Acquire or Improve Other Spouse’s SP
If a spouse expends SP to improve the other spouse’s SP, the contributing spouse is entitled to reimbursement.
Commingled Bank Accounts
General Rule
General Rule: the mere fact that SP funds are commingled with CP funds does not transform or transmute the SP or CP.
Commingled Bank Accounts: Governing Presumptions & Rebuttals
Family Expense Presumption: expenditures for the family are presumed to be made with community funds, even if separate funds were also available.
Gift to Community: absent evidence of a reimbursement agreement, a gift is presumed when separate funds are used to pay family expenses (therefore party is not entitled to reimbursement.
Rebuttals
* Exhaustion Method: showing that when asset was acquired, all community funds had been exhausted, and therefore, asset was purchased with separate funds.
- Direct Tracing: showing that when asset was purchased, separate funds were available and the spouse intended to use those funds to acquire SP.
Division of Business Assets Owned Before Marriage & Increase in Value During Marriage
When community labor is used to enhance the value of a SP business, the community is entitled to share in the increased value of the SP.
Van Camp vs. Pereira
Division of Pension Benefits Upon End of Marital Community
General Rule: both vested and unvested retirement pensions are CP to the extent that the right to benefits was earned during marriage; it is immaterial that benefits are in fact received after divorce.
Proration Used to Apportion Pension Benefits (“THE TIME RULE”): used to apportion separate and communal property interests of a pension earned both during and after the marriage.
- Time Rule= Years of Employment While Married / Total Years of Employment Before Retirement
Division of Educational Expenses
General Rule
Rule:educational/professional training acquired during marriage are not treated as divisibile property upon divorce UNLESS there exists an agreement to the contrary.
There is an equitable right to reimbursement when:
- Community funds are used to pay for education or repay a loan related, AND
- The education/training substantially enhances the earning capacity of the spouse.
Equitable Defenses to Duty to Reimburse for Educational Expenses
The reimbursement duty may be rebutted by showing:
- The community substantially benefitted from the education or training (which is presumed if more than 10 years have passed since the degree was awarded)
- The other spouse has received community-funded education, OR
- The need for spousal support is reduced as a result of the education or training.
Creditor’s Rights
General Rule
Rule: a creditor may reach any property over which the debtor has legal right of management and control, including CP.
- QCP = for purposes of creditors’ rights, treated as CP
- SP =one spouse’s SP cannot be reached to satisfy the other spouse’s separate debt (spouses are not personally liable for the debt of the other spouse).
Doctrine of Necessities
Exception to rules governing creditors’ rights to spouse’s assets
Doctrine of Necessities = each spouse has a duty to support the other spouse and minor children; each spouse is personally liable for the other spouse’s contracts for necessaries, including food, clothing, and medical bills.
- If CP funds are available, a spouse whose SP was used to pay for the other spouse’s necessaries (including medical bills) can be reimbursed from the community estate.
Creditors’ Rights at Divorce
General Rule
Rule: at divorce, a creditor cannot reach CP awarded to a spouse unless that spouse:
- incurred the debt, OR
- was assigned debt by court.
Quasi-Community Property
Property acquired by the couple while living in another jurisdiction that would have been classified as CP had the couple lived in California.
Putative Spouse
Couple is not lawfully married but one spouse has a good faith reason for believing that she and the other spouse are legally married.
All property that would be CP or QCP if the marriage were lawful is deemed quasimarital community property, which is treated like CP and QCP.
Interests in Property Acquired With CP & SP
Rule: when property is acquired with CP and SP funds and no title presumption applies, the CP and SP interests are determined by apportioning their respective contributions.
