Community Property Flashcards

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1
Q

CP Intro Paragraph

A

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.

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2
Q

Quasi CP

A

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.

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3
Q

Marital Economic Community

A

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

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4
Q

Separate Property

A

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

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5
Q

Transmutation

Discuss under each asset

A

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

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6
Q

Exception to the writing requirement in a Transmutation

A

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

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7
Q

Settlement Proceeds - PI Recovery

Asset - Special Rule

A

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

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8
Q

Stock Option Profits

Asset - Special Rules

A

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

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9
Q

Debts and Liabilities before Marriage

A

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

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10
Q

Prenuptial Agreement

Requirements

A

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

  1. Must be VOLUNTARY
  2. Represented by independent counsel at the time or waived in separate writing fully informing person of terms and basic effect of the agreement
  3. Given at least 7 days to sign
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11
Q

Moore Principle

Special Rule

A

Under Moore, any CP funds used to purchase or improve separate real property assets will be reimbursable to the community

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12
Q

Tracing

Discuss under each asset

A

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

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13
Q

Fiduciary Duties in Marriage

A

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

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14
Q

Repercussions for Breach of Fiduciary Duties

A

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

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15
Q

Joint Tenancy

A

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

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16
Q

Presumption of Undue Influence/Unfair Advantage

A

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

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17
Q

Source and Tracing of Funds

Discuss for each asset

A

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

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18
Q

Exhaustion Method - Commingled Funds

Special Rule

A

Spouse may recover SP when, at the time asset was purchased, community funds in the account had been exhausted to pay family expenses

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19
Q

Title Alone Presumption

Discuss under transmutations or actions

A

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.

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20
Q

Separate Property Business

Special Rule

A

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

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21
Q

Van Camp Method

Special Rule

A

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

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22
Q

Pereira Method

Special Rule

A

Enhancements due to community labor

SP = value of SP business at time of marriage + (value at time of marriage × fair rate of return [use 10% on the exam for fair rate of return] × years of marriage)

CP = The fair market value of the business at divorce – SP value as calculated above

23
Q

Reverse Van Camp or Pereira

Special Rule

A

Courts will apply reverse VC or Pereira methods if the business generates additional revenue after permanent physical separation. The community receives the value of the business at the time of separation plus a reasonable rate of return. The residual becomes the SP of the managing spouse

24
Q

Debt acquired during marriage by either spouse

A

Debt acquired by either spouse during the course of the marriage is presumed to be a liability of the community. However, courts will look at the intent of the creditor oftentimes to determine where he was looking to satisfy the debt

25
Q

Debt within marriage - installment debts

A

In the event of installment debts, such as a loan, when an installment debt is paid with community funds, the community will acquire ownership right on the asset in proportion to the percentage of the loan’s principal that was paid with CP

26
Q

Spouse’s credit/loans

Special Rules

A

Considered a community asset absense evidence that purchaser relied on SP’s credit in obtaining the asset

27
Q

Property acquired via JT

A

When property is acquired via JT, the CP’s reimbursement to the property depends on whether the marriage ended in divorce or the marriage ended when a spouse died

Courts will use Lucas and anti-Lucas to determine

28
Q

Community Business

Special Rule

A

Any business or profit goodwill earned during marriage = CP

Upon dissolution of the marriage, the CP’s share will be determined via the goodwill of the business

“Goodwill” beyond professional spouse’s labor and the value of assets in the business

Two methods to determine how assets divided:

Market Sales: court will evaluate the profits from the sale of the business or interest in the business

Capitalization of excess earnings: court will evaluate the present value of future stream of income that the spouse’s goodwill developed during the marriage

29
Q

Unmarried Couples

Marital Economic Community

A

Property acquired before marriage would be distributed based on their contract/agreement or based on contract principles. The property acquired during marriage would be governed by community property principles.

If no k, court will examine conduct as to whether an implied k existed and court may grant equitable remedies

30
Q

Putative Spouse

Marital Economic Comminity

A

A putative marriage occurs when one or both spouses have a good faith belief that there is a valid marriage. The spouse(s) who have a good faith belief in the validity of the marriage is a putative spouse.

