CALIFORNIA COMMUNITY PROPERTY Flashcards
Basic Community Property Presumption
“All property acquired during marriage is presumed to be community property, unless acquired by gift or inheritance, in which case it is presumptively separate property”
Characterization of Assets
The source presumption of an asset depends upon:
- who acquired the asset;
- how was the asset acquired; and
- when was the asset acquired
Quasi-Community Property
Property acquired by one of the spouses while domiciled in a non-community property state that would have been community property had the spouse been domiciled in California or any other community property state at the time of the acquisition is Quasi-Community Property
Until divorce or death, the quasi-community property remains the separate property of the acquiring spouse.
BUT, property acquired in a non-CP state by spouses while domiciled in a CP state is CP, NOT QCP
At divorce, or on the death of the acquiring spouse, as well as for the purposes of creditors’ rights, quasi-community property is treated the same as CP
If the non-acquiring spouse dies first, the quasi-cp remains the separate property of the acquiring spouse.
if the property is acquired by both spouses in joint title in a non-cp state, follow the joint title rules
Quasi-Marital Property
Putative spouse: one that has a good faith belief that he or she is lawfully married, even though they are not.
First set out rules regarding putative marriage and quasi marital property
handle the rest of the questions as if it were a regular CP question BUT always refer to Quasi Marital Property (QMP) rather than community or quasi-community property; SP remains discussed as SP
Quasi-Marital Property
If you have a putative spouse fact pattern, lay out and discuss Quasi Marital Property:
“All property acquired during the putative marriage is labeled as Quasi Marital Property (QMP) whether it otherwise would have been CP or QCP.
Unmarried Cohabitants
Do NOT apply CP principles.
Apply Contract principles (express or implied contract) and if applicable, restitutionary remedies (unjust enrichment, constructive or resulting trust)
Consideration MAY NOT include sexual services
Pensions, Stock Bonuses, and Options
Bonuses and pensions are treated as wages.
Bonuses, pensions and stock options acquired in part during marriage and in part outside of the marriage, use the pension time rule
Pensions, etc. - Application of Rule
For bonuses, pensions, stock bonuses:
CP Interest = (total shares of stock/bonus/pension earned) x (years of marriage in which asset is earned/total number of years in which asset is earned until payable)
For stock options:
CP interest = ((total options) x (years from grant of options during marriage until dissolution)) / (years from grant of options until exercise)
Personal Injury Damages
Characterized based on when they occurred:
- Community Property if the personal injury cause of action arises during marriage
- SP if injury arises before marriage or post-separation
- SP if injury is due to tort of other spouse
For divorce purposes, community estate personal injury damages are assigned entirely to the injured spouse unless the interests of justice require otherwise
Life Insurance
Proceeds are largely CP.
if deceased spouse names a beneficiary other than spouse, determine character.
Term life: character of proceeds is character of last premium paid
Whole life: cash value is allocated based on proportion of premiums paid by SP and proportion paid by CP; term amount (death benefit) based on character of last premium paid
Disability Pay
Disability pay (including workers’ comp) is characterized by what it is intended to replace.
