Community Property Flashcards
What property is SP?
- Property acquired before marriage
- Property acquired during marriage by gift, devise, or descent
- Property acquired during marriage but purchased with separate property funds
What property is CP?
Property other than SP that was acquired by either spouse during the marraige
CP Presumption
All property owned at divorce is presumed to be CP.
Spouses must provide CCE that a particular asset is SP.
Title to an Asset
The name listened on the title to an asset (e.g., name on the deed to land) is not relevant to the asset’s characterization.
EXCEPTION: title is relevant to whether one party intended to make a gift of the asset
X buys a house with SP, but lists both himself and his wife on the deed. Is the house SP or CP?
It is SP.
By putting the wife’s name on the deed, X creates a presumption that he intended to give her a 1/2 interest in the house.
Each owns 1/2 as TIC
X buys a house with CP and the deed names as grantee “Wife, as her sole and separate property.” CP or SP?
Wife’s SP. Strong evidence of intended gift.
X buys a house with CP and conveys it to himself as SP. SP or CP?
CP. One spouse cannot unilaterally gift SP to themselves.
Inception of Title Rule
If property is acquired before marriage, it is SP.
EXCEPTIONS:
- Pensions
- Stock options
If CP and SP is commingled…
SP will remain SP if its identity can be traced
Community Out First Presumption
When a spouse takes money out of a commingled account, TX courts apply a presumption that the spouse took out CP money, not SP money.
Identical Sum Inference Method
Can overcome the community out first presumption if the deposit and withdrawal are:
- Close in time and
- Close in amount
If an SP asset produced income during that marriage, that income is ____.
CP
Trust: “X will receive income generated by interest on the principal of the trust until age 70, and then X will have unrestricted access to the principal of the trust as well.” What is CP and what is SP?
- Income before 70: SP.
- Principal of trust: SP (unrestricted access = gift)
- Income after 70: CP
Interspousal Gifts
When one spouse makes a gift of her SP to the other spouse, courts will presume this is a gift of both the underlying SP asset and the income produced by it in the future.
Partition and Exchange Agreement
Spouses can partition CP into SP by written agreement. If they change a CP asset into an SP asset, they can also convert all future income from that asset from CP to SP.
Mineral Income
Minerals from land owned as SP are considered SP.
Appreciation in the Value of SP
Appreciation in the underlying value of an SP asset remains SP
Stock Split Characterization
Stock splits change the form of the property, but not its character. Not CP if stock is SP.
Stock Dividend Characterization
Stock dividends do not change the characterization of the property and are not CP unlike cash dividends, which will be CP even if the stock is SP)
Capital Gains Dividend Characterization
Capital gains dividends do not change the characterization of the property and are not CP
Tort Recovery: Injury Before Marriage
SP. Inception of Title Rule.
Tort Recovery: Injury During Marriage
SP: pain and suffering, loss of consortium, disfigurement
CP: recovery for loss of earning capacity and medical expenses
Tort Recovery: Settlement During Marriage
Entire award is CP. Cannot prove assets are SP by CCE when all in one settlement payment.
Adverse Possession
If the adverse possessor entered the land UNDER A CLAIM OF RIGHT, his eventual title relates back to the original entry. The inception of title occurs on this date.
If the adverse possessor entered the land as a NAKED TRESPASSER, then he obtains title only when he completes the AP period. The inception of title occurs at this date.
Life Insurance Policy: Before Marriage
SP. Inception of Title.
Life Insurance Policy: After Divorce
Divorce terminates the ex-spouse’s status as beneficiary under an SP or CP insurance policy UNLESS:
- The divorce decree named the spouse as the beneficiary
- The policy holder renames the ex-spouse as the beneficiary after the divorce
- The ex-spouse was originally named the beneficiary in trust for, or on behalf of, one of the children of either spouse
- The life insurance policy is part of an employer pension plan governed by ERISA, in which case federal law preempts the state law rule that divorce terminates beneficiary status
X procures an insurance policy during marriage and designates a friend as a beneficiary. Can he do that?
Yes. It is a gift of CP.
The other spouse can be protected with the fraud on the spouse doctrine and recover 1/2 from X’s estate.
Stock Options & The Inception of Title
The inception of title rule does not apply to stock options. They are split between the SP and CP pro rata.
