Community Property Flashcards
Married couple
A valid marriage requires (1) the consent of 2 parties, (2) who have legal capacity to enter into marriage, (3) and legal formalities (licensing, authentication, and solemnization)
Married couples’ property will be distributed based on community property principles
End of marital community
The marital community ends upon death, divorce, or permanent separation with an intent to to end the marriage. Physical separation is not required for the last prong - courts generally look towards (1) an intent to permanently end the marriage, and (2) conduct manifesting that intent.
Unmarried cohabitants
Community property principles do not apply to unmarried cohabitants. Courts generally apply contract principles to divide assets in such cases.
If the contract is silent as to division of assets, courts may distribute assets in such a way as to give effect to any implied understanding between the two parties, or to prevent unjust enrichment.
Quasi-marital property
Property acquired during the marriage that would be considered CP or QCP if the marriage were valid.
Putative spouse
Protects an innocent spouse in a void or voidable marriage so long as that spouse has a good faith belief in the validity of the marriage. CP principles may still apply to award assets to the putative spouse even if marriage is void or voidable (this is known as quasi-marital property); but protection ceases once spouse no longer has the good faith belief in the validity of the marriage
Putative spouse has equal rights to SP as actual spouse. If a person has a legal spouse and a putative spouse, the two spouses split the person’s estate.
Premarital agreements
Premarital agreements allow parties to avoid CP principles. Such agreements CANNOT be used to modify child support or promote divorce.
Requirements:
(1) must be in writing and signed by both parties
(2) party seeking to enforce must show that agreement was voluntary at time of execution (party must have been advised of right to independent counsel 7 days prior to signing, must be represented by counsel or waive it, there were at least 7 days between receipt of the document and the party’s signing, if no counsel, party was aware of and understood terms)
(3) party seeking to enforce must show that agreement was not unconscionable at time of execution (other party had adequate knowledge of and full disclosure of enforcing party’s property and obligations).
Special Community Property Presumption
Applies ONLY AT DIVORCE and presumes that property acquired in joint form during marriage = CP
This presumption can be rebutted by clear and convincing evidence. As of 1984, need to have an express writing evidencing the spouses’ intent to hold the property as SP.
Right to reimbursement - If a spouse contributes SP to the purchase of the property, she/he has a right to reimbursement for the amount of contribution (but not any increase in value, and without interest).
Transmutation
Transmutation occurs when spouses agree to change the nature of property (from SP to CP, CP to SP, or SP of one spouse to the other spouse).
Requirements:
(1) must be in writing
(2) must contain express declaration by adversely affected spouse confirming intent to transmutate property
SEE GIFT EXCEPTION
Transmutation - Gift Exception
Gifts of personal property between spouses do not require a written transmutation if (1) the gift is between spouses, (2) the gift is a tangible item for use by donee spouse, (3) the gift is not substantial in value relative to wealth of couple.
Personal gifts are generally considered a transmutation from the gifting spouse’s SP to the receiving spouse’s SP (unless substantial in value).
Title
Even if an asset is under the title of one spouse, it will still be considered CP (except when special title presumption applies at death)
Commingled Bank Accounts
A commingled bank account is one in which the SP of either spouse is mixed with CP or when both spouses’ SP are mixed. Issue - commingled bank account is used to purchase asset. Presumption is that it is CP, but need to apply one of the tracing methods below to claim SP:
(1) Direct method - there were sufficient SP funds in account to purchase asset, and spouse intended to purchase with SP assets
(2) Exhaustion method - CP was exhausted to pay for family expenses, so remaining SP funds were used to purchase assets.
Educational Degrees
Education degrees during marriage not CP. But, community is entitled to reimbursement if:
(1) CP or QCP funds were used to pay for education costs,
(2) education degree led to substantial increase in earning capacity of spouse.
But reimbursement is limited if (1) education degree was acquired > 10 yrs ago (in such cases, there is a presumption that other spouse substantially benefitted community), (2) other spouse also used CP or QCP to pursue educational degree, or (3) education reduced need for spousal support upon divorce.
