Community Property Flashcards
Four scenarios re: Call of the Questions
not rule
- Spouses Married in CA
a) If the essay begins with the parties having gotten married in California, it will be a vanilla community property question.
b) Occasionally, you also must determine a creditor’s rights to certain assets to satisfy certain liabilities. - Spouses Married in Non-CP State who later move to CP State; Quasi-Community Property
a) If the husband and wife begin the essay having gotten married in a non-community property state and then move to California, part of the question will include quasi-community property issues as to the property acquired during the marriage but before the parties domiciled in California. - Putative Spouses; Quasi-Marital Property
a) If the parties aren’t legally married, but one of them in good faith thinks they are, then the issues involve putative marriage and quasi-marital property. - Unmarried Cohabitants
a) the parties will be unmarried cohabitants, in which case the community property laws do not apply at all—rather the issues will involve the existence of an implied contract and possible equitable remedies
b) Although they think they are married, under law not marriage and thus treat them as co-habitants
The Main Rule fo Community Property**
California is a community property state. All property acquired during marriage is presumed to be community property unless acquired by gift or inheritance, in which case it is presumed to be separate property. The court determine the character of an asset by tracing back to the source of the funds used to acquire the asset. A mere change in the 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; a spouse’s separate property (SP) remains her SP at divorce.
Progression of Presumptions on Each Asset
Approach
- Each major heading should be an asset, a debt, or a creditors’ rights issue.
- For each asset or debt, discuss and apply each and every presumption applicable to the item in this order:
- Start here and apply: Basic CP presumption – The initial community property presumption and its effect;
- Then source presumption (who, how, when) and its effect;
- Then conduct presumption – what did parties do to the asset or what specific rule applies to this asset/debt?
- Distribution – the final character of asset or debt
Initial Presumption
not rule
The property was acquired during marriage is presumed to be community property
Rules applicable under Source Presumption
Subrules
Generally, property acquired with separate property funds retains the separate property character.
Wages earned and used during the marriage is community property. But salary earned after separation is SP.
Rules applicable under Conduct Presumption
Guide
- Transmutation law
a) anti-lucas legislation
b) 1985 cutoff - Joint tenant rules
- Management rules
Transmutation
approach
- Under the anti-Lucas legislation, all jointly held property acquired during the marriage is presumed community property at divorce and legal separation. This applies to:
a) joint tenancy from and after 1/1/85 and
b) tenancy in common from and after 1/1/88. - But at death:
a) If joint tenancy – all to survivor
b) If TIC, to whomever inherits.
Agreement during Marriage - Transmutation
Agreements made during marriage to alter the character of property - transmutation.
—
Note: It is divided into two groups: agreements made before January 1, 1985, and agreements made thereafter.
Transmutation + jointly held property (TIC and JT)
general rule
Transmutations are agreements made during marriage to alter the character of property. In pre-1985 agreements, oral transmutation agreements are okay.
Under the anti-Lucas legislation, all transmutation agreements post-1985 must be in the form of an express written declaration, which expressly state their intention to change the characterization or ownership of the property. Moreover, because of the presumption that all property acquired during marriage is community property, merely taking title in one spouse’s name will not overcome the presumption.
If the property is acquired in joint tenancy pre-1985 (or in tenancy in common pre-1988), the property retains its joint character, and is treated as separate property. Under anti-Lucas legislation, all jointly held property acquired during marriage post-1985 is presumed community property at divorce unless the parties executed a collateral written agreement or a separate statement in the documentary evidence of title that states the property is “separate property and not community property.”
transmutation - joint title rules
approach
- transumation R-A
- Jointed Title rules R-A
Pre-1985 Agreements
Oral transmutation agreements OK.
—
If the spouses agreed to transmute their property before January 1, 1985, they could do so orally, and courts inferred the intent to transmute from the parties’ behavior.
(1) E.g., a reference on a tax return to “our” house was sufficient evidence of the intent to transmute from separate property to community property.
Pre-1985 Agreements
approach
If the exam contains a pre-January 1, 1985 oral agreement, discuss the characterization of assets under two scenarios:
(1) one that assumes the enforceability of the oral agreement, and
(2) one that assumes the non-enforceability of the oral agreement.
Post-January 1, 1985 Agreements
- Under the anti-Lucas legislation, all agreements entered into after January 1, 1985 to transmute property must be in the form of an express written declaration.