Employee Retirement Benefits (Pensions) & Inception of Title Rule
Inception of title rule does not apply to employee retirement benefits. Employee retirement benefits are akin to wages.
Retirement benefits earned partially before marriage and partially during the marriage are part SP and part CP, regardless of whether those benefits have vested at the time of divorce.
Definition: Defined Contribution Plan
Employee retirement plan that allows employees to reinvest their own money in a retirement account and often encourages employees to do so by matching contributions
E.g., 401(k)
Characterizing Defined Contribution Plan
Percentage before marriage = SP
Percentage during marriage = CP
Cash dividends from the plan = CP
Characterizing Defined Benefit Plans
If employee is retired, use the Taggart Rule: (years employed during marriage)/(total years employed at the time of retirement) = % CP
If employee is not yet retired, use the Berry Rule
Definition: Defined Benefit Plan
provides monthly payments upon retirement that are often dependent on how long you work for the company
Includes military pensions
Taggart Rule
In a defined benefit plan, the CP portion is given by the fraction:
(Years employed during the marriage)/(Total years employed at the time of retirement) = % CP
Berry Ryle
In a defined benefit plan…
- Determine the value of the plan (valued at time of divorce)
(2%) x (years of service) x (average of 3 highest annual salaries)
- Determine the CP portion of the plan
(Years employed during marriage)/(total years employed at time of divorce) = % CP
How can the court divide a plan that is not yet paying anything out?
- “If, as, and when” decree – pay when you get it
- QDRD (qualified domestic relations order) – ERISA
- Cash out (discount value to present value)
Defined Benefit Plan & Predeceasing Spouse
ERISA stipulates that a predeceasing spouse has no devisable interest in a defined benefit plan
Disability Benefits and Workers’ Compensation
Disability benefits and workers’ compensation are characterized the same way as the waged that they are intended to replace
EXCEPTION: military disability benefits are SP because federal law exempts them from characterization and division
Definition: Business Goodwill
Goodwill that attaches to a business.
Definition: Professional Goodwill
Goodwill that attaches to a professional, like an excellent lawyer or doctor.
Characterization of Business Goodwill vs. Professional Goodwill
Business goodwill earned during the marriage is CP.
Professional goodwill is not property and is not characterized as either SP or CP.
Characterization of Advanced Degrees
Advanced degrees are not property and hence are not subject to characterization
Characterization of Debt
Debt, like assets, can be community or separate.
Debt incurred during the marriage is community debt unless the creditor agreed to look only to the borrowing spouse’s SP for repayment. (E.g., nonrecourse)
Property Acquired in Another State: Divorce
Courts split property upon divorce as if the parties always lived in TX.
Quasi Community Property: divided in a just and right manner
Quasi Separate Property: not divided
Definition: Quasi Community Property
Property that would have been CP had the spouses acquired it while domiciled in TX.
Divorce courts divide quasi community property in a just and right manner.
Definition: Quasi Separate Property
Property that would have been SP had the spouses acquired it while domiciled in TX.
Divorce courts do not divide quasi separate property.
Property Acquired in Another State: Death
- In a non CP state, a spouse’s salary is her CP
- In non CP states, title determines ownership, regardless of when it was purchased.
- Property rights do not change when a couple moves to a CP state.
A trial court’s determination of a just and right division will only be overturned if…
it is manifestly unjust and constitutes an abuse of discretion
Factors a court will consider in a just and right division:
Spouse’s education, capacities and abilities
Disparity of incomes
Disparity of earning capacity
Relative physical conditions
Relative financial condition and obligations
Disparity of ages
Size of separate estates
Size of the community estate
Length of the marriage
Whether one party has wasted CP
Benefits than an innocent spouse would have received had the marriage continued
Tax consequences of any proposed division
Can a court consider a spouse’s fault when determining a just and right division?
Maybe.
View 1: Yes.
View 2: It depends. Consider fault only if the other spouse used a fault ground for divorce.
How can courts divide an estate with assets that cannot be split or sold easily?
