Characterizations of Marital Property

Question 1

Commingled Bank Accounts

Answer 1

Burden of proof is on SP proponent to show SP funds used to purchase assets

Direct Tracing: (1) Sufficient SP funds available at the time of purchase and (2) Intent to use them to purchase asset

Exhaustion: SP proponent must prove that CP funds were already exhuasted by payment of family expenses at the time the asset was purchased

Question 2

Goodwill of CP Business

Answer 2

Goodwill: Based upon expectation of future business and/or name and reputation of entity

Generates income beyond reasonable return on capital and labor of spouse

Treated like CP if goodwill is created during marriage

Valued either by: (1) market sales valuation of the goodwill OR (2) comparing past excess earnings of the business to average earnings of peer business to see what earnings are attributable to good will

Question 3

Eduation Degrees/Professional Licenses

Answer 3

Educational degrees and professional licenses are NOT CP, but CP estate may be entitled to reimbursement if:

(1) CP funds used to pay for education costs (does NOT include living expenses); (2) educated spouse’s earning capacity was substantially improved; and (3) married couple did not waive right to reimbursement in writing

Defenses to reimburising CP: (1) community has substantially benefitted from education (presumed if has been 10+ years since education); (2) other spouse was educated during marriage; or (3) education reduced need for spousal support

Outstanding educational loans assigned to spouse who incurred them

Question 4

Retirment Pensions

Answer 4

Pension earned during marriage is CP regardless of when it vested

Pension earned entirely before marriage is SP

Pension earned both before and during marriage is subject to the “Time Rule”

Under the Time Rule, CP = Value of the Pension x (# of years pension was earned while married/# of years pension earned in total)

Pension can be divided through:
(1) Division in kind - when spouse retires, other spouse gets CP share of each pension check OR
(2) Cash out - cashed out at divorce and other spouse gets assets that are equal to her share of the pension

Question 5

Stock Options

Answer 5

If granted AND vest during marriage = CP

If granted during marriage BUT vest after marriage = depends on whether granted as a reward for past service or incentive for future service

Hug formula (compensation for past service): CP = (Date of Hire - Date of Separation)/(Date of Hire - Date of Vest) x Number of Shares

Nelson formula (compensation for future service): CP = (Date of Grant - Date of Separation)/(Date of Grant - Date of Vest) x Number of Shares

Question 6

Disability

Answer 6

If intended to replace marital earnings and retirment benefits = CP

If intended to replace earnings after dissolution = SP

Question 7

Severance

Answer 7

If structured like retirement benefits = CP

If meant to replace lost earnings after divorce or separation = SP

Question 8

Insurance

Answer 8

Whole Life Insurance (insurance + investment component): CP = in proportion to number of premium payments made with CP

Term Life Insurance (insurance only): SP or CP determined based on last premium payment

Question 9

SP Business Definition

Answer 9

SP business is acquired before marriage, during marriage through SP funds, or inherited/gifted during marriage

Question 10

Pereira

Answer 10

Applies where increase in value is attributable to personal skill or effort of managing spouse

Formula:
SP = Value of SP business at time of marriage + (Value of SP business at the time of marriage x 10% reasonable rate of return x # years married)
CP = FMV at time of divorce - SP

Question 11

Reverse Pereira

Answer 11

Applies CP business appreciates during separation and where appreciation is attributable to mangaing spouse’s personal skill or effort

Formula:
CP = Value of CP business at time of separation + (Value at time of separation x 10% reasonable rate of return x # of years of separation)
SP = FMV of business at divorce - CP

Question 12

Van Camp

Answer 12

Applies where primary reason for increase in SP business value is character of the business rather than spouse’s labor

Formula:
CP = (Reasonable value of services - Annual family expenses) x years of marriage
SP = FMV of business at divorce - CP

If reasonable value of spouse’s services does NOT exceed deducted living expenses, NO CP share remains

Question 13

Reverse Van Camp

Answer 13

Applies where CP business appreciates during separation

SP = Reasonable value of services during separation - SP expenses paid during separation
CP = FMV of business at divorce - SP

Question 14

Capital Improvement: SP used to improve other spouse’s SP

Answer 14

Spouse entitled to reimbursement, without interest, for contribution unless transmutation in writing or written waiver of right to reimbursement

Question 15

Capital Improvement: SP used to improve CP

Answer 15

Presumed a gift but reimbursement available

Question 16

Capital Improvement: CP used to improve SP

Answer 16

Community entitled to reimbursement OR enhanced value of property (whatever is greater)

Question 17

Personal Injury Recovery

Answer 17

Depends on whether injury occured before or during marriage - NOT when settlement or money received

Injury BEFORE marriage: tort recovery is SP and the injured spouse must reimburse the community for injury-related expenses

Injury DURING marriage: tort recovery is CP during marriage but awarded to injured spouse upon divorce if not commingled with CP funds or already spent

Upon death: tort recovery is CP of either spouse

Question 18

Joint Title

Answer 18

Anti-Lucas: CP presumption includes all jointly held property held by married couples, rebuttable by express statement in deed or collateral writing that property is SP

Spouse making SP contribution has right of reimbursement

Question 19

Liability for Debt: Community Estate

Answer 19

Community estate is liable for debts incurred by either spouse before/during the marriage; upon divorce, community has right to reimbursement

Question 20

How can you protect CP earnings from liability of pre-marriage debts?

Answer 20

Non-debtor spouse must deposit CP earnings into a separate bank account from which debtor spouse has no right of withdrawal

Question 21

Liability for Debt: Spouse’s SP

Answer 21

Liable for debts she incurred before/during marriage (not for other spouse’s debts) AND necessaries of life

Question 22

Pre-existing Child and Spousal Support

Answer 22

Treated like debt incurred before marriage, so community is liable unless non-debtor spouse shields earnings

Question 23

Liability for Debt: Tort Obligations

Answer 23

If acting for benefit of the community: Liability first satisfied from community estate, then from tortfeasor’s SP

If NOT acting for benefit of community: Liability first satisfied from tortfeasor’s SP, then from community estate