Community Property

Question 1

What factors do courts look at to find if a couple has held themselves out to be common law married?

Answer 1

Joint tax returns, children, use of last names, co-ownership of property, shared bank accounts, credit cards, and debts. This list is not exclusive.

Question 2

Can courts take marital fault into account in dividing community property?

Answer 2

Yes. Fault is just one factor though a judge can consider in the division of community property. Fault can also be a factor in child custody actions.

Question 3

What is the standard for dividing property at divorce?

Answer 3

Courts SHALL divide community property in a “JUST AND RIGHT” manner. THIS DOES NOT MEAN 50/50. The court has BROAD DISCRETION IN DECIDING WHAT IS JUST AND RIGHT.

Question 4

What is a putative spouse? What are they entitled to?

Answer 4

This is where the spouse has an OBJECTIVE, REASONABLE BELIEF that the parties are legally married. However, the other spouse is in fact already married to someone else.

The “putative spouse” will be given the same rights as if the parties had been legally married. He or she will get 1/2 of the community estate. The other half will go to the deceptive party to split with their legal spouse.

Question 5

What are meretricious partners?

Answer 5

People who are unmarried and cohabit with each other. They do not hold themselves out as being married. Thus, they are both single for legal purposes and CANNOT have community property.

Question 6

What are registered domestic partners?

Answer 6

May arise with same-sex couples or with opposite-sex couples. This is only allowed in Travic County. The couple can register as a couple.

Question 7

What are the two types of property? Define each.

Answer 7

Separate Property - Property acquired before marriage or after divorce; by gift or inheritance; OR acquired as a result of personal injury recovery (except for lost earning capacity and medical expenses).

Community Property - Property acquired during the marriage.

Question 8

What is the rule that Texas follows in classifying property?

Answer 8

THE INCEPTION OF TITLE RULE - property is classified when it is acquired.

Question 9

How is a gift to the community classified?

Answer 9

50% SP gift to the husband and 50% SP gift to the wife.

Question 10

How is income gained during the marriage from separate property classified?

Answer 10

General rule - Community Property

Exceptions:

1) Parties have entered into an agreement to the contrary; OR
2) The SP is a gift from the spouse.

Example - You receive an apartment building from your spouse that generates $10k a month. The income from the rentals will remain your separate property.

Question 11

What can a spouse do if he/she objects to a property’s classification?

Answer 11

They can prove that it is another type of property by CLEAR AND CONVINCING EVIDENCE.

Question 12

If you acquire an asset over a period of time, as in a layaway plan, how is that asset classified?

Answer 12

The Inception of Title rule says that it is classified whenever the claim to the title is first made (which would be the first payment). If the payment is made before marriage, the asset is SP. If during, the asset is CP.

Question 13

How do parties rebut a community property presumption, especially when they have commingled bank accounts?

Answer 13

Tracing.

Community Out First Rule - If both SP and CP funds are poured into one bank account, Texas presumes that the community property funds are spent first.

Lowest Intermediate Balance Rule - If the balance in the account drops below the SP amount poured into the account, then the court determines that the lowest balance between when the SP funds were deposited and the date of the divorce is the SP amount.

Question 14

What is the rule when you have separate property that is acquired before the marriage but paid off during the marriage? Are there any exceptions?

Answer 14

Economic Contribution “Old Rule” - APPLIES TO ALL CASES FILED BEFORE SEPTEMBER 1, 2009. The community gets a percentage of the current equity in the property based on the community contribution that went towards debt reduction (doesn’t include interest, taxes, or insurance payments. Only the community funds that INCREASED THE EQUITY IN THE PROPERTY count.

Reimbursement “New (current) Rule” - APPLIES TO ALL CASES AFTER SEPTEMBER 1, 2009. THIS IS THE SOLE REMEDY FOR COMMUNITY CONTRIBUTIONS TO SEPARATE PROPERTY (THERE IS NOTHING ELSE). Consider the payments from CP to the principle on the mortgage and any capital improvements on the property.

NOTE: A spouse can also contribute TIME, TOIL, and TALENT to help improve value in SP such as a business. The community will be entitled to reimbursement for this.

EXCEPTIONS (things that CP payments are not reimbursable for):

1) Living expenses;
2) Payment of child support, maintenance, alimony from prior marriages;
3) Student loan payments; OR
4) Financial contributions toward a professional degree.

Question 15

How is separate property stock treated?

