Community Property Flashcards
Community Presumption
All assets acquired during marriage are presumptively CP. It is the burden of the party claiming prop. is SP to show that it is not part of the community.
Applies to registered domestic partners. Available to same-sex couples and elderly opposite -sex couples receiving social security.
Separate Property
Prop. owned by either spouse before marriage.
Prop. acquired during marriage by donation - gift, will, inheritance.
Prop. acquired during marriage with the expenditure of separate funds.
Income and capital gains from SP.
Common Law Marriages
Not Recognized in CA, property acquired during is NOT CP (unless validly contracted in recognizing state).
A couple lives together for a period of time and holds themselves out as married but never go through the formal ceremony or obtain marriage license.
Marvin Rule
Specific to CA
Implied and express agreements regarding property, income, and other matters are enforceable as between cohabiting, unmarried romantic partners and governed by Contract law. If a contract is found, treat the relationship as a partnership or joint venture.
Putative Spouse
A party of a normally void or voidable marriage has objectively reasonable and good-faith belief that that the marriage is valid.
The totality of the circumstances must be weighed to determine if the putative spouse did have a good-faith belief in the validity of the marriage.
Assets will generally be deemed as “quasi-marital property” and split 50/50.
Lifetime Gifts of CP
Neither spouse can make a gift of CP without the other spouse’s written consent.
Courts see an unauthorized gift as unjust because a spouse is conveying prop. they do not own.
Remedies:
1. Can set aside gift in its entirety so it will be restored to the community.
2. On divorce can take equal offsetting CP assets to recover the 1/2/ CP.
3. If spouse did not learn about gift until after partner’s death, then can set aside as to her 1/2 CP from either the donee or partner’s estate. Same result with insurance policy wrongfully naming someone else.
Testamentary Gifts of CP
Each spouse has power of testamentary disposition of all of their SP, but only over half of their CP.
Widow’s Election Will - When decedent’s will attempts to pass the survivor’s 1/2 interest in CP, then survivor must elect between the will and her CP rights.
Acquisitions on Credit During Marriage
Whether CP or SP depends on the intent of the Lender.
The presumption is that funds borrowed during the marriage and goods purchased on credit during the marriage are borne by the community.
If the lender relied primarily on SP when extending credit or 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.
Subsequent actions of the parties in paying off the debt may change the character of the asset.
Management and Control
SP - Each spouse has the exclusive management and control of his SP.
CP - Each spouse has equal management and control over all CP. Has full power to buy or sell CP and contract debts without the other spouse’s joinder or consent.
Exceptions to CP Equal Management Rule
Business Exception - Spouses who operate a business interest that is all or substantially all CP have primary management and control of business.
Personal Belongings - One spouse can’t sell or encumber personal prop. used in family dwelling (furniture) or clothing without written consent of other spouse. Transaction voidable by other spouse at any time.
Conveyance of Real Prop. - Both spouses must join in executing any instrument where community real prop. is sold, conveyed, or leased for more than one year. If CP is titled in one spouse’s name and they misrepresent status to innocent transferee, then nonconsenting spouse has one year to bring action to void the transfer. If the buyer knew the seller was married then they are not a BFP and SOL doesn’t apply.
CP Debt
Either spouse can incur community debt. All CP and debtor’s SP are liable for a debt incurred before or after marriage. The other spouse’s SP is not liable.
Earnings of non-debtor spouse cannot be reached for premarital debts if held in a separate account (which other spouse has no access to) and not commingled with other CP funds.
Non-debtor spouse’s SP can be reached in satisfaction of debts for other spouse’s contract for necessities (i.e. hospital bills). If CP funds available to pay then she can be reimbursed.
After divorce a creditor cannot reach CP awarded to a spouse unless that spouse (1) incurred the debt or (2) was assigned the debt by the Court.
Fiduciary Duty to Other Spouse
Spouses are fiduciaries and owe duty of highest good-faith and dealing with each other.
If one spouse gains an advantage from a transaction, there is a presumption of undue influence, can be rebutted by a showing that no fiduciary duty was breached.
Under 2002 statute, grossly negligent and reckless investment of CP is breach of fiduciary duty.
Divorce
To end the community, you must have permanent separation and intent not to resume the marital relationship.
Each and every community asset must be divided equally (unless otherwise agreed by the parties or economic circumstances warrant awarding one spouse certain assets).
Disparity in earning power can be considered only as to spousal support or child support.