earnings during marriage (CP)
earnings before or after marriage (SP)
Business Valuation
When a business is developed entirely during a marriage, it is entirely community property. the Van Camp and Pereira rules do not apply
Pereira/Van Camp Apply if:
Spouse brings SP business into marriage; OR spouse inherits SP business
AND
EITHER spouse works in the business AND
Business value increases at least in part due to efforts of either spouse
Two theories for Community Increase
If you have a separate property business worked on by either spouse, and need to calculate the portion of value belonging to the community:
Pereira - increase in value due to management efforts
Van Camp - increase in value due to character of business
Pereira
Management efforts of the spouse are the primary cause of the growth of the value of the business
SP portion = (Value of managing spouse’s SP business at time of marriage + [fair rate of return (10% per annum) value length of marriage])
CP = value at dissolution - SP portion
Pereira applied:
Value of business on date of marriage = $100K
Length of marriage = 20 years
Calculate CP and SP portion
SP = $100K + [($1ooK) x (10%) x 20)] = $300K
CP = $500K - $300K = $200K
Van Camp
When the character of the business, or external circumstances, are primarily responsible for business growth in value, apply the Van Camp rules
(Market salary - family expenses paid from salary) * years of marriage = CP
SP = FMV of business at dissolution - CP portion
Van Camp applied:
W’s services worth $40K per year, but she takes only $25K per year in salary
W pays $5K per year in household expenses
Business operates 6 years during marriage at time of dissolution
Value at dissolution = $100K
Calculate CP and SP portions: ($40K - $5K - $25K) x 6 = $60K so that is CP, and $40K is SP
Business Value
Courts use two business valuation methods
- market sales valuation (expert opinion) and;
- Capitalization (past excess earnings attributable to goodwill)
Court not bound by private valuation agreements
Goodwill
Goodwill is the difference between total value and value of assembled physical assets
Represents those qualities that generate income beyond that derived from the labor of a spouse and the reasonable return on capital and physical assets
Goodwill is treated like CP if created during marriage (the difference between a business’ total value and the value of its assembled physical assets)
Education and Training
Education and training acquired during marriage are NOT community property
Community has an equitable right of reimbursement, with interest, when community funds are:
- used either to pay for education or training or used to repay a loan used for education or training; and
- the education or training substantially enhances the earning capacity of the educated party
exceptions: reimbursement reduced or eliminated if EITHER:
1. already substantially benefited from the education and training (10 year presumption), or
2. if the education reduces the educated spouse’s need for spousal support
Prenuptial Agreements
Agreements made before marriage (prenuptial agreements) do not require consideration, but they must be in writing signed by both parties to satisfy the SoF
Premarital agreements will not be enforced if they “promote divorce”
Premarital agreements will not be enforced if they are not “voluntary”
Was Prenuptial Agreement voluntary?
The party against whom enforcement is sought:
- represented by independent counsel, or expressly waived representation;
- had 7 days to review before execution and advised to seek independent counsel; and
- if unrepresented, the party is
- fully informed in writing of the terms and rights she would be giving up, and
- proficient in the language of the agreement and the explanation, and
- no duress, fraud, or undue influence
Prenuptial Agreement - Unconscionability Test
Alternatively, a party could set aside a prenuptial agreement that is unconscionable when executed and the party did not and could not have had adequate knowledge of the wealth of the other party, and didn’t waive her right to disclosure of such wealth
Agreements during Marriage: Transmutation
Agreements made during marriage to alter the character of property - transmutation
Pre-1985 Agreements: oral transmutation agreements OK
Post-January 1, 1985 Agreements: express declaration in writing
If property is acquired in joint tenancy before January 1, 1985 (or in tenancy in common BEFORE January 1, 1988), the property retains its joint character, and is treated as separate property
Joint Title Rules
Under the anti-Lucas legislation all jointly held property acquired during marriage is presumed CP at divorce and legal separation. This applies to joint tenancy from and after 1/1/85; and to tenancy in common from and after 1/1/88.
- but at death:
- if joint tenancy = all to survivor
- if TIC, to whomever inherits
SP contributions to the acquisition of the property are reimbursed to the SP contributor without interest or appreciation
Credit Acquisitions
Refers to loans/credit obtained during marriage
Presumption is that it is a community debt
Presumption can only be overcome by evidence that lender primarily relied on the borrower’s SP in extending the credit
Tracing of Funds
Two presumptions:
Family expenses are presumed to be paid first from community funds
When SP funds are used to pay family expenses, presume a gift of the SP to the community
Two methods:
Exhaustion: community funds exhausted by payment of family expenses, so only SP left
Sufficient funds: always sufficient SP funds so no need to commingle - if balance never fell below SP amount, presume all family expenses paid from CP, and enough SP left to purchase asset
Community Payments on Purchase Price of SP
Fact pattern: property purchased before marriage - but uses CP (i.e., wages) to make payments after marriage
Apply the Moore formula - CP interest is proportional to amount of CP dollars used to reduce principal amount of loan
Moore applied:
Purchase price = $500K Pre-marriage down payment = $150K Loan = $350K Marriage 1 year later - over 10 years, community pays $100K of loan principal Value on divorce: $1,000,000
Calculate CP interest: ($100K/$500K) x Value at divorce = 20% x $1,000,000 = $200K
CP improvements to SP
When a spouse makes community payments to improve their own SP, the community is entitled to the greater of:
- reimbursement or
- amount by which the improvement increases the value of the asset
When a spouse makes community payments to improve the other spouse’s SP, presumed to be a gift (traditional) or reimbursement (modern)
Sale of CP without Spouse’s Consent
A transfer to a good faith purchaser without knowledge of the marital relationship is presumed valid
The non-consenting spouse can overcome this presumption only if she:
- brings an action to void the transaction within one year of the recording of the transfer; and
- demonstrates she did not in any way consent to or participate in the transfer
IF she succeeds, she may void the conveyance, but she must first return the purchase price
Sale of Personal Property without Spouse’s Consent
If spouse sells household furnishings, clothing and the like without the other spouse’s consent, community is entitled to reimbursement
Debts and Obligations
Creditors’ rights follow management rights. Thus, a creditor may reach any property over which a debtor has the legal right of management and control.
