Community Property

Question 1

what is separate property

Answer 1

property OWNED OR CLAIMED by a spouse PRIOR to marraige
OR
property acquired during marriage by GIFT, DEVISE, OR DESCENT

Question 2

what is the community property presumption?

how is it overcome (including who has burder)?

Answer 2

there is a presumption that the following three things are community property*:

1. property acquired during marraige
2. property purchased on credit during the marriage
3. property possessed by a spouse upon cessation of marriage

The burden of proving that such assets are separate property is on the spouse attempting to rebut the community property presumption. The standard is CLEAR AND CONVINCING EVIDENCE.

*If the spouse claiming that the property is community property did not participate in the transaction, no presumption is applied.

Question 3

what is community property

Answer 3

any property acquired DURING MARRIAGE that is not separate property

Question 4

earnings from employment during marriage, whether salary or bonus, is part of [a separate estate]/[the community estate]

Answer 4

the community estate

Question 5

in the context of a bonus received through employment, what if part of the bonus was for work performed before marriage and part was for work performed after?

what if the bonus is purely discretionary (and therefore potentially NOT a property right)

Answer 5

split it up in proportion to before and after marriage

if discretionary, still split up proportionally

Question 6

parties may alter by agreement the rule that salary/bonuses earned during marriage are part of the community estate. T/F

Answer 6

T

Question 7

how are gifts between spouses treated?

Answer 7

when one spouse gives a gift to the other during the marriage, any income from the gift is PRESUMED to be SEPARATE property

Question 8

how is income interest from separate property treated?

Answer 8

interest and dividends earned on SEPARATE property are COMMUNITY property based on the Texas rule of implied exclusion

(in other words, it is not in the defintion of separate property so by exclusion it is community property)

Question 9

how do you treat an enforceable right acquired before marriage, but exercised during marraige?

Answer 9

it relates back to its inception, so is separate property

e.g., an option to buy property obtained prior to marraige but exercised during marraige.. the property, once obtains through the option, would still be separate property

Question 10

what is tracing

Answer 10

if there is a presumption of community property, tracing can be used to overcome the presumtpion. you can trace property back to assets that were owned prior to the marriage.

e.g., you own a 20k tract of land before marriage. you get married and property value rises to 100k. then you sell the property and buy stock for 100k. the stock triples to 300k. ALL 300k would be separate property since it can ALL be traced to the 20k land (never mixed with any separate property).

Question 11

what is comingled property

it is presumed to be ___ property

Answer 11

e.g., you buy land before marriage for 20k. you get married. land goes up in value to 100k. you sell the land and put it in an account that has 50k from income you earned during marriage. from that account, you write a check to buy stock for 100k.

the 100k is still considered comingled even though you can argue that it was actually the land sale proceeds you were depositing and then withdrawing. comingled property is PRESUMED to be community but the presumption can be overcome if property documented (see tracing methods on other slides)

Question 12

what are the three tracing methods used to overcome the presumption that commingled property is community property (will elaborate on other slides)

Answer 12

1. identical sum inference
2. the community-out first doctrine
3. lowest intermediate balance

Question 13

tracing methods to overcome presumption that commingled property is community property: explain the identical sum inference method

Answer 13

identical sum inference is also called the clearning house method

arises when there is a deposit of separate property and the same amount is withdrawn shortly after

Question 14

tracing methods to overcome presumption that commingled property is community property: explain the community-out first doctrine

Answer 14

this is a competing principle of the clearing house method.

the doctrine says that if there are community property funds in the account, there is a presumption that those funds are withdrawn first (and, if more is taken out than the total amount of community property, then separate comes out after the community property)

Question 15

tracing methods to overcome presumption that commingled property is community property: how do you determine which principle to apply between the identical sum inference and the community-out first doctrine?

Answer 15

which principle to apply depends on the facts and INTENT of the parties

Question 16

tracing methods to overcome presumption that commingled property is community property: what is the lowest intermediate balance principle?

Answer 16

also called minimum sum balance

When the balance of a bank account with commingled funds drops below the amount of separate funds deposited into the account, the lowest balance of the bank account between the time that the separate property was deposited and the time of the divorce is deemed the separate property portion of the bank account. Snider v. Snider, 613 S.W.2d 8 (Tex. Civ. App. 1981).