Statutory Exceptions to Equal Division at Divorce
1.One spouse misappropriates CP, whether before or during pendency of divorce
2. Personal injury awarded is given to injured spouse
3. Community liabilities exceed assets
4. One spouse incurred educational debts, treated same as a separately incurred debt
5. One spouse incurred tort liability not based on activity for benefit of the community
Joint Title - At Death - Lucas Rule
Prop. in joint title is, at the death of a spouse, presumptively CP and any SP contribution is presumptively a gift to the community. No SP ownership interest or claim for reimbursement unless written agreement to that effect.
Joint Title - At Divorce - Anti-Lucas Rule
Pre-1984: Prop. taken in joint tenancy is SP of each spouse with 1/2 interest each
Post-1984: CA family law applies. Property taken in joint title is CP unless there is a contradictory written agreement or the deed expressly states otherwise.
Right to Reimbursement: spouse contributing SP entitled to reimbursement without interest for Down Payment, Improvements, and Principal Mortgage Payments.
Prop. Acquired before 1975 - Married Woman’s Special Presumption
Courts recognize that, prior to 1975, a wife taking title in property was rare and deviated from the norm.
If CP was used to take title in a married woman’s name before 1975, and the title doesn’t indicate CP or a joint tenancy was intended, the prop is presumptively the wife’s SP.
This is an exception to the general principle that the fact that an asset is titled in one spouse’s name does not overcome the community presumption.
Premarital Agreements
Must be in writing signed by both parties unless (1) oral agreement is fully performed (marriage alone is not sufficient performance), or (2) estoppel based on detrimental reliance.
Parties can agree to anything except to limitation of child support contributions.
Premarital Agreement - Defenses - Involuntary Signature
Presumption is that the agreement was signed involuntarily unless the spouse was given 7 days to sign and was either represented by independent legal counsel or was fully informed of writing of terms and basic effect and executed an acknowledgement (waived counsel).
Premarital Agreement - Defenses - Unconscionable
Before 2002 the right to spousal support can be waived or modified in premarital agreement. After 2002 such a provision in unenforceable on two grounds:
- Provision is unenforceable unless party against whom enforcement is sough was represented by independent legal counsel at time the agreement was signed
- Provision re: spousal support is unconscionable when made even if represented by independent legal counsel
In addition to unconscionability there must have been (1) no full and fair disclosure of other party’s prop. or financial obligations, (2) right to disclosure not waived in writing, and (3) party challenging has no adequate knowledge of other party’s financial circumstances or prop.
Intra-Marital Agreements - Transmutations
Before 1985: Oral transmutations were permitted, whether based on express agreement or implied in fact.
On or After 1985: (1) must be in writing, (2) signed by spouse whose interest is adversely affected, (3) must expressly state that a change in ownership is being made.
Exception for gifts of tangible prop. of a personal nature (clothes, a camera, etc.) which are not substantial in value taking into account the circumstances of marriage (bday and anniversary presents don’t apply)
Statements in wills are not admissible to show the character of the property.
Tort Liability - When Spouse is Injured
Where the other spouse was tortfeasor, the tort recovery is SP. (To discourage insurance fraud)
Where damages recovered from a 3rd party, the tort recovery is CP. however, upon divorce $ will be awarded entirely top the injured spouse so long as is hasn’t been expended or commingled with other community funds such that it is unidentifiable. But on death its treated the same as any other CP.
Tort Liability - When Spouse is Tortfeasor
All CP is subject to the tort liability of either spouse.
If the act was performed for the benefit of the community, liability is first satisfied from CP
If the act was not performed for benefit of community, liability first satisfied from SP then from CP Non-breaching spouses SP cannot be reached).
Character of Prop. - SP Business - Value Increase During Marriage - Pereira Test
Used when the growth of a business is primarily due to the efforts, skills, and management of one spouse during the marriage
Under Pereira, the owner spouse is entitled to SP in the amount equal to their original SP investment plus a yearly reasonable rate of return (usually 10%). The remaining value of the business is CP.
Original SP investment + reasonable rate (10%) per year to owner spouse is SP. Rest is CP (1⁄2 to owner)
Character of Prop. - SP Business - Value Increase During Marriage - VanCamp Test
Used when the success of the business is largely attributable to factors other than the efforts of the spouse, such as market conditions, the nature of the business, or the economy.
To calculate CP value of the business, the court estimates the value of the working spouses services less annual family expenses. The court will then compare the CP value of the business to the value actually received by the community during marriage. The remainder is SP.
(Reasonable FMV salary – community/family expenses paid from business earnings) × years married = CP. Remainder of the business = owner spouse’s SP
Character of Prop. - Pension Benefits
Employee retirement benefits accumulated during marriage, whether vested or not at time of divorce, are CP.
An award before vesting can occur via either (1) a “if an when received decree” in which the pension is received, spouse gets a share, or (2) cash-out by awarding other assets of equal value.
