Community Property Flashcards
What does it mean for CA to be a community property state?
The premise of a community property system is that earnings from the labors of each spouse during the marriage contribute equally to the accumulation of wealth and debt, which are owned equally by both spouses
What is the structure you should use for CP essays?
- Start with an introduction explaining the community property system and providing rule definitions for CP, SP (and QCP/QMP if at issue)
- **Address **any issues pertaining to the validity of marriage and/or premarital agreement
- Take each piece of property/debt separately and determine how it should be distributed at death or divorce:
* first identify the original source and timing of the funds used to acquire the property for the initial characterization;
* then determine if the parties took any actions that could potentially change the characterization (e.g., the way they took title, transmutation, tracing, management and control, contributions, etc.)
* consider any special rules that guide the characterization of a special asset
4.** Answer the call of the question** as to each piece of property
When does the marital community begin and end?
The marital economic community begins at the date of marriage and ends at permanent separation, dissolution or the death of one spouse, whcihever occurs first.
What are the elements of a valid marriage in CA?
- Consent;
- Between two adults (at least 18 years old); and
* 3. formal legal procedures (i.e., license, solemnization, and authentication
OR
If person is under 18, needs: (a) a court order; and (b) parental consent.
What are the elements of a domestic partnership?
- Two people who share one another’s lives in an intimate and committed relationship of mutual caring (cohabitation is not required),
- Who would otherwise have the capacity to marry, and
- Registration under the California Domestic Partner Rights & Responsibilities Act
What are the parties subject to CP?
- Validly married couples
- Domestic partnerships
- Common law marriages
- Voidable marriages (before they are voided)
- Putative spouses with respect to Quasi-Marital Property (to protect a good faith spouse)
When does permanent separation occur?
When there is a complete and final break in the relationship, which requires 2 elements:
- One spouse expressly informs the other of an intent to end the marriage
- The spouse’s conduct is consistent with that intent.
Note: Physical separation is no longer required
What is a putative spouse?
A putative spouse is one who is not legally married because the marriage is void or voidable, but one or both parties believe in good faith that the parties are legally married.
What are void marriages?
A marriage that is invalid from its inception. Includes: incest and bigamy (remarrying without divorcing prior spouse).
What are voidable marriages?
A marriage that is valid and legal until declared void. Includes:
* Underage
* Unsound mind
* Fraud sufficient to vitiate consent (e.g., concealed sterility)
* Force or duress
* Incurable physical incapacity
* Bigamy exception (person remarries after presumed death of prior spouse)
What is Quasi-Marital Property?
Property acquired by a putative spouse during a void or voidable marriage, which would have been CP or QCP if the marriage were not void or voidable.
Note: QMP is treated the same as CP or QCP
What is a premarital agreement?
An agreement made before marriage in which the parties agree to the characterization of their property and may limit support obligations.
This is subject to strict validity requirements (see other card), and cannot impact child support nor promote divorce
What are the elements for a valid premarital agreement?
To be valid, a premarital agreement must:
1. Be in writing
2. Be signed by both parties
3. Be made voluntarily (see separate card for elements)
4. Not be unconscionable (see separate card for elements)
Note: does not need consideration
When are premarital agreements deemed voluntary?
Premarital agreements are deemed involuntary unless the party against whom enforcement is sought was:
- Represented by independent counsel at time agreement was signed, or** advised to seek independent counsel and waived it in a separate writing**
- **Presented **with the agreement at least seven calendar days before signing it
- If unrepresented, fully informed in writing of the terms and effects of the agreement, and declared in writing that he received such information and from whom he received it
- Not under duress, fraud, undue influence, or lack of capacity
- Any other relevant factors
When are premarital agreements considered unconscionable?
At the time of execution:
- The agreement was unconscionable;
- The spouse lacked a full, fair, and reasonable disclosure of the property & obligations of the other spouse;
- The spouse did not waive the disclosure in writing; and
- The spouse did not have, nor reasonably could have had, adequate knowledge of the other spouse’s property or obligations
What are the impacts of the premarital agreement on child support?
Premarital agreements cannot alter statutory child support obligations.
What are the impacts of the premarital agreement on spousal support?
Spousal support provisions are not enforceable if:
- The spouse against whom enforcement is sought was not represented by independent counsel at the time of signing
OR
- At the time of enforcement, the provision is unconscionable.
What is the rule about characterization of property in CA?
All property acquired by married persons while domiciled in California is characterized as community property or separate property.
The original characterization is based on the source of funds and the** timing of the acquisition**.
What is the general presumption about Community Property?
The earnings of each spouse and all property acquired during marriage by the labor of either spouse while domiciled in CA is presumtively community property
What is the standard of proof needed to rebut a general presumption re: characterization of property?
The standard needed to rebut a general presumption is by the preponderance of the evidence.
