Community Property

Question 1

What is the basic rule regarding property acquired during marriage in California?

Answer 1

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

Example: A car purchased during marriage is considered community property unless it was a gift to one spouse.

Question 2

What is Quasi-CP (QCP) and how is it treated in California?

Answer 2

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 3

What is the Married woman’s special presumption regarding property acquired in the wife’s name before 1/1/1975?

Answer 3

If property taken in wife’s name alone before 1/1/1975, presume SP (as gift)

Exception: Intent other than a gift is shown or where the wife controlled how title was taken

Question 4

What are the prerequisites for the application of CP in California?

Answer 4

Prerequisite to application of CP: Valid marriage? Legal capacity, over 18 + performance of legal procedures

Example: If a couple followed the rules in another state, the marriage will be recognized in CA as valid marriage

Question 5

What is Quasi-marital property (QMP) and how is it treated in California?

Answer 5

Quasi-marital property (QMP) can be divided. QMP is property that would have been CP or QCP had the union been a valid marriage

Question 6

What are the duties of the managing spouse in California regarding property management?

Answer 6

Duties of managing spouse: Each spouse has exclusive management of own SP and equal management of all CP

Fiduciary duty of trust and confidence

Question 7

What is the general rule for the characterization of property in California as CP or SP?

Answer 7

Characterization of property (CP/SP) – depends on 1) source of asset, 2) presumptions, 3) parties’ actions

Tracing back to the source of asset funds is crucial in determining whether it is community property or separate property.

Question 8

What are the CP presumptions in California and how can they be rebutted?

Answer 8

CP PRESUMPTIONS – Do basic CP presumptions apply? May rebut any CP presumption by showing SP source, SP character of asset (gift, etc.), or agreement of SP

Question 9

What is the significance of a premarital agreement (PMA) in California regarding property characterization?

Answer 9

Premarital agreement (PMA): Agreeing before marriage character of a spouse’s earnings (typically what will be SP)

Starting 1985, statute of frauds: PMA must be in writing, but oral PMA is enforceable if fully executed or detrimental reliance by promisee.

Question 10

Premarital agreement (PMA)

Answer 10

Agreeing before marriage character of a spouse’s earnings (typically what will be SP)

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

Question 11

Transmutation

Answer 11

Agreeing during marriage to change the character of a particular asset

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 12

Personal injury award against third-party tortfeasor

Answer 12

CP if the cause of action arose during the marriage

At divorce, payments are treated as SP, unless economic hardship to other spouse or comingled. If recovered against other spouse tortfeasor: always SP of injured spouse

Question 13

SP business

Answer 13

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

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) 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 (CP business)

Answer 14

Earned during marriage is CP. Valuation methods: Market sales valuation: Price the goodwill would command in a sale of the business 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… 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

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

Question 17

Debts

Answer 17

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

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

Question 18

Tort liability

Answer 18

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 19

Reimbursements for contribution by community

Answer 19

Acquisition of property: 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) Improvement by community or spouse 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) If CP improved other’s SP, split authority: no reimbursement (gift presumed) OR reimbursement (modern) If SP improved CP, SP has right of reimbursement If SP

Question 20

What happens if community property is used to improve own separate property?

Answer 20

Community entitled to reimbursement (greater of cost of the improvement or increase in value of the separate property)

Example: If community property funds are used to renovate a separate property owned by one spouse, the community is entitled to reimbursement for the cost of the renovation or the increase in value of the separate property.

Question 21

What happens if separate property is used to improve community property?

Answer 21

The separate property owner has the right of reimbursement

Example: If a spouse uses their separate property funds to upgrade the family home, they have the right to be reimbursed for the cost of the improvement.

Question 22

When may community be reimbursed for contributions to education or training?

Answer 22

Community may be reimbursed for contributions made to the education or training of a party that substantially enhances their earning capacity

Example: If the community paid for a spouse’s tuition that significantly increased their earning potential, the community may be entitled to reimbursement for the tuition costs.

Question 23

What are the exceptions to the division of community property ‘in kind’ at divorce?

Answer 23

Liabilities exceeding assets, misappropriation by a spouse, educational debts, and tort liabilities assigned to a specific spouse

These exceptions may impact the equal division of community property assets.

Question 24

What happens to community property at the death of a married person?

Answer 24

The CP character of any property owned by the deceased spouse terminates, but the form of title controls

This means that the surviving spouse may have rights to certain community property based on the form of ownership.