Community Property Flashcards
CP Intro Paragraph
California is a CP state. All property and earnings obtained during the marriage is considered CP.
All property acquired outside of marriage, or after permanent separation, or by gift, devise, or bequest, is considered SP
To assess the status of property, courts will trace the funds used to acquire assets
On divorce, all CP will be shared equally unless a rule applies, or the parties agree in writing or by oral stipulation in open court.
Quasi CP
All property acquired during marriage while domiciled in a different state, but would have been CP if the couple had been domiciled in CA, is quasi CP.
Marital Economic Community
The MEC begins on marriage and ends upon permanent separation
Permanent separation occurs when the couple is actually separated and at least one party has communicated their intention not to resume the marriage
Separate Property
All property acquired during marriage is presumed CP unless acquired by gift, bequest, devise, or is the rent, issue, and profit of a spouse’s SP, or is property acquired in exchange for SP
Transmutation
Discuss under each asset
A transmutation occurs where one spouse changes the status of the CP to SP. Pre 1985, oral transmutations allowed.
To be valid, needs to be in writing, explicitly stating change of ownership, and signed by the spouse whose interest is adversely affected
*Gift Exception: if gift is of substantial value, taking into account financial circumstances of marriage, transmutation will only occur if there is a writing
Exception to the writing requirement in a Transmutation
Spouse may make a gift of personal property to another spouse if it is used solely by that spouse and it is not valuable, taking into consideration the financial circumstances of the marriage
Settlement Proceeds - PI Recovery
Asset - Special Rule
3P Tortfeasors:
Personal injury settlements acquired by one spouse will be CP if the claim arose during marriage.
Tort claims: COA arose, not settlement
Before or after marriage: SP
Not 3P (against spouse): SP
Stock Option Profits
Asset - Special Rules
At divorce, earnings will remain CP. However future earnings or stock options of a spouse to be earned at a later date after divorce will be shared pro rata
Debts and Liabilities before Marriage
Debts and liabilities of a spouse existing prior to the marriage will become liabilities of CP during the marriage
A creditor can reach the community if CP funds were used to acquire the debt or the community benefitted
At divorce, if payments were made with CP, the community may be reimbursed to the extent that SP was available at the time of the payments
Prenuptial Agreement
Requirements
Under Bonds, written agreements on how to characterize salary or assets that are attained during the marriage can only be enforceable upon divorce if they meet the requirements in CA
- Must be VOLUNTARY
- Represented by independent counsel at the time or waived in separate writing fully informing person of terms and basic effect of the agreement
- Given at least 7 days to sign
Moore Principle
Special Rule
Under Moore, any CP funds used to purchase or improve separate real property assets will be reimbursable to the community
Tracing
Discuss under each asset
Tracing is used by courts to determine the characterization of assets through following the funds used to acquire the asset
Commingling funds makes it harder to trace and leads to a finding of CP
Fiduciary Duties in Marriage
In CA, a marriage is held to be a fiduciary relationship that obligates each spouse to a duty of care and loyalty to one another
Under the duty of loyalty, a spouse cannot take actions to steal funds from the other or make purchases without informed consent. The spouse must make decisions in the interest of the community
Repercussions for Breach of Fiduciary Duties
A court will penalize a spouse’s breach of fiduciary duty usually by giving property purchased solely in the name of one spouse to the other or the community if done with CP
Joint Tenancy
Property held in joint form is presumed CP. When the title to the property is held in joint form and it is not congruent to the source of the funds, it is presumed a gift unless rebutted
Presumption of Undue Influence/Unfair Advantage
Spouses have a fiduciary duty to each other. When one party gains an unfair advantage or benefit from a transaction, it is presumed undue influence
Court may find transmutation invalid or unenforceable
Source and Tracing of Funds
Discuss for each asset
An asset is characterized as either CP or SP depending on the source of funds that were used to purchase the asset. Each spouse is entitled to trace the funds used to purchase the asset. Once characterized, the other spouse may rebut the presumption
Exhaustion Method - Commingled Funds
Special Rule
Spouse may recover SP when, at the time asset was purchased, community funds in the account had been exhausted to pay family expenses
Title Alone Presumption
Discuss under transmutations or actions
If a spouse takes title to an asset in his/her name alone, this will not change the nature of the property, if the source was community property.
Separate Property Business
Special Rule
Generally, income from a SP business is SP. However, if a spouse contributes labor (which is CP) to the SP business, a court must determine how much of the business is CP upon divorce and how much is SP.
Enhancement due to community labor: Pereira
Enhancement due to character of the business itself: Van Camp
Van Camp Method
Special Rule
Enhancement due to character of business itself
CP = (reasonable value of services – annual family expenses) × years of marriage
SP = The fair market value of the business at divorce – CP value as calculated above