Community Property

Question 1

Basic Presumptions of CP

Answer 1

CA is a CP state. Property acquired during marriage is presumptively CP. Property acquired before, during separation, or after dissolution of marriage, and property acquired by gift, will, or inheritance is presumptively SP
i. Quasi-CP (QCP) is property acquired by either spouse that would have been CP had the spouse been domiciled in California at the time of acquisition; it is treated like CP

Question 2

Marital Economic Community

Answer 2

Legal “community” of married people. CP may be acquired only during this time. Ends at death, or date of separation (a spouse expresses intent to end marriage + conduct is consistent with intent)

Question 3

Married Woman’s Special Presumption

Answer 3

If property taken in wife’s name alone before 1/1/1975, presume SP (as gift)
i. EXCEPTION: Intent other than a gift is shown or where the wife controlled how title was taken

Question 4

Prerequisite to CP

Answer 4

Valid marriage? Legal capacity, over 18 + performance of legal procedures
i. If a couple followed the rules in another state, the marriage will be recognized in CA as valid marriage

Question 5

Alternatives to Marriage (3)

Answer 5

1. Putative spouses: Either or both parties believed in good faith that the marriage was valid
   a. Quasi-marital property (QMP) can be divided. QMP is property that would have been CP or QCP had the union been a valid marriage
2. Marvin action: Unmarried cohabitants can contract with each other to hold property as CP. K upheld as long as consideration does not violate public policy, e.g., no exchange of sexual services
3. Marriage by estoppel: If one induces another into marriage knowing the marriage was invalid, inducing party would be estopped from claiming it was not a marriage; CP protections can attach

Question 6

Duties of Managing Spouse

Answer 6

Each spouse has exclusive management of own SP and equal management of all CP
i. Fiduciary duty of trust and confidence
ii. Deliberate, grossly negligent, or reckless dissipation or destruction of property is actionable (w/in 3 years)
iii. Duty to secure written consent for disposing of CP (non-consenting spouse can ratify or revoke)

Question 7

Characterization of Property

Answer 7

depends on 1) source of asset, 2) presumptions, 3) parties’ actions

Question 8

Source of Community Property

Purchased CP

Answer 8

Character of purchase funds is character of the asset.
i. Tracing: For commingled property (presumed CP), proponent of SP has burden of proving what is SP
1. Direct tracing: Proponent of SP attempts to identify with sufficiently accurate records
2. Exhaustion method: Show that at the time the asset was purchased, the community expenses exceeded the community funds. Funds used to purchase with is necessarily SP
3. If tracing not done/possible: Entire asset will be treated as CP, unless the community portion is considerably small in comparison to the amount of SP funds contributed (if CP &laquo_space;SP → then SP)
ii. When real property is being paid for with SP and CP funds (e.g., spouse acquires property before marriage, and CP funds are used to make mortgage payments), community and separate interests are determined by apportioning the property value by the respective contributions proportionally (In re Marriage of Moore)

Question 9

Presumptions

Answer 9

i. Property acquired during marriage
ii. Anything received in exchange for labor performed during marriage (e.g., wages, artistic work, copyright)
iii. Commingled funds (e.g., in one bank account) or commingled property (acquired with commingled funds)
iv. May rebut CP presumptions by showing SP source (tracing), SP character of asset (gift, etc.), or agreement
v. Assets in joint title. Divorce pre-1987: Property acquired by married couple in any joint title (JT, TIC) is presumed CP. No SP reimbursement under Lucas, unless evidence of title (written agreement or statement)
1. Anti-Lucas statute: In divorce situations, property purchased in joint title from 1987 still presumed CP (rebut w/ writing) but SP is entitled to reimbursement (FMV at purchase) for contribution
2. At death: Under Lucas, SP used to acquire the asset presumed gift, no SP reimb. unless agreed
vi. Title in SP alone does not necessarily control ownership (e.g., funds held in an account in one spouse’s name could still be CP if wages were earned during marriage or without transmutation or evidence of gift)
1. Rebut CP presumption by showing both spouses knowingly took title in form other than CP
vii. Presumption that a property is CP rebuttable with tracing back to SP funds or transmutation to SP

