Community Property

Question 1

What is separate property?

Answer 1

Property owned or claimed by the spouse before marriage; OR

Property that is acquired during marriage that was a gift, devise, or descent; OR

The recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.

Question 2

What is community property?

Answer 2

another form of co-ownership that can only exist between spouses during marriage!

Rule of implied exclusion: Anything that is not separate property is community property

Question 3

What is the community property presumption?

Answer 3

All property possessed by either spouse during or on dissolution of marriage is presumed to be community property.

Person asserting that it is separate needs clear and convincing evidence to rebut this presumption.

Question 4

What is the marital estate?

Answer 4

All property combined is the marital estate and then you have to break down everything and determine if it is separate or property.

Question 5

Property conveyed to only one spouse during marriage

Answer 5

When property is conveyed to only one spouse, the named spouse has legal title and the other spouse has ½ of the equitable title. The named spouse holds legal title as trustee for the unnamed spouse.

Question 6

What happens upon the death of a spouse?

Answer 6

DWAP. Death works a partition.

Suriving spouse retains ½ interest and the deceased spouses ½ interest passes to the heirs/devisees.

If in both names, heirs/devisees get ½ of both legal and equitable title!

Question 7

What is the rule for management of separate property?

Answer 7

Each spouse has the sole management, control, and disposition of that spouse’s separate property.

Question 8

What is the rule for managing sole management community property?

Answer 8

During marriage, each spouse has the sole management, control, and disposition of the community property that the spouse would have owned if single, including:
(1) personal earnings;
(2) revenue from separate property;
(3) recoveries for personal injuries; and
(4) the increase and mutations of, and the revenue from, all property subject to the spouse’s sole management, control, and disposition.

UNLESS mixed or combined with joint community or the other spouse’s community. THEN subject to the joint management.

Question 9

What is the rule for managing joint management property?

Answer 9

Any transaction regarding joint management community property requires joinder of the other spouse or else the transaction is void.

Question 10

What is the standard to determine if a spouse breached their duty not to commit a fraud on the community?

Answer 10

There must be actual or constructive fraud.

Question 11

What is actual fraud?

Answer 11

Burden of showing that the gifts were made with the primary purpose or intent of depriving her from having the use and enjoyment of those assets.

Question 12

What is constructive fraud?

Answer 12

A gift of one spouse’s share of the community property will be set aside where the gift is unfair to that spouse.

Three primary factors:

The size of the gift in relation to the estate

How much of the estate remains to support the spouse in spite of the gift

The relationship of the donor to the donee

Question 13

What is required to sell, convey, or encumber the homestead?

Answer 13

Joinder is required if selling, conveying, or encumbering the homestead REGARDLESS of whether the homestead is the separate property of either spouse or community property.

Question 14

Generally, does a third party have a duty to inquire into the authority of the spouse?

Answer 14

No, IF:
1. The property is presumed to be subject to the sole management of that spouse
2. The person dealing with the spouse:
Is not a party to the fraud AND
Does not have actual or constructive notice of the lack of authority.

EXCEPTION: Homestead! Want proof they are not married (because it requires joinder)

Question 15

Management when one spouse becomes incompetent

Answer 15

Other spouse becomes the community administrator and manages the entire community estate (sole management of other spouse too and joint).

Need probate court decree saying the other spouse is incapacitated.

May need guardian of the estate for the incapacitated spouse’s separate property.

Question 16

What is the biggest exception to the attributes of ownership?

Answer 16

the homestead is not attachable in most instances!

Question 17

To determine what debt is payable by what spouse (what marital assets can be used to satisfy the debt), have to answer:

Answer 17

1. Whose debt is it (the husband’s, the wife’s, or both?)
2. When was the debt incurred (before of during the marriage?)
3. What kind of debt is it (Tort of contract?)
4. Is it some kind of special debt: (agency relationship or debt for necessity.

Question 18

What marital property may be reached if both spouses incurred the debt?

Answer 18

Joint and severally liable so the entire marital estate is available to creditors.

Question 19

During marriage: What marital property may be reached if the Husband entered into a contract during marriage OR if before marriage entered contract or committed a tort?

Answer 19

Huband’s separate, Husband’s sole management, and the entire joint community!

NOT wife’s sole management or wife’s separate.

