Community Property Flashcards
Community Property General Presumptions
-Introduction-
- CA is a community property (CP) state.
- All property acquired during marriage by earnings or labor of either spouse is presumed CP
- All property acquired before marriage, during marriage by gift, bequest, devise, or descent, or after divorce, death, or permanent physical separation is presumed separate property (SP).
- At divorce, each spouse is entitled to one- half CP interest.
- Asset characterization as CP or SP depends on
- (1) item’s source
- (2) parties’ actions that may alter an item’s character, and
- (3) statutory presumptions affecting an item.
- [If the facts mention another state outside CA: Quasi-Community Property (QCP) is property acquired by either spouse that would have been CP had the spouse been domiciled in California at the time of acquisition.]
- With these principles in mind, each item of property will be examined.
Prerequisite to apply Community Property law:
Determine whether parties were in a valid marriage or an alternative to marriage
Quasi-marital property (QMP) is property that would have been CP/QCP under a valid marriage
How do you define the property of a Putative Spouse?
All property that would have been CP or QCP had the marriage been valid is quasi-marital property (QMP) in a putative marriage. QMP is treated as CP or QCP.
What is Transmutation and what is needed?
A transmutation is an agreement between spouses to change the characterization of an asset. Oral transmutations were valid prior to 1985, but after Jan 1, 1985, a valid transmutation required a declaration signed by the adversely affected spouse, unless the gift is insubstantial in nature.
- Note: No other exceptions or extrinsic evidence is allowed. A statement in a will is not admissible to prove the transmutation. Detrimental reliance will not be taken into account.
Overall Approach + Checklist
General Presumptions (CP, SP, QCP)
Preliminary Issues
- Relationship status
- Premarital Agreement
Characterize Property
-
Original General Presumption
- Source of funds at the time of acquisition
-
Does anything change the characterization?
- Title Presumptions
- Tracing
- Transmutations
- Manage and control
- Contributions/Improvements
- Special Rules
- Creditor Rights
- Debts
Distribution/order of debt satisfaction
Preliminary Issues → Relationship Statuses
- Married
- Domestic Partnership
- Permanent Separation
- Nonmarried Couples (Putative Spouses)
Preliminary Issues → Premarital Agreements
- Premarital agreements that change the classification of property, or where one spouse gives up rights to property must meet several requirements.
- Such an agreement will be deemed involuntary unless
- the impacted party is represented by independent cousel at the time the agreement is signed (or waived in writing),
- presented with the agreement seven days before signing,
- if unrepresented, full informed in writing of the terms and rights that are being given up, in a language in which the impacted party is proficient, and
- there may not be fraud or duress.
Preliminary Issues → Relationship Statuses → Marriage
- A marriage is valid in CA where there is a consensual civil contract between 2 people followed by the performance of certain legal procedures.
- Marital economic community begins at the date of marriage and ends at permanent separate, dissolution or death of one spouse, whichever occurs first
- California recognizes marriages from other jurisdictions of the marriage would be valid by the laws of that jurisdiction
Preliminary Issues → Relationship Statuses → Domestic Partnership
- Registered domestic partners are legally afforded the same rights and protections as married persons
- Domestic partnership economic community begins at the date of the partnership
- Ends at separation, dissolution, or death
NOTE: Domestic partners are treated exactly the same as married persons in CA
Preliminary Issues → Relationship Statuses → Permanent Separation
- Permanent separation is a complete and final break in the marital relationship where one spouse has communicated to the other his intent to end the marriage and conduct s consistent with this intent
- After the date of a permanent separation, property is considered separate property
What is a Putative Spouse?
A Putative spouse is not legally married because the marriage is void or voidable, but one or both parties believe in good faith that the parties are legally married.
General Presumptions
- Characterization of Property: All property acquired by married persons while domiciled in CA is characterized as community property or separate property. The original characterization is based on the source of funds and timing of the acquisition
- CP = CA is a community property state. The earnings of each spouse and all property acquired during marriage by the labor of wither spouse while domiciled in CA is presumptively community property
-
SP = All property acquired before marriage or after permanent separation or after divorce is presumptively separate property. In, adition, property acquired by gift, bequest, devise, or descent; and the rest, issues, and profits derived from the separate property; and property acquired with separate property funds is also presumptively separate property
- earnings and accumulations are SP when
- living apart
- legal separate
- special rules apply to earnings not other sources of money
- earnings and accumulations are SP when
- QCP = Quasi-community property is all property acquired by either spouse while domiciled in a non-community property state, which would have been community property in California
- QMP = Quasi-marital property is property acquired during a void or voidable marriage, which would have been community property or Quasi-community property if the marriage had not been otherwise.