Question 10

PARTIES’ ACTIONS TO CHANGE CHARACTER

Answer 10

a. Premarital agreement (PMA): Agreeing before marriage character of a spouse’s earnings (typically what will be SP)
i. Starting 1985, statute of frauds: PMA must be in writing, but oral PMA is enforceable if fully executed or detrimental reliance by promisee. 1986–2002: PMA must be voluntary. Starting 2002: It shall be deemed that PMA was not executed voluntarily unless the party against whom enforcement is sought: 1) had independent counsel or waived counsel in writing, 2) had at least 7 days to review the PMA, and 3) was fully advised in writing of all the rights and obligations that attach to PMA

b. Transmutation: Agreeing during marriage to change the character of a particular asset
i. Starting 1985: Any transmutation must be in writing, expressly declare a change in the ownership of property, and be consented to by the spouse whose interest is adversely affected, UNLESS…
1. Insubstantial value: Gift of tangible property between spouses 1) for personal use of recipient spouse + 2) not of substantial value (as measured against the lifestyle of the parties)
2. Intent: Recipient spouse can otherwise offer proof of intent that the gift be SP

Question 11

SITUATIONAL CHARACTERIZATION OF ASSETS (five)

Answer 11

a. Personal injury award against third-party tortfeasor
b. SP business
c. Business goodwill earned during marriage is CP.
d. Credit acquisition
e. Marital home

Question 12

Personal injury award against third-party tortfeasor

Answer 12

CP if the cause of action arose during the marriage
i. At divorce, payments are treated as SP, unless economic hardship to other spouse or comingled
ii. If recovered against other spouse tortfeasor: always SP of injured spouse

Question 13

SP Business Valuation

Answer 13

If community labor (either spouse) improves value of a SP business, CP can share in increased value

i. Pereira accounting method (reas rate of return) where improvement is from labor or special skills of spouse
1. Original SP investment + reas rate (10%) per year to owner spouse is SP. Rest is CP (½ to owner)

ii. Van Camp accounting method where improvement is from market forces or unique character of business
1. Reasonable salary compensation – community expenses paid from business earnings = CP
2. Remainder of the business = owner’s SP

Question 14

Business Goodwill Earned During Marriage Valuation

Answer 14

Valuation methods:
i. Market sales valuation: Price the goodwill would command in a sale of the business
ii. Capitalization of past excess earnings: Does not contemplate a sale. Ascertains the present value of the future stream of income that the goodwill developed during the marriage will generate in the business

Question 15

Credit Acquisition

Answer 15

Presumptively CP when credit or purchase money loans used to purchase property, UNLESS…
i. Lender’s intent test: Creditor relied primarily on SP when extending credit. If there is SP collateral to repay loan, asset likely SP. If lender looks at any CP asset, including credit or earnings of either party, asset is CP

Question 16

Marital Home CP vs SP

Answer 16

Both spouses must join in executing an instrument to sell, convey, encumber, or lease for more than a year any community realty. Need not get consent of both if 1) best interest of the community + 2) consent has been arbitrarily refused or cannot be obtained, or to grant as a family law attorney’s real property lien

Question 17

CHARACTERIZATION OF DEBTS & LIABILITIES

Answer 17

a. Generally, assets will be valued at the time closest to trial. Spouse-managed business: time of permanent separation
b. Debts: A debt is incurred at the time of obligation to pay arises. Generally, the community estate (CP) is liable for debts incurred by either spouse before or during marriage, excluding when spouses were living separate and apart
i. After dissolution, courts have more discretion; liability depends on whether debtor spouse was acting for the benefit of the community: If so, CP first, then debtor spouse SP. If not, debtor spouse SP, then CP
c. Tort liability: If the tortious spouse acted for the benefit of the community when the liability arose, liability for personal/property injury is paid first from CP (remainder → SP). Not for benefit of the community → SP → CP