Personal Injury recovery
If injury occurred before marriage - personal injury recovery = SP.
If injury occurred during marriage - personal injury recovery = CP.
- But upon divorce, will become SP (upon divorce, CP personal injury awards and settlements are assigned entirely to the injured spouse)
- Upon death of either spouse, tort proceeds are characterized as CP.
Stock options
Stock options awarded by employer are a form of compensation, and to the extent they replace earnings, will be considered CP. Stock options that replace earnings after separation or divorce are SP.
Courts will apportion stock options based on 1 of 2 formulas:
(Date of Hire - Date of Separation)/(Date of Hire - Date of Vest) x number of shares = CP
SP = # of shares - CP.
(Date of Grant - Date of Separation)/ (Date of Grant - Date of Vest) x # of shares = CP
SP = # of shares - CP
So in summary, the formulas are (DOH or DOG - DOS)/(DOH or DOG - DOV) x # of shares.
Separate property business
Generally, income from an SP business is SP. But if a spouse contributes labor to the SP, a court must determine how much of the business is CP.
There are two approaches - the Pereira approach is used if the increase in value is based on personal skill and effort of managing spouse. the Van camp approach, in contrast, is used when the increase in value is based on the character of the business asset itself rather than labor of the managing spouse.
Pereira Approach
SP = (FMW of business at time of marriage) + (FMV of business at time of marriage x Rate of Return (generally 10%) x years of marriage)
CP = FMW at divorce/separation - SP
Van Camp Approach
CP = (Reasonable value of spouse’s services - annual family expenses) x # years married
SP = FMV at divorce - SP
CP may be entitled to difference between Van Camp-calculated CP and salary received.
Improvements
When one party uses SP to improve the other spouse’s SP, the first SP is entitled to reimbursement.
When one party uses SP to improve CP, the first party is entitled to reimbursment
When CP is used to improve the other party’s SP, the CP is entitled to reimbursement for funds expensed OR enhanced value, whichever is greater
Credit/Loan
Property acquired via credit/loan during marriage is considered CP. This presumption can be rebutted if a spouse shows that the creditor or lender SOLELY relied on that spouse’s SP as security. In that case, it may constitute SP.
Special Title Presumption (only applies upon death)
The title presumption provides that the form of ownership on the title represents the nature of the ownership interests of the spouses. If title is in one spouse’s name alone and one spouse dies, the asset is considered SP if the source of funds used to purchase the asset was SP. The presumption may be rebutted by clear and convincing evidence that both spouses had a different intention.
This presumption only applies at death. At divorce, title is generally irrelevant since courts will trace back to the source to determine its character.
Right to set aside transfers
The surviving spouse or domestic partner of a decedent who died while domiciled in California can set aside a transfer of QCP made by the decedent during marriage (1) without the written consent of the surviving spouse or domestic partner and (2) made for less than adequate consideration.
Eligible property includes property subject to the right of survivorship
Spouse can choose to ratify transfer; otherwise, transferee must return 1/2 of the property or proceeds from the property, or 1/2 of the value at transfer
Reverse Pereira and Van Camp
Use when a CP business continues to be operated by one of the spouses and increases in value during separation. Do not use if the business has not grown between separation and divorce. If no growth, can just use equal division rule
Reverse Pereira (use if increase in value is due to spouse’s efforts labor)-
CP = FMV of CP at separation + (FMV of CP at separation x Fair Rate of Return x # years of separation)
SP = FMV of business at DIVORCE - CP
Reverse Van Camp (use if value of business is due to market conditions after separation)
SP = reasonable value of spouse’s services during separation - SP expenses paid during separation
CP = FMV of business at DIVORCE - SP
Unauthorized gifts of CP - during marriage
If one spouse gifts or otherwise disposes of personal CP for less than fair/reasonable
value without the other spouse’s written consent, the non-consenting spouse can ratify
(affirm/approve) the gift or revoke the gift and sue to recover the gift.