Question 20

During marriage: What marital property may be reached if the Husband commits a tort during marriage?

Answer 20

Husband’s separate, Husband’s sole management, entire joint community, and entire of wife’s sole management!

Everything except wife’s separate.

Question 21

Order in which property may be taken if available to creditors: (still assuming husband’s debt)

Answer 21

Husband’s separate property
Husband’s sole management
Joint management
Wife’s sole management (If tort debt incurred during marriage!)

Question 22

What is community debt?

Answer 22

No such thing as community debt!

The community is not an entity and therefore cannot incur debt.

Both may incur the debt and they are joint and severally liable, or one may incur the debt and the other’s spouses interest may be available to creditors.

Question 23

General rule of property division upon divorce?

Answer 23

The court shall order a division of the (COMMUNITY) estate of the parties in a manner that the court deems just and right

Not an equal division like there is upon death! The court may decide what is just and right by looking at the facts and circumstances.

Question 24

What is the quasi-community property exception to the just and right division at divorce?

Answer 24

General Rule: Divorce court cannot divide the entire marital estate, ONLY the community property

Exception: ONLY in divorce, the court may divide quasi-community property: If property was acquired in a common law state and would have been separate property in that state, but would have been considered community property if acquired in Texas, the court may treat is as community property for the purposes of just and right division.

Question 25

What does a divorce court do about debts?

Answer 25

When the court is defining what is just and right, they are dividing liabilities and assets.

No such thing as community debt so the divorce court allocates responsiblity of payment BUT creditor’s rights remain the same!

Question 26

Spousal immunity in a divorce or probate:

Answer 26

A spouse may bring a tort claim against the other.

There used to be a common law concept of spousal immunity, BUT the legislature abolished that concept.

Now, the spouse can go after the separate property of the other spouse to recover for their tort (just like any other tort claimant)

Question 27

What is the probate estate?

Answer 27

Separate property + undivided ½ interest in probate assets of what was the community property (what was because technically as soon as the spouse dies it is no longer community property. DWAP)

Question 28

When a spouse dies, DWAP occurs. What are the heirs and the surviving spouse now?

Answer 28

Surviving spouse and heirs/devisees are now TIC!

And surviving spouse is trustee to heirs/devisees while they retain possession!

Question 29

Liabilities of community property on the death of a spouse:

Answer 29

Community proerty continues to be subject to the liability of that spouse on death.

And an interest in nonexempt community property passes to the heirs charged with the debts enforceable against the spouse before death.

So, if H dies, Husband’s ½ interest in wife’s sole management community property is still subject to debt. BUT the wife’s ½ interest in the husband’s sole management property is now exempt.

Question 30

Are homestead rights dependent on the characterization of the property?

Answer 30

No! The homestead rights and the respective interests of the surviving spouse and children of a decedent are the same whether the homestead was the decedent ’s separate property or was community property

Question 31

What is the prohibition on partition of homestead?

Answer 31

The homestead may not be partitioned among the decedent ’s heirs: during the lifetime of the surviving spouse for as long as the surviving spouse elects to use or occupy the property as a homestead.

Right of occupancy! Does not effect the ownership interest, just possession.

NOT a life estate. No property interest, so no attributes of ownership.

Question 32

When may the homestead be partitioned?

Answer 32

The homestead may be partitioned among the respective owners of the property in the same manner as other property held in common if: the surviving spouse dies, sells his or her interest in the homestead, or elects to no longer use or occupy the property as a homestead.

Question 33

What is the mere agreement rule?

Answer 33

Originally, spouses could not contract to change the characterization of their property by mere agreement because it violates the TX constitution. BUT, new amendments to the Constitution allowed for exceptions to this rule.

Question 34

In TX, what is the capital consequence of a spouse leaving their interest in community real property to their spouse in their will?

Answer 34

Husband’s ½ interest is subject to estate tax generally, BUT leaving it to his wife qualifies for a deduction, so it will be tax free. No capital gains tax.

Question 35

In a common law state, what is the capital consequence of a spouse leaving real property to their spouse in their will?

Answer 35

They still have the basis, so will be taxed on the gains.

If in TX and spouse’s separate property as TIC, same result as here.

Question 36

What is the general rule regarding income from separate property?

