Community Property Flashcards
CP Presumption
California (CA) is a community property (CP) state. There is a community presumption, meaning that all property acquired during marriage is CP by the labor or earnings of either spouse. There are areas of separate property (SP): (1) property acquired before or after marriage, (2) property acquired during marriage by either spouse through gift, will, bequest, devise, or inheritance, (3) Property acquired from SP funds, and (4) profits, rents, and issue of SP. The burden is on the spouse opposing CP to defeat the CP presumption. Courts use the source rule to determine the character of property by tracing the source of funds used to acquire the property.
Martital economic community
begins at marriage and ends at death of either spouse, divorce, or with the intent of either spouse to not resume the marital relationship coupled with conduct indicating that intent. If spouses maintain the facade of marriage the MEC has not ended. Prior to 2017, a valid separation ending the community also required that the spouses lived separate and apart. However, this requirement is no longer necessary
Generally on divorce CP is divided
equally in kind, meaning on a per-item basis unless a special rule requires deviation via a writing or stipulation by the court
Pension is determined by the
time rule
time rule
Courts consider the amount of time the spouse worked during marriage to get the pension divided by the amount of time total the spouse worked to get the pension.
EX: As such, if it takes 20 years to vest, and the marriage was for 10 years during the vesting period, the community property is 50%. Since community property is 50%/50%, the other spouse gets 25%.
what is the rationale of the time rule
spouse’s labor during marriage is CP and any funding earned from spouse’s labor is CP.
transmutation agreement
An agreement between spouses during marriage to change the character of an asset. No consideration is required, but this change must be in writing, signed and consented by the spouse adversely affected, and must expressly declare a change in ownership.
Exception to writting requirement for transmutation
gifts that are not substantial in value, used in the home, tangible personal articles
When property is acquired in joint and equal form, there is a presumption that the property is
CP and if any SP was used to purchase the property is subject to
Lucas and Antilucas
Antilucas
- Jointly titled property acquired by a married couple (from 1987 to present) is presumptively community property at divorce, but any separate property used for the purchase is entitled to reimbursement of fair market value at the time of purchase.
Before 1987 Lucas rule
Lucas Rule - separate property was presumed to be a gift to community property and not reimbursable. At death, separate property used to acquire jointly titled property is presumed to be a gift unless otherwise agreed.
Lucas
Any SP used to purchase the
property was presumed to be gift and there was no right to reimbursement (unless there
was an agreement).
When CP funds are used towards SP property, the character of the property does not
change. Rather, the community gets
pro rata ownership share in the property.
Courts use the principal debt reduction method to discern the community’s ownership share in the
property. The community is entitled to the amount it
expended to feather the nest of CP and the pro rata increase
with regards to the loan, what affects CP
If the lender looks to SP as security, the mortgage is likely SP.
However, if the lender looks to the spouse’s standing in the community or CP property as
security, the loan is likely CP.
When there is CP and SP (Commingled funds) the burdent is
is on the spouse claiming that property acquired with funds from that account is SP to show that SP funds were used to acquire the property.
How do you satisfy the burden for commingled funds
Direct-indirect out methood
Exhasuation rule
Under the direct-in-direct-out rule the spouse claiming SP must
show
that there were sufficient SP funds in the account and that the spouse had the intent
to purchase the asset with SP funds
Exhaustion rule
the spouse
claiming SP must show that all the CP funds were used in the account and all that was left
in the account was SP.
family expense presumption for specific types of expenditures
expenditures for community
items, such as living, rent, food, etc. are presumptively made from CP
how to defeat the family expense presumption
there are not adequate records and commingling occurs, it is presumed the SP funds used
for family expenses are a gift to the community
What fiducary duties are placed on spouses
good faith and fair dealing and neither should take any unfair advantage over the other
Fiducary duty as a spouse is breached when
breached with intentional, grossly negligent or reckless dissipation of property, or a gain in financial advantage at the expense of the other.
. With regards to PI settlement awards, if
the cause of action arose during the MEC, the settlement award is CP, UNLESS the
settlement award is from the other spouse when the other spouse is the tortfeasor in order for them not to benefit too
Although PI funds awarded from a cause of action that arose during marriage are CP, upon the divorce the court usually awards the funds .
exclusively to the injured spouse as SP unless
a) funds were commingled
b) there is economic hardship to the other spouse
If title was taken in one spouses name,
court would not hold this as conclusive evidence that the house was the spouses SP absent some manifestation by the other spouse that the house was intended as a gift
If H and W took the title to the house as JT w/ right of surviorship, each spouse has a
1/2 undivided interest during whole life and on death, title controls
Under CA’s anti-lucas statute, property is treated as CP with SP having a
right to reimbursement for any SP used by either spouse to improve the home
All debts incurred by either spouse prior to or during the course of marriage are
community debts.
