Community Property

Question 1

1**COMMUNITY PROPERTY (CP) SEPARATE PROPERTY (SP) INTRO

Answer 1

California is a (CP) state. All prop acquired during marriage through the labor/earnings of either spouse is presumed to be CP. All prop acquired prior to marriage or after divorce, death, or permanent physical separation is presumed to be (SP). All property acquired during marriage by gift, bequest, devise, or descent is SP. At divorce, spouses are each entitled to 1/2 interest in CP. The characterization of an asset as CP or SP depends on (1) source of the item; (2) actions taken by the parties which might have changed the characterization; or (3) statutory presumptions.

Question 2

2**LEGAL MARRIAGE- DOMICILED IN CA

Answer 2

California CP law applies when parties (1) have a legal marriage & (2) are domiciled in CA.

Question 3

3**MARITAL ECONOMIC COMMUNITY

Answer 3

The marital economic community begins upon marriage, and ends at (1) divorce; (2) death of a spouse; or (3) permanent physical separation (actual separation with no intent to resume the marital relationship).

Question 4

8**PRESUMPTION

Answer 4

Beginning January 1, 1985, transmutations (changing SP to CP, CP to SP, or SP of one spouse to SP of the other spouse) must be by a written express declaration (language expressly stating ownership characterization change) of the spouse whose interest in the property is adversely affected, unless the transmutation involves a gift: (1) between spouses, or (2) tangible articles of a personal nature (e.g., clothing, jewelry), and (3) is not substantial in value (under circumstances of marriage).

Question 5

FOR EACH ITEM OF POTENTIAL CP OR SP ANALYZE - TRACING:

#1 “SOURCE”

Answer 5

SOURCE:Tracing determines the source of a property’s acquisition to establish its character. (then,PLACE the rule for this type of SP or CP here).

i.e., “All property acquired during marriage by gift, bequest, devise, or descent is SP.” Or, “All property acquired prior to marriage by gift, bequest, devise, or descent is SP.”Or, “All prop acquired during marriage through the labor/earnings of either spouse is presumed to be CP.”

Question 6

FOR EACH ITEM OF POTENTIAL CP OR SP ANALYZE - TRACING:

#2 “ACTIONS”

Answer 6

2*ACTIONS:After determining the source, a court looks at the parties’ actions to see if theychanged the property’s character.

Example of verbiage: “Here, Wilma took title to the townhouse in her name. During marriage, both Wilma and Harry lived in the townhouse, but took no actions to change the nature of Wilma’s SP to CP. Thus, the townhouse remained Wilma’s SP.”

Question 7

FOR EACH ITEM OF POTENTIAL CP OR SP ANALYZE - TRACING:

#3 “PRESUMPTION”

Answer 7

3*PRESUMPTION: Beginning 1/1/1985, transmutations (changing SP to CP, CP to SP, or SP of one spouse to SP of the other spouse) must be by a written express declaration (language expressly stating ownership characterization change) of the spouse whose interest is adversely affected., UNLESS the transmutation involves a gift: (1) between spouses, or (2) tangible articles of a personal nature (clothing, jewelry), and (3) is not substantial in value.

Question 8

FOR EACH ITEM OF POTENTIAL CP OR SP ANALYZE - TRACING:

#4 “DISPOSITION”

Answer 8

4*DISPOSITION:Describe the CP / SP distribution. i.e., “At divorce, each spouse has one-half interest in each CP asset.”

Question 9

QUASI-CP

Answer 9

QCP is property acquired while living in a non-CP state that would be considered CP if the spouse(s) had been living in CA when it was acquired. QCP retains its SP nature (& can be transferred by spouse) until (1) divorce, OR (2) death of the acquiring spouse.

At divorce, QCP is treated the same as CP. At death, the surviving spouse has a ½ interest in the dead spouse’s QCP (but dead spouse doesn’t have any rights to surviving spouse’s QCP).

Question 10

PUTATIVE SPOUSE

Answer 10

A putative spouse is one that has good faith reasonable belief that he/she is married. All earnings & all Prop acquired during marriage by the labor or earnings of either putative spouse are presumed QMP. The Putative spouse is entitled to “quasi marital” property which is treated like CP at death or divorce.

Question 11

UNMARRIED COHABITANTS (MARVIN)

Answer 11

Under Marvin, courts may enforce express agreements (contracts) between cohabitating couples that aren’t married as long as they are not based on performance of sex acts.

Stated another way:

Distribution of property acquired by unmarried cohabitants is governed by contract principles: (1) an express contract will be enforced, unless based on meretricious sexual services, (2) if no express contract, a court examines the parties’ conduct to determine whether they had an implied contract or understanding, and (3) equitable remedies may be available

Question 12

RIGHTS OF EACH SPOUSE TO MANAGE & CONTROL OF CP

Answer 12

Each spouse has equal rights to manage and control community property (CP). A spouse MAY sell, encumber, or otherwise dispose of community property without the other’s consent.

Exceptions: when a spouse transfers personal property for less than fair market value, if one spouse is managing a business, transfer of community real property (both spouses and written consent). Inter vivos gifts of community property require written consent.

