Community Property

Question 1

Memorize this rule:

Answer 1

California is a community property state. All property, earnings, or debt acquired during marriage are presumed community property (CP). Property acquired before marriage or after divorce, or at any time by gift or inheritance is presumed separate property (SP).

Question 2

CP essay roadmap

Answer 2

Step 1: is the couple validly married?
Step 2: Create a timeline of their marriage and separation
Step 3: Take each asset or debt and issue spot separately

1. identify the source and timing of the asset/debt and any original presumption that applies;
2. identify any actions the parties may have taken that would alter the original presumption and change the characterization;
3. identify if any special classification rules apply that affect the original presumption;
4. answer the call of the question and explain the disposition of each asset/debt.

Question 3

Marital Status

Answer 3

1. CA marriage: a marriage is valid in CA where there is a consensual civil contract between two people with capacity (18 or older, any party under the age of consent must obtain a court order and written consent of a parent or guardian), followed by the performance of certain legal procedures (license, solemnization, and authentication).
2. Domestic Partnership: registered domestic partners are legally afforded the same rights and protections as married persons.
3. marriage/domestic partnership in other jurisdictions: CA recognizes marriages/domestic partnerships from other jurisdictions if the marriage/DP would be valid by the laws of that jurisdiction.
4. permanent separation occurs when there is a complete and final break in the marital relationship where one spouse has communicated to the other spouse his intent to end the marriage, and the spouse’s conduct is consistent with that intent.

Question 4

Nonmarried couples

Answer 4

1. common law marriage: not valid in CA, but a marriage valid elsewhere when entered will be given full faith and credit.
2. unmarried cohabitant: CP does not apply; apply contract principles.
3. putative spouse: a putative spouse is one who believed in good faith that the parties are legally married, but is not becuase the marriage is void or voidable.

• void: bigamy, incest, etc.
• voidable: fraud, coercion, sexual incapacity, and lack of consent.
• the property acquired by a putative spouse would be QCP.

Question 5

premarital agreement

Answer 5

requirements for an enforceable pre-nup:

1. must not promote divorce
2. in writing, signed by both parties
3. must not be unconscionable at the time of dissolution
4. presumptively involuntary unless the party against whom enforcement is sought was:

• represented by independent counsel at the time the K was signed or advised to seek independent counsel and waived it in a separate writing and fully informed in writing of the terms and rights the party is giving up;
• presented with the agreement and advised to seek IC 7 days before signing;
• not under duress
• child support cannot be waived
• can waive spousal support with independent counsel
• laches and estoppel are available defenses

Question 6

the presumption of

Community Property (CP)

Answer 6

The earning of each spouse and all property acquired during marriage by the labor of either spouse while domiciled in CA is presumptively CP.

Question 7

the presumption of

Separate Property (SP)

Answer 7

All property acquired before marriage or after permanent separation or after divorce is presumptively separate property.

In addition, property acquired by gift, bequest, devise, or descent; and the profits derived from or acquired with SP is presumptively SP.

Question 8

the presumption of

Quasi-community property (QCP)

Answer 8

-all property, real or personal, wherever situated, acquired by either spouse while domiciled in a non-CP state, which would have been classified as CP had the parties been domiciled in CA at the time of acquisition.

Question 9

Quasi-martial property (QMP)

Answer 9

QMP is property acquired during a void or voidable marriage, which would have been CP or QCP if the marriage had not been void.

QMP is treated the same as CP or QCP.

Question 10

When can the form of title for a property be used to rebut the original presumptions?

Answer 10

Rebut the presumption when title is inconsistent with the original presumption.

1. source of funds SP + title CP = CP– property presumed to be a gift to the community.
2. source of funds CP + title SP = CP, unless there is a written transmutation.

Question 11

Define

Lucas and anti-Lucas Rules: right to reimbursement for SP contribution to jointly-titled property

Answer 11

• Lucas: at death, all jointly titled property is presumed CP, unless there is an express agreement to the contrary. There is no right to reimbursement for SP contributions.
• Anti-Lucas: at divorce or legal separation, all jointly titled property is presumed CP, unless there is an express agreement to the contrary. Right to reimbursement for SP contributions.