Can order periodic payments from the spouse given that property
A spouse can receive maintenance in four cases:
- 10+ year marriage
- Family violence
- Spousal disability
- Child disability
To receive maintenance, a spouse must…
Lack sufficient property to provide for the spouse’s minimum reasonable needs
Clarifications:
- Property = SP + CP from divorce
- Obligee does not have to spend down long term assets or incur new debt
- Loss of employment or other circumstances that occur after divorce are not grounds to institute a spousal maintenance award
Statutory limits on duration of maintenance
Maintenance is limited to the shortest reasonable period that allows the spouse seeking maintenance to earn sufficient income to provide for minimum reasonable needs UNLESS the spouse’s ability to do so is substantially or totally diminished because of:
- the spouse’s disability; or
- the spouse’s duties as the custodian of a young child pf the marriage; or
- another compelling impediment to earning sufficient income
Maintenance terminates upon…
- Death of either spouse
- Remarriage of obligee
- Obligee’s cohabitation with a romantic partner
Statutory limits on amount of maintenance payments
Lesser of 20% or $5000/month of the obligor’s gross income
Definition: Gross Income
All sources of income except returns on principal or capital, counts receivable, government assistance such as disability payments, WC, SS, and the like
Factors a court can look to when setting the amount of maintenance payments:
- Each spouse’s ability to provide for their minimum reasonable needs independently
- Each spouse’s employment skills, including the time necessary to acquire additional education and training
- Duration of the marriage
- Age, employment history, earning ability, physical and emotional condition of the spouse seeking maintenance
- Effect of child support obligations
- Excessive or abnormal expenditures or destruction of CP
- Contributions by one spouse to the other’s education, training, and earning capacity
- Property brought into the marriage
- Contributes of a spouse as a homemaker
- Marital misconduct
- Any history or pattern of family violence
Maintenance: 10+ Year Marriage Statutory Requirements and Limitations
- Married to the other spouse for 10+ years
- Lacks ability to earn sufficient income to provide for the spouse’s minimum reasonable needs
There is a rebuttable presumption that maintenance for a 10+ year marriage is not warranted unless the spouse seeking maintenance has exercised diligence in earning sufficient income or developing skills to provide for the spouse’s minimum reasonable needs.
Statutory Limits on Duration of Payments:
10-20 years of marriage: 5 years
20-30 years of marriage: 7 years
30+ years of marriage: 10 years
Maintenance: Family Violence Requirements and Limitations
- Convicted of or received deferred adjudication for a criminal offense that also constitutes an act of family violence committed during the marriage against the spouse/child of spouse; and
- The offense occurred within 2 years before the date on which a suit for dissolution of the marriage is filed, or while the suit was pending.
Statutory Limits on Duration of Payments:
Under 10 Years: 5 years
Otherwise: See limits for 10+ years
Maintenance: Spousal Disability
- Physical/mental disability preventing spouse from earning sufficient income to provide for minimum reasonable needs
- Duration continues as long as eligibility persists
Maintenance: Child Disability
- Marital child suffers from physical/mental disability
- Requiring substantial care and person supervision
- Preventing caretaking spouse from earning enough to provide for minimum reasonable needs
Duration continues as long as eligibility persists
No alimony in TX, but alternatives are…
- Contractual alimony (periodic payments agreed to in divorce settlement)
- Court-ordered temporary payments during divorce proceeding
- Future periodic payments for property not easily divided
Modification of spousal maintenance award
Can be modified downward, not upward, upon a showing there has been a material and substantial change in circumstances
Maintenance: Cohabitants
Maintenance not authorized between unmarried cohabitants under any circumstances
Maintenance: Putative Spouse
In a suit to declare a marriage void, a putative spouse who acted in good faith and without knowledge of impediment may be awarded maintenance if otherwise qualified to receive it
Reimbursement
Secured Debts: reimbursement measured by reductions in principal (not interest)
Improvements: reimbursement measured by enhanced value
Time Toil & Effort: value of the time, toil, and effort beyond that reasonably necessary to maintain the SP MINUS any salary/wages for efforts
Use and Benefit Offset
Court may find contributing estate has received offsetting benefits that justify denying/reducing reimbursement claim