Question 13

TRANSFERS OF CP TO THIRD PARTIES

Answer 13

Either spouse acting alone may buy, sell, spend, or encumber all CP, except a spouse may not transfer community personal property for less than reasonable value without the other spouse’s written consent.

Question 14

Unauthorized Transfer of CP During Marriage

Answer 14

During marriage, if a spouse improperly transfers community personal property for less than fair and reasonable value without the other spouse’s written consent, the non-consenting spouse may: (1) ratify the gift, or (2) revoke the gift and sue to recover all of the property

Question 15

Gift from SPOUSE to SPOUSE

Answer 15

Spousal gifts of substantial value between spouses must be accompanied by a writing, memorializing the gift from one spouse to another. Without this writing, the presumption will be that it remains the gifting person’s separate property. This presumption may be rebutted

Question 16

FIDICUARY Duties of Spouses

Answer 16

Marriage is a confidential relationship which imposes a duty to act in the highest of good faith & fair dealing with respect to the management and control of community property. A managing spouse is required to fully disclose all material facts regarding debts for which the community is or may be liable.

A non-managing spouse has a claim against the managing spouse for any breach of fiduciary duty that impairs the non-managing spouse’s present undivided one-half interest in the community estate. Remedies include a greater share of CP

Question 17

Transfer of CP REAL PROPERTY to THIRD PARTIES

Answer 17

Transfer of CP real prop requires both spouses join, else spouse can void to BFP within one year.

Question 18

Inter Vivos Gifts of CP

Answer 18

Requires written consent where one spouse gifts CP to a third party. Otherwise, the other spouse may void the gift during the donor’s life or half the gift after death.

Question 19

PREMARITAL AGREEMENT

Answer 19

A premarital agreement avoids CA CP law. An agreement made after January 1, 2002 must be (1) in writing, (2) signed by both parties, (3) voluntary (party against whom enforcement is sought (a) represented by independent counsel or advised to seek independent counsel and expressly waived in writing, (b) had not less than 7 calendar days between time first presented with agreement and time signed, (c) did not execute under duress, fraud, or undue influence, and had capacity, and (d) informed of rights and obligations), and (4) not unconscionable (fair, reasonable, full property disclosure).

Question 20

Effect of Taking Title in Spouse’ Name Alone

Answer 20

If a spouse takes title to an asset in their name alone, this will not change the nature of the property, if the SOURCE was community property.

Question 21

Character of Property Acquired on Credit During Marriage

Answer 21

Courts presume property acquired during marriage is CP unless evidence proving lender primarily or solely relied on one spouse’s SP in extending credit.

Question 22

(CP) Contributions to Acquisition of (SP) Assets

Answer 22

When community property reduces the principal of a loan to purchase the separate property of a spouse, the community establishes a proportional ownership interest to the extent the community mortgage payments reduce the principal debt. Appreciation is allocated based on each estate’s ownership interest (CP vs SP).

Question 23

(SP) Used to Improve Other Spouse’s (SP)

Answer 23

A spouse who uses SP to improve the other spouse’s SP is entitled to reimbursement, without interest or appreciation of the SP contribution.

Question 24

(CP) Used to Improve Other Spous’s (SP)

Answer 24

Split of authority. Some courts., (1) a gift is presumed, but can be overcome by agreement to reimburse; or (2) Community entitled to greater of reimbursement of improvement costs, or increased value

Question 25

(CP) Used to Improve Spouse’s Own (SP)

Answer 25

When spouse uses CP to improve own SP, the Community is entitled to the greater of (1) reimbursement of the improvement costs; or (2) the enhanced value of the property.

Question 26

JOINT TENANCY (List Under SOURCE Analysis)

Answer 26

Joint Tenancy exists when Two or more individuals own prop with right of survivorship. As of 1987, all Joint Tenancy property acquired during marriage is presumed CP upon divorce.

Question 27

Anti-Lucas Statute

Answer 27

Jointly title property acquired by a married couple (from 1987 to present) is presumptively community property at divorce., BUT any separate property used for the purchase is entitled to reimbursement of fair market value at the time of purchase. Before 1987 – Lucas Rule – separate property was presumed to be a gift to community property and not reimbursable. At death, separate property used to acquire jointly titled property is presumed to be a gift unless otherwise agreed.

Question 28

Reimbursement for Property Acquisition Under Anti-Lucas

Answer 28

Any SP used to acquire jointly titled prop is entitled to reimbursement (based on FMV at time of purchase). Reimbursement includes down payments, payments for improvements AND principal payments.

Question 29

Jointly Titled (i.e. Bank) Account Characterization

Answer 29

Jointly titled accounts are Presumed CP, unless origin is traced to SP and there is no contrary agreement. Further, if the account is CP, then anything purchased from funds in this account is CP.

Question 30

Presumption for Jointly Titled Account

Answer 30

When husband and wife agree to hold property jointly, the CP presumption that arises can only be rebutted by another agreement that the property is not held jointly (i.e. writing or clear statement in deed or title).