Answer 36

Income from separate property is community property (unlike most community property states)

BUT the legislature exempted the income from the separate property from the creditor of the other spouse.

Question 37

What is the inception of title rule?

Answer 37

The character of title to property as separate or community depends upon the existence or nonexistence of the marriage AT THE TIME OF THE INCEPTION of the right in virtue of which the title is finally extended.

The title, when extended relates back to that time.

What happens after inception of the title is immaterial for characterization!

Start with community presumption. But, if the date of the inception of title was before marriage, separate property. If after marriage, community property but have to look at all the facts and circumstances (may be a gift, etc.) Ignore PER and allow extrinsic evidence, even if contrary to wording of the deed.

Question 38

If it is a spouse’s separate property but they include the other spouse’s name on the title, what do we look for?

Answer 38

The presumption is that the spouse made a gift, so would be 1/2 separate property as TIC. But then the presumption may be rebutted by lack of donative intent!

Question 39

Traceable mutation rule:

Answer 39

To maintain the character of separate property, it is not necessary for the property to remain in the same way it was acquired (don’t have to keep the same house) so long as it can be clearly and indisputably traced and identified, its character will remain!

Clear and convincing evidence.

Question 40

Is property acquired on credit during the marriage community property?

Answer 40

Yes, property acquired on credit is still community property even if only one spouse may be liable.

Question 41

Purchase money resulting trust

Answer 41

If you purchase something and put it in someone else’s name, you become the resulting trustee.
But Husband can rebut this by preponderance of the evidence that he had no donative intent.

Question 42

If community property is used to purchase something and it is put in both spouses name:

Answer 42

No presumption for other spouse to claim it is a gift (and thus her separate property) if community property is used to acquire it.

Wife would need to have clear and convincing evidence to prove that it was a gift.

Question 43

When the other spouse is NOT a party to the transaction:

Answer 43

Significant recital rule: deed states it is conveyed as separate property or paid for (consideration) with separate property, creates a presumption that it is separate property. Need preponderance of the evidence to rebut.

Question 44

When the other spouse IS a party to the transaction and the deed conveys as separate property or says paid for with separate:

Answer 44

Husband is estopped from rebutting the presumption that it is his wife’s separate property! He is agreeing it’s a gift in the transaction, so he is estopped unless there is fraud.

Question 45

Does the increase in value of the property affect the characterization?

Answer 45

NO! Change in value does not affect the characterization of property, regardless of why the value changed.

Question 46

Exception to the creditor rules and access to marital property:

Answer 46

The creditor and borrower can EXPRESSLY agree that one spouse is paying the debt out of their separate property. The creditor is then agreeing to only go after separate property, so other spouse’s property is not at risk.

Question 47

Does TTL affect the characterization of the property?

Answer 47

NO! Think about the inception of title rule.

Question 48

Characterization of permanent fixtures on land that is separate property

Answer 48

Even if built with community funds, the fixtures are separate property (but then claim for reimbursement)

Question 49

What is commingling?

Answer 49

Inability to trace after the mix of separate and community property means the whole is community property.

Question 50

What is a claim for reimbursement?

Answer 50

Anytime one marital estate is used to benefit another marital estate!!

Different than fraud that benefits a 3rd party!

If community property used to benefit a spouse’s separate, OR separate property is used to benefit the community.

Reimbursement is not a right, title or interest in the land. It is a claim that the court will consider.

Question 51

How do you characterize royalties paid by an oil company?

Answer 51

If the land is H’s separate property, then the oil is separate property because it is a traceable mutation.

Same with a bonus paid by the oil company.

Question 52

How do you characterize rentals paid by an oil company?

Answer 52

Even if the land is H’s separate property, income from separate property is community property.

Question 53

The claim for reimbursement is limited to:

Answer 53

Reimbursement is limited to the amount of enhancement of the property at the time of partition, NOT the cost of the improvement.

Hypothetically looking at what is the value of the land with the improvement vs. without.

Question 54

How is a claim for reimbursement enforced?

Answer 54

Reimbursement is a money judgment! Unlike fraud on the community, where money judgment MAY be awarded.

Here, the other spouse is seeking to become a creditor!
Money judgment that can be imposed by an equitable lien on the property.