SEPARATE property placed in a commingled account “drop to the bottom” of the account. upon subsequent withdrawals, funds are first “taken from top” (i.e. community property) and new community property floats on top. separate is basically always last to go and stays at bottom. but the consequence of this is that, like previous para says, the lowest balance over the relevant period is still separate. the tracing method allows us to say “ok at least this much is separate”

Question 17

what is the basic definition of reimbursement

Answer 17

it is the standard equitable remedy for when the efforts or funds of one marital estate benefit another without receiving a benefit of equal value or when funds are used to reduce unsecured debt. for example, the claim could arise when community funds are used to pay a separate debt or when separate funds are used to enhance community property.

Question 18

discuss reimbursement claim offsets.

Answer 18

claims for reimbursement may be offset against EACH OTHER if the court thinks appropriate (i.e. claims that community benefited separate vs a distinct claim that separate benefited community for a different thing) . additionally, the BENEFITS for the use and enjoyment of property generally may be offset AGAINST a claim for reimbursement for expenditures to benefit that marital estate.

The party seeking an offset to a claim for reimbursement bears the burden of proof.

Question 19

a reimbursement claim is subjec to EQUITABLE principles. what does this mean and what is an example

Answer 19

means that the court can consider factors outside of the specific transaction to get to to a fair result

e.g., baller husband making millions a year tries to get reimbursed by a small community estate. proves that he used separate income to pay a community credit card debt. judge is allowed to decide that, even though he proved a valid reimbursement claim, under principles of equity he will not honor the claim

Question 20

some expenditures that are sometimes mistakenly argued to be reimbursable but are NOT subject to reimbursement

Answer 20

• Living expenses;
• Payment of child support, maintenance, and alimony arising from another marriage;
• Student loan payments; and
• Financial contributions toward a professional degree.

Question 21

the proper measure of a reimbursement claim is the ___ of the benefited estate measured at…

Answer 21

enhancement

generally at the time of cessation of the marraige, whether by death or divorce

Question 22

corporations, partnerships, and LLCs are considered…

the property within those entities are considered…

Answer 22

a single, separate entity

business property of the entity (so neither separate or community)

Question 23

Rmr inception of title doctrine applies to options, including stock options. so if a stock is purchasd during marriage pursuant to a stock option whose inception traces back to before marriage, then it is counted as separate property.

what is shares are purchased pursuant to a subscription agreement using community property funds? should we follow the inception of title tracing doctrine?

Answer 23

property owned or claimed prior to marriage is separate property, even if later paid for by the community estate (this applies to options and subscription plans)

but note that there can then be a reimbursement claim

Question 24

how are cash dividends from separate property stock treated?

Answer 24

cash dividends from separate community stock that are paid during marriage are COMMUNITY PROPERTY*

*exception for return of capital:
if the funds you are getting are not really income but a return of separate-property capital that you invested (e.g., a business started before marraige fails during marriage and you decide to cut losses and sell assets), then that is likely separate property

Question 25

distributions that are earnings or profits are…

are royalties from minerals considered earnings or profits? so if you have separate property minerals that general some income during marriage, what are they considered?

Answer 25

community property

if the mineral interst is separate property, then all distributions from it except delay rentals are considered separate property (so this means think of mineral distributions more like liquidation or return of capital rather than income

Question 26

what if some stock is separate property but company executes a stock split and you get extra stock. is that community or separate?

Answer 26

the extra shares are still separate property

Question 27

an increase in the value of separate property (i.e. capital gains) is considered…

Answer 27

separate property

Question 28

how are stock options that vest over a period of time (employer stock options typically vest over 3 yrs) treated?

Answer 28

if part of vesting period accrues during marriage, that proportion is community, and if part accrues before or after marriage, that proportion is separate property

Question 29

the corpus of a trust is considered…

Answer 29

separate property, regardless of whether trust was created before or during marriage

Question 30

how is income from a trust treated?