Presumptions
Community Property presumption - any asset acquired (other than by gift, devise, or inheritance) or income earned during marriage = CP
Separate Property Presumption - 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
Special Community Property Presumption - Only applies to divorce; assumes that all jointly held property is CP (can over come with clear and convincing evidence in the form of express writing evidencing spouses’ intent to hold property as SP). If spouse contributes SP to purchase of jointly held property, have right of reimbursement.
Special title presumption (at death)
Equal rights and management
Each spouse has equal management and control over CP. Both spouses must participate in decisions regarding CP personal and real property
ALWAYS DISCUSS WITH FIDUCIARY DUTIES (Duty of Good Faith)
Sale or lease of CP property
Both spouses must participate in the sale or lease (for > 1 yr) of real property. If title to the CP real property is held in one spouse’s name only and an innocent party does not know of the other spouse, the innocent party’s purchase of the property
will be presumed valid.
The innocent spouse has one year to file an action to void the transfer.
Fiduciary duties
Each spouse owes the other a duty to act in the highest of good faith with respect to the other spouse in management and control of the CP. Failure of a spouse to obtain the consent of the other spouse when making gifts or selling/leasing property, gives rise to a breach of duty. The innocent spouse can seek a greater share of CP due to the breach of fiduciary duty
Division of Property at death (intestate)
If a spouse dies without a will (intestate), the surviving spouse entitled to ½ of the CP as well as the other ½ that deceased spouse owned (100% of the CP). The surviving spouse. is entitled to decedent’s entire SP if no other heirs, ½ of SP if decedent survived by one heir, and 1/3 of SP if decedent survived by more than one heir.
Debt
The community (CP and QCP) is liable for debts incurred by either spouse before or
during marriage. Liability does not extend to debts incurred after permanent separation
or divorce.
But CP has a right of reimbursement upon divorce
A spouse’s SP is liable for any debt that spouse incurred before or during the marriage, but the spouse’s SP is not liable for any debt by the OTHER SPOUSE incurred during or before marriage
So in sum, CP and SP of debtor spouse are both liable (so if husband has a gambling debt, CP and husband’s SP are liable).
UPON DIVORCE
Upon divorce, debt is assigned to SP of debtor spouse.
See special rules for necessaries of life, tort obligations, and child/spousal support
Debt - Necessaries of Life
The SP of a non-debtor spouse + CP are both liable for a debtor spouse’s debts arising from necessaries of life, regardless of whether those debts arose during marriage or after separation (i.e. if a wife has debts from a hospital bill, the hospital could recover from the wife’s SP as well as the CP and husband’s SP).
Non-debtor spouse’s SP and CP may be reimbursed if debtor spouse has enough SP
Unauthorized gifts (QCP only)
The record owner of a specific QCP asset has the exclusive right to transfer QCP to a 3rd party, but the non-titled spouse may recover 1/2 of the value of the asset if (1) the transfer was without sufficient consideration, (2) non-titled spouse did not consent, and (3) the record owner died while domiciled in CA.
So if a person has exclusive title of QCP, and then makes an intervivos gift of that QCP, they can ask the transferee to restore one half of the value of the condo to the non-titled spouse
Mortgage
When property is acquired before marriage on credit, and CP is used to pay off part of the loan, the CP obtains a pro rata interest in the property equivalent to the proportion of the principal paid off by the CP.
Pension Benefits
In CA, both vested and unvested retirement or pension benefits are considered CP. If retirement benefits were partly earned before marriage and they continue to accrue during marriage, courts apply the time rule: formula -(# of years employed while married)/(# of years retired spouse participated in retirement plan)
Disability Benefits
Severance Pay
Insurance
Tort Liability
In general, community estate is responsible for tort liability of the spouses. If a tortfeasor spouse is acting for the benefit of the marital community, the liability must be paid for first by CP then by tortfeasor’s SP.
If tortfeasor spouse is not acting for benefit of community, liability rests on tortfeasor’s SP first then on CP.
Breach of fiduciary duty
Spouse that did not breach is entitled to greater share of CP.
To find breach, need proof of intentional, reckless, or grossly negligent misconduct with respect to fiduciary duty.