Reimbursement: ONLY allowed for expenditures made for (DIP)

• down payments
• payments for improvements
• payments that reduce the principal of a loan

Question 12

Married women’s special presumption (MWSP)

Answer 12

property acquired by a married woman in a writing, prior to 1975, is presumed to be her SP.

• 1. married woman + 3rd person acquired property = tenancy in common
• 2. married woman and her spouse when the deed identifies them as husabnd and wife = presumed CP

Question 13

How to determine if a piece of property is SP or CP?

Answer 13

First determine the source of funds used to acquire the property and then determine the timing of the acquisition.

Question 14

How to determine the source of funds?

Answer 14

Tracing: mere change in form of an asset does not change its characterization as CP or SP, thus one can trace to establish the source of funds used to acquire the asset in question.

1. exhaustion method: at the time the property was purchased, all CP funds in a commingled account had been exhausted by community expenses, and thus only SP funds were available to purchase the property.
2. direct tracing method: a direct link between the SP fund and the purchased asset that there is i) sufficient SP funds were available at the time of the purchase and ii) the SP owner intended to use SP funds to make the purchase.
3. If it’s impossible to trace the source in a commingled account to SP, the property is CP.

• the burden of proof is on the spouse claiming SP to show that each asset were acquired by SP.
• presumption that family expenses were always made with CP funds.

Question 15

Define

transmutation

Answer 15

An agreement between spouses made during marriage to alter the ownership characterization of property.

requirements:

1. before 1985: oral agreements were sufficient if based on express or implied agreement
2. since 1985: requires a writing that describes the change in ownership and the consent of the adversely affected spouse.
3. gifts of insubstantial value exception when a spouse intends to give the other spouse a personal gift of insubstantial value (subjective standard based on total asset), no writing is required.
4. No extrinsic evidence allowed to prove transmutation. No other exceptions to the writing requirement.

Question 16

How to calculate:

CP contributions to SP business

Answer 16

CA courts use 2 approaches:
- Pereira approach: applies when the spouse’s management skills are the primary reason for the business growth.
- Van Camp approach: applies when the character of the business is the primary reason for the business growth.

Question 17

Pereira approach: favors CP

Answer 17

• SP interest = SP contribution + reasonable rate of return
• SP contribution = value of SP business at the time of marriage or the SP funds used to capitalize the business during marriage.
• reasonable rate of return = 10% of SP contribution for each year family had SP business during marriage
• CP interest = value of business (at the time of the divorce/separation/death) - SP interest

Question 18

Van Camp approach: favors SP

Answer 18

• CP interest = fair market value salary - family expenses - salary taken
• Fair market value salary = FMV of spouse’s managerial services for each year family had SP business during marriage.
• family expenses = actual family expenses paid with business earnings for each year family had SP business during marriage
• salary taken = actual salary taken, if any by the managing spouse for each year family had the SP business
• SP interest = value of business (at the time of separation) - CP interest

Question 19

what are the rules for

SP contribution to CP business after separation/dissolution

Answer 19

Reverse Pereira: the community receives a fair rate of return, and the remainder is SP.

• CP = CP contribution (at time of separation) + reasonable rate of return
• SP = value of business - CP

Reverse Van Camp: the separate estate receives a fair salary, less expenses, and the remainder is CP.

• SP = FMV salary - family expenses - salary taken since separation
• CP = the value of the business - SP

Question 20

SP contribution to property (either SP or CP)

Answer 20

the party will be reimbursed, without interest, for SP contributions to down payment, improvements, and reducing the principal of a loan. (DIP)

Question 21

CP contributions to SP property

Answer 21

the community gets a proportional ownership interest:

• CP interest = CP contributed to the principal reduction / total original amount of balance
• CP share = CP interest x amount of capital appreciation
• excluded costs: payments for interest, taxes, and insurance are excluded in the calculation.