- The express declaration must expressly state that a change in the characterization or ownership of the property is intended.
- Moreover, because of the presumption that all property acquired during marriage is community property, merely taking title in one spouse’s name will not overcome the presumption.
- You need the separate express declaration, either in a separate document or sufficient language in the granting clause, stating that the intent is to change the character of the property
- If the property is acquired in joint tenancy before January 1, 1985 (or in tenancy in common before January 1, 1988), the property retains its joint character, and is treated as separate property.
Transumtation of Title Identified as CP after 1985
Rule
All agreements entered into after January 1, 1985, to transmute property must in the form of an express declaration. The express declaration must expressly state that a change in the characterization or ownership of the property is intended by the spouse whose interest is adversely affected. Moreover, because of the presumption that all property acquired during marriage is community property, merely taking title in one spouse’s name will not overcome the presumption.
–
[sample rule]
After January 1, 1985, all transmutations of property from community property to other means of holding title, including separate property, must be done in a separate writing evidencing the intent to effect such transmutation.
Anit-Lucas, jointly held property during marriage post 1985**
sample of rule**
Under anti-Lucas legislation, all jointly held property, including property held in joint tenancy, acquired during marriage after January 1, 1985, is presumed community property at divorce unless the parties executed a collateral written agreement or a separate statement in the documentary evidence of title that the property is “separate property and not community property.”
Joint Title Rules**
3 rules
Under California law (the anti-Lucas legislation), if property is purchased or acquired during marriage in joint title, then all jointly held property, including property held in joint tenancy, is presumed community property at divorce unless the parties executed a collateral written agreement or a statement in the documentary evidence of title that the property is “separate property and not community property.”
…
Rule 2 (not in mega rule)
If the jointly titled property is treated as community property, then at divorce the separate property contributions to the acquisition of the property shall be reimbursed to the separate property contributor without interest or appreciation.
—
Rule 3 (not in mega rule)
If jointly titled property is not presumed community property on death, it either remains joint tenancy and goes to the surviving spouse, or tenancy in common and goes according to decedent’s will.
Exception to Transmutation Non-Substantial Personal Gift from Spouse
The writing requirement does not extend to a gift between spouses that is of personal nature, principally used by the spouse to whom the gift is made, and is not substantial in value, taking into account the marriage’s financial circumstances.
—
The writing requirement does not extend to gifts between the spouses of items of a personal nature that are used principally by the spouse to whom the gift is made and that is not substantial in value, taking into account the marriage’s financial circumstances.
Fidicuary Duty to Manage Assets rules
Under Conduct Based
Spouses owe each other fiduciary duties, which govern the actions of persons in confidential relationships, with respect to management and control of the CP. Thus, deliberate dissipation of community property, recklessness, and grossly negligent conduct that results in the loss of community property are actionable, and and may impose the culpable spouse to reimburse the community for any loss. However, these are not as strict as a prudent investor standard, so merely negligent investment will not result in a requirement of reimbursement.
—
[selected topics]
In the management and control of community assets, each spouse must act in accordance with the general rules governing fiduciary relationships which govern the actions of persons in confidential relationships. Thus, deliberate dissipation of community property, recklessness, and grossly negligent conduct that results in the loss of community property are actionable, and can result in the requirement that the culpable spouse reimburse the community for any loss. However, these are not as strict as a prudent investor standard, so merely negligent investment will not result in a requirement of reimbursement.
undue influence
Under Conduct Based - fidicuary duty
Spouses owe each other fiduciary duties, which govern the actions of persons in confidential relationships, with respect to management and control of the CP. Thus, a rebuttable presumption of undue influence arises when one spouse gains an advantage over the other in a property transaction; the spouse who obtained the advantage bears the burden of rebutting the presumption.
barbri
Rules applicable under Distribution
- property under joint tenancy
- separate property and its appreciation
Distribution for jointly titled property is treated as community property
If the jointly titled property is treated as community property, then at divorce the separate property contributions to the acquisition of the property shall be reimbursed to the separate property contributor without interest or appreciation.
SP on Divorce
Distribution
On divorce, separate property contributions to the acquisition of the property are reimbursed to the separate property contributor without interest or appreciation.