Assignment of debts
court is free to assign CP debt to either spouse based on their relative ability to pay debt
Tort Obligations are incurred when
tort occurs not when the judgement is handed down
When does the tort order of payment come from the CP and wont touch SP
when it was committed for the benefit of the community
When a tort is not committed during an activity for the benefit of the community, the debt
will be satisfied first by
Tortfeasors SP then CP but not the other spouses SP
Reimbursement to the CP for paying any obligation arising from a tort arises when
the tortfeasor’s SP was available to pay
Typically, a judge will allocate a tort debt to the tortfeasor spouse if
If the tort was incurred not during an activity for the benefit of the community. However, a judge may take into account ability to pay to effect a more just allocation of debts
Equal Management
Each spouse generally has equal rights to manage community property
Equal Management includes the
right to sell and encumber property
Real Property and = Mangement
one spouse may not encumber community owned real property without the
other spouse’s consent. If one spouse, without consent, sells or encumbers community
real estate, the non-consenting spouse has the power to void that transaction within 1
year.
What can you be liable for post separation
necessities
Necessities are
refer to food, shelter, and medical expenses.
All property acquired during marriage while domiciled in a non-CP state that would be
CP if domiciled in CA, is presumed to be
Quasi CP
QCP remains separate property nature until
dissoultion or divorce
death
Personal Injury award is determined when
the cause of action arose, not when the spouse receives the settlement
What happens to the personal injury award at divorce
it will be awarded entirely to the injured spouse unless the interests of justice requires
Stock options depend on which formular is use and that depends on
what the intent was when granted
Child support payments from a previous marriage are treated like a debt incurred before marriage. Who is liable for the debt
CP is liable and parent spouses SP is lable but the other spouses SP is not. Community is entitled to reimbursement made with community funds to the extent SP was not used
Prenupital Agreement must be
voluntary, unconscionable, signed by both parties, and in writting
A court will find a prenup unconscionable if
if the terms are unfair, or if a spouse did not know the extent of the other spouse’s property before signing the agreement
Prenupital agreements is not voluntarily executed if
if a spouse is not represented by counsel before
signing the agreement, if they did not have more than 7 days before the wedding to review it, and they are not aware what the spouse is claiming as SP
to rebut the presumptin of involuntariness w/o counsel
spouse not represented by counsel must be advised to seek the advice of counsel in writing, and must waive that right in writing.
What happens when the spouse waives that right in writting
she must be allowed 7 days between the presentation of a prenuptial agreement and the signing of it, and she must also write, in a separate writing, that she understands the
rights she is giving up, and from whom she received the information regarding what the extent is of her spouse’s property.
When title is taken in joint form presumption is that the property is
CP unless in the title doc states otherwise
Lucas and Jointly titled property
a court will not allow tracing to determine the funds used to purchase a jointly titled home through the source rule and the property will be deemed CP
Lucas does not apply to
bank accounts
Bank account rule
a court will allow jointly titled bank accounts to be traced to determine the
source of funds and how it should be characterized
Proration rule
community property is used to pay an installment payment
on separate property, the community gains an interest in the property.
How do you calculate the proration rule
calculated by the expenditure of community
property towards the installment payment over the total purchase price
Pereira applies to
allotment to CP when the increase
in the value of the SP business comes from the efforts of the spouse
Under the pereira formula, SP is calculated as
[(FMV of business at marriage) * (fair rate of return) * (years of marriage)].
The CP is then calculated by subtracting the SP calculated above from the FMV at time
of separation.
Van Camp applies to the allotment of CP when the increase in the value of the business
due to reasons other than the spouse’s efforts, such as
market forces or characteristics inherent in the business, rather than the efforts of the spouse
Van Camp Formula
- Reasonable salary compensation – community expenses paid from business earnings = CP
- Remainder of the business = owner’s SP
Reverse Pereira applies to the alotment of CP when
increase in the value of the business comes from the efforts of the spouse
The SP is then calculated by subtracting the CP calculated above from the FMV at time of divorce.
Reverse Pereira
(FMV of the business at
separation) + [(FMV of business at separation) * (fair rate of return) * years of separation)]
Reverse van camp applies to the allotment of CP when
the increase in the value of the business is due to reasons other than the spouse’s efforts, such as market forces or characteristics inherent in the business, rather than the efforts of one spouse
Reverse van camp forumla
Reasonable salary compensation – community expenses paid from business earnings = SP
2. Remainder of the business = CP
Goodwill of CP business
refers to its community reputation and future business
prospects and earning potential. If the goodwill of the business is earned during
marriage, then it will be a CP asset.
When separate property and community property are commingled, a spouse may
establish that the source of funds was separate property through and how many types are there
tracing
Direct and Indirect
Direct Tracing
A spouse may trace the source of funds to separate property by directly linking a
deposit of separate property to a purchase, so long as the spouse had intent to purchase the property as separate property.
Exhausting
CP funds in commingled acct were exhausted
When a spouse receives disability or other payments, the court will first look to whether
the payments are intended to compensate for past work or to replace future earnings
When disability payments that replace future earnings are received by a spouse after permanent separation,
those payments are that spouse’s SP
Clawback Rule
Where quasi-community property owned by a deceased spouse and given away without paid-for consideration, but while retaining some ability to exercise ownership or control
over the property (such as a trust or joint tenancy property ownership), the surviving spouse may “claw back” the property to their own possession as community property at
the death of the spouse.
