Community Property Flashcards
Community property opening
California is a community property state. All property acquired during the course of a marriage is presumed to be community property. All property acquired before marriage or after permanent separation is presumed to be separate property. In addition, any property acquired by gift, devise, or bequest is presumed to be separate property. To determine the character of an asset, a court will trace back the source of funds used to acquire the asset. A mere change in the form of assets does not change its characterization.
At divorce, the community assets are equally divided 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. Quasi-community property is treated as through it were community property at divorce.
Separate property
All property acquired during marriage is community property unless it is received by gift, bequest, devise, or descent; is the rent, issue, or profits of separate property, or is property acquired in exchange for separate property.
Transmutation
During marriage, the spouses may by transfer or agreement change the status of any or all of their property from separate to community, from community to separate, or from one spouses’s separate to the other’s separate. To be valid, a transmutation must be made in writing and must expressly declare that a change in ownership is being made.
The writing requirement does not extend to gifts between the spouses of items of a personal nature that are used principally by the spouse to whom the gift is made and that are not substantial in value, taking into account the financial circumstances of the marriage.
CP Presumption at divorce
The presumption that property is CP at divorce can be overcome only by a collateral written agreement or a statement in the documentary evidence of title that the property is separate and not community property. If there is no writing to the contrary, at divorce any separate property contributions to the acquisition of the property are reimbursed to the SP contributor without interests or appreciation.
Fiduciary duties between spouses
In management and control of community property, spouses are subject to the fiduciary rules that govern confidential relationships. The confidential relationship of spouses imposes a duty of the highest good faith and fair dealing on each spouse, an neither may take unfair advantage of the other. A rebuttable presumption of undue influence arises when one spouse gains an advantage over the other in a property transaction. The spouse who obtained the advantage bears the burden of rebutting the presumption. Thus, if a disadvantaged party contests a transmutation or other inter-spousal transaction, the advantaged party bears the burden of proving that the disadvantaged party freely and voluntarily consummated the transaction with full knowledge of all the facts and complete understanding of the effect of the transaction.
Increases to separate property
Profits and increases to SP, if generated without applying community funds or labor, are also SP.
Education
Education is not treated as divisible community property. However, unless there is an agreement to the contrary, at divorce the community can be reimbursed for educational expenses if community funds were used to either pay for education or to repay an education loan and the education substantially enhances the earning capacity of the educated party. Reimbursement may be reduced or modified if the other spouse received a community funded education, the education enables its recipient to engage in gainful employment that substantially reduces the need for spousal support, or the community has substantially benefited from the education or training. There is a rebuttable presumption that the community has benefited if more than 10 years has passed since the contributions.
Quasi-community
Quasi-community property is property acquired by either spouse that would have been community property if the spouse had been domiciled in California at the time of the acquisition.
Cohabitation - express and implied contracts
Even where cohabitation may be marriage like, California does not apply community property laws to persons who never evidenced any intention to enter into lawful marriage. Instead, Marvin v. Marvin contract rules apply. Even if a couple eventually marries, only property acquired during marriage is distributed according to community property rules. According to Marvin, courts should enforce express contracts between non marital partners except to the extent that such contracts are founded on sexual services. If there is no express contract, a party may prove a contract implied by the behavior of the parties.
Termination of the marital economic community
The marital economic community begins at marriage and ends at one spouse’s death or when the there is permanent physical separation and intent not to resume the martial relationship by at least one spouse.
Community labor
Labor performed by married persons is presumed community labor, and a spouse’s salary earned during marriage is presumed to be CP. Salary earned following permanent separation is SP. Courts have held that funds intended to replace wages that would have been earned during marriage are CP, and courts will look to the replacement function of the recovery to determine its character as community or separate property.
Liablities
All of the community property and the debtor’s separate property are liable for debts incurred during the marriage. The SP of the other spouse is not liable unless the debt was incurred for necessities.
Premarital agreements
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.
To have a valid premarital agreement, it must be in writing, it must have been entered into voluntarily, and it must not have been unconscionable.
The agreement will be deemed involuntary if the party against whom enforcement is sought was not represented by counsel, unless that party expressly waived that right, had seven days to examine the agreement, and if unrepresented, was fully informed of the basic effects of the agreement in a signed, separate writing.
The agreement will be unconscionable if it is unfair and 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.
SP Business and community labor
A spouse may devote community labor to the management of a SP business. If at divorce or death, the business has appreciated in value or substantial assets have been purchased with business profits, the character of the business and assets must be determined. To apportion between the SP component of the business and the CP value added by the managing spouses labor using the marriage. courts have developed two different apportionment methods: Van Camp accounting and Pereira accounting. Pereira accounting should generally be used when management by the spouse was the primary cause of the growth or productivity of the initial separate business. Van Camp should generally be used when the character of the business is largely responsible for its growth or productivity.
Van Camp accounting
In Van Camp accounting, the managing spouse’s services are valued at the going market salary for such services. Then the 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.