What is the general presumption about Separate Property?
All property acquried before marriage or after permanent separation/divorce is presumptively separate property.
Also presumptively SP:
1. property acquired by gift, bequest, devise, or descent,
2. the rents, issues, and profits derived from separate property, and
3. property acquired with separate property funds
What is the presumption for property where title is CP, but source of funds were SP?
This is **presumed to be a gift to the community **and characterized as CP (unless there is a contrary written intent), subject to reimbursement at divorce.
What is the presumption for property where title is SP, but source of funds were CP?
Property will retain characterization as CP, unless there is a written transmutation.
Exception where title is evidence of a gift: (1) spouse intends to give other spouse a gift; (2) title is taken in a way to evidence that gift. (No writing requirement.) Then this will be SP.
How should jointly titled property benefitted by SP expenditures be treated?
Use Anti-Lucas if the couple is divorcing:
- As of 1987, all jointly held property (joint tenancy, tenancy in common, tenancy by the entirety) acquired during marriage is presumed to be CP upon divorce.
- This presumption can be rebutted by an express writing evidencing the spouses’ intent to hold the property as SP.
- 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).
What reimbursements are available under Anti-Lucas?
Reimbursements are not available for increases, only DIP:
* Down payments
* Improvements
* Principal
What is tracing?
To rebut a CP or SP presumption regarding an asset, a party can trace the source of the funds used to acquire the asset to claim a different classification of the asset.
What are the two tracing methods?
- Exhaustion Method: requires showing that at 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
- Direct Tracing Method: requries showing a direct link from SP funds to the purchase such that the sufficient SP funds in the account were available at the time of the purchase and the SP owner intended to use SP funds to make the purchase
What is the presumption about commingled bank accounts?
Bank account with SP and CP assets is CP.
Burden of proof is on the spouse claiming there is an SP interest to rebut the CP presumption.
What are the elements of Direct Tracing?
- Sufficient SP funds in account at time of purchase; and
- Intent to use SP funds to purchase the asset
What are the elements of Indirect Tracing (Exhaustion Method)?
CP funds in the account were exhausted at time of purchase due to payment for family expenses
Note: Family expenses presumption applies
What is the family expenses presumption?
Used when tracing funds: expenditures for family expenses were made with CP funds, even if SP funds were also available.
What is a transmutation?
An agreement between spouses made during marriage to alter the ownership characterization of property.
What is required for a valid transmutation?
- Be in writing (since 1/1/1985)
- Contain an express declaration by the adversely affected spouse that the characterization or ownership of the asset is being changed
(exception for gifts of insubstantial value)
When does a gift qualify for an exception for the writing requriement of a transmutation?
A gift of personal property does not require a written transmutation if:
- The gift is between spouses
- The gift is a tangible item for use principally by the donee spouse
- The gift is of relatively insubstantial value, taking into account the marital assets
What are the fiduciary duties each spouse has?
-
Duty to disclose all material facts about community assets and debts
2. Duty to account and provide access to all records of assets and debts of CP upon request -
Duty to obtain consent before making a gift of CP or transferring CP real property
4.** Duty of Good Faith** in dealing with the other (e.g., not take unfair advantage)
What are the limitations on gifts of CP personal property?
A spouse may not make a gift, or dispose of community CP, for less than fair and reasonable value without the written consent of the other spouse
What are the rules when there is a sale of CP real property?
To BFP: Conveyance to a bona fide purchaser (who took for value without notice of other spouse’s interest) is presumed valid, but can be voided by the other spouse within one year.
To non-BFP: Conveyance can be voided by the other spouse at any time.
What are the tests to use when one spouse has a separate property business?
Van Camp & Pereira
What is the Pereira approach?
This favors the CP estate and is used by courts when the primary reason for the business gorwth is the spouse’s personal skills and effort. (Think P for Person.)
Formulas:
SP = Value of SP @ time of marriage + (Value at time of marriage x fair rate of return x years of marriage)
CP = Business FMV @ divorce - SP (calculated above).
Fair rate of return is usually 10%
What is the Van Camp approach?
Favors the SP estate and used when the primary reason for the business growth is due to the market or character of the business (not efforts/labor). (Think V for Value.)
Formulas:
CP = (Reasonable Value of Services - Annual Family Expenses) x Years of Marriage
SP = FMV of Business @ Divorce - CP
What happens when CP is used to improve either spouse’s SP?
The CP estate is entitled to either reimbursement for the funds expended or the enhanced value of the property, whichever is greater.
Funds spent on the improvement will be reimbursed or a pro rata share in the enhanced value of the SP.
What is the Reverse Pereira Formula?
Used when business was acquired during marriage (CP) that increases in value after separation primarily due to spouse’s efforts and labor.