—
If a spouse, during marriage, contributes separate property into the acquisition of property in joint title, apply the anti-Lucas legislation so that there is a CP presumption at divorce, but then discuss that such spouse has a right to reimbursement of the SP in the value of the property as of the date of contribution into joint title.
Distribution for Separate Property and Its Appreciation
When the separate property of a spouse increase in value during the marriage due to external factors, the status of the property does not change from its original classification.
Quasi-Community Property**
Quasi-community property (QCP) is property acquired by either spouse that would have been community property had the spouse been domiciled in California at the time of the acquisition. At divorce, quasi-community property is treated the same as community property.
—
Note:
* analyze with the three presumption, except it is QCP
* ALWAYS explain HOW and WHY QCP would have been community property had the spouse been domiciled in California – using presumptions
* look at the Essay 2 for QCP
Other Community Property State
other community property state are Arizona, Idaho, NM, Louisiana, Nevada, Washington, or Wisconsin at the time of the acquisition of the property
QCP status when first acquire before death or divorce
Until divorce or death, the quasi-community property remains the separate property of the acquiring spouse.
But when the property acquired in non-CP state by spouses while domiciled in a CP state, the property is CP, not QCP.
Divorce or death of acquiring spouse in non-CP state for QCP
a) At divorce, or on the death of the acquiring spouse, for the purposes of creditors’ rights, the QCP is treated the same as community property.
b) If the non-acquiring spouse dies first, the quasi-community property remains the separate property of the acquiring spouse.
c) If the property is acquired by both spouses in joint title in a non-community property state, follow the joint title rules.
Obtaining the House with Mortgage
Tip
Discuss the three presumption for character of the house and a separate heading for character of mortgage debt
Putative Spouse
One that has a good faith belief that he or she is lawfully married, even though he or she is not. All property acquired during the putative marriage is labeled as quasi-marital property (QMP) whether it would have been community property or quasi-community property had the marriage been valid.
Putative Spouse and QMP
Approach
If you have a putative spouse fact pattern lay out and discuss QMP:
- First set out rules regarding putative marriage and Quasi Marital Property
a) All property acquired during the putative marriage is labeled as QMP – whether it otherwise would have been CP or QCP.
b) But then treat it under normal CP and QCP rules - Handle the rest of the question as if:
a) Discuss as QMP but treat as community property
as if it were a regular community property question, BUT always refer to Quasi Marital Property (QMP) rather than Community or Quasi-Community Property (QCP)
b) SP remains discussed as SP
If the property would have been separate property (SP) had the spouses been lawfully married, it remains SP, and you call it SP
Other Spouse Knows Defects in the Marriage
Approach
If the other spouse knows of the defect in the marriage, although it is unclear how their share would be treated:
a) discuss the putative spouse’s rights as if they were a legal spouse, and
b) leave open the rights of a non-putative spouse, or treat them the same.
c) Support: at least in the Marvin case, the Supreme Court has suggested that it might still treat the putative spouses equally and divide the QMP as if it were community property.
Unmarried Cohabitants
If the parties are not putative spouses, but just unmarried cohabitants, then generally the community property rules do not apply.
Unmarried Cohabitants
Approach+Rule
- Do NOT apply Community Property principles
- Instead, apply contract principles (express or implied contract) and, if applicable, restitutionary remedies (unjust enrichment, constructive or resulting trust)
- Rule: Consideration MAY NOT include sexual services
- However, the court will not enforce any contract formed where the consideration includes sexual services.
- On such an exam, marshal the facts to determine whether they suggest an implied agreement.
Cohabiting Couple under Marvin
California does not have common law marriage but instead uses contract principles for cohabitating couples. General contracts apply to persons who never evidenced any intention to enter into lawful marriage. The court held that parties can contract with each other to create a support obligation or other ownership relationship. Under such circumstances, the court has the power to divide the property according to the couple’s reasonable expectations during cohabitation. Absent an express contract, a party may prove a contract implied by the parties’ behavior or a partnership or joint venture agreement. California does not enforce contracts based on sexual acts as consideration, [but the mere fact a sexual relationship is involved does not in itself invalidate the agreement.]
barbri+kaplan+mainero
When Marital Economic Community Property Begins and Ends
The martial economic community begins at marriage and ends at the death of one’s spouse or on the date of separation. To terminate the marital economic community by separation, there must be a complete and final break in the marital relationship, which requires: (i) a spouse to express an intent to end the marriage to the other spouse, and (ii) conduct consistent with that intent.