Answer 15

1) Cash Dividends earned during the marriage are classified as CP.
2) Stock dividends/splits are treated as appreciations in value of the stock and are thus classified as SP.
3) Proceeds from the sale of SP stock remains SP.
4) Stock Options follow the “Time Rule” which states that courts will apportion the value of the stock options based on the amount of time involved during the marriage and the time when the parties are separated. That ratio is applied to the number of shares that can be exercised. That proportion is the amount attributed to the community estate.

Question 16

How is trust income classified?

Answer 16

A trust is SP, and the income from the trust is also SP.

Exception: If the spouse has an unrestricted right to invade the trust corpus, income from the trust will be deemed CP.

Question 17

How are mineral interests classified?

Answer 17

SP mineral interests that generate income remain SP income.

Exception: Delay Rentals are classified as CP.

Question 18

How is livestock classified?

Answer 18

Even if livestock are deemed SP, the offspring of that livestock BORN during the marriage will be deemed community property.

Question 19

How is property that was acquired by a couple while they were domiciled outside the state of Texas treated? What is this property called?

Answer 19

This is QUASI-COMMUNITY PROPERTY. The rule is: If the property would have been CP had the married couple been domiciled in Texas when the property was acquired, it is now considered Quasi-Community Property. This concept ONLY applies at divorce (not during the marriage).

Question 20

T/F - An asset acquired on credit during marriage falls under the CP presumption.

Answer 20

True

Exceptions:

1) Agreement to the contrary between the parties; OR
2) THE CREDITOR RELIED ON ONE SPOUSE ONLY IN EXTENDING THE CREDIT.

Question 21

How are gifts during the marriage classified?

Answer 21

If the gift is purchased with SP funds and placed in the other spouse’s name, it is considered a SP gift to that spouse, and all income out of that SP will remain SP.

If the gift was purchased with CP and placed in the donee spouse’s name, it is PRESUMED TO BE CP. Only slight evidence is needed to show it was intended to be a gift.

If the gift was purchased with CP but the title is stated as SP of only ONE spouse, and BOTH SPOUSES HAVE PARTICIPATED IN THE TRANSACTION, the property is deemed SP of the donee spouse (whoever’s name is on the title).

Question 22

How does the Inception of Title Rule apply to Life Insurance Policies?

Answer 22

The characterization is determined by the classification of the FIRST PREMIUM PAYMENT MADE ON THE POLICY.

HOWEVER, CP estate is entitled to reimbursement for any premium payments made out of the community property assets.

Question 23

How are retirement and pension benefits classified?

Answer 23

Defined Benefit Plans - Employee Spouse’s years of service while married / total years of service at the time of divorce = CP Fraction applied to the plan.

The value of the benefits is frozen at the time of divorce. The value of a retirement plan is determined by a JUST AND RIGHT division.

A spouse can have his/her interest in one of two ways:

1) Cash Out - establishes a present cash value of the CP’s share of the benefit; the non employee spouse is then cashed out; OR
2) “If, as, and when received” decree - Contingent upon employee actually retiring. The court determines the benefits to be paid out to the non-employee spouse “if, as, and when” the employee spouse actually retires and begins collecting retirement benefits.

Question 24

How are defined contribution plans classified?

Answer 24

The value of the plan is determined by the actual amount contributed by the employee spouse. Here, we use tracing to see what was contributed before and during marriage. Before = SP / During = CP.

Question 25

What is a QDRO?

Answer 25

You can set up a separate account for an ex-spouse, into which an employer can put money for that spouse. If the non-employee spouse pre-deceases the employee spouse, all interests of the non-employee spouse would also die with that spouse.

Question 26

How are military benefits classified?

Answer 26

Military retirment benefits are CP. HOWEVER, military disability benefits are SP.

Question 27

How is worker’s compensation classified?

Answer 27

Follow the “Time Rule:”

1) If lost earning capacity occurred before the marriage or after the marriage, those benefits are SP.
2) If lost earning capacity occurred during the marriage, the workers compensation benefits are CP.

Question 28

How exactly is time, toil, and talent that is put into a spouse’s SP business during marriage calculated for community reimbursement?

Answer 28

The amount of reimbursement is calculated using the VALUE of the time, toil, or talent EXPENDED, LESS the VALUE of time, toil, or talent REASONABLY NECESSARY TO MAINTAIN THE BUSINESS, and LESS ANY COMPENSATION already received by the operating spouse.

Question 29

How are Personal Injury Awards classified upon divorce?

Answer 29

Generally, personal injury recoveries are the SP of the injured spouse.

