Community Property Flashcards
Introductory paragraph to CP law
CA is a community property (CP) state. In a CP state, the marital economic community begins upon marriage and ends at divorce, death of a spouse, or permanent separation with intent not to resume the marital relationship. Property, earnings, or debt acquired during marriage are presumed to be CP. Property acquired by either spouse before marriage, by gift/inheritance during marriage, or after divorce/permanent separation is presumed to be separate property (SP).
Quasi-Community Property
Property acquired by a marriage couple while living in a non-CP state that would be characterized as CP if the couple had been living in CA at the time of acquisition is quasi-community property (QCP).
Valid marriage
A valid marriage requires the consent of 2 parties who have legal capacity to enter into a marriage.
Treatment of unmarried cohabitants
An unmarried couples’ property is distributed based on K principles.
Putative marriage
A putative marriage is when one or both spouses have a good faith belief that their marriage is valid but it isn’t.
Putative spouse
The spouse(s) that have a good faith belief in the validity of the marriage is the putative spouse.
Rights of putative spouse
A putative spouse may rely on CP principles in distributing property, although these rights stop accruing when they find out the marriage is invalid.
Quasi-Marital PRoperty
All property that would’ve been considered CP if the marriage were valid is considered QMP that the putative spouse is entitled to half of at the end of the putative marriage.
Premarital agreement requirements
A premarital agreement circumvents the CP principles. It must be in writing and signed by both parties.
When is a premarital agreement invalid?
A premarital agreement can be invalid if 1) a party didn’t voluntarily sign it, or 2) agreement was unconscionable at the time of execution.
CP Presumption
Any asset acquired (other than gift or inheritance) or income earned by a married person in CA is presumptively CP.
SP Presumption
Property acquired by either spouse before marriage, by gift/inheritance, or after divorce/permanent separation is presumed to be SP.
Presumption of jointly held property
Under current anti-lucas legislation, all jointly held property acquired during marriage is presumed to be CP.
How to rebut the presumption of jointly held property?
CP presumption can be rebutted by an express writing of the spouses’ intent to hold the property as SP.
Right of reimbursement for jointly held property
If a spouse contributes SP to the purchase of the property, they have a right of reimbursement for the amount of contribution, but not the increase in value.
Presumption when title is in one spouse’s name
If a spouse takes title to an asset in their name only, the property is still CP if the source is CP.
Source and tracing of an asset for rebutting presumptions
To rebut a CP/SP presumption regarding an asset, a party can trace the source of the funds used to acquire the asset to claim a different characterization of the asset.
Transmutation
Transmutation is the changing of the nature of property from SP to CP, CP to SP, or SP of one spouse to SP of the other spouse.
Requirements of a valid transmutation
1) in writing, and 2) expressly state ownership of property is being changed by the spouse whose interest is adversely affected.
Gift exception to transmutation
Gifts between spouses may constitute transmutations w/o a writing. This is limited to personal tangible gifts.
Exception to the gift exception to transmutation
if the gift is substantial in nature (considering the financial circumstances of the couple), a transmutation will only occur if there’s a writing.
Equal rights and management rule
Each spouse has equal management and control over CP. Special rules apply when a spouse gifts, sells, or leases CP.
Gifts to 3P or Disposal
If a spouse gifts or disposes of personal CP for less than fair value w/o the other spouse’s written consent, the non-consenting spouse can either 1) ratify the gift, or 2) revoke the gift and sue to recover.
Sale or lease of CP real property
Both spouses must participate in the sale or lease of CP real property for more than one year. If title to the CP real property is held in one spouse’s name only and an innocent 3P does not know of the other spouse, the innocent 3P’s purchase of the property is presumed valid. The innocent spouse has 1 year to file an action to void the transfer after they find out.
Fiduciary duties of spouses
Spouses owe each other the highest of good faith with respect to management and control of CP. Failure to obtain consent in matters of management gives rise to a breach of duty, and the innocent spouse can seek a greater share of CP.
SP businesses rule
If a spouse contributes labor (which is CP) to an SP business, a court must determine how much of the business is CP upon divorce and how much is SP.
Formulas for SP businesses
Pereira
Van camp
SP businesses - Pereira formula
The Pereira formula is used when the increase in value can be attributed to the personal effort (which is CP) of the contributing spouse.
SP = Value of SP business @ time of marriage + (Value @ time of marriage ✕ Fair rate of return ✕ Years of marriage)
CP = FMV of business @ divorce - SP value
SP businesses - Van camp formula
The Van camp formula is used when the increase in value is due to a character of the SP property itself.
CP = (Reasonable value of services - Annual family expenses) ✕ Years of marriage
SP = FMV of business @ divorce - CP value
CP businesses rule
A business acquired during marriage is CP. If it increases in value after separation, it becomes a commingled asset subject to an SP share.
Formulas for CP businesses
Reverse Pereira
Reverse Van camp
CP businesses - Reverse Pereira formula
The reverse Pereira formula is used when the increase in value can be attributed to the personal effort of the spouse post-separation (SP).
CP = FMV of CP business @ separation + (FMV of CP business @ separation ✕ Fair rate of return ✕ # years of separation)
SP = FMV of business @ divorce - CP value
CP businesses - Reverse Van camp formula
The reverse Van camp formula is used when the increase in value post-separation is due to a character of the CP property itself.
SP = Reasonable value of spouse’s services during separation - SP expenses paid during separation
CP = FMV of business @ divorce - SP value
Improvements - SP to improve other spouse’s SP
When a spouse uses their SP to improve the other spouse’s SP, the spouse has a right of reimbursement.
Improvements - SP to improve CP
When a spouse uses their SP to improve CP, the spouse has a right to reimbursement.