Debts for Common Necessary of Life
Subrule-Marital Economic Community Property
However, the court would include all parties liable for debts that are a common necessary of life.
An example of approach to economic community property for lawsuit during marriage and getting the salary boost when Spouse file for divorce
- address termination (so you can refer to when community terminated).
- Then address presumption that it is SP since received after marriage.
- Then address fact that it is CP since it represents wages that she earned, but did not receive during marriage.
Wages Earned Before/After vs. During Marriage
Wages earned prior/after to marraige are separate property.
Wages earned during marriage is community property.
Pensions, Stock Bonuses and Options
Stock bonuses and pensions are treated as wages, and any such bonuses and pensions earned during marriage are presumptively community property.
In determining the character of stock bonuses, pensions, and stock options acquired in part during marriage and in part outside of marriage, use the pension time rule.
For bonuses, pensions, stock bonuses, stocks options to reward for long service
rule + formula; Pensions, Stock Bonuses and Options
For bonuses, pensions, stock bonuses, stocks options to reward for long service, the total amount of stock or other compensation or benefits is multiplied by a fraction. The numerator is the total number of years during marriage in which stock or other compensation is earned, and the denominator is the total number of years in which stock or other compensation is earned until payable.
—
CP Interest = (total shares of stock / bonus / pension earned) x (years of marriage in which asset is earned/total number of years in which asset is earned until payable)
For stock options used to encourage future service:
rule + formula; Pensions, Stock Bonuses and Options
For stock options used to encourage future service -
To determine the community interest in stock options, the numerator is the period of the marriage from the date the options are granted until divorce or legal separation, and the denominator is the period from the date the options are granted until the date the options are exercisable.
—
CP Interest = total options x (years from later of date of marriage or grant of options until dissolution)/(years from later of date of marriage or grant of options until exercise)
Personal Injury Damages
Personal injury damages are treated based on when they occurred—community property if the personal injury cause of action arises during marriage, and separate property if before marriage or post-separation. However, if the other spouse caused the injury, all damages are separate property of the injured spouse.
For divorce purposes, community estate personal injury damages are assigned entirely to the injured spouse unless the interests of justice require otherwise.
—
Characterized based on when they occurred.
1. Community property if the personal injury cause of action arises during marriage.
2. Separate property if the injury arises before marriage or post-separation.
3. Separate property if the injury is due to tort of another spouse.
Life Insurance
Life insurance proceeds are largely CP. If deceased spouse named another beneficiary other than the spouse, first determine character.
Term life
- The character of proceeds is the character of the last premium paid.
- For term life insurance, which covers only the risk of death, the character of the proceeds is the character of the last premium.
- If the last premium is paid with CP, surviving spouse gets ½ and beneficiary gets ½ of proceeds.
Whole life
- cash value is allocated based on the proportion of premiums paid by SP and proportion paid by CP;
- the term amount (death benefit) based on character of last premium paid;
- For whole life insurance, the portion attributable to a cash value before death is apportioned based on what percentage of the premiums was paid by SP and what percentage was paid by CP.
- The portion attributable to the term amount payable due to the death of the insured is characterized using the last premium rule.
Results from who paid the life insurance premiums
- paid by SP - only beneficiary
- paid by CP - surviving spouse
Disability Pay
Disability pay (including workers’ compensation) is characterized by what it is intended to replace:
* Earnings during the marriage (community property)
* Earnings before or after marriage (separate property)
Business Valuation
not stated rule
When a business is developed entirely during a marriage, it is entirely community property. The Van Camp and Pereira rules do not apply.
These rules only applied before or after marriage and the spouse developed the business.
Van Camp and Pereira Rules
General Rules
The Van Camp and Pereira rules apply when community property enhances the value of separate property brought into the marriage, which occurs when either a spouse (1) owns, or invests in, a separate property business or investment before marriage; or (2) inherits a separate property business or investment during marriage.
Application - Van Camp and Pereira rules
The Van Camp and Pereira rules apply when community property enhances the value of separate property brought into the marriage, which occurs when either a spouse (1) owns, or invests in, a separate property business or investment before marriage; or (2) inherits a separate property business or investment during marriage.