Question 22

Personal injury caused by a 3rd party

Answer 22

Divorce:

• Injury before marriage—tort recovery is SP; the injured spouse must reimburse the community if CP is used to pay (or the other spouse, if that spouse’s SP is used to pay) any expenses attributable to the injury
• Injury during marriage—tort recovery is CP; at divorce, at least one-half will be awarded to the injured spouse (100% if not commingled with CP and justice requires)

Death—at death of either spouse, recovery is characterized as CP

Question 23

Personal injury caused by the other spouse

Answer 23

• recovery is the SP of the injured spouse
• the SP of the tortfeasor spouse must be exhausted before using CP

Question 24

Pension plans, stock options, and other forms of retirement

Answer 24

apply the Time Rule if pensions are earned both before and after separation:

- CP = total pension x # years married while pension earned / total # years pension earned

two approaches to divide:

• reservation of jurisdiction approach: the court reserves jurisdiction over the case until the employed spouse retires and then apportions the retirement between each spouse.
• cash out approach: the court assigns the entire pension to the employed spouse and awards other community assets, equal in value to the community interest in the retirement benefits, to the nonempoloyed spouse.

The pension is CP if it is earned entirely during marriage, does not matter when it vested.

Question 25

disability pay / worker’s comp / severance pay

Answer 25

characterized depending upon what it is intended to replace:

• CP if used to replace marital earnings
• SP if used to replace post-divorce income after separation
• If intended to replace a pension, use the Time Rule

Question 26

Bonus

Answer 26

classifications base on when they were earned and what they are intended to reward

• CP if rewarded for good work performed during marriage
• SP if rewarded for good work performed after separation or divorce
• SP if a personal gift

Question 27

Education / training acquired during marriage

Answer 27

right to reimbursement: at divorce the community is entitled to reimbursement for CP contribution to education/training that substantially enhanced the earning capacity of the party, with interest.

Defenses to reimbursement:

1. the community already substantially benefited from the education, which is presumed after 10 years;
2. the education is offset by the CP funded education received by the other spouse;
3. the education reduced the need for spousal support

Question 28

Insurance

Answer 28

• Whole life—CP and SP both have interests in the cash value of the policy to the extent that they paid the premiums:

1. CP interest = amount CP contributed / total amount contributed (CP + SP)
2. SP interest = 1 - CP interest %
3. multiply CP% and SP% by the total cash value of insurance

• Term life—the estate that paid the most recent premium controls.

Question 29

business goodwill

Answer 29

• the reputation and future earning potential of a CP business is a CP asset;
• valuation is calculated through market sales valuation or comparing the past excess earnings to typical peer businesses

Question 30

How to approach

essay questions involving debt

Answer 30

1. assess the type of debt
2. when it accrued
3. what estates are liable to pay it
4. in what order the property should be used to satisfy the debt.

Question 31

Property purchased on credit

Answer 31

rebuttable presumption that the property purchased with borrowed funds during marriage is CP debt

• can rebut with the intent of the lender test: showing that the lender relied exclusively on SP when extending credit.
• earning capacity: if the credit is based on earning capacity, it is CP debt.

Question 32

Timing of the debt

Answer 32

1. contract debt: incurred at the time K is made
2. tort debt: incurred at the time the tort occurred
3. child or spousal support debt from a previous marriage: debt incurred before marriage regardless of when the court order is made
4. other debts: all other debts are incurred at the time the obligation arises

Question 33

Is CP liable for debts?

Answer 33

CP is liable for all debts incurred before and during marriage by either spouse.

Question 34

Order of debt satisfaction

Answer 34

• If the debt is for the community interest: CP first, then SP of either spouse.
• if debt is for the separate interest: SP of debtor first, then CP.
• SP debt incurred before marriage: All CP and all debtor spouse’s SP, but not the SP of the nondebtor spouse or the earnings of the nondebtor spouse if they are held in a separate deposit account.
• SP debt incurred during marriage: all CP and all debtor’s SP, but not the SP of the nondebtor, unless the debt was for necessaries of life.

reimbursements are available to either CP or SP if the debt is one that should have been first satisfied by another estate

Question 35

injury caused by a spouse

Answer 35

benefit of the community test:

• if it occurred during marriage for the benefit of the community, CP first and SP of the debtor second.
• if not for the benefit of the community: SP first and CP second.

Question 36

Fiduciary duties

Answer 36

each spouse has a fiduciary duty to the other spouse to fully disclose all material facts about community assets and debts and to provide equal access to all information upon request.

each spouse has a fiduciary duty to use the HIGHEST good faith and fair dealing with the other spouse and never to take unfair advantage of the other.

A spouse may not make a gift or dispose of a CP for less than FMV without the written consent of the other spouse