EXCEPTION: courts cannot offset a reimbursement claim based on use/benefit of primary or secondary residence
A spouse has NO reimbursement claim for…
- Payment of child support, alimony, maintenance
- Living expenses of spouse or child of spouse
- Nominal contributions of property
- Nominal payments toward liability
- Student loan payments
- Spousal gifts
Fraud on the Spouse
Excessive and capricious gifts of CP
Factors:
- Who got the gift
- Size of gift vs. community estate
- Whether spouse can be made whole from remaining CP
Presumption of Fraud: one spouse disposes of property unfairly or without knowledge/consent of other spouse
(BOP shifts to donor to show it was fair)
NOTE: some courts hold gift to unrelated person presumptively fraudulent
Actual Fraud on the Spouse
Donor spouse intended to deceive the wronged spouse and intended to deprive her of her community share
Constructive Fraud on the Spouse
Donor made gifts of CP but did not intend to deprive/deceive spouse
Remedies for Fraud on the Spouse
- Challenged during left –> gift set aside in entirety
- Challenged at death –> gift set aside as to wronged spouse’s 1/2 interest
- Divorce/death –> court will calculate reconstituted estate (all property that would have been in the community estate absent the fraud)
- Divorce –just and right division
- Death – split 50/50
Later Discovered CP
Can bring a suit for partition
SOL: 2 years after one former spouse unequivocally repudiates the existence of the ownership interest of the other former spouse and communicates that repudiation to the other former spouse
Prenuptial Agreements
Can contract on just about everything except child custody/support
Requirements: in writing and signed. Consideration not required
Challenging a Prenup
Must show:
- The party against whom enforcement is sought did not execute voluntarily; or
- The agreement was unconscionable when signed AND every element of this 3 point test:
(a) No fair disclosure (not provided a fair and reasonable disclosure of property/financial obligations of other party)
(b) Right to disclosure not waived (must be in writing)
(c) No adequate knowledge (did not have adequate knowledge of other party’s property/financial obligations)
Partition and Exchange Agreements
Convert current or future CP into SP
Requirements: signed writing. Consideration not required.
Limitation: void re: rights of a creditor whose rights are intended to be defrauded by it
Conversion Agreement
Convert SP to CP
Requirements: writing signed by both spouses; identify property being converted and specify it’s being converted to spouses’ CP
Limitations:
- Must be made during marriage
- Must alter characterization of property immediately
- Does not affect rights of preexisting creditors
Challenging Conversion Agreement
Must prove:
- Challenging spouse did not sign voluntarily OR
- Did not receive fair and reasonable disclosure of legal effect of conversion.
NOTE: disclosure requirement cannot be waived.
Drawbacks to Conversion Agreement
- Subject to just and right division
- Lose creditor protection
- Lose power of disposition
CP Survivorship Agreement
CP will become property of the surviving spouse
Requirements: writing signed by both spouses; contain phrase indicating right of survivorship
Limitations: can be revoked by delivering a signed, written revocation to the other spouse
Cohabitation Agreement
Outline the property rights of unmarried cohabitants
Requirements: in writing, signed by both parties
Limitations: standard k limitations
Management Rights
Spouse has sole management over:
- her SP
- Property that would be her SP if she was single (e.g., wages)
Spouses have joint management over:
- property purchased with CP
- Commingled SMCP
Sole Management Community Property
If title to a CP asset is taken in only one spouse’s name, there is a presumption that the asset is SMCP
The spouse has the power to manage, control, transfer, encumber, or dispose w/o other spouse’s consent
Joint Management Community Property
If a CP asset is titled in both names, there is a presumption the property is JMCP
Creditors’ Rights: Debt Before Marriage
Can access all property the spouse has management over (SP, SMCP, JMCP)
Creditors’ Rights: Debt During Marriage, Non-Tortious
Creditors can collect from: SP, SMCP, JMCP, but NOT the non-debtor spouse’s SP or SMCP
EXCEPTIONS:
- one spouse acted as the agent for the other spouse; both personally liable, and all property can be reached
- both spouses personally liable for necessaries (e.g., rent, medical)
Creditors’ Rights: Debt During Marriage, Tortious
Creditors can collect from tortfeasor’s SP and all CP. The only protected property is the other spouse’s SP.
Asset Bought on Credit
An asset acquired on credit is presumptively acquired on community credit. The source of funds later used to pay off the credit obligation is irrelevant because ownership is determined at the time the asset is purchased on credit.