—
Pereira / Van Camp Apply if when one of three scenario happened:
1. Spouse brings SP business into marriage; OR
2. Spouse inherits SP business during the marriage; OR
3. Spouse inherits money and starts business, all during marriage;
4. And Either:
a) Spouse works in the business AND
b) Business value increases a least in part due to efforts of either spouse
Pereira v. Van Camp
In either situation, when the value of the business or investment increases during marriage due at least in part to the efforts of either one of the spouses, how are the community and separate property interests in the business valued at the end of the marriage?
- Pereira – increase in value due to management efforts
a) When the management efforts of either spouse are the primary cause of the growth of the value of the separate property business or separate property asset, regardless of whose separate property it is, apply the Pereira rules. - Van Camp – increase in value due to the character of business
a) When either the character of the separate property business or separate property asset, or external circumstances, are primarily responsible for the increase in value, apply the Van Camp rules.
Pereira
- Rule: Pereira applies when the spouse’s management efforts are the primary cause of growth to the business value.
- Unless otherwise stated, assumed it is 10% per annum
Two formulas
a) Begin with the separate property capital (the value of the business as of the date of marriage), and assign it a reasonable rate of return—perhaps 10% per annum.
b) The value of the business on divorce that exceeds the total of (1) the separate property capital plus (2) the increase attributable to the rate of return over the life of the marriage is community property.
SP portion = Value of managing spouse’s SP business at time of marriage + [ Fair rate of return (10% per annum) * Value (at the time of divorce) * Length of Marriage]
CP portion = Value at dissolution - SP Portion
Pereira
The Rule for formula
Pereria applies when the spouse’s management efforts are the primary cause of growth in business value.
Under Pereira, the initial business value is multiplied by a reasonable rate of return for the time it was owned during marriage. That rate of return is then added to the initial, separate property value to determine the separate property portion at death or separation.
The community portion is the business value at death or separation minus the separate property portion.
Van Camp
When the character of the business, or external circumstances, are primarily responsible for business growth in value, apply the Van Camp rules.
When applying Van Camp:
(a) Community Property
(1) Value the spouse-manager’s services at the going market salary (which the exam question may give you),
(2) multiply that amount times the number of years of marriage, and
(3) subtract from that amount the family expenses paid over the years of the marriage from the business earnings (which the exam question will also give you).
CP portion = Market salary - Family expenses paid from salary * Years of marriage
(b) Separate Property
(1) Subtract CP amount from the value of the business at divorce, and the remainder is separate property.
SP portion = FMV of business at the dissolution - CP portion
Note: If the exam merely mentions the salary or services, but doesn’t give any specific numbers, just discuss the Van Camp rules without doing any calculations.
Van Camp
Rule + Formula
Rule: Van Camp applies when the business’ character, or external circumstances, are the primary cause of growth in business value.
Under Van Camp, the value of going market salary for spouse-manager’s service is subtracted from the family expenses that was paid during the time of marriage to determine community property portion.
Then separate property is the business’s fair market value at dissolution minus the community property portion.
Business Value
Courts use two business valuation methods:
1. Market sales valuation (expert opinion), and
2. Capitalization (past excess earnings attributable to goodwill)
Court not bound by private valuation agreements
Business Goodwill
Business Goodwill is the difference between the total value and the value of assembled physical assets. It is treated as community property to the extent it is earned or developed during marriage. Goodwill is treated like any other CP if created during the marriage.
Business goodwill represents those qualities that generate income beyond that derived from the spouse’s labor and the reasonable return on capital and physical assets.
—
The difference between a business’ total value and the value of its assembled physical assets
The value of goodwill is determined by facts/court
Education and Training
Education and training acquired during the marriage are not treated as community property. Thus, [educated spouse’s] degree is not community property, but rather her/his separate property.
Absent an agreement to the contrary, there is an equitable right of reimbursement to the community plus interest when community funds are: (i) used either to pay for education or training or to repay a loan used for education or training; and (ii) the education or training substantially enhances the educated spuose’s earning capacity.
Education and training expenses
1. Tuition
2. Books
3. Not living expenses
Reduction of Reimbursement – Education and Training
Reimbursement to the community may be reduced if the community has already substantially benefited from the education and training.