EXCEPTIONS:

1) Lost earning capacity during marriage;
2) Lost wages otherwise attributable to community during marriage; and
3) Medical expenses paid by the community during the marriage.

Question 30

Can couples agree to alter the characterization of assets after they have been classified?

Answer 30

Yes through a separate agreement called a Conversion Agreement. THIS IS NOT A PRENUTIAL AGREEMENT.

Question 31

What is a Prenuptial Agreement? Are they valid?

Answer 31

Yes these are generally valid so long as:

1) Written; AND
2) Signed by BOTH parties.

NO CONSIDERATION IS NEEDED.

SCOPE:

1) Parties can determine characterization of an asset;
2) Parties can agree on division of assets upon death or divorce;
3) Parties can agree on spousal support;
4) Parties can agree on choice of law (what state law);
5) Parties can agree on any other matter, as long as it does not violate public policy.

ABSOLUTELY CANNOT EVER AGREE TO MODIFY, WAIVE, OR RELINQUISH CHILD SUPPORT (violates public policy).

Remember - In Texas, prenuptial agreements CANNOT be conversion agreements (i.e. cannot agree to convert all SP into CP / this can be done after marriage in a conversion agreement).

Question 32

How does a spouse go about challenging a prenuptial agreement?

Answer 32

Two ways:

1) Establish the agreement was executed involuntarily; OR
2) Establish agreement was unconscionable.

To show unconscionability, the party challenging must establish:

1) There was no full and fair disclosure of assets and obligations;
2) There was no waiver of the right to receive such disclosure; AND
3) The party had no way of discovering the other party’s assets and obligations.

The party challenging the agreement has the burden of proof.

Question 33

What are conversion agreements?

Answer 33

SP will be converted into CP. INTENT of the parties is key and must be CLEARLY set out in the agreement.

Question 34

What is a partition agreement? What is the effect on creditors?

Answer 34

Parties can agree to an unequal distribution of CP. Can be challenged by showing involuntariness or unconscionability.

Agreements are BINDING on existing creditors as long as:

1) There was NO INTENT TO DEFRAUD CREDITORS, AND
2) The creditors had NOTICE OF THE AGREEMENT.

Parties will often record these agreements publically to make sure these standards are met.

Question 35

Can married couples have a survivorship agreement with regard to CP?

Answer 35

Yes. This allows for the right of survivorship for CP upon death. The agreement MUST CONTAIN EXPRESS LANGUAGE such as “with right of survivorship” in order to pass to the surviving spouse.

The Agreement must be:

1) In writing; AND
2) Signed by both parties.

The agreement can be revoked by either spouse by WRITTEN NOTICE to the other.The agreement is valid and does not need a court order to become so, though a court order may be required to enforce such an agreement.

Question 36

What is the effect on bona fide purchasers of property that is in a survivorship agreement?

Answer 36

BFPs who purchases property for value, from a representative of the estate, WITHOUT NOTICE of the CP survivorship agreement has SUPERIOR RIGHTS TO THE PROPERTY (over the surviving spouse).

A BFP for value or a creditor who purchases property through the estate MORE THAN 6 MONTHS AFTER the decedent’s deatth has good title against the surviving spouse and ALL other heirs.

Question 37

What are palimony agreements? Are they valid?

Answer 37

These are support agreements between unmarried cohabitants. These are VALID IF in WRITING and SIGNED BY THE PARTY AGAINST WHOM THE AGREEMENT IS TO BE CHARGED.

CAN APPLY TO SAME-SEX COUPLES.

Question 38

How is properly the is adversely possessed during marriage classified?

Answer 38

If a spouse enters property before marriage, and completes the claim for advers possession during marriage, the property is CP (Inception of Title Rule).

If a spouse enters property before marriage WITH A COLORABLE CLAIM OF TITLE, then completes the claim for adverse possession during marriage, the property is SP.

Thus, the key distinction is whether the party had a colorable claim of title.

Question 39

How are the different types of property managed?

Answer 39

SP - Each spouse has management and control over his or her separate property.

SMCP - The property itself is characterized as CP, but it is under the sole management and control of one of the spouses.

JMCP - This property is characterized as CP and BOTH spouses have equal rights to manage and control the property.

If property is in both spouses’ names, it is presumed JMCP. This property requires the consent of both spouses upon any encumbrance or disposition of the property.

JMCP INCLUDES SMCP that is MIXED TOGETHER with the other spouse’s SMCP (thus a joint bank account is considered JMCP).

Basically - if the property is held in one spouse’s name or is in the possession of one spouse without any documentation regarding joint ownership, it is the SMCP of that spouse.