A putative spouse may rely on community property principles. However, the putative
spouse’s rights stop accruing when he/she discovers the marriage is not valid.

31
Q

Putative Spouse Rights

MEC

A

QMP: All property that would have been considered CP or Quasi-CP had the marriage been valid would is labeled “Quasi-Marital Property” and the putative spouse is entitled to 1/2 at the end of the putative marriage.

SP: A putative spouse has the same rights as a surviving spouse to the other spouse’s separate property

If a person has a legal spouse (valid marriage) and a putative spouse (not a valid marriage), the two spouses split the person’s estate.

32
Q

Prenup Agreements: Basis for Unenforceability

A

Courts will not enforce pre-nup if it promotes divorce, is unconscionable, or involuntary

Unconscionable:
1. Unconscionable when made
2. No full and fair disclosure of other person’s finances/property
3. Right to disclosure not waived in writing
4. Party challenging lacked adequate knowledge of wealth/finances
5. Party challenging lacked adequate disclosure of other party’s wealth

33
Q

Presumptions

Discuss under each asset

A

Community Property

Separate Property

Special Community Property

34
Q

Special Community Property (Lucas)

Presumptions

A

Applies only at divorce and presumes that jointly held property is CP

Anti-Lucas: After 1987, all jointly held property (joint tenancy, tenancy in common, tenancy by the entirety) acquired during marriage is presumed to be CP upon divorce. This presumption can be rebutted by an express writing evidencing the spouses’ intent to hold the property as SP. If a spouse contributes SP to the purchase of the property, she/he has a right to reimbursement for the amount of contribution (but not any increase in value).

Lucas: Before 1987, property taken in joint form (joint tenancy, tenancy in common, tenancy by the entirety) was presumed to be CP upon divorce. This presumption could be rebutted by evidence that the spouses did not intend to hold the property as CP. Any SP used to purchase the property was presumed to be gift and there was no right to reimbursement (unless there was an agreement).

35
Q

Equal Rights and Management Over CP

Discuss under transmutations/actions occured

A

Each spouse has equal management and control over CP. Both spouses must participate in decisions regarding CP personal and real property. If a spouse gifts personal property that is CP or sells/leases real property that is CP, there are specific rules that apply

Gifts to 3P: If one spouse gifts or otherwise disposes of personal CP for less than fair/reasonable value without the other spouse’s written consent, the non-consenting spouse can ratify (affirm/approve) the gift, or revoke the gift and sue to recover the gift.

Sale or Lease of CP Real Property: Both spouses must participate in the sale or lease of real property for more than one year. If title to the CP real property is held in one spouse’s name only and an innocent party does not know of the other spouse, the innocent party’s purchase of the property will be presumed valid. The innocent spouse has one year to file an action to void the transfer.

36
Q

Fiduciary Duties

Discuss under transmutations/actions

A

Duty to act in the highest good faith and respect in the management and control of the CP.

Failure of a spouse to obtain the consent of the other spouse when making gifts or selling/leasing property, gives rise to a breach of duty. The innocent spouse can seek a greater share of CP due to the breach.

In CA, spouses have equal management and control over CP, and at the same time owe each other a fiduciary duty not to improperly sell, encumber, or gift CP.

37
Q

Commingled Bank Accounts

Special Rule

A

A commingled bank account occurs when the SP of one spouse is mixed or combined with the SP of the other spouse or with CP. If a spouse wants to claim that an asset purchased with funds from the account is his own SP, the burden is on him to trace the asset back to his SP funds in
the account

Direct and Exhaustion tracing

Failure to trace: if tracing fails, entire commingled account and assets purchased are treated as CP

If account is jointly held, presumed CP unless tracing

38
Q

Direct Tracing - Commingled Funds

Special Rule

A

Spouse can recover SP when, at the time asset was purchased, SP funds were available and they were intended to be used to purchase a SP asset

39
Q

Education and Training

Asset - Special Rule

A

Generally, education and training are not property but the person who received the education and training may have to reimburse the community. There is an equitale right to reimbursement if:

