Community Property Flashcards
Intro Paragraphs
California is a community property state. All property acquired during the course of a marriage is presumed to be community property (“CP”). All property acquired before marriage or after separation is presumed to be separate property (“SP”). [In addition, any property acquired by gift, devise, or bequest is presumed to be SP.] [Quasi-community property (“QCP”) is property acquired by either spouse that would have been CP if the spouse had been domiciled in California at the time of the acquisition.] [To determine the character of an asset, a court will trace back to the source of funds used to acquire the asset. A mere change in form of an asset does not change its characterization.]
At divorce, the community assets are equally divided in kind, unless some special rule requires deviation from the equal division requirement or the spouses agree otherwise in writing or by oral stipulation in open court. QCP is treated as though it were CP at divorce.
Transmutation
During the marriage, spouses may change the status of (i.e., transmute) their property. Such a transmutation must be made in writing and expressly declare that a change in ownership was made. It must be consented to or accepted by the spouse whose interest is adversely affected.
[Gift Exception: The writing requirement does not extend to gifts of a personal nature that are insubstantial in value, taking into account the financial statements of the marriage.]
Premarital Agreements
Parties may make a premarital agreement specifying that after marriage each party’s earnings will remain her SP. To be valid, a premarital agreement must: (i) be in writing; (ii) have been entered into voluntarily, and (iii) not be unconscionable.
An agreement is involuntary if the party against whom enforcement is sought was not represented by counsel unless that party: (i) was advised to consult an attorney at least seven days before the agreement was signed; (ii) expressly waived the right to independent counsel; and (iii) was fully informed of the basic effects of the agreement in a separate writing.
An agreement is unconscionable if a judge finds that it is unfair and: (i) the objecting party was not fully advised of the financial status of the other party, (ii) did not waive such disclosure, and (iii) could not reasonably have obtained the information on his own.
If the premarital agreement is found to be invalid or limited in scope to cover only salary and not the business, the business must be apportioned between [Spouse’s] SP initial capital investment and her community labor.
Termination of Marital Economic Community
The marital economic community begins at marriage and ends at one spouse’s death, or on the date of separation. Termination of the marital economic community by separation requires: (i) a spouse to express an intent to end the marriage to the other spouse, and (ii) conduct consistent with that intent.
Accounting Methods
A spouse may devote her community labor to the management of an SP business. The Van Camp and Pereira accounting methods can be used to apportion between the SP component of the business and the CP value added by the managing spouse’s labor during the marriage.
Under the Van Camp method of accounting, the manager’s services are valued at the going market salary. The family expenses that were paid from business earnings are subtracted from the value of the manager’s services. The remainder, if any, represents the CP portion of the business, and the rest of the business is the SP of the managing spouse.
The Van Camp Accounting Method
Under the Van Camp method of accounting, the manager’s services are valued at the going market salary. The family expenses that were paid from business earnings are subtracted from the value of the manager’s services. The remainder, if any, represents the CP portion of the business, and the rest of the business is the SP of the managing spouse.
Because the Van Camp accounting method assumes that the managing spouse’s services were ordinary when it imputes a market salary for those services, it should generally be used when the character of the separate business is largely responsible for its growth or productivity (i.e., when the appreciation is mostly passive).
The Pereira Accounting Method
The Pereira account method begins with the separate capital and imputes a fair rate of return, e.g., the current legal interest rate. The total SP interest is the principal plus the fair rate of return times the number of years the SP business was in operation and managed by the spouse during the marriage. The remainder is CP.
Because the Pereira accounting method assigns an ordinary rate of return to the business capital, it should generally be used when the character of the separate business is largely responsible for its growth or productivity (i.e., when the appreciation is mostly passive).
Co-Habitation;
Domestic Partnerships
General contract principles apply to persons who never evidenced any intention to enter into a lawful marriage. Courts should enforce express contracts between nonmarital partners except to the extent that such contracts are explicitly founded on consideration of sexual services. Absent an express contract, a party may prove a contract implied by the behavior of the parties or an agreement of partnership or joint venture.
Property Creditors may Reach to Satisfy Debts
% out of exams tested: 22.5%
All CP, QMP, and the debtor spouse’s SP are liable for a debt the debtor spouse incurred before marriage. The nondebtor spouse’s SP is not liable for a debt the debtor spouse incurred before marriage.
- [CP or QMP earnings of the nondebtor spouse are not liable for the debtor’s premarital obligations as long as those earnings are held in a deposit account to which the debtor spouse has no right of withdrawal and no commingling takes place.]
