Community Property Flashcards
How do you know it’s a CP MEE Question?
- Names of parties start with H and W
- Prompt always ends with “answer according to CA law”
When does marital community begin
With a valid marriage
When does marital community end
1) permanent separation
2) divorce
3) death of a spouse
Permanent separation
1) spouse informs other spouse they INTEND to end the marriage AND
2) spouse’s conduct is consistent with their intent
Note: don’t have to live in separate homes
What is CP
1) property acquired during marriage is PRESUMED to be CP
2) income earned from CP assets
3) labor, earnings, and salary of spouse
4) property acquired using CP funds are presumed to remain CP
SP general presumption
1) acquired before marriage
2) after divorce or permanent separation
3) by gift or inheritance whenever it’s acquired, EVEN DURING MARRIAGE!!
Income from SP
Income from SP remains SP even during marriage
Quasi-Community Property
Property acquired by married couple while living in another state that would have been classified as CP if parties were married and domiciled in CA at the time property was acquired
When is QCP triggered
ONLY upon the death of the spouse holding title to the property
Equal division rule
1) Upon divorce CP and QCP are divided equally (50/50)
Tracing
To rebut presumption of CP
- party can trace the source of funds used to acquire the asset to claim a different classification of the asset
- change in form of asset does not change its characterization (SP or CP)
Valid marriage elements
1) consent
2) 18+ or with court order and parental consent
3) formal legal procedures
Domestic Partnerships
Intimate and committed relationship of mutual caring
Common Law Marriages
Although abolished in CA, will still recognize valid CL marriages from other states under full faith and credit clause of US constitution (CP APPLIES TO THIS MARRIAGE)
Void marriages
Invalid from its inception
1) incest
2) bigamy (unless thought prior spouse was dead)
Voidable marriages
I FU BUD
Valid and legal until declared void by the court
1) underage
2) unsound mind
3) fraud sufficient to get consent (ex. Concealed sterilization)
4) force or duress
5) incurable physical incapacity
6) Bigamy but believed prior spouse was dead
Putative spouse doctrine
Protects an innocent spouse in void or voidable marriage from losing CP benefits IF believed in good faith that marriage was valid
Rights stop once discovering marriage is invalid
Quasi Marital Property
Property acquired by putative spouse during void or voidable marriage that would otherwise be CP or QCP
It is divided equally like CP or QCP would be
Unmarried cohabitants
Only have contractual protections, not subject to CP principals. As long as contract is not based on sexual services as consideration. (Implied contract also applies for unmarried cohabitants)
Community Property General Principals Paragraph
California is a community property state
The marital economic community begins upon marriage and ends at divorce, death of a spouse, or a permanent separation with an intent to not resume marital relationship.
Property, earnings, or debt acquired during marriage are presumed to be community property.
Property acquired by either spouse before marriage, by gift or inheritance during marriage, or after divorce or a permanent separation is presumed to be separate property.
STPSP (state, time, presumption, SP)
CP general principals extension (QCP)
ONLY WHEN QCP EXISTS
Finally, property acquired by a married 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 called quasi-community property
Premarital agreements
Must be in writing and signed by both parties
Can be invalidated IF:
- party did not voluntarily sign it
- agreement was unconscionable at time of execution/creation
Community property presumption
Any asset acquired (other than by gift, bequest, devise, or descent), or income earned by a married person while living with his/her spouse in CA is presumptively CP
Anti-Lucas legislation
All jointly held property (JT, T in C, T in entirety) acquired during marriage is presumed to be CP upon divorce.
Presumption rebutted by express writing evidencing spouses’ intent to hold property as SP
If spouse contributed SP to purchase of property, she/he has right to reimbursement for the total amount of contribution (but not any increase in value)
Transmutation
Refers to changing nature of property (SP to CP, CP to SP, SP of one spouse to SP of the other spouse)
To be valid, MUST be in writing and expressly state ownership of property is being changed by spouse whose interest is adversely affected
Transmutation Gift Exception
Okay to not have in writing
Limited to personal, tangible gifts
BUT if gift is substantial in value (considering financial circumstances of marriage), a transmutation will only occur if there’s writing
Title in one spouse’s name
Does not change nature of the property if the source was CP (it’s still CP regardless of title)
Equal rights and management over CP
Spouses have equal management and control over CP
Both must participate in decisions regarding CP and real property
Rules for gifting CP to third parties
If one spouse gifts or otherwise disposes personal CP for less than fair or reasonable value without WRITTEN consent, the non-consenting spouse can ratify or revoke the gift and sue to recover the gift
Sale or lease of CP real property
Both must participate if it’s more than one year lease, and always for sale. If title is held only in one spouse’s name and buyer doesn’t know of other spouse, then title transfer is presumed valid. Other spouse has ONE YEAR to file an action to void the transfer
Fiduciary duties
(Always mention after equal rights of management)
Each spouse owes to other spouse duty to act in highest good faith. Following Breach of this duty, the innocent spouse can seek greater share of CP.