* There is a rebuttable presumption that the community has already benefited when more than 10 years have elapsed between the date obtaining the degree and the divorce, and a rebuttable presumption that the community has not benefited when less than 10 years have elapsed between the date obtaining of a degree and the divorce.
* Reimbursement to the community may also be reduced if the education reduces the need for spousal support.
Education and Reduction reimbursement
Approach
- first, IRAC whether there is a right of reimbursement, and
- then separately IRAC whether the reimbursement may be reduced.
- Note: discuss and IRAC both parts of the rule separately and in order—
Prenuptial Agreements
Agreements made before marriage (prenuptial agreements) do not require consideration, but they must be in writing signed by both parties to satisfy the Statute of Frauds. Premarital agreements will not be enforced if they “promote divorce” nor if they are not “voluntary.”
Voluntary
Prenup
An agreement is not enforceable beause it was not entered into voluntarily if:
1. the party against whom enforcement is sought was represented by independent counsel, or expressly waived that requirement;
2. at least seven days before execution, the agreement is presented to the party and the party is advised to seek independent counsel.
However, if (s)he is still unrepresented by counsel, the party is:
a) fully informed in writing of the terms of the agreement and the rights (s)he would be giving up, and
b) proficient in the language of the agreement and the explanation, and
c) the agreement was not executed under duress, fraud, or undue influence.
Unconscionability Test
Prenup
Alternatively, a party could set aside a prenuptial agreement that is unconscionable when executed if the party did not and could not have had adequate knowledge of the other party’s wealth and didn’t waive her right to disclosure of such wealth.
Credit Acquisitions
Presumption is that it is a community debt. The presumption can only be overcome by evidence that the lender primarily relied on the borrower’s separate property in granting the loan or extending the credit.
—
In determining the character of the loan proceeds toward the **value of property **purchased **during marriage **by the spouses, the **usual presumption in favor **of the community applies, and can only be overcome by evidence that the **lender primarily relied **on the borrower’s separate property in granting the loan or extending the credit.
—
Credit Acquisitions
Approach
Presumption is that it is a community debt.
—
1. Refers to loans/credit obtained during the marriage.
2. Rule: Presumption is that it is a community debt.
3. Presumption can only be overcome by evidence that lender primarily relied on the borrower’s separate property in extending the credit.
Tracing of Funds
There are two presumptions involved in tracing commingled funds used to purchase an asset.
1. First, in relation to the Van Camp calculations, family expenses are presumed to be paid first from community funds.
2. Second, when separate funds are in fact used to pay family expenses, the law presumed there was a gift of those funds to the community.
2 Methods Tracing When Money put In/Out of Bank Account
- exhausation
- sufficient funds
Exhaustion
At the time the funds are used to purchase the asset, the community funds have been exhausted by payment of family expenses from the account. Thus, all that is left are separate funds, so that the asset is a separate property asset.
Community funds exhausted by payment of family expenses, so only SP left.
Sufficient funds
Here, the spouse claiming the funds are SP must show there were always sufficient SP funds so that there is no need to commingle.
a) In using this method, look to whether the account balance ever fell below the initial SP amount.
b) If not, presume all family expenses are paid first and only from CP, leaving the SP intact and available both as SP funds and to purchase a separate property asset.
—
* Always sufficient SP funds so no need to commingle – if balance never fell below SP amount presume all family expenses paid from CP, and enough SP left to purchase asset.
* sufficient funds - only need to prove that amount of unds is constantly there
Community Payments on Purchase Price of [spouse’s] Separate Property
When a spouse purchases separate property before marriage, but then makes payments on the purchase price of the property from community property such as earnings (by, for example, paying down a mortgage), those earnings are community property, and the payments thus are from community property.
To determine the character of the property, apply the Moore formula:
The community interest is proportional to the amount by which the community payments reduce the debt principal—and only the debt principal. Thus, reduction of principal—not interest, taxes, or insurance—is the only factor.
—
Apply the Moore formula – CP interests is proportional to amount of CP dollars used to reduce principal amount of loan
CP Improvements to SP
When a spouse makes improvements to separate property, in most cases this gives rise to the community’s right to reimbursement. When a spouse makes community payments to improve their own separate property, the community is entitled to the greater of:
1. the reimbursement amount; or
2. the amount by which the improvement increases the value of the separate asset.