Question 40

How is the tort liability of each spouse handled?

Answer 40

A) Judgments entered against a spouse for an accident that happened DURING MARRIAGE subjects the following to tort liability:

1) The tortious spouse’s SP,
2) The tortious spouse’s SMCP,
3) The JMCP, AND
4) The non-tortious spouse’s SMCP

Basically any torts during the marriage have access to that spouse’s SP and the entire CP estate.

B) Judgments entered against a spouse for an accident that happened BEFORE MARRIAGE subjects the following to tort liability:

1) The tortious spouse’s SP,
2) The tortious spouse’s SMCP, AND
3) The JMCP.

Question 41

How is contract liability characterized?

Answer 41

Presumption that debts acquired DURING THE MARRIAGE are considered JOIN DEBTS. The joint debt subjects ALL SP and CP to satisfy the debt.

IF ONLY ONE SPOUSE IS OBLIGATED on the contract, creditors can ONLY REACH PROPERTY over which the debtor spouse has management and control (sp, smcp, and jmcp).

Contracts for Necessaries - Each spouse is PERSONALLY LIABLE for the other spouse’s contracts for necessaries; so, creditor who provides necessaries to either spouse may reach all assets, INCLUDING SP OF NON-DEBTOR SPOUSE.

Question 42

What effect does divorce have on contractual liabilities? How can a creditor seek payment?

Answer 42

Generally, there is no effect on pre-existing creditors’ rights. If both spouses sign a note, then both are personally liable. If one spouse signs the note, only the debtor spouse is personally liable.

A creditor can pursue a CONSTRUCTIVE TRUST on the property to satisfy the debt (in rem action).

Question 43

T/F - Upon divorce, the court may set aside a spouse’s SP for the support of minor children.

Answer 43

True.

Question 44

What factors does the court take into account when determining what is “just and right” division of CP?

Answer 44

1) Capabilities and abilities of each spouse;
2) Benefits that the innocent spouse would have derived from continuation of the marriage;
3) Business opportunities, financial condition, and obligations of each spouse;
4) Education of each spouse;
5) Physical health of each spouse;
6) Age disparities;
7) Size of SP estates of each spouse;
8) Nature of the assets;
9) Duration of the marriage; AND
10) Fault

Question 45

What happens if CP is discovered after divorce?

Answer 45

There is a TWO YEAR STATUTE OF LIMITATIONS to discover anymore CP and have it divided in accordance with the court’s determination.

Question 46

What is the effect on divided CP at divorce if the couple later remarries?

Answer 46

That divided CP becomes the SP of each spouse and stays that way in the second marriage.

Question 47

What is the standard of review for distributions of property?

Answer 47

Abuse of Discretion to the point that is so disproportionate that it is manifestly unfair and unjust.

Question 48

What factors does an appeals court consider in determining whether a trial court erred in distributing property?

Answer 48

1) Age and physical health of the parties;
2) Relative earning ability and power;
3) Future support needs;
4) Size of the estate;
5) Benefits spouse would have received from continuation of marriage; AND
6) Fault

Question 49

Does Texas allow for Alimony?

Answer 49

No, alimony does not exist in Texas.

Exceptions:

1) Temporary support-payments made during divorce proceedings;
2) Contractual alimony-negotiated by the parties themselves; and
3) In rem periodic payments that applies to property not easily divisible.

Question 50

What is Texas’s version of Alimony? How can a party get it?

Answer 50

Limited Spousal Support - Party seeking it has the burden to show that he or she is entitled to receive maintenance.

To be eligible, spouse seeking must establish that:

1) He or she LACKS SUFFICIENT PROPERTY to provide for his or her MINIMUM REASONABLE NEEDS; AND
2) Must establish ONE OF THE FOLLOWING FACTORS:
a) Victim of an act of family violence that happened within the prior TWO YEARS before the date on which the dissolution was filed, AND that the other spouse was CONVICTED OR RECEIVED a deferred adjudication for an act of family violence;
b) Spouse is unable to support themselves through employment because of an INCAPACITATING PHYSICAL OR MENTAL DISABILITY;
c) Spouse is custodian of a child OF THAT MARRIAGE who requires SUBSTANTIAL CARE and supervision because of a PHYSICAL OR MENTAL DISABILITY, rendering it so that she CANNOT BE EMPLOYED OUTSIDE THEIR HOME; OR
d) The couple was MARRIED MORE THAN 10 YEARS AND lacks the ability and earning capacity to seek employment that would provide for his or her MINIMUM REASONABLE NEEDS.