Question 55

Reimbursement when differentiating between principal and interest

Answer 55

Reimbursement claim if the community property used to pay of the separate property’s purchase money indebtedness. BUT then what are the measures of damages?

Have to differentiate between principal and interest:

Principal payments: How much has the community expended to pay off the debt

Interest payments: cost-benefit analysis. How much benefit has the community property derived from the use of the separate property.

Question 56

Reimbursement claim if community property is used to pay taxes or insurance of separate property?

Answer 56

cost-benefit analysis. How much benefit has the community property derived from the use of the separate property.

Question 57

Reimbursement in probate vs. divorce?

Answer 57

If there is a 500k claim for reimbursement:

Probate: DWAP so claim of only half of the community funds were theirs

Divorce: court will do what is just and right

Question 58

If H sells seperate property during marriage, what can wife do?

Answer 58

A claim for reimbursement percolates during the marriage. CANNOT make a claim for reimbursement until after dissolution!

But on dissolution, W still has claim for reimbursement if the community funds were used to benefit the separate property!

Question 59

What are the non-reimbursable claims in TX?

Answer 59

(1) the payment of child support, alimony, or spousal maintenance;
(2) the living expenses of a spouse or child of a spouse;
(3) contributions of property of a nominal value;
(4) the payment of a liability of a nominal amount; or
(5) a student loan owed by a spouse.

Question 60

What if separate property used in business operations?

Answer 60

If sole propriatorship - have to trace to each and every asset to overcome community property presumption.

If corporation, can trace to shares of stock owned, so easy tracable mutation here.

Question 61

What is a contemporaneous business record?

Answer 61

To show by clear and convincing evidence that it is separate property, must keep a contemporaneous business record that there was a conscious decision to invest separate property. Have to be able to convince a jury.

Question 62

What is the general rule for time, talent, and labor?

Answer 62

Rule: Claim for reimbursement of the community when TTL of a spouse is used to increase the value of his separate property!
EXCEPTION for stock: increase in value is separate regardless of why it increased (passive investor or TTL)

Question 63

How do you value a TTL claim for reimbursement?

Answer 63

TTL is a question of fact as to what is the value of the services.

Trying to offset what he was actually paid! If not paid enough, the difference is community property. Reimbursement is based on uncompensated TTL!

If closely held corporation - usually no claim for reimbursement because they typically over pay themselves.

Question 64

What if a spouse is a partner of a partnership. Can the other spouse claim an interest?

Answer 64

Entity assets of the partnership are the partnership’s property, so they cannot have seperate/community property characterization.

Only thing we care about is the interest of the partnership, so then just looking at inception of title.

Distributions from partnerships are community property.

Question 65

What is brick theory?

Answer 65

Originally separate property, but due to the TTL of a spouse, the property transforms significantly so that it is a new product. The new product is then community property and the spouse who originally owned the separate property has a reimbursement claim.

Question 66

Analysis for TTL, Reimbursement, and Brick theory:

Answer 66

If separate property - can expend reasonable TTL without claim of reimbursement.

If separate property - if expends unreasonable TTL, then claim of reimbursement

If by the TTL of one spouse their separate property transforms into a new product and is then community property, that spouse now has claim for reimbursement.

Question 67

Alter ego and community property

Answer 67

If a spouse can prove that the other spouse was using the entity as their alter ego, they may pierce the veil and access the corporation’s property.

Elements necessary to disregard the corporate entity:
Finding of fact that spouse is using corp as alter ego (unity of fact between corp and SH)
SH’s use of the corp damaged the community estate beyond what could be reimbursed!

Only applies where the spouse is the sole SH!

Question 68

Property damage and community property:

Answer 68

Insurance proceeds paid during the marriage are characterized in the same manner as the property to which the claim is attributable!

But if premiums are paid with community funds, then reimbursement.

Question 69

What is professional good will?

Answer 69

Professional good will is different than business good will.

Professional good will is NOT property, unlike BGW, so can’t characterize it!

Question 70

Is a license or degree property that may be characterized?

Answer 70

a license/degree is NOT property, so it is not divisible upon divorce

But may have TTL reimbursement claim

Question 71

What is spousal maintenance?

Answer 71

Essentially a limited form of alimony available in specific circumstances for a limited amount of time.

Question 72

What litigation recoveries are seperate property?

