Characterization of marital property Flashcards
Presumptions
- General—preponderance of evidence
• CP—can be rebutted by written title evidencing that gift was intended, statutory evidence, purchase funds traced to a SP source, or agreements designating property as SP
• SP—applies to anything acquired before marriage, by inheritance during marriage, or after death/divorce or legal separation
• Exception—property held by decedent whose marriage dissolved more than four years prior to decedent’s death (protects decedent’s heirs from claims by decedent’s former spouse) - Special—clear and convincing evidence
• Married woman’s special presumption
o Before 1/1/75—if wife’s name only is on title to property, it is presumptively SP, but can be rebutted with evidence of husband’s lack of donative intent or waiver
o After 1/1/75—equal management and control over CP; presumption no longer applies
• Presumptions of title (death only)
o Presumption that title reflects ownership interests of spouses
o Title in one spouse’s name only (or no title)—SP if purchased with SP funds, and tracing cannot overcome this presumption (unless spouse purchasing asset titles asset in his name alone)
o CP (divorce only)—jointly held property is CP, and since 1/1/84, contrary intent must be evidenced by clear statement in deed or other writing
Commingled bank accounts
Burden of proof on SP proponent to show SP funds used to purchase assets
• Direct tracing—sufficient SP funds available at time of purchase and intent to use them
• Indirect tracing—exhaustion method
o CP funds in account already exhausted by payment of family expenses at time of purchase
o Family expenses
Food, clothing, housing, and recreation
Presumptions—CP funds used to pay family expenses, SP funds used only when CP funds are exhausted, and SP funds used for family expenses are a gift to the community
Goodwill of CP business
Treated like CP if created during marriage
- Based upon expectation of future business and/or name and reputation of entity
- Generates income beyond labor of spouse and a reasonable return on capital and physical assets
- Two valuation techniques—(i) determining the market sales valuation of the goodwill through expert testimony, or (ii) comparing the past excess earnings of the business/professional practice to the typical or average earnings of peer businesses/professional practices to determine what earnings are attributable to the goodwill
Education degrees and professional licenses (including premarital education loans)
Not CP, but CP estate may be entitled to reimbursement
• CP reimbursement limited to tuition, fees and books (not living expenses)
• Community estate reimbursed only if—CP funds used to pay for education costs or premarital educational loan payments, educated spouse’s earning capacity was substantially improved, and married couple did not contractually waive right of reimbursement in writing
o California does not give the other spouse any right to a percentage of the enhanced earning ability of the spouse who acquired the degree or license
• Defenses to reimbursing community—divorce is more than 10 years after education was received and community substantially benefited from it; other spouse also received CP education during marriage; or education reduced need for spousal support
o Outstanding educational loans still assigned to spouse who incurred them
Retirement pensions (vested/unvested)
Treated like CP
• Spouse eligible for benefits upon divorce (“time rule”)—divide years spouse was employed during marriage by total number of years participating in retirement plan
• Spouse not eligible for benefits upon divorce
o Division in kind—when spouse retires, other spouse receives a CP percentage of each pension check, including early retirement benefits, using “time rule,” or
o Cash-out—non-participant spouse is cashed out upon divorce and awarded assets of equal value to pension benefits using an actuarial evaluation
• Non-participant spouse predeceases employed spouse during marriage—no devisable interest in employed spouse’s retirement benefits
• Refusal to retire—spouse may assert right to receive retirement benefits if employed spouse is eligible to retire but chooses not to
• Federal preemption—spouse cannot acquire benefits in, or give away benefits to federal benefits until they have been distributed
Stock options
CP—if replacing earnings during marriage
o Community has apportioned interest in value of stocks (as earned from time when employed spouse started accruing stock option rights)
o Time rule—divide years spouse employed during marriage by total number of years before stock option can be exercised
SP—if replacing earnings after divorce/separation
Disability and severance pay
Disability
o CP—if intended to replace marital earnings/retirement benefits
o SP—if intended to replace earnings after dissolution
Severance
o CP—if structured like retirement benefits
o SP—if meant to replace lost earnings after divorce/legal separation
Insurance
Whole life (insurance & investment components)
o Divorce—CP in proportion to number of premium payments made with community funds
o Death
Mixed funds—CP in proportion to number of premium payments made with community funds
Community funds—½ of proceeds to surviving spouse and other ½ to third-party beneficiary
Term life (only covers risk of death) o Divorce—policy holds no value because no investment component o Death—apportion community interest; or look to final premium payment to determine whether proceeds are SP or CP
SP business
Court has discretion to apply one of two different formulas:
Pereira—increase in value attributed to personal skills/effort of the managing spouse
o Favors CP portion of the estate
o Factors causing value increase—spouse’s personal time, effort, character, energy, ability, capacity, and salary paid
o Formula:
SP = value of SP business at time of marriage + (value at time of marriage × fair rate of return [assume 10%] × years of marriage)
CP = FMV of business at divorce – SP
Van Camp—primary reason for increase in value is character of SP business rather than spouse’s labor
o Favors SP portion of the estate
o Factors—adequacy of compensation paid to SP spouse (high salary or large bonuses) implying estate has been fairly compensated
o Formula:
CP = reasonable value of services provided during marriage – family expenses traceable to business assets
SP = FMV of business at divorce – CP
Reverse Van Camp & Pereira (CP business appreciation during separation)
Reverse Pereira
CP = value of CP business at time of separation + (value at time of separation × fair rate of return × years of separation)
SP = FMV of business at divorce – CP
Reverse Van Camp
SP = reasonable value of services during separation – salary already paid
CP = FMV of business at divorce – SP
Credit purchases and loan proceeds
Focus on lender’s intent; presumed to be CP when the lender does not rely “solely” on the purchaser’s SP in extending credit
Capital improvements (for real property)
- SP used to improve other spouse’s SP—since 2005, a spouse is entitled to reimbursement for contribution unless transmutation in writing or written waiver of right to reimbursement (pre-2005, presumed to be a gift)
- SP used to improve CP—presumed a gift (before 1984) but reimbursement is available (after 1984, not retroactive)
- CP used to improve either spouse’s SP (after 1975)—the community is entitled to reimbursement or enhanced value of property (whichever is greater)
Personal injury recovery
Divorce
o Injury before marriage—tort recovery is SP and the injured spouse must reimburse the community and the other spouse’s SP for any injury-related expenses
o Injury during marriage (injury by third-party tortfeasor)
Tort recovery is CP during marriage, but is awarded to the injured spouse upon divorce (if not spent or commingled with CP funds)
Some recovery may be awarded to the non-injured spouse in the interest of justice (no more than one-half)
Death—CP at death of either spouse