Question 51

Is there a defense to paying limited spousal support?

Answer 51

Yes.

Defense - Spouse seeking support has not exercised REASONABLE DUE DILIGENCE in earning sufficient income or in DEVELOPING THE NECESSARY SKILLS to provide for his or her own MINIMUM REASONABLE NEEDS.

2)

Question 52

What factors does the court consider in determining whether to award maintenance?

Answer 52

1) Each spouse’s ability to provide for his or her own minimum reasonable needs;
2) Education and employment skills of the spouses, and the time necessary to acquire sufficient education or training to become financially independent;
3) Duration of the marriage;
4) Age, employment history, earning ability, and physical health and conditions of the spouse seeking maintenance;
5) Effect on each spouse’s ability to provide for his or her own minimum needs and also provide for child support;
6) Acts by the parties that resulted in excessive or abnormal expenditures or destruction of CP or JMCP (ECONOMIC MISCONDUCT);
7) Contributions of the spouses to the education, training, or increased earning capacity of the other spouse;
8) SP owned by each spouse;
9) Contributions of a spouse as a HOME MAKER;
10) Marital misconduct, including adultery and cruel treatment; AND
11) HISTORY OF FAMILY VIOLENCE OR DOMESTIC VIOLENCE.

Question 53

How long does spousal maintenance last?

Answer 53

It depends. The maximum years are as follows:

1) 5 Years - marriage less than 10 years and there was family violence OR the marriage was between 10 and 20 years;
2) 7 Years - Marriage lasted between 20 and 30 years;
3) 10 Years - Marriage lasted 30 years or more;

EXCEPTION: There is an exception to the maximum periods above if the following occur:

1) There is a physical or mental disability of the spouse seeking maintenance;
2) Spouse seeking is custodian for a young child or infant OF THAT MARRIAGE; OR
3) Any sufficient, compelling impediment to seeking employment and meeting reasonable financial needs.

Question 54

How is the amount of maintenance determined?

Answer 54

The MAXIMUM AWARD is the LESSER OF $5,000 per month OR 20% of the obligor spouse’s AVERAGE MONTHLY GROSS INCOME.

Gross Income INCLUDES:

1) 100% of the obligor’s salary, wages, and compensation for personal services;
2) Interest, dividends, and royalty income;
3) Self-employment income;
4) Net rental income; AND
5) All other type of income actually being received.

Gross Income does NOT INCLUDE:

1) Return of principal or capital;
2) Accounts Receivable;
3) Benefits paid in connection with federal welfare or public assistance programs;
4) Benefits paid in accordance with Temporary Assistance for Needy Families Program;
5) Payments from foster care;
6) Military disability compensation;
7) Supplemental security income, social security income, and disability benefits; AND
8) Workers compensation benefits.

Question 55

Can spousal maintenance be modified?

Answer 55

Yes, it can be modified DOWN but NOT UP.

Can be modified upon a showing of MATERIAL AND SUBSTANTIAL CHANGE to the circumstances of the parties.

NOTE: A loss of employment or earning capacity because of a physical or mental disability that happens AFTER the parties divorce is NOT sufficient for a downward modification.

Question 56

How does spousal maintenance terminate?

Answer 56

If either party DIES or if the party RECEIVING maintenance REMARRIES OR COHABITS with another.

Question 57

How is a beneficiary spouse under the other spouse’s insurance policy affected by a divorce?

Answer 57

Divorce by operation of law TERMINATES a former spouse’s rights as a beneficiary to an insurance policy or retirement plan.

EXCEPTIONS:

1) Former spouse is RENAMED on the policy after divorce;
2) Divorce decree names spouse as a beneficiary;
3) Pension plan is a qualified plan governed by ERISA; OR
4) Former spouse named as trustee for benefit of children.

Question 58

T/F - If casualty, health, or liability insurance proceeds are not specifically addressed in divorce proceedings, the spouse awarded the asset also gets the insurance proceeds from that asset.

Answer 58

True.

Question 59

Is good will property subject to being divided upon divorce?

Answer 59

Good will is NOT PROPERTY. However, IT CAN BE AN ASSET to a corporation or professional association.

Thus, if the business entity is deemed a CP asset, then good will can ALSO be classified as a CP asset (BUT ONLY AS PART OF THAT CORPORATE ENTITY).

Any personal good will of the either spouse is that spouse’s SP.

Question 60

Is a Professional Degree property that can be divided upon divorce?