Answer 72

Pain and suffering
Loss of consortium

Question 73

What litigation recoveries are community property?

Answer 73

Medical expenses (past yes, future maybe)
Lost earnings (past yes, future maybe)
Punitive (probably, no cases yet)

Question 74

What are the 3 stages of participant involvement in retirement?

Answer 74

1. During employee’s probation period, employee’s benefit is contingent and reverts to the employer if they die, quit, or gets fited.
   Neither vest nor matured (but MORE than an expectancy)
2. After probation period, plan vests but does not yet mature (plan matures at retirement)
   Most cases happen during this stage
3. At retirement, plan is now vested and matured.

Question 75

Who provides retirement plans and what regulates them?

Answer 75

Generally provided by a private employer
Regulated by ERISA

Some plans are created and regulated by state governments
TX teachers ans state employees
Regulated by state, not federal

Retirement plan is federally created by federal law
Regulated by federal law.

Question 76

If it is a federally created retirement plan, must look to federal law first. Which ones are divisible?

Answer 76

Divisible:
Federal civil service
Federal workers comp
Military

Not divisible:
Social security
Fleet reserve
VA
National Service Life Insurance (WWII)

Question 77

Retirement plans at stage one (neither vest nor matured) on divorce, spouse’s death, and participant’s death:

Answer 77

Divorce
Divorce court can still make a just and right division. ERISA says look to state law, but requires a QDRO or else the other spouse is unable to enforce with plan administrator.

Spouse’s death
Contingent interest, so property interest, DWAP. BUT because of ERISA, the other spouse cannot transfer an interest, so it remains with the particpand and ½ interest does NOT go to spouse’s heirs! ERISA prempts DWAP.

Participant’s death
Contingent interest, so not inheritable because it hasn’t met condition precedent yet. Reverts back to employer, which is consistent with federal law.

Question 78

Retirement plans at stage two (vested but not matured) on divorce, spouse’s death, and participant’s death:

Answer 78

Divorce
ERISA says look to state law. State law says it’s divisible, but ERISA requires QDRO for enforcement.

Spouse’s death
ERISA preempts DWAP. Can’t transfer in testamentary disposition, so stays with the participant spouse.

Participant’s death
Texas law says probably non-probate with a designated beneficiary. If spouse doesn’t have at least half, than fraud against the community claim.
BUT federal law, completely preempts TX law! Requires QPSA. Spouse has a mandatory benefit and most plans say they get it all.
UNLESS prior to participant’s death they enter into an agreement with the plan administrator and waive mandatory benefit to surviving spouse.

Question 79

Retirement plans at stage three (vested and matured) on divorce, spouse’s death, and participant’s death: QJSA

Answer 79

Divorce
TX: totally up to participant spouse because sole management community property, as long no fraud on the community.
But ERISA preempts TX law. ERISA doesn’t care if separate or sole management.
At retirement: general rule: benefits must come out of the retirement plan as a QJSA (Qualified joint & Survivors annuity). Beneftis both the participant and their spouse. But at the time of retirement, the participant, spouse, and plan administrator can opt-out of the QJSA.
Alternatives to QJSA: Lump sum, roll over, or other annuity.

Spouse’s death
Always paid to the participant first. Still just payment paid to participant, and when the participant dies, the payments end.

Participant’s death
Paid to the participant until they die, then paid to the spouse. Can court divide? Yes, ERISA is out of the picuture!

Question 80

Retirement - vested and mature - Lump Sum on divorce, spouse’s death, and participant’s death

Answer 80

most common alternative to QJSA. Lump sum to the participant. Income tax at that time. Community property if everything occurred during marriage.

Divorce
ERISA no longer applies, so just a just and right division.

Spouse’s death
Might DWAP or may be invested so that there is a POD designation and then it is non-probate. Could be fraud if the surviving spouse doesn’t get ½.

Participant’s death
ERISA no long applies because already retired, so same as if spouse dies. Might DWAP or may be invested so that there is a POD designation and then it is non-probate.

Question 81

Retirement - vested and mature - roll over on divorce, spouse’s death, and participant’s death

Answer 81

Another common alternative to QJSA. Getting a lump sum, but rolling it over into the brokerage account as individual retirement account (IRA). IRA is sole management community property.