When a spouse makes community payments to improve the other spouse’s separate property, the traditional rule was that there was a presumption that the community made a gift to the other spouse’s separate property, and thus there was neither a right to reimbursement nor a community interest in the improved separate property, in the absence of evidence to overcome the presumption.
The modern rule in many appellate courts tends to reimburse the community in the absence of any contrary agreement.
—
Note:
* This concept is different from an acquisition of jointly-held property during marriage—where the property is presumptively community for purposes of dissolution, where there is no proportional interest involved, and where, as any separate property contribution to the acquisition is simply reimbursed without interest or appreciation.
* When a spouse makes community payments to improve their own separate property, the community is entitled to the greater of:
1. Reimbursement or
2. Amount by which the improvement increases the value of the asset.
* When a spouse makes community payments to improve the other spouse’s separate property, presumed to be a gift (traditional) or reimbursement (modern).
Sales of Community Property without Spouse’s Consent
Both spouses must execute any instrument transferring real property. A transfer to a good faith purchaser without knowledge of the marital relationship is presumed valid. The non-consenting spouse can overcome this presumption only if (s)he:
(1) brings an action to void the transaction within one year of the recording of the transfer; and
(2) demonstrates (s)he did not in any way consent to or participate in the transfer.
If (s)he succeeds, (s)he may void the conveyance, but (s)he must first return the purchase price.
Sale of Personal Property without Spouse’s Consent
A spouse cannot sell household furnishings, clothing and the like without the other spouse’s consent. If that is done, the community is entitled to reimbursement.
Property liable + Order and Satisfaction
approach
- Property liable. Use debt rules to discuss whether litigant/creditor can reached debtor spouse’s SP and CP
- Order Satisfaction. Include both rules and applied accordingly.
—
see essay 1 for order and satisfaction
Debts and Obligations
Creditors’ rights follow management rights. Thus, a creditor may reach any property over which a debtor has the legal right of management and control.
—
There are two major issues that, when they are tested, are tested together:
1. which property (community, debtor spouse’s separate property, and/or non-debtor spouse’s property) is liable for the debts?
2. In what order for those types of property is the debt satisified
a) [for tort and criminal debts, in what order of those types of property is the debt satisfied from?] <— general discussion
3. Note:
* Discuss them separately and in that order.
* creditor can go after SP’s property and CP’s fund for necessities
Types of debts, when they are incurred, and which property is liable.
- Contract debts are incurred at the time the contract is made.
- A tort debt arises when the tort is committed but a non-tortious spouse is not personally liable for the tortious spouse’s torts, unless they would be liable even if the parties were not married.
- Criminal liability (for restitution, or fines) is treated in the same way as tort liability.
- Child and spousal support from a previous marriage is treated as a debt incurred before marriage.
(Spouse’s) Debts Before Marriage - Liability for Contractual Debt by Debtor Spouse
a) All the community property, and the debtor’s separate property, are liable for a contractual debt incurred by the debtor spouse before marriage.
But the separate property of a non-debtor spouse is never liable for a contractual debt incurred by the debtor spouse before marriage.
(Spouse’s) Debts During Marriage
All the community property, and the debtor’s separate property, are liable for a debt incurred by the debtor spouse during marriage. Thenon-debtor spouse’s separate property is only liable if the debt is contractual and is for “necessaries” such as living expenses (food, shelter, medicines, and the like).
Community Property 3
Non-Tortfeasor Spouse’s SP
subrules - (Spouse’s) Debts During Marriage
Non-tortfeasor spouse’s separate property not liable (unless that spouse would be liable for the tort).
Tort Debt Arises
subrules - (Spouse’s) Debts During Marriage
A tort debt arises when the tort occurred, not when the judgment is rendered
Assignment of Debts at Divorce
Notwithstanding what property a creditor can satisfy their debt from, the court also assigns debts at divorce, Community debts are assigned to the community. Separate debts—those incurred by a spouse before marriage and those debts for non-necessaries incurred post-separation—are assigned to the debtor spouse. In that case, if the creditor collects from the community property, the debtor spouse must reimburse the community.
Order of Satisfaction
Two-Part Rule:
1. If the activity in which a spouse commits a tort that gives rise to the debt is an activity for the benefit of the community, then the debt will first be satisfied from the community property, then, if necessary (that is, if the community property is not enough to pay off the debt), from the debtor spouse’s separate property.