Answer 30

if a spouse has unrestricted right to the trust corpus, then income from trust is community (bc it is considered income from a separate property, just like if you have rental payments during marriage from a separate property home)

but if no access or if the trust instrument clearly states grantor’s intention that trust income is a continuing part of the gift in trust, then the income too will be separate property

Question 31

how are mineral interests treated

Answer 31

payments for royalty or working interests are separate property as long as the underlying interest is separate property, but EXCEPTION is delay rentals

Question 32

how is offspring of separate property livestock treated?

how about proceeds from crops

how about proceeds from lumber

Answer 32

when separate property livestock produce offspring, the offspring are considered community property

proceeds derived from crops are community property

proceeds from sale of lumber are community property

Question 33

what is quasi-community property?

Answer 33

quasi-community property arises when a married couple living in a common law state (as opposed to community property state) moves to texas, and is seeking divorce. the out-of-state property is “quasi-community” and basically deemed community property IF IT WOULD HAVE BEEN community property in Texas, had the couple been in Texas at the time they acquired the property

Question 34

when a spouse borrows money during marraige, which estate is obliged to pay?

assets acquired by debt incurred during the marraige are…
what is the exception?

Answer 34

the community estate

community assets.
the exception is if there is an agreement by the debtor and creditor to only use one spouses separate assets

Question 35

how is a separate asset that is put in the other spouse’s name during marraige treated? or any other such transfer

Answer 35

it is a PRESUMED GIFT

rmr that mens that the asset is treated as presumed SEPARATE property of the recipient spouse

Question 36

a transfer of property from a parent to a married child is..

Answer 36

a presumed gift

i.e. other spouse would have burden to prove that it was not a gift by clear and convcincing evidence

Question 37

how is life insurance treated?

Answer 37

this is measured by the inception of title rule, and ownership is determined NOT by when contract signed/agreement formed but by when first payment is made

however, keep in mind that if community property is used to make subsequent premium payments, then there may be a claim for reimbursement (also rmr this could be OFFSET by the benefit received by the community estate, for example if wife names husband in the policy)

Question 38

what if a community estate owns a life insurance policy but asshole husband names another woman as beneficiary?

Answer 38

if the policy is community property (e.g. created during marriage and paid for by community assets) then a court would likely hold that the naming of the other woman is a fraudulent transfer

Question 39

what is a defined benefits plan?

how is it treated?

Answer 39

it’s a document that defines the benefits to be received upon retirement
e.g., pursuant to this plan company will pay Bilbo Baggins 3% times highest monthly wages over past 3 yrs, times the number of years employee has worked for the company

the community property part of any defined benefits plan is pro-rated by the amount of time of service while married, over the total time of services of the company.

there is a federal law that requires the employer to make payments to the qualifying ex-spouse directly through something called a Qualified Domestic Relations Order (or QUADRO)

Question 40

what is a defined contribution plan?

how is it treated?

Answer 40

it is a plan that defines a CONTRIBUTION (rather than a benfit), e.g. a plan outlining how company will match up to 3% of an employee’s contribution to a 401(k) plan
NOTE: employer matching is typically subject to vesting requirements

for defined contribution plans, community property is determined irrespective of vesting. the separate property portion of a defined contribution retirement plan is traced using the same tracing and characterization principles that apply to nonretirement assets. so e.g. in a 401(k) both the employee and the employer make contributions to the employee’s account. the account grows with future contributions, interest, and capital gains. at the time of divorce, the fair market value of the account is determined. if some of the plan was earned before marriage, it is the employee spouse’s separate property. the community property component includes the contributions made during the marriage plus any interest or income earned on the account during the marriage. vesting issues are ignored

Question 41

how are military benefits treated

Answer 41

a federal law allows states to govern how most federal military benefits are treated for purposes of family/community property law, but military DISABILITY pay is specifically preempted, and is treated at SEPARATE property

Question 42

how is worker’s compensation treated?

Answer 42

if the injury or loss of earning capacity occured during marriage, the benefits received are community property.

if it occurred before or after marriage, the benefits are separate property

Question 43

how is a seprate business interest treated that has gone up in value during marriage?

Answer 43

increase in value of separate property is generally separate property, but in the business context you need to watch for the separate property/biz owner spouse under or uncompensating himself (perhaps bc he knows that would be community property) and the business increasing PARTY BECAUSE OF THAT UNDERCOMPENSATION. if so, then the community estate would have a reimbursement claim to that extent.

in common law, the calculation of when that community contribution starts is after the spouse has first contributed a reasonable amount of time and effort to PRESERVE AND PROTECT the separate property, but in texas if a spouse has control (not