  1. Community funds were used to pay for education/training or loan repayment and
  2. The education/training substantially enhances the earning capacity of the party

Defenses - A spouse has no duty to reimburse when:
1. Community has already substantially benefitted from the education/training
2. The need for spousal support was reduced as a result of the education/training

40
Q

Pensions

Assets - Special Rule

A

Pensions are CP to the extent that the right to benefits was earned during the marriage

Court will apportion a pension to what was earned during marriage

Spouse’s interest in pension is not termintated upon death

41
Q

Disability and Worker’s Comp

Asset - Special Rule

A

Disability and worker’s comp are CP if recieved during marriage

SP after marriage

42
Q

Severance

Asset - Special Rule

A

Courts are split. Some say SP becuase its lost earnings. Others say CP becuase it arises from collective bargaining agreement and earned by employment during marriage

43
Q

Life Insurance

Asset - Special Rule

A

Term Life: estate that paid most recent premium is the owner of the policy or the policy proceeds

Whole Life: if has current monetary value, the cash value is CP

44
Q

Gifts to Community

Asset - Special Rule

A

Presumed CP unless substantial in light of financial situation of the community, then needs to be in writing

45
Q

SP Funds to Enhance CP

Asset - Special Rule

A

Split

Some presume gift, presumption overcome by evidence of an agreement to reimburse the community estate

Other jdxs do not presume gift and require reimbursement

46
Q

Distribution at Divorce/Separation/Death

Distribution

A

Equal Division of CP unless otherwise found to be not CP

47
Q

CP Debt Incurred After Separation + Exception

Discuss under Debts/Liabilities

A

Dets acquired after permanent separation are SP and debtor spouse will be liable to his creditors for such debt

Exception: Necessaries of Life
Spouse can be liable for post-separation but pre-divorce debts if it is a “necessity of life”

48
Q

Child Support Payments

Debts/Liabilities

A

Spouse’s child support obligations from previous marriage = debts incurred before marriage

49
Q

How to Protect CP Earnings from Liability

Debts

A

Non-debtor spouse must deposit earnings into a separate bank account from which the debtor spouse has no right to withdraw from.

If no separate earnings, community is liable for all obligations

Non-debtor spouse can seek reimbursement for the CP estate from debtor’s SP if the debtor spouse had SP to pay the debt

50
Q

Credit Debts

Debts

A

If one spouse incurs debt during marriage, creditors can reach CP unless the non-debtor spouse kept funds separate and the other spouse had no right to withdraw

51
Q

Tort Liability

Debts

A

Tortfeasor acting in his own benefit: SP then CP

Tortfeasor acting in community benefit: CP then SP of tortfeasor

Incurred at the time tort incurrs

52
Q

Fiduciary Duties re: Debts

Debts

A

Highest GF and FD to each other. A managing spouse must fully disclose al material facts re dets for which the community may be laible

Remedy for breach: larger portion of CP

53
Q

Gifts to 3P

A

Each spouse has equal management and control over community property, which means that both spouses must participate in decision regarding major personal property transactions. If one spouse improperly gifted or disposed of community personal property, such as household furniture or furnishings, for less than fair and reasonable value without the other spouse’s written consent, then the non-consenting spouse has the right to either (i) ratify the gift or (ii) revoke the gift and sue to recover all of the property.

54
Q

Appreciation after Permanent Separation

A

Because the value of the CP business increased threefold while W continued to manage it after their separation, the court may use the Pereira and Van Camp formulas in reverse to apportion the respective CP and SP interests in the increased value. When the increase in the value of an accounting business is likely the result of the personal skills and effort of the managing spouse as opposed to the natural appreciation of the initial CP investment, the court is likely to apply the Pereira approach to determine W’s share of the post-separation increase in the business’s value, unless the court finds that W has already been adequately compensated by her post-separation salary. When the increase in the value of the business is likely the result of the character of the property itself, the court is likely to apply the Van Camp approach to determine W’s share of the post-separation increase in the business’s value.