Two major issues that are tested:
- which property (community, debtor spouse’s separate property, or non-debtor spouse’s property) is liable for the debts; and
- in what order of those types of property is the debt satisfied?
Discuss them separately and in that order.
Types of Debts, When they are Incurred, and Which Property is Liable
Contract debts are incurred at the time the contract is made
A tort debt arises when the tort is committed
Criminal liability (for restitution, or fines) is treated in the same way as tort liability
Child and spousal support from a previous marriage is treated as a debt incurred before marriage
Debts before Marriage
All the community property, and the debtor’s separate property, are liable for a contractual debt incurred by the debtor spouse BEFORE marriage
But the separate property of a non-debtor spouse is NEVER liable
Debts During Marriage
All the CP and the debtor’s SP are liable for a debt incurred by the debtor spouse during marriage
The SP of a non-debtor spouse is only liable if the debt is contractual and is for “necessaries” (food, shelter, medicines, and the like)
Non-tortfeasor spouse’s separate property not liable (unless that spouse would be liable for the tort)
Order of Satisfaction - Contract Liability
No order of satisfaction for contractual liability
ONLY an issue of WHICH property is liable to satisfy the contractual debt
Order of Satisfaction - Tort liability
Activity benefits the community:
- CP
- debtor spouse’s SP
Activity not for community benefit
- first be satisfied from the debtor spouse’s separate property, and
- second, from the CP
Assignment of Debts at Divorce
Community debts are assigned to the community
Separate debts are assigned to the debtor spouse
- incurred by spouse before marriage
- debts for non-necessaries incurred post-separation
Bad Faith
If spouse expended funds in bad faith (for example, the spouse sold real property without other spouse’s consent and then spent it, or gambled away community funds), or deliberately dissipated CP, or acted with recklessness or gross negligence, the community is entitled to offset or reimbursement. But mere negligence is not grounds for reimbursement
Exceptions - Spousal and Child Support
Spousal and child support from a prior marriage is considered prior debt, and payable from CP. But if, at the time of payment, SP was available to pay the support, the CP is entitled to reimbursement
Exceptions - Pre-marital Debt
Also, if the non-indebted spouse put their earnings into a separate bank account in the spouse’s sole name to which debtor spouse had no access, those funds cannot be reached to pay any pre-marital debt of the debtor spouse
Survivor’s (Widow’s) Election
Applies IF testator-spouse attempts to bequeath surviving spouse’s CP
Survivor may elect to either take benefits under the will OR their 1/2 of CP - BUT NOT BOTH
Federal Preemption
Two part test:
- does the property right conflict with the express terms of federal law?
- if yes, does the state law cause sufficient injury to federal objectives to require preemption?
For bar purposes, just know which assets are subject to federal preemption
Preemption
CP DOES NOT APPLY TO:
- federal homestead law
- armed forces life insurance benefits
- US savings bonds, social security law
- railroad retirement benefits and
- VA disability benefits
CP DOES APPLY TO:
- federal civil service and foreign service retirement benefits
- ERISA pension benefits in a divorce are divisible under CP law