Answer 60

This is NOT AN ASSET THAT CAN BE DIVIDED UPON DIVORCE.

Further, there is NO EQUITABLE CLAIM FOR REIMBURSEMENT for one spouse financially supporting or contributing to the education of the other spouse.

HOWEVER, financial contributions are taken into account as a FACTOR FOR LIMITED SPOUSAL MAINTENANCE.

Question 61

What is the effect of a bigamous relationship during the marriage?

Answer 61

Two Scenarios:

1) If Wife 2 knows about Wife 1, then Wife 2’s property with Husband is NOT within the community property system (they are not married because Husband is already married to Wife 1).
2) Putative Spouse - If Wife 2 knows nothing about Wife 1 and shouldn’t know, then 1/2 of the property acquired during the putative marriage belongs to Wife 2 (as tenants in common), and the other 1/2 belongs to Wife 1 and Husband (as their CP). The goal here is to protect the putative spouse.

Question 62

How is property divided at death?

Answer 62

TESTATE SUCCESSION: Testator has testamentary power over all SP and his or her 1/2 of the CP.

INTESTATE SUCCESSION:

1) Personal Separate Property - Surviving Spouse inherits 1/3 of the Personal SP of the testator, and the descendants inherit 2/3.
2) Real Estate - 1/3 Life Estate goes to Surviving Spouse, and 2/3 is inherited by the descendants. If no descendants, then Surviving Spouse takes 1/2 and other heirs take the other 1/2.
3) Community Property - Decedent spouse’s 1/2 passes through his estate (goes to heirs / if no heirs then to Surviving Spouse). Other 1/2 belongs to the Surviving Spouse.

Question 63

What is a Survivor’s Election?

Answer 63

This is where a surviving spouse must make a choice or elect to choose between what is left in a will OR take through community property rights.

These are DISFAVORED IN TEXAS. There is a PRESUMPTION that a will does not creat such an election, so the will MUST MAKE IT CLEAR THAT THE TESTATOR INTENDED TO CREATE SUCH AN ELECTION.

Question 64

Can a spouse make gifts out of the CP estate?

Answer 64

General Rule: A spouse CAN MAKE REASONABLE GIFTS OF CP WITHOUT THE OTHER SPOUSE’S CONSENT.

Question 65

Can spouses transfer or encumber a homestead?

Answer 65

Neither spouse can transfer or encumber a homestead without the other spouse’s consent, REGARDLESS of the property’s classification.

EXCEPTIONS:

1) Other spouse has disappeared and the location of that spouse is unknown;
2) Other spouse has permanently abandoned the homestead and the petitioning spouse;
3) Other spouse has permanently abandoned the homestead and the spouses are permanently separated; OR
4) There has been a report that the spouse is missing or a prisoner of war or missing in the public service of the United States.

Question 66

How does a spouse challenge a gift of CP made by the other spouse? What factors should the court look at?

Answer 66

The spouse challenging the gift will claim that there has been a FRAUD PERPETRATED ON HIM THAT WAS UNREASONABLE. (actual intent to defraud is NOT necessary).

FACTORS in determining reasonableness of the gift:

1) The relationship between the donor spouse and the donee;
2) The relative amount of the gift as it is compared to the size of the community estate in general;
3) Whether the non-consenting spouse is adequately provided for out of the remaining community estate;
4) Whether the gift was made from the donor spouse’s SMCP; AND
5) Whether there were other offsetting gifts.

Question 67

What is the remedy for a fraudulent gift?

Answer 67

Old Rule - Court would set aside the transfer.

NEW RULE: RECONSTITUTION - The court will calculate the value of the lost asset and then reconstitute the value of the community property estate, and then divide the reconstituted estate in a JUST AND RIGHT DIVISION as between the parties.

Achieving a just and right division can be accomplished by the court in the following ways:

1) Awarding the innocent spouse a proportionate share of the community estate after calculating the fraud on the community;
2) Awarding a MONEY JUDGMENT to the innocent spouse against the defrauding spouse; OR
3) Awarding to the innocent spouse BOTH a MONEY JUDGMENT and an APPROPRIATE SHARE OF THE COMMUNITY ESTATE.

Question 68

Explain the affect of an illusory trust?

Answer 68

If a spouse transfers CP into a revocable trust but retains the right to control the trust corpus, the property transfer is considered illusory and can be set aside.

Question 69

What advice would you give to married clients who want to make gifts out of the community estate?

Answer 69

ALWAYS JOIN AND CONSENT before making any community property gifts.