Community Property Flashcards
Basic Rule Statement of Community Property and Quasi-CP in California
“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 separation is presumed to be separate property. In addition, any property acquired by gift, devise, or bequest is presumed to be separate property.”
“Quasi-community property is property that would have been CP had the spouse been domiciled in California at the time of acquisition.”
Basic Rule Statement of Distribution at Divorce and Distribution at Death
“At divorce, the community assets will be equally divided in kind unless a special rule requires deviation from the equal division requirement.”
“At death, the decedent can devise all of his separate property and 1/2 of the community property. If the decedent dies intestate, the surviving spouse is automatically entitled to the decedent’s share of the community property and either: (1) all of decedent’s SP if no other heirs (2) 1/2 of SP if one other heir (3) 1/3 of all of decedent’s SP, if 2 or more surviving issue or parent.”
Quasi-CP is treated the same as CP at divorce; at death, surviving spouse has 1/2 interest in the quasi-CP titled in decedent’s name.
Basic Rule Statement for Characterization, and List of Property Categories
Property acquired during the marriage is presumed CP and acquired outside the marriage is presumed SP.
Characterization by Source of Acquisition (during marriage):
Generally, the fruit of SP is SP, and property coming from before marriage is SP. Otherwise, CP.
Easy to characterize property: Bequest, Gift, etc. -- SP SP Income (dividends?) -- SP In Exchange for SP -- SP CP Income (shared biz) -- CP Wages of individual, etc. -- CP
Classes of property that can be challenging to categorize:
- personal injury awards
- retirement benefits, workers comp, disability
- business goodwill (usually it’s CP if biz grew in the marriage)
- severance pay
- stock options
- Education
- Property acquired with CP AND SP (joint title or no)
- Community Labor Enhancing Value of SP (van camp and periera rules)
Personal Injury Awards (characterization)
- CP if cause of action arose during marriage
- SP otherwise
- At divorce, CP personal injury awards will go entirely to injured spouse unless interst of justice requires otherwise
Retirement Benefits (characterization)
- CP if earned during marriage (like wages)
- Courts look to timeline (WHEN retirement benefits were earned) to separate SP from CP
Disability and Workers Comp (characterization)
-Either CP or SP depending on the wages they are intended to replace
Severance Pay (characterization)
Courts are split on whether this is SP or CP. Courts that treat it as SP assert severance pay is to replace future wages that would have been received (possibly after marriage).
On CP side, it’s a wage payment during marriage.
Stock options (characterization)
Treated as CP or SP depending on when and why they were earned.
Stock options as a form of employee compensation should be treated like wages.
Courts will prorate the stocks to determine respective CP and SP shares.
Education and training (characterization)
- Education is NOT CP.
- CP may be entitled to reimbursement if (1) CP funds used to pay for education and (2) enhanced the earning capacity of the spouse.
- CP NOT entitled to reimbursement IF:
(1) community has already benefited (eg education was long ago)
(2) Other spouse has also received community funded education
(3) Need for spousal support is reduced by the education or training.
Property acquired with community AND separate funds (characterization)
OVERALL note: family expenses are assumed CP (food, clothing, housing).
- Taking asset in joint title. Lucas and anti-Lucas. Depends on whether the characterization is due to divorce or death.
- “At death, Lucas applies. Under Lucas, when a married couple takes title in joint and equal form, it is community property. Any SP used to acquire the asset is presumed to be a gift of the SP unless there is an oral or written agreement to the contrary.”
- “At divorce, all property taken by a married couple in joint form is presumed to by CP. HOWEVER, SP used to acquire the jointly titled asset entitles the contributing spouse to reimbursement, without interest or appreciation. - No title presumption, property bought from comingled account (CP and SP unclear).
- No presumption that the property is CP, but burden is on SP holder to prove SP used for property through 2 methods:
- Exhaustion: at the time asset was purchased, CP must have already been exhausted due to payment of family expenses, thus only SP remained to purchase the asset.
- Tracing: when the asset was purchased there were sufficient SP funds available and the SP owner intended to use SP funds to purchase an SP asset. - When CP is used to pay the principal on SP property (eg a mortgage), the CP and SP interests are determined by apportioning respective contributions. There is a proportional CP interest in the property.
- When CP is used to make improvements to the SP of a spouse, there is NO CP interest.
- other spouse may be entitled to reimbursement
- Will be presumed to be a gift to SP of other spouse unless can indicate otherwise
Community Labor Enhancing Value of SP (Van Camp and Pereira Rules)
When community labor is used to enhance the value of an SP business, CP is entitled to share in the increased value of the SP.
Pereira Rule: “Pereira accounting is used when the increase in value of an SP business is primarily the result of community labor. Under Pereira, the value of the SP at the beginning of the business is given a fair rate of return over time (typically 10% simple interest annually). The initial value of the business plus this interest is characterized as SP, and the rest of the value is CP.”
Van Camp Rule: “Van Camp accounting is used when the increase in value of a business is primarily the result of the unique nature of the SP asset. Under Van Camp, the fair salary of community labor over the existence of the business, less any community salary already received, is the CP share. The rest of the value of the business is SP.”
Why to use one rather than other: use Van Camp when the main reason the biz value increased is about the product/service/etc; use Pereira when community labor is the main reason for biz value increase.
Transmutation (Agreements by Parties)
A transmutation is an agreement between spouses to change the character of an asset.
A transmutation must be made in a written express declaration that is consented to by the spouse whose interest is adversely affected.
Rights of Unmarried Couples
Can qualify as a “putative spouse” if one reasonably believed in good faith that one was married to another. (basically this is to protect against “victim” of bigamy).
When decedent is survived by both a lawful and putative spouse, property is divided equally between them.
Unmarried couples living together are otherwise governed by normal contract principles.
Rights of Creditors
Creditors can reach (1) the debtor spouse’s SP, and (2) ALL CP to pay debts accrued during or BEFORE the marriage.
In addition, Non-Debtor spouse is liable for debts on any necessaries (rent, food, clothing, medical, etc) – non-debtor’s SP can be reached.
Tort liability is incurred when the tort occurs (but no liability when you are not the tortfeasor unless tort was to benefit the marital community).
K liability is incurred when K is made.
CP can receive contribution for prior spousal/child support from debtor spouse’s SP, but only if debtor spouse actually had SP.
Distribution at Divorce: Reasons to Deviate from Equal Division Rule
The general rule at divorce is that CP and quasi-CP is divided equally between spouses, with each taking a 1/2 interest in each item of property. This equal rule is not followed when:
(1) misappropriation by one spouse - don’t reward malfeasance
(2) liabilities exceed assets - if CP liabilities exceed assets, ct may take into account each spouse’s ability to pay and assign debts accordingly
(3) educational debts are assigned ONLY to the spouse who received the education
(4) tort liabilities go to the tortfeasor
(5) Family Residence may be awarded to person who is given custody of minor children.
(6) personal injury award goes to the injured spouse (unless int of justice requires)
(7) sometimes for specific reasons an item will go to one spouse and the other can get reimbursed (eg an artwork, shares in a closely held corporation)
