Community Property

Question 1

Community Property Presumption

Answer 1

• CA is a community property state. All property acquired during marriage is presumptively community property (CA), irrespective of which spouse’s name is on title.
• (Earnings/wages are deemed CP when earned during marriage.)
• Property acquired prior to marriage or after separation is separate property (SP). In addition,
  1. a gift, devisee, or bequest,
  2. property acquired with separate funds, and
  3. profits from SP
  are SP.
• At divorce or death, all CP is divided equally between the spouses, and a spouse’s SP remains his/her own.

Question 2

Quasi-Community Property

Answer 2

• Quasi-Community Property (QCP) is property acquired while living in a non-CP state that would be consired CP if the spouse(s) had been living in CA when the property was acuired.
• QCP retains its SP nature until:
  (a) dissolution of the marriage, or
  (b) death of the acquiring spouse.
• At divorce, QCP is teated like CP. At death, the surviving spouse has a 1/2 interest in QCP titled in decedent’s name.

Question 3

Illusory Transfer of QCP

Answer 3

• The surviving spouse may compel an inter vivos transferee of QCP to restore 1/2 of the property value when an illusory transfer exists.
• An illusory transfer exists when:
  1. the decedent died while domiciled in CA,
  2. consideration of substantial value was not received, and
  3. the tranfer was made without the surviving spouse’s written consent.

Question 4

End of the Economic Community

Answer 4

• The economic community ends
  (a) when one spouse dies, or
  (b) on the date of separateion.
• The “date of separation” is evidenced by both:
  1. intent - intent to end the marriage expressed by one spouse to the other spouse, and
  2. conduct - the conduct of the spouse is consistent with thier intent to end the marriage.

Question 5

Putative Spouse

Answer 5

• A putative spouse is one that has a good faith reasonable belief that he/she is married.
• The putative spouse is entiled to “quasi-marital” property (QMP), which is treated like CP at death or divorce.

Question 6

Unmarried Cohabitants

Answer 6

Courts may enforce express agreements between cohabiting couples that are not married, as long as they are not expressly based on performance of illicit sexual acts.

Question 7

Management of CP

Answer 7

• Each spouse has equal rights to manage and control CP. Thus, a spouse may sell, encumber, or otherwise dispose of CP without the other’s consent.

Exceptions:
1. Transferring personal property used in the family dwelling for less than fair value (written consent is required).
2. If one spouse is managing a business, that spouse is obligated to provide prior written notice to the other spouse of disposition of all or substantially all of the property used in the operation of the business.
3. If one spouse sells community real estate without consent, the non-consenting spouse may void the transaction.
4. Inter vivos gifts of CP - If one spouse gifts CP to a third-party without written consent, the other spouse may void:
(a) the gift during the donor’s lifetime, or
(b) half of the gift after the death of the donor.

Question 8

Fiduciary Duties of Spouses

Answer 8

• Marriage imposes a duty of the highest good faith and fair dealing on each spouse.
• An intentional or grossly negligent dissipation of property is a breach of this duty.
• In such instance, the responsible spouse’s SP can be used to reimburse the community.

Question 9

Property Acquired with Comingled Funds

Answer 9

When property is acquired with comingle funds (both CP and SP), CP and SP are apportioned based on their respective contributions (the Moore Principle).

Question 10

Jointly Titled Property

Answer 10

• Under the Anti-Lucas Statute, jointly titled property is presumptively CP at divorce, unless there is a written statement that the property is SP.
• Any SP used for the purchase is entitled to reimbursement.
• At death, SP used to acquire the property is presumed to be a gift.

Question 11

Personal Injury Awards and Settlement

Answer 11

Personal injury caused by a third party
* If the cause of action arose during marriage, personal injury awards and settlements are CP.
* At divorce, they are assigned entirely to the injured spouse, unless:
(a) the funds were comingled, or
(b) there is economic hardship to the other spouse.

Personal injury caused by other spouse
* Personal injury awards or settlements against a tortfeasor spouse are always SP of the tortfeasor spouse.