Pre-Marital Agreement
avoids CA CP
If a PMA was made on or after 01.01.1986 it is required to be
1) must be in writing; 2) be signed by both parties; 3) and is enforceable without consideration.
A PMA van be invalidated if
unconscionable or involuntary
involuntary factors for a PMA
before execution there was no fair disclosure of property, no voluntary and express written waiver of any right to disclosure, inadequate knowledge of financial obligations of the other party, or no 7-day period for outside counsel review
Putative spouse
person that has a good faith reasonable belief that they are married but in fact are not. Entitled to QMP, but the right ends once the person learns they are not lawfully married. However, the person retains rights to previous QMP acquired while the person had the good faith belief they were married.
Meretricious relationship
Property is governed solely by the agreement of the unmarried parties. Here, two persons are not holding themselves out as a married couple, but their cohabitation is more than a roommate agreement.
Rights of each spouse
Each spouse has equal rights to manage and control CP. A spouse may sell, encumber, or otherwise dispose of CP without the other’s consent.
Exceptions to Spouse rights
Exceptions: when a spouse transfers personal property for less than fair market value, if one spouse is managing a business, or transfer of community real property (both spouses and written consent). Inter vivos gifts of CP require written consent.
What fiducary duties are placed on spouses
good faith and fair dealing and neither should take any unfair advantage over the other
Married woman special presumtion
Before 1975, assets in a married woman’s name alone are presumed separate property. Exception – A husband could rebut by showing clear evidence that he did not intend to create a gift.
*Creditor Access to Property - Generally, creditors may reach community property to satisfy debts incurred before or during marriage. However, a non-debtor spouse’s earnings (generally CP) are protected if
1) the debt occurred before the marriage; and 2) the earnings were held in a separate account to which the debtor did not have access and no comingling occurred. Generally, a person’s SP can only be reached to satisfy their personal debts, including debts incurred after marriage.
Exceptions to creditor access to property
1) Necessities – CP pays for necessities during marriage (if separated, CP is only available to pay necessities in an emergency); and 2) Tort Liability – if the debtor is acting to benefit the community, then CP before SP.
Loans – In order to determine the character of a loan, the court will look to the intent of the lender. If based on income, the loan will likely be
CP
when would a loan switch to SP
based on security consisting of separate property assets, it may be deemed SP.
Community property used to increase value of SP
The CP is entitled to a pro-rata percentage of the increase. For example, loan 10%, then take 10% of the increase and add it to the CP.
Creditors cannot reach CP of the other spouse after divorce unless
1) that spouse incurred the debt; or 2) the debt was assigned to that spouse by the court.
Gifts of substanital value must be accompanied by
a writing, memorializing the gift from one spouse to the other.
What happens if you do not have this writting for gifts of substantial value
presumption will be that it remains the gifting person’s SP. This presumption may be rebutted.
Medical bills
A spouse is entitled to reimbursement if they expend SP for medical expenses of the other spouse if 1) CP was available; or 2) the debtor spouse had available SP.
Education expenses - Professional degrees acquired during marriage are the SP of the acquiring spouse. However, reimbursement is due when
1) CP funds are used to pay tuition; and 2) the education enhanced the spouse’s earning capacity.
when would a spouse not need to be reimbursed for education expenses
if 1) community substantially benefited from the education (10-year rule); 2) the other spouse received community funded education; or 3) the education lessens the need for spousal support.
Child support and CP
CP should not be used to make child support payments (for children outside of the MEC) unless SP was not available. When CP was used and SP was available, the community is entitled to reimbursement.
For the stock rule, you should use
the nelson rule or hugs
Nelson rule
Used when options are compensation for future performance and retention - #years grant to divorce / # years grant to vest = community property.
Hugs
Used when options attract people to the job and reward past services - #years from hire to divorce / #years hire to exercise of options = community property.
CA presumption for Joint tenancy property
Under CA law, property that is acquired during marriage is given as property for JT for both spouses and would likely be presumed a CP even if such property were to be from SP
Dissolution
generally CP during dissolution allows both spouses to receive 50% of CP value
Gift exception
Gifts from one spouse to another spouse would generally be presumed to be that of the community. However, courts would analyze factors such as the value of a certain gift. If the value of the gift is worth a great amount of value, this would be considered separate property of the spouse that gave the gift at the time of dissoultion.
Individiual account
Under CA law, unless there is a valid transmutation of such asset or prenup, any income or earnings acquired are CP. Even if a spouse were to open an account in their name alone, it would not be sufficient in order to deem such property as separate property of spouse
Fiduciary duties
Spouses owe fiduciary duty to the other spouse, including the right 2 properly manage CP as well as the right to disclose certain info. Such breach or violation of the duty may cause a reduction in the amount entitled to the CP for violating spouse.
Special Title Presumption
The special title presumption, which applies only at death, presumes that the form of ownership on the title represents the form of ownership interests of the spouses. If the asset is untitled or titled in only one spouse’s name, then the asset may be considered SP if the source of the funds used to purchase the asset is SP. The special title presumption can be rebutted by clear and convincing evidence that both spouses did not intend to hold the property as stated in the title.