2. However, if the activity is not for the benefit of the community, then the debt will first be satisfied from the debtor spouse’s separate property, and then, if necessary, from the community property.
—
This concept of order of satisfaction only applies to tort debts and criminal fines.
With contractual debts, the creditor is not limited to an order of satisfaction.
Contract liability
- No Order of Satisfaction for contractual liability
- ONLY an issue of WHICH property is liable to satisfy the contractual debt
Tort liability**
- Activity that benefit the community:
a) Community property,
b) Debtor spouse’s separate property - Activity that not benefit the community
a) First, Be satisfied from the debtor spouse’s separate property, and
b) Second, From the community property
Bad Faith
same as the fidicuary rule regarding managing it
In the management and control of community assets, each spouse must act in accordance with the general rules governing fiduciary relationships, which govern the actions of persons in confidential relationships. Thus, deliberate dissipation of community property, recklessness, and grossly negligent conduct that results in the loss of community property are actionable and can result in the requirement that the culpable spouse reimburse the community for any loss. If spouse expended funds in bad faith, or deliberately dissipated CP, or acted with recklessness or gross negligence, the community is entitled to offset or reimbursement. But mere negligence is not grounds for reimbursement.
—
The issues of the sale of property without consent are a subset of the general fiduciary duties of spouses.
1. So, if a spouse expended funds in bad faith (for example, the spouse sold real property without other spouse’s consent and then spent it, or gambled away community funds), the community is entitled to offset or reimbursement.
2. However, these standards are not as strict as a prudent investor standard, so merely negligent investment, as we saw on the take-home essay, will not result in a requirement of reimbursement.
3. e.g., bad faith acts
- the spouse sold real property without other spouse’s consent and then spent it, or gambled away community funds
Spousal and Child Support
Other Often-Tested Exceptions
Spousal and child support from a prior marriage is considered prior debt, and payable from CP. But if, at the time of payment, SP was available to pay the support, the CP is entitled to reimbursement.
Prior marriage spousal support and child support payments, if paid from community property when the debtor spouse’s separate property was available to make the payments, must be reimbursed to the community on divorce.
Pre-marital debt can’t reach spouse Separate bank funded by SP
Other Often-Tested Exceptions
Also, if the non-indebted spouse put their earnings into a separate bank account in the spouse’s sole name to which debtor spouse had no access, those funds cannot be reached to pay past child support or any other pre-marital debt of the debtor spouse.
Survivor’s (Widow’s) Election
Occasionally, decedent’s will attempt to leave the survivor’s community property interest to a third party, usually because the decedent believed the property was his or her separate property. When this happens, the surviving spouse must elect whether to take their distribution under the will or to assert their community property rights.
Note:
1. Applies IF testator-spouse attempts to bequeath surviving spouse’s CP
2. Survivor may elect to either take benefits under the will OR their ½ of CP – BUT NOT BOTH.
3. hypo:
if decedent and survivor owned both Blackacre and Whiteacre as community property, but decedent leaves “all the undivided interest in Blackacre” to X (thus attempting to give away the surviving spouse’s ½ community property interest in Blackacre), and “all the undivided interest in Whiteacre” to spouse,
1. spouse cannot take BOTH all of Whiteacre and their community property half of Blackacre.
2. Spouse must elect which to take.
Federal Preemption
When state community property law is inconsistent with Federal law, federal law prevails. To determine if there is an issue, there is a two-part test:
1. Does the property right conflict with the express terms of federal law?
2. If yes, does the** state law cause sufficient injury** to federal objectives to require preemption?
CP does NOT apply**
CP does NOT apply to:
1. Federal Homestead law,
2. Armed forces life insurance benefits,
3. U.S. Saving Bonds, social security law,
4. Railroad retirement benefits, and
5. VA disability benefits
CP DOES apply
CP DOES apply to:
1. Federal Civil Service and Foreign Service Retirement benefits
2. ERISA pension benefits in a divorce are divisible under community property law.
–
Note: ERISA pension benefits prohibit testamentary disposition of a decedent’s community property interest to anyone other than their surviving spouse.
creditor against tortfeasor/breaching spouse
Approach
- Refers to loans/credit obtained during the marriage.
- Rule: Presumption is that it is a community debt.
- Presumption can only be overcome by evidence that lender primarily relied on the borrower’s separate property in extending the credit.