Question 31

Commingled Funds (Exhaustion / Direct Tracing)

Answer 31

two tracing methods: Exhaustion & Direct Tracing**. **EXHAUSTION METHOD- the SP proponent proves the funds are SP if the CP funds are exhausted. Avail CP funds are presumed to pay for family expenses. Absent a reimbursement agreement, gift is presumed when SP funds are used to pay for family expenses.

DIRECT TRACING- funds can be directly traced to SP if (1) there are SP funds available, and (2) SP proponent intends to use the funds for a SP asset.

Question 32

CP Contributions to Acquisition of SP Assets (Like Real Property)

Answer 32

When CP reduces the Principal Balance of a loan to purchase the SP real estate of a spouse, the community earns a proportional ownership interest based on the mortgage payments (made from CP) and their reduction of principal debt. Appreciation is allocated based on each estate’s ownership interest.

Question 33

Spouse Contributes Labor to Enhance SP Business

Pereira or Van Camp Forumla

(also see separate cards for Pereria and Van Camp)

Answer 33

Generally, income from SP biz is SP, BUT if a spouse contributes community property labor (during marriage) to enhance the value of the SP biz, both spouses are entitled to a share of the SP biz. Court will use either Pereira or Van Camp formula to calculate the value of the biz.

Question 34

Pereira

Answer 34

Is used when the increase in value of the SP business can be *attributed to the Personal skills, *time and *effort of the managing spouse*.

Here, the SP owning spouse receives the ORIGINAL principal value of the business, PLUS an annual rate of return calculated at 10%; and the remaining value of the business is CP. i.e., Restaurant purchased for $100, earns 10% for six years, add them and get $160 – that is the owner’s separate property, the rest goes to community property.

Question 35

Van Camp

Answer 35

Is used when the primary reason for the SP business’ increase in value is a character and nature of the biz, rather than the labor of the spouse (Think McDonalds franchise).

Here, the Community receives a reasonable salary in return for the community labor, REDUCED by any community expenses, and the remaining value of the business is SP of the owning spouse.

Question 36

Personal Injury Awards & Settlements

Answer 36

If the cause of action against a third party Tortfeasor arose during marriage, PI awards & settlements are CP. A cause of action arises when the injury is inflicted. At divorce, they are assigned entirely to the injured spouse,

UNLESS (a) funds were commingled, or (b) economic hardship to the other spouse. If the other spouse is the tortfeasor, the award is SP of the injured spouse

Question 37

Education Expenses / Degrees

Answer 37

Professional degrees acquired during marriage are the separate property of the acquiring spouse. However, reimbursement is due when (1) community property funds are used to pay tuition; and (2) the education enhanced the spouse’s earning capacity. A spouse does not need to reimburse if (1) the community substantially benefited from the education (10-year rule); (2) the other spouse received community funded education; or (3) the education lessens the need for spousal support.

Question 38

Pensions

Answer 38

If a pension is earned during marriage, then it is community property. Can be paid as received or cashed out and is computed by taking the number of years required to vest, and proportionally divided the net into community property. As such, if it takes 20 years to vest, and the marriage was for 10 years during the vesting period, the community property is 50%. Since CP is 50/50, the other spouse gets 25%.

Question 39

Severance Pay

Answer 39

When Severance Pay resembles retirement pension, it is CP. If intended to replace earnings after divorce – then it is SP.

Question 40

Stock Options

Answer 40

are all CP only if they become exercisable during marriage. If awarded during marriage but exercisable after marriage, then division depends on intent of employer.

i.e., (1). Reward for past services, CP = (time employed during marriage, divided by time employed until the options become exercisable.

(2) If awarded to retain, calculated based on CP time from grant to end of marriage, divided by time from date option was granted to date it became exercisable.

Question 41

Creditors

Answer 41

A creditor cannot reach the community property of the other spouse after divorce unless (1) that spouse incurred the debt; or (2) the debt was assigned to that spouse by the court.

Question 42

Debts by One Spouse - Liability

Answer 42

All CP and the debtor’s SP are liable for debts of a spouse incurred before or during the marriage. The other spouses SP is not liable.

Question 43

Liability for Debt Incurred for “Common Necessaries of Life”

Answer 43

A married person is personally liable (both CP and SP) for debt incurred for the “common necessaries of life” (expenses required to sustain life) while the spouses are living apart. If the debtor spouse had SP or CP at the time the debt was paid, the non-debtor spouse can be reimbursed for any SP paid for necessaries.

Question 44

Spouse’s Prior Child Support Obligation

Answer 44

Spouse’s prior child support obligation from a prior relationship are debts incurred before marriage. All CP and the debtor’s SP are liable for debt’s s/he incurred before or during marriage. Non-debtor may seek reimbursement for the CP paid out.

Question 45

Debt

Answer 45

A debt is incurred at the time a contract is made. All CP and the debtor’s SP are liable for debts s/he incurred before or during marriage. The other spouse’s SP is not liable.

Question 46

Tort Liability of a Spouse

Answer 46

The tort liability of a spouse is first satisfied from the community estate and then from the tortfeasor’s separate property if the tortfeasor was acting for the benefit of the community at the time of the tort. Debt is incurred at the time the tort occurs.