Divorce
ERISA no longer applies, so just a just and right division.

Spouse’s death
DWAP but depends on if there is non-probate disposition.

Participant’s death
DWAP but depends on if there is non-probate disposition.

Question 82

Retirement - vested and mature - other annuity on divorce, spouse’s death, and participant’s death

Answer 82

contract with insurance company so single-life annuity payable to participate. Get more per month than if QJSA, but on the death of the particpant, it lapses and is completely gone! Contract terms control.

Divorce
ERISA no longer applies, so just a just and right division.
Spouse’s death
DWAP but depends on if there is non-probate disposition.
Participant’s death
DWAP but lapses so nothing left to distribute.

Question 83

Key difference between state (TX created plans for state employees) and federal retirement plans

Answer 83

Terminable interest rule: upon death of the non-particpant spouse, while the particpant is still working OR retired, the spouse’s interest is terminated!

If divorce, still just and right.

Question 84

Main difference between Reimbursment and Fraud on the community:

Answer 84

Reimbursement: Using marital property to benefit other marital property. All transactions happen within the marriage!

Fraud on the community: Using community property to benefit a 3rd party! Transaction occurs outside of the marriage.

Question 85

Fraud on the community standard:

Answer 85

Spouse can choose how to manage their sole community property in anyway that is not a fraud on the community!)

Fraud on the community is about a disposition to a 3rd party. Can either be actual or constructive fraud.
Actual: intent to deceive
Constructive: unfair to the other spouse

Question 86

Are punitive damages allowed when a spouse claims fraud on the community?

Answer 86

No punitive damages allowed because fraud on the community is NOT a separate tort COA.

Fraud on the community is an equitable concept to adjust the equities on division.

Question 87

How does a fraud on the community claim differ from divorce to probate?

Answer 87

Divorce: Spouse must plead and prove fraud. The court will use the established fraud claim as a factor to divide as to what is just and right. Likely will give the spouse more.
What if just and right division cannot make her whole (like court awards W everything in the community and that’s still not enough)?
Then spouse can get a money judgment so that they can collect out of the separate property of the other spouse!
If the money judgment is not enough, may get a CT on the 3rd party!

Probate: DWAP, so spouse should have ½ interest in community probate assets. If spouse does not have at least half of the non-probate assets, they have a fraud on the community claim!

Question 88

What is a convenience account?

Answer 88

No survivorship rights.
The depositor = the owners.
Convenience signer has no ownership interest.
Ex. Elderly parent puts child on account to be able to write checks/make withdrawals.
Parent is owner as depositor. Child has no ownership interest.

Question 89

What is a joint account?

Answer 89

No survivorship rights.
Similar to convenience account, but usually more than one party is depositing funds.
Depositor still owns, but if more than one party depositing, they own in proportion to their net contributions.

Question 90

What is a joint account with survivorship rights?

Answer 90

Depositor still owns the account. Sothe non-depositing party must survive the depositor to have an interest!
Passes non-probate.
Ex. Parent adds child to account, but grants survivorship rights. I child dies first, nothing happens because they only had a mere expectancy.

Question 91

What is a POD account?

Answer 91

Ex. Parent opens account and designates child as POD beneficiary.
Parent still owns as the depositor and child must survive thep arent because they only have a mere expectancy until parent’s death.

Question 92

What is a trust account?

Answer 92

Treat trust account the same as a POD account. (depositor = owner. No ownership interest until owner dies)

Trust account is different than a private express trust.
A trustee of a private express trust can open an account and that is not a trust account.
A trust account is when the only evidence of ownership of the account is the agreement with the bank “O in Trust for B”

Question 93

Life insurance policy: who does the company pay when the insured dies?

Answer 93

Insured typically designates 3rd party beneficiary - then passes non-probate

If no VALID 3rd party ben - proceeds go to insured’s estate and become a probate asset.

Question 94

What is the analysis for life insurance policies?

Answer 94

Point 1: Insured enters into contract with life insurance company.
Determine if before or after marriage.
Did the insured assign their ownership of the policy?

Point 2: The policy matures on the death of the insured.

Then have to determine if there was a valid beneficiary.
If the named beneficiary predeceased the insured, NOT a valid beneficiary. If not valid, proceeds go to the estate.