CP = FMV of CP business at separation + (FMV of CP business at separation x Fair Rate of Return × # years of separation)
SP = FMV of business at divorce – CP
What is the Reverse Van Camp Formula?
Used when business was acquired during marriage (CP) that increases in value after separation primarily due to the market (not spouse’s efforts/labor).
SP = Reasonable value of spouse’s services during separation – SP expenses paid during separation
CP = FMV of business at divorce – SP
What happens when one spouse’s SP is used to improve the other spouses’ SP?
The spouse is entitled to reimbursement for DIP (downpayments, improvements, and principal).
What happens when SP is used to improve CP?
The spouse is entitled to reimbursement.
What is true of credit (loans) acquired during marriage?
There is a rebuttable presumption that property purchase dwith borrowed funds (on credit) is CP debt.
Can be rebutted by showing that lender relied exclusively on SP when extending credit
How are educational expenditures treated?
They are not considered community assets / debts.
CP is entitled to reimbursement if CP funds were used to pay for the education costs, the earning capacity of the educated spouse was substantially improved, and the married couple did not contractually waive the right of reimbursement. This is subject to some defenses.
How is personal injury recovery handled?
If injury occured during marriage, then:
During marriage or at death, any tort recovery is CP..
At divorce, any subsequent tort recovery is SP.
What are the rules regarding pension plans?
Pension plans earned during marriage are CP regardless of when it is vested or exercisable.
Pensions earned both before and during the marrage must use the Time Rule.
What is the Time Rule & when is it used?
The Time Rule is used to apportion pensions, retirement, and stock options earned both before and during the marriage
CP = Total Pension x (Years Married While Pension Earned/Total Years Pension Earned)
What are the rules regarding stock options?
If stock opions vest during marriage, it is CP.
If stock option is awarded during marriage but exercisable only after, then will depend on the purpose of the stock option:
Hug: if for compensation for past services, then
CP = (Date of Hire - Date of Separation) / (Date of Hire - Date of Vesting) x # of Shares
SP = Total Shares - CP Shares
Nelson Formula: if compensation for future services, then will be SP for services performed after divorce
CP = (Date of Grant - Date of Separation) / (Date of Grant - Date of Vesting) x # of Shares
SP = Total Shares - CP Shares
What are the rules re: disability pay and severance?
This depends on what they are intended to replace. If intended to replace marital earnings or retirement benefits, then CP.
If replacing post-divorce earnings, then SP.
If intended to replace pension (disability only), then use time rule
What are potential defenses to reimbursement for the other spouse’s education?
The educated spouse can raise the following defenses to reimbursement:
- the divorce occurred more than 10 years after the education was received and the community substantially benefited from the education during that time;
- the other spouse also received an education paid for with CP funds during marriage, or
- the education reduced the need for spousal support upon divorce.
What are the rules regarding life insurance?
For whole life insurance, each estate has an interest in the value of the policy to the extent they paid the premium (determine relative share)
For term life insurance, the estate paying the premium on the latest term controls
What are the rules regarding business goodwill?
If a spouse has developed a business or professional practice during marriage, any goodwill in that business or practice is a CP asset that is capable of equal division at divorce.
How does federal preemption apply?
Federal law preempts inconsistent state law when specific types of icnome or liabilities are designated as the sole property of one spouse under federal law, but would otherwise be CP under CA law.
What is CP liable for?
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.
What is true about liability for premarital debts of the other spouse?
Will also be CP liability.
However, the non-debtor spouse can protect her CP earnings by depositing them in a separate bank account that is not accessible to the debtor spouse.
When can the CP seek reimbursement for one spouse’s SP debts?
The non-debtor spouse has three years to bring an action for reimbursement if debts/liabilities are paid from the community.
What is true of liabilities at divorce?
Upon divorce, debts incurred before marriage will be assigned to spouse who incurred the debt. Debts incurred during the marriage that were not for the benefit of the community will be assigned as SP to the debtor spouse.
What is true about liability for debts of the other spouse incurred during the marriage?
Will be paid by CP and debtor spouse’s SP, but not nondebtor spouse SP - except for necessaries of life (costs including food, clothing, shelter, and medical expenses).
While living together and married, a spouse’s CP and SP are liable for the other spouse’s debts relating to necessaries for life.
Upon divorce, the non-debtor spouse is no longer liable. (Thus while living apart, a spouse’s CP and SP are still liable for the other spouse’s debts relating to expenses that are required to sustain life (essential expenses)).
When are tort obligations the liability of CP?
If the spouse who committed the tort was acting for the benefit of the community (ex: taking the couple’s child to school), the liability must first be satisfied from the CP and then from the tortfeasor’s SP.
If the tortfeasor spouse was not acting for the benefit of the community, the liability must first be satisfied from the tortfeasor’s SP and then the CP.