Presumptions inferred by the title
- Form of title of property may rebut the original presumption as community property or separate property when the title is inconsistent
- Funds SP and title CP is presumped to be a gift to community unless a contrary written intent, subject to reimbursement at divorce
- Funds CP and title is SP, the property will be considered CP unless there is a written transmutation, except if it is a gift.
-
Jointly titled property benefitted by expenditures of SP depend on if the marriage ends by death or divorce
- Under lucas, at death ,all jointly titled property is presumed CP, unless express agreement says otherwise. There us not right to reimbursement
- Under Anti-lucas, at divorce or legal separation all jointly titles property is presumed CP, unless express agreement states otherwise. Here, there is a right to reimbursement for SP contributions
- SP Reimbursements are inly allowed for expenditures made for down payments, payments for improvements, and payments that reduce the principal of a loan
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What is the Married Women’s special presumption?
The Married women’s special presumption asserts that property acquired by a married woman in a writing prior to 1975, is presumed to be her SP.
- If property with another 3rd party it is considered tenancy in common
- if deed identifies couple as married then presumed CP, if not then own as tenants in common
Note: Taking title in her own name alone, will not change the classification to SP
What is tracing?
A mere change in form of an asset does not change its characteriation as CP or SP, thus tracing is permitted to establish the source of funds used to acquire an asset
-
Comingled funds: commingling of SP funds with CP funds does not necessarily transform or transmute property from SP to CP.
- Burden of proof is on the spouse claiming SP to show assest was acquired by SP funds
- Expenditiures for family expenses are presumpted to be made by CP even if SP funds were also available
What are the two tracing methods?
- Exhaustion Method - all CP funds were used and only SP funds remained in the account for the purchase
- Direct Tracing Method - sufficent SP funds AND intent to use SP funds
What happens when there is joint title and want to use tracing?
Tracing can not overcome joint title presumption BUT allowed for jointly held bank accounts
Management and Control
- Fiduciary duties
- full disclosure of material facts
- good faith and fair dealing
- Community Personal Property
- Equal power to manage CP
- One spouse can not gift or dispose for less than fair value
- Once Spouse can not sell or convey family furnishings without written consent
- Community Business
- Managing spouse can make all decisions, but must give written notice to sell
- Community Real Property
- Both need to sign to sell or lease for more than 1 year
- can’t convey to 3rd party without other spouse consent
Contributions and Improvements of Business
Pereia determines how much of the SP business value increase is due to capital appreciation of the initial SP contribution by valuing the SP business at the time of marriage plus a fair rate of return to yield the SP portion of the business; remainder is the CP portion.
Under Van Camp, the court estimates the market salary for the spouse’s services to yield the CP portion of the business less any salary paid; remainder is the SP portion.
Note:
- Use Pereia when the SP business value increase can be attributed to a spouse’s personal time, skills, and effort. SP = Value of SP Business at Time of Marriage + (Value of SP Business at Time of Marriage * Fair Rate of Return * Years of Marriage); CP = FMV of SP Business at Divorce – SP.
- Use Van Camp when the SP business value increase can be attributed to a business character, rather than a spouse’s labor.CP = Reasonable Value of Services Provided During Marriage – Salary Paid; SP = FMV of SP Business at Divorce – CP.
What happens when Community Property is used to improve the other spouse’s Separate Property?
There is a jurisdictional split on how to assess. In some jurisdictions, a gift is presumed, unless there ia an agreement to reimburse. In other jurisdictions, a gift is not presumed and reimbursement is granted.
Note: On test, apply both
what happens when community property is used to improve spouse’s own SP?
When a spouse uses CP to improve that spouse’s own SP, the CP is reimburded for the cost of the improvement or the increase in the value to the SP, whichever is greater
What happens when community property contributions to SP real property?
(Marriage of Moore)
The community gets a proportional ownership interest to the extent CP payments reduce the principal debt.
What happens when SP contributions to the other spouse’s SP?
A party will be reimbursed, without interest, for contributions/improvements that can be traced from their SP to the other spouse’s SP and that is used for down payments, improvements, and reducing the principal of a loan, UNLESS there is a written waiver of the right to reimbursement or a written transmutation
What happens when Separate property contributions to Community property property or business?
A party will be reimbursed, without interest, for contributions/improvements that can be traced from their SP to CP and that is used for down payments, improvements, and reducing the principal of a loan, UNLESS there is a written waiver of the right to reimbursement.
Businesses: Reverse Pereira and Van Camp will apply when SP contributes to a CP business after separation/dissolution
- For Reverse Pereira, the community receives a fair rate of return and the remainder is SP
- For Reverse Van Camp, the separate estate receives a fair salary, less expenses, and the remainder is CP