Question 18

Characterization of Debts and Liabilities: Acquisition of Property

Answer 18

Spouse who contributed SP to acquisition of CP or other spouse’s SP will be reimbursed to the extent traceable. If asset taken in joint title after 1987, SP may be reimbursed for contribution (anti-Lucas)

Question 19

Characterization of Debts and Liabilities: Improvement by Community or Spouse

Answer 19

i. If CP is used to improve own SP, community entitled to reimbursement (greater of cost of the improvement or increase in value of the SP)
ii. If CP improved other’s SP, split authority: no reimbursement (gift presumed) OR reimbursement (modern)
iii. If SP improved CP, SP has right of reimbursement
iv. If SP improved other’s SP, SP has right of reimbursement

Question 20

Characterization of Debts and Liabilities: Education or Training

Answer 20

A degree is not a divisible asset subject to CP laws. However…
i. Loan incurred during marriage for the education or training is assigned to spouse receiving education
ii. The community will be reimbursed for community contributions made to the education or training of a party that substantially enhances the earning capacity of that party (e.g., tuition but not living cost)
1. Community’s right to receive reimbursement may be modified if 1) community has already substantially benefited from the education or training, 2) need the education recipient would otherwise have for spousal support substantially reduced by gainful employment, or 3) other spouse also receives community-funded education and offsets
2. Rebuttable presumption: Community has not substantially benefited from community contributions made less than 10 years before divorce. No reimbursement if CP has substantially benefitted (e.g., 10 years have passed)
a. Rebut if < 10 years with facts indicating “substantial” earnings or how hard the spouse worked at the profession as a factor → can prevent reimbursement to CP

Question 21

Characterization of Debts and Liabilities: Payments of Debts

Answer 21

May be waived with written waiver. Debts may be reimbursed if…
i. CP is applied to satisfy spousal support or child support from prior relationship (treated as debt incurred before marriage) and debtor spouse had SP available to pay the debt
ii. SP of non-debtor is used to satisfy debtor spouse’s separate debt for necessaries when his SP or CP share is available, non-debtor spouse is entitled to reimbursement

Question 22

Disposition of Property

Answer 22

a. At divorce: CP is divided “in kind”; each spouse is entitled to receive one-half interest in CP asset
i. EXCEPTIONS: liabilities > assets, misappropriation by spouse, educ. debts & tort liab. assigned to spouse
b. At death: Amount surviving spouse (SS) receives based on whether there was a will or not
i. Death of a married person terminates the CP character of any of his property, but form of title controls
ii. By will, decedent may dispose of his half CP + all SP. SS is entitled to her half of CP
iii. SS of intestate decedent is entitled to all CP + at least one-third of SP, depending on # of issue and parents

Question 23

Hug Formula

Answer 23

(generally favors CP): Number of shares * (date of hire – date of separation) / (date of hire – date of vest)
o Percentage of married time between starting work and vesting
o Used when options primarily intended to reward past services or attract employee to job

Question 24

Special Assets

Answer 24

Personal Injury, pension plan and stock options, Disability pay, severance pay, bonuses, Education/training, life insurance, business good will

Question 25

Pension plans

Answer 25

CP regardless of when pension vested
Years married when pension earned divided by total number years pension earned times total pension
Reservation of jurisdiction (funds apportioned at retirement) vs cash out (given other current funds instead)

Question 26

Stock option factors

Answer 26

Vests during marriage = CP
Exercisable after marriage = depends on purpose
past = CP
Future = SP

Question 27

Disability Pay

Answer 27

Replace marital earnings = CP
Replace future earnings = SP

Question 28

Severance pay

Answer 28

replace retirement benefits = CP
replace post divorce earnings = SP

Question 29

Bonuses

Answer 29

Good work performed during marriage = CP
After separation or divorce = SP

Question 30

Life insurance

Answer 30

Estate paying premium controls
CP interest = amount CP contributed divided by total amount contributed
SP interest = amount SP contributed divided by total amount
Multiply by total cash value