Character of Property: In General & Assets w Special Rules

Question 1

What is the character of property owned before marriage, or acquired after separation?

Answer 1

SP

Question 2

What is the presumption regarding property acquired during the marriage?

Answer 2

It is presumed to be community property unless it is:

1. gift, bequest, devise, descent;
2. rents, issues, profit of SP;
3. property acquired in exchange for SP

Note: increases to SP are generally SP

Note: proof that an asset was acquired during marriage only raises an assumption that it is CP. This can be overcome by showing that the property was gift, or is the fruit of SP, or by tracing the acquisition back to SP.

Question 3

What is the characterization of a personal injury recovery against a 3rd party tortfeasor?

Answer 3

• If COA arises during marriage —> the recovery is CP.
• if COA arises after separation —> recovery is injured spouse’s SP, but injured spouse must reimburse community for community expenses related to injury. At divorce damages will be awarded to injured spouse unless justice otherwise requires.

Question 4

What is the characterization of a personal injury recovery against other spouse?

Answer 4

Always injured spouse’s SP

Question 5

What is the characterization of retirement pensions?

Answer 5

-Retirement pensions are CP to the extent the right to benefits was earned during marriage. It is immaterial that benefits are received after divorce.

Question 6

What is the effect of death of spouse on other spouse’s interest in pension?

Answer 6

• A spouse’s interest in a pension earned during marriage is NOT terminated by the death of either spouse.
• Unless otherwise provided by law, a spouse is entitled to her share of retirement benefits if other spouse dies first, and has testamentary power if she should die first.

HOWEVER —> if it’s ERISA, the federal law preempts the California law and does not allow benefits except to living spouses.

Question 7

What happens when spouse with pension is able to retire, but does not?

Answer 7

• When pensionable spouse is eligible to retire but does not, the divorce court may order a private employer to pay the non employee spouse her share of benefits as though they have retired.
• If he has a public employer, the worker himself may be ordered to pay.

Question 8

What is the rule regarding the characterization of DISABILITY PAY and/or WORKER’S COMP?

Answer 8

To the extent intended to replace marital earnings —> CP

To the extent intended to replace separate post divorce earnings —> SP

Question 9

What is the rule regarding the characterization of SEVERANCE PAY?

Answer 9

To the extent intended to replace marital earnings —> CP

To the extent intended to replace separate post divorce earnings —> SP

Question 10

What is the rule regarding the characterization of STOCK OPTIONS?

Answer 10

To the extent it vests (become exercisable) during marriage —> it’s CP

If awarded during marriage, but is not exercisable until after the community is ended —> the portion considered CP is determined by whether it is characterized as compensation for past services, further services, or both.

Question 11

What is the rule regarding the characterization of business and professional goodwill?

Answer 11

To the extent earned during marriage —> it is CP

Two possible valuation techniques:

1. market sales valuation; OR
2. capitalization of past excess earnings

Question 12

What is the rule regarding the characterization of education and training?

Answer 12

• Education and training are not considered divisible property at divorce.

HOWEVER –> At divorce, unless the parties sign an agreement to the contrary, there is an equitable right of reimbursement, with interest to the community when:

(1) community funds are used to pay for education OR repay a loan; AND
(2) education/training substantially enhances the earning capacity of the party.

Loans outstanding at divorce are assigned solely to that spouse.

Question 13

What are the three equitable defenses to reimbursement for educational expenses?

Answer 13

1. community has already substantially benefited from education or training (more than 10 years have passed);
2. other spouse has received a community funded education;
3. need for spousal support is reduced as a result of education or training

Question 14

What is the rule re: characterization of term life insurance?

Answer 14

The character of term policy is determined by the “final premium rule”.

The estate that paid the most recent premium is the owner of the policy, or, in the event of the insured’s death, the proceeds.

Question 15

What is the rule re: characterization of whole life insurance?

Answer 15

• To the extent the policy has cash value, it is community property in proportion to the percentage of premiums paid by the community.
• When insured dies, the cash value of the policy before death should be apportioned according to the premiums paid by each estate, and the ownership of the remainder (the portion attributable to term insurance) should be determined by the final premium rule.

Question 16

What is the rule re: characterization of property insurance proceeds?

Answer 16

• Property insurance proceeds might take either the character of the insured property or of the insurance premiums.
• Several cases have held that even though community property was used to pay the premium on SP, it was still SP. But the community may have an action for reimbursement.

Question 17

What is the general presumption regarding “Community property”?

Answer 17

• All property acquired during the marriage is presumed to be CP.
• A showing of possession during marriage may be sufficient to raise a CP presumption..
• The presumption does not apply when title is held by a person at death and the marriage during which that property was acquired terminated more than 4 years prior

Question 18

What are the rules re: overcoming CP presumption when asset is acquired during marriage?

Answer 18

CP presumption may be overcome by showing any of the following:

1. statutory facts (ie.. asset was acquired by gift, bequest, devise), or was increase on SP; OR
2. parties agreed that property was not CP; OR
3. both spouses KNOWINGLY took title in a form other than CP (ie…joint tenancy); OR
4. one spouse took title in a form that evidences a gift to the other spouse; OR
5. the purchase funds are traced to SP source (in which case the separate estate is an owner in proportion to its contribution to the purchase price).

Question 19

May parties avoid the CP system by pre-marital agreement?

Answer 19

YES.

Parties may avoid the CP system by pre-nup agreement.

Question 20

Does a pre-marital agreement require consideration?

Answer 20

No

Question 21

What is the statute of frauds requirement with regards to a pre-nuptial agreement?

Answer 21

In General: There must be a writing signed by both parties.

However –> oral pre-marital agreement may be enforced when:

1. the executory promise was fully executed (ie..the promisor has already performed his duty); OR
2. the promisor is estopped to assert statute of frauds (ie…the promisee has relied to her detriment on the oral premarital agreement).

Question 22

Are provisions of pre-marital agreements that limit or waive property rights enforceable?

Answer 22

Yes.

Question 23

Are provisions of pre-marital agreements that limit or waive spousal support enforceable?

Answer 23

They are not per se unenforceable.

Question 24

What are the limitations on pre-marital agreements?

Answer 24

1. They may not promote divorce
2. must be voluntary

Also, a premarital contract is unenforceable if:

1. it was unconscionable when executed; and
2. one party didn’t know of other party’s wealth.

Question 25

Is a waiver of death rights in a premarital agreement enforceable?

Answer 25

Yes, if it satisfies EITHER the Family Code or Probate Code requirements.