If vesting has occurred, spouse has present right to her share of the pension, even if other spouse does not opt to retire.
Federal Law: if a non-participant spouse (NPS) in a qualified pension plan divorces a participant spouse, her CP interest is recognized, and under federal law, she can get a Qualified Domestic Relations Order and receive payments from the plan. If the NPS predeceases the participating spouse, NPS cannot devise her CP interest in the plan, because federal law preempts and prevents her from doing so.
Character of Prop. - Disability, Retirement, and Workman’s Comp.
Treated as wage replacements. They are classified according to when received, not when earned.
Disability pay can be treated as CP to the extent it replaces a community interest in an old-age retirement pension the retired worker would have expected to receive has he not elected to receive disability pay instead (cannot be used to defeat spouse’s CP rights).
Spouses of military personnel have CP rights in a military retirement plan.
Character of Prop. - Severance Pay
Split of Authority:
- H’s severance pay is SP because it replaced lost earnings which (after the divorce or permanent separation) would be H’s SP.
- Severance pay is CP because it arose from a collective bargaining agreement and thus was earned by employment during marriage.
Character of Prop. - Stock Options
Stock options awarded during marriage are CP.
Any form of incentive compensation and all compensation during marriage are CP
(Years from date option awarded to the date community ended) / (Years from date option awarded to the date the option becomes exercisable) = CP.
Character of Prop. - Goodwill of Business
To the extent that goodwill is earned during marriage, goodwill of a professional practice is CP.
Goodwill are those qualities that generate income beyond that derived from (1) professional’s labor and (2) reasonable return on capital and physical assets. The factor that raises the expectation of continued patronage.
Can be valued either by (1) Expert witness testimony as to goodwill’s value or (2) capitalization of “excess earnings” attributed to good will.
Character of Prop. - Educational Expenses
Education and training acquired during marriage are not treated as CP.
Community may be reimbursed for expenses if education enhanced a spouse’s earning capacity. This reimbursement cannot occur where the community has already been substantially benefitted from the earning of an educated spouse or if the other spouse also received a CP funded education. If more than 10 years has passed since degree was awarded, presumption is that the community has substantially benefited.
Education debts are assigned solely to the one who incurred the debt.
Character of Prop. - CP used to improve SP
Spending CP on own SP (fixtures) the community gets a choice of reimbursement or enhanced value. Community may be reimbursed for the greater cost of improvements or the enhanced value of the SP.
Spending CP on other spouse’s SP: there is a presumption of a gift to spouse’s SP. Presumption can only be overcome by evidence of an agreement to reimburse the community estate. Alternatively, some JX allow for reimbursement without presuming gift.
Direct v. Exhaustion Tracing of SP Funds
The mere fact that SP funds are commingled with CP funds does not transform or transmute SP into CP. However, the burden of proof is on the party claiming SP to show where the funds came from via Direct or Exhaustion Tracing.
Direct Tracing: At the time the asset was purchased, there were separate funds available, and the SP proponent intended to use those separate funds to purchase an SP asset.
Exhaustion Tracing: At the time the asset was purchased, show that community funds in the account had already been exhausted by payment of family expenses, and therefore the asset must have been purchased with separate funds. It is presumed that family expenditures are made with CP funds.
Installment Purchase Before Marriage and Debt Paid with CP During Marriage
The Proration (or Buy In) Rule applies:
1. Where there is an installment purchase before marriage and payment with CP funds after, OR
2. During the marriage W inherits land subject to mortgage and pays off noted with CP funds
Rule: The community estate takes a pro rata portion of the prop. measured by the amount (%) of principal debt reduction attributable to the expenditure of community funds. Only principal payments reduce the debt, not interest, prop. taxes, or insurance premiums.
Life Insurance Policies
Proration Rule applies in classifying ownership of life insurance policies.
If term policy (pure insurance with no investment feature and no cash surrender value), then last premium payment will determine the character of the asset.
Quasi CP - General
Prop. acquired while the couple was domiciled outside of CA, which would have been CP if they were domiciled in CA when it was acquired.
At divorce, QCP is treated the same as true CP and is divided 50/50
At death the survivor has a 1/2 interest in decedent’s QCP. Decedent has no rights in the survivor’s QCP. So protects non-acquiring spouse only if she survives.
Quasi CP - Real Prop.
At divorce, out of state real prop is WCP so divided 50/50 even though the land is in another state.
Can be divided pro rata (prop. given to one spouse and the other reimbursed).
At death, out of state real prop. is controlled by that state’s law under the situs rule for purposes of division. Surviving spouse could seek remedy of resulting trust or constructive trust because back when H bequeathed via will it was 1/2 CP.