Improvements - CP to improve other spouse’s SP
When a spouse uses CP to improve the other spouse’s SP, the community has a right to reimbursement for either the funds expended or the enhanced value of the SP, whichever is greater.
Characterization of acquired property based on credit/loan
If there is no evidence that the 3P relied solely on the purchaser’s SP in extending a credit or loan, the acquired property/loan is characterized as CP.
Commingled bank account
A commingled bank account is when one spouse’s SP is mixed with the other spouse’s SP or with the CP. If a spouse wants to claim that an asset purchased with funds from the account was with their own SP, the burden is on them to trace the asset back to their SP funds in the account.
Commingled bank account - direct tracing method
spouse must prove 1) there was sufficient SP funds available at the time the asset was purchased, and 2) he intended to purchase the asset with their SP funds.
Commingled bank account - exhaustion method
spouse must prove that the CP funds in the account were already exhausted by family expenses at the time the asset was purchased.
Educational degrees
Educational degrees acquired during marriage are not CP. However, the community is entitled to reimbursement if CP funds were used to pay for education costs.
Defense to reimbursement for educational degrees - 10 year rule
If the divorce occurred more than 10 years after the education was received, the community is presumed to have substantially benefitted and there is no right to reimbursement.
Defense to reimbursement for educational degrees - Other spouse received education
If the other spouse also received an education paid for with CP funds during marriage, there is no right to reimbursement.
Defense to reimbursement for educational degrees - Reduced need for spousal support
If the education reduced the need for spousal support upon divorce, there is no right to reimbursement.
Personal injury recovery
Personal injury recovery is SP if the injury occurred prior to marriage. During marriage or upon death, the tort recovery is characterized as CP. However, upon divorce, a court will generally award the tort recovery to the injured spouse as SP.
Stock options
Stock options awarded by an employer are a form of compensation and will be CP so long as they were accrued during marriage, even if they are not exercisable until after divorce. If the stock options replace earnings after divorce/separation, then the options are SP.
Stock options formulas
Hug formula
Nelson formula
Stock options - Hug formua
The Hug formula is used if the stock options are granted to compensate an employee for past services.
CP = (DOH - DOS) / (DOH - DOV) ✕ # of shares
SP = # of shares - CP
Stock options - Nelson formula
The Nelson formula is used if the stock options are granted to incentivized continued employment.
CP = (DOG - DOS) / (DOG-DOV) ✕ # of shares
SP = # of shares - CP
Goodwill
Goodwill of a business (reputation and future business potential) during marriage is a CP asset capable of equal division at divorce.
Retirement pensions
Retirement benefits that begin during marriage are generally considered CP, while retirement benefits that begin before marriage are generally considered SP since pensions are considered earnings of past work.
Disability benefits
Disability benefits, including worker’s compensation benefits, are characterized by what they are intended to replace. For example, if disability benefits are taken in lieu of retirement benefits, they are treated as CP.
Severance pay
If an employer awards severance pay as a result of labor during marriage, the severance pay is CP. If an employer awards severance pay to replace post-termination future earnings, severance paid during marriage is CP but severance paid after divorce/separation is SP.
Whole life insurance
Whole life insurance is subject to pro rata apportionment based on the SP/CP ratio of all premium payments.
Term life insurance
Characterization of term life insurance is based on the source of funds (SP or CP) used to make the final premium payment.
Distribution of property upon separation
A spouse’s earnings after permanent separation are their own SP.
Distribution of property upon divorce
Generally, CP is equally divided upon divorce.
Exception to equal division rule of distribution of property upon divorce
1) asset is closely associated w/ one spouse, 2) equal division reduces value of property or earning capacity, 3) one spouse is better situated to bear financial risk.
Distribution of CP property upon death
At death, the surviving spouse takes ½ of the CP or QCP.
Distribution of SP property upon death
Surviving spouse gets the decedent’s entire SP if there are no heirs. If there is one heir, the surviving spouse gets ½ of the decedent’s SP, and if there are multiple heirs the surviving spouse gets ⅓ of the decedent’s SP.
CP liability for debts
The CP is liable for debts incurred by either spouse before or during marriage. The non-debtor spouse can protect their CP earnings by depositing them in a separate bank account not accessible to the debtor spouse.
SP liability for debt
A spouse’s SP is liable for debts incurred before or during marriage, but NOT for the other spouse’s debts.
Reimbursement time limitation for debts/liabilities paid from CP
The non-debtor spouse has 3 years to seek reimbursement if debts/liabilities are paid from CP.
Allocation of debts upon divorce
Upon divorce, debts incurred before marriage are assigned to the spouse who incurred the debt. Debts incurred during marriage that were not for the benefit of the community are assigned as SP to the debtor spouse.
Necessaries of life debt
Necessaries of life include food, clothing, shelter, and medical expenses. While living together and married, a spouse’s CP and SP are liable for the other spouse’s debts relating to necessaries for life, which ends upon divorce. While living apart, a spouse’s CP and SP are still liable for the other spouse’s essential debts (those required to sustain life).
Child/spousal support
A child or spousal support obligation from a previous relationship is treated as a debt incurred before marriage. The CP is liable for the debt unless the non-debtor spouse places their earnings in a separate bank account not accessible to the debtor spouse. If the debtor spouse had SP to pay a child/spousal obligation, but used CP, the non-debtor spouse can seek reimbursement.
Tort liability
If the spouse who committed the tort was acting for the benefit of the community, the liability must be first satisfied from the CP and then from the tortfeasor spouse’s SP. If the spouse was not acting for the benefit of the community, then liability is first satisfied from the tortfeasor spouse’s SP then CP.
SP Businesses - Pereira formula conceptually
SP is the value of the business at marriage plus an annual interest rate of 10% of that value for the duration of the marriage.
CP is the fair market value of the business at divorce minus the SP value