Question 12

SP Business (Van Camp and Pereira Tests)

Answer 12

When community labor is used to enhance a SP business, CP is entitled to share in the increased value of SP at divorce. There are two types of tests to calculate CP share:

Van Camp
* Van Camp is used when business growth is mostly due to the character and nature of the business itself.
* By Van Camp, the community receives [a reasonable salary for the community labor] less [any family expenses paid out from the business].
* The remaining value of the business is SP of the owning spouse.

Pereira
* Pereira is used when business growth is mostly due to the community labor (the spouse’s labor and abilities).
* By Pereira, SP is [the original principal value of the business] plus [an annual rate of return calculated at 10%].
* The remaining valuse of the business is CP.

Question 13

Goodwill of a Business

Answer 13

• Goodwill is the intangible value of the business’ reputation.
• When goodwill is generated by community labor, it is deemed CP.

Question 14

Stock Options

Answer 14

Stock options are a form of employee compensation, and are entirely CP only if they become exercisable during marriage.

Question 15

Credit & Acquisition of Property Using Credit

Answer 15

• Funds borrowed during marriage (and property purchased using borrowed funds) are presumed to be CP.
• To rebut the presumption, a spouse must show that the lender primarily relied on the borrowing spouse’s SP.

Question 16

Reimbursement for Property Improvements

Answer 16

• When CP is used to improve the other spouse’s SP, traditionally, it has been presumed a gift. However, some courts have held that the community is entitled to reimbursement.
• When CP is used to improve a spouse’s own SP, the community is entitled to reimbursement for either the cost of improvement or the increase in value.
• When SP is used to improve CP, the spouse is entitled to reimbursement for either the cost of improvement or the increase in value.
• When SP is used to improve other spouse’s SP, the spouse is entitled to reimbursement for the amount of contribution made.

Question 17

Professional Degree & Reimbursement for Education Expenses

Answer 17

Professional degrees acquired during marriage are SP of the acquring spouse. However, the community is entitled to reimbursement when:
1. CP funds are used to pay educational expenses, and
2. the education enhanced the spouse’s earning capacity.

Question 18

Reimbursement for Child Support

Answer 18

When CP was used to make child spport payments from a prior marriage, and SP was available, the community is entitled to a reimbursement upon divorce.

Question 19

Reimbursement for Medical Expenses

Answer 19

A spouse is entitled to reimbursement when he/she expends SP for the medical expenses for the other spouse, if:
(a) CP was available, or
(b) the debtor spouse had available SP.

Question 20

Transmutations

Answer 20

• During marriage, spouses may change the character of an asset from SP to CP or CP to SP (transmutations).
• A transmutation must:
  1. be in writing,
  2. be signed and consented to by the spouse whose interest is adversely affected, and
  3. expressly declare a change in ownership.

Gift of Insubstantial Valuse Exception
CP can be transmuted into SP by gift from one spouse to another, if the gift is tangible personal property of insubstantial value.

Question 21

Prenuptial Agreements

Answer 21

• Prenuptial agreements are valid if in writing and signed by both parties.
• A prenuptial agreement will be deemed unenforceable if it is:
  (a) involuntary (e.g. not represented by independent legal counsel, or under duress),
  (b) unconscionable (e.g. the terms are unfair), or
  (c) encourages divorce.

Question 22

Property Creditors May Reach to Satisfy Debts

Answer 22

• Creditors may reach CP to satisfy debts incurred before or during the marriage. But, a non-debtor spouse’s earnings are protected if:
  1. the debt occurred before the marriage, and
  2. the earnings were held in a separate account.
• A person’s SP can only be reached to satisfy their personal debts.
• However, there are exceptions where both CP and SP may be reached to satisfy debts, including:
• Necessities: The community is obligated to pay for a spouse’s necessities (food, shelter, and medical expenses) during marriage. When separated, only in emergency situations.
• Tort Liability: If the debtor (a spouse) was acting to benefit the community when the tort occurred, then CP must be used before reaching SP. If the debtor was not acting to benefit the community, then SP must be used before reaching CP.

Question 23

Distribution of Community Assets & Debts Upon Divorce

Answer 23

• Upon divorce, each spouse gets 1/2 of each community asset, unless the court determines that the interests of justice require a different division.

Certain statutory and economic exceptions:
1. misappropriation by one spouse,
2. educational debts, and
3. the family home may be awarded to the person who is given custody of the minor children.