Van Camp and Pereira
Income from SP business is SP. however if spouse contributes labor (which is CP), to the SP business, a court must determine how much of the business is CP upon divorce and how much is SP
Pereira
Used if increase in value can be attributed to personal skills and effort (which are CP) of the managing spouse. The formula for determining SP and CP is:
SP= value of SP business at time of marriage + (value at time of marriage x fair rate of return [10%] x years of marriage)
CP = fair market value of business at divorce - SP value
Van Camp
Used when primary reason for increase in value is a character of the separate property itself, rather than labor of the spouse
CP = (reasonable value of services - annual family expenses) x years of marriage
SP = fair market value of business at divorce - CP value
Improvements
When a spouse uses her SP to improve the other spouse’s SP, generally has statutory right to be reimbursed. Same with SP to improve CP
For CP to improve other spouse’s SP, entitled to either reimbursement for the funds expenses or the enhanced value of the property, whichever is greater
Credit/Loans based on CP
When loan is based on CP (like salaries of spouses), the loan is also CP
Commingled bank accounts
Person that wants to show that account is actually SP, they need to unpack and trace their funds in the account
Either by
1) direct tracing
2) exhaustion method
Note: need to use dollar amount and explain each method of calculation for full credit
Direct Tracing
A method of connecting the dots between separate property (typically assets held before the marriage or an inheritance received during the marriage) and assets acquired or improved during the marriage.
Exhaustion Method
The spouse proves that CP funds in the account were already exhausted by the payment of family expenses at the time the asset was purchased (therefore only SP was in the account and SP was used to purchase the asset)
Educational Degrees
Acquired during marriage is not treated as CP
Community entitled to reimbursement if
1) CP funds used to pay for costs
2) earning capacity was substantially improved, and
3) the married couple did not contractually waive the right of reimbursement
(10 year exception rule, community assumed to have received value from education, no reimbursement)
Personal injury recovery
Injured prior to or during marriage
During marriage or at death, the injured party’s judgment is treated as CP. But once divorce occurs, it’s SP
Stock options
If stock options are meant to be payment/earnings, if so then spouse is entitled to half. Otherwise then no entitlement to stock
Getting full credit on exam for Distribution of assets
To earn full credit you need to fully explain what each spouse is entitled to with dollar amounts
1) division of property at divorce
2) separation
3) division of prop at death
Division of property at divorce
Split down the middle
Distribution after Separation
The earnings and accumulations of a spouse after permanent separation from the other is considered SP
Division of property at death
Joint tenancy presumed to be joint tenancy, CP presumed to be CP. surviving spouse takes 1/2 of CP and QCP
Intestate: surviving spouse takes 1/2 of CP as well as other 1/2 that deceased owned (100% of CP). Entitled to all SP if decedent has 0 heirs. 1/2 of SP if one heir. 1/3 of SP if two or more heirs
Distributing Liability of marital property (Debt) CP and SP liability
Includes contract, tort, other obligations such as child or spousal support from prior marriage
CP liability: community liable for debts incurred by either spouse before or during marriage. Liability does not extend to debts incurred after permanent separation or divorce. The non-debtor spouse can protect her CP earnings by depositing them in a separate bank account that is not accessible to the debtor spouse
SP liability: a spouse’s SP is liable for debts incurred before or during marriage, but not for other the other spouse’s debts
Reimbursement and reassignment of debts paid
Non-debtor spouse has 3 years to bring an action for reimbursement if debts/liabilities are paid from the community
Divorce: upon divorce, debts incurred before marriage will be assigned to spouse who incurred the debt. Debts incurred during marriage that were not for benefit of community will be assigned as SP to debtor spouse
Necessaries of life
Living costs including food, shelter, clothing, hospital expenses.
Living together: spouse’s CP and SP are liable for the other spouse’s debts relating to necessaries for life. Upon divorce no longer liable
Living apart: CP and SP still liable for other spouse’s debts relating to expenses required to sustain life (essential expenses).
(Ex. Hospital bill after separation considered essential expense)
Child and spousal support
Obligation from previous marriage treated as debt incurred before marriage. CP liable for debt unless the non-debtor spouse places her earnings in a separate bank account not accessible to debtor spouse. If debtor spouse has SP to pay obligation but used CP, non-debtor spouse can seek reimbursement to the CP
Tort Obligations
Spouse who committed tort was acting for benefit of community (taking couple’s child to school), then liability must first be satisfied from the CP then the tortfeasors SP. if the tortfeasors spouse was not acting for benefit of community, then liability must first be satisfied from the tortfeasor’s SP and then the CP
Special presumption for title only in one spouse’s name
Only applies upon death, and it’s not conclusive otherwise
Hug
Total months of employment until separation (DOE to DOS)
Divided by
Total months of employment until options vest (DOE to vest)
Then multiply that by the number of shares that could be purchased per option
Nelson formula
FUTURE STOCKS
Number of months of date granted til date of separation
Divided by
Period of time of each grant until it’s accessibility
DOG to DOS
Divided by
DOG to vest
