Community Property Flashcards
Basic Presumptions Governing Community Property (state at the beginning of EVERY answer)
California is a community property state. All property acquired during the course of marriage is presumed to be community property (CP). All property acquired before marriage or after permanent separation is presumed to be separate property (SP). In addition, any property acquired by gift, devise, or bequest is presumed SP. At divorce, the community assets are divided equally in kind, unless some special rule requires deviation from the equal division requirement or the spouses agree otherwise in writing or by oral stipulation in open court. With these basic principles in mind, each item of property will be examined.
Basic Presumptions Governing Community Property (QCP addition)
Quasi-community property (QCP) is property acquired by either spouse that would have been community property had the spouse been domiciled in California at the time of acquisition.
Cohabitation
Even though cohabitation may be marriage-like, CA does not apply its CP law to persons who never evidenced any intention to enter into lawful marriage. Instead, CA applies general contract principles. Property acquired during cohabitation is treated according to Marvin contract rules. According to Marvin, the courts should enforce express contracts between non marital partners except to the extent the such contracts are explicitly founded on consideration of sexual services. If there is no express contract, a party may prove a contract implied by the behavior of the parties, or an agreement of partnership or joint venture.
Termination of Marital Economic Community (Permanent Separation)
The marital economic community begins at marriage and ends at one spouse’s death or when the spouses effect a permanent physical separation. To terminate the marital economic community by permanent physical separation, there must be both an actual separation and an intent not to resume the marital relationship. One spouse’s unilateral intent not to resume the relationship is sufficient as long as it has been communicated to the other spouse.
Wage Replacement
Courts have held that funds intended to replace wages that would have been earned during marriage are CP. Courts have looked to the replacement function of the recovery to determine its character as SP or CP.
Liability if CP and SP
All of the CP and the debtor’s SP are liable for a debt incurred during the marriage. The SP of the other spouse is not liable.
Fiduciary Duty
In the management and control of the CP, each spouse is subject to the fiduciary rules that govern confidential relationships. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither may take any unfair advantage of the other. This is a fiduciary relationship subject to the same rights and duties of non marital business partners.
Transmutation
During marriage, the spouses may by transfer or agreement change the status of any or all of their property from SP to CP, from CP to SP, or from one spouse’s SP to the other spouse’s SP. These changes are transmutations. To be valid, a transmutation must be made in writing and must expressly declare that a change in ownership is being made.
Premarital Agreement
Parties may avoid the community property system by agreement. Parties may make a premarital “separation of property” contract specifying that after marriage each party’s earnings will remain SP.
Premarital Agreement (validity)
To have a valid premarital agreement, it must be in writing, it must have been entered into voluntarily, and it must not be unconscionable. The agreement will be deemed involuntary if the party against whom the enforcement is sought was not represented by counsel, unless that party: was advised to consult an independent attorney and expressly waived that right, had seven days to examine the agreement, and if unrepresented by counsel was full informed of the basic effects of the agreement (and signed a separate writing). An agreement is unconscionable if the judge finds that it is unfair and that the objecting party was not fully advised of the financial status of the other party, did not waive such disclosure, and could not reasonably have obtained the information on his own.
Accounting Methods for Valuation of Property
To apportion between the SP component of the business and the CP value added by the managing spouse’s labor during marriage, courts have developed two different apportionment methods: (1) the Van Camp accounting method, and (2) the Pereira accounting method.
Van Camp Accounting
In Van Camp accounting, the managing spouse’s services are valued at the going market salary for such services. Then family expenses that were paid from the business earnings are subtracted from the value of the manager’s services. The remainder, if any, represents the CP portion of the business. The rest of the business is the SP of the managing spouse. Van Camp accounting is preferred when the appreciation is mostly passive.
Pereira Accounting
Pereira accounting begins with the separate capital and imputes a fair return, usually 10% per year, which is the current legal interest rate. The total SP interest is the principal, plus the fair rate of return (here 10%), times the number of years the SP business was in operation and managed by the spouse during marriage. The remainder is CP.
Pereira v. Van Camp (family expenses)
In Pereira accounting, family expenses paid by business earnings are not subtracted, because Pereira accounting starts by calculating the value of the SP, and the residue (already reduced by money withdrawn to pay family expenses) is CP. In contrast, Van Camp accounting starts by calculating the value of community labor that still remains in the business, and the residue is SP. Thus, in Van Camp accounting, family expenses are properly taken into account insofar as they were in fact paid from the business income.
Pereira v. Van Camp (use)
Pereira accounting should generally be used when management by the spouse was the primary cause of the growth or productivity of the initially separate business, because Pereira assigns an ordinary rate of return to the business capital. Van Camp should generally be used when the character of the separate business is largely responsible for its growth or productivity, because Van Camp assumes that the managing spouse’s services were ordinary when it imputes a market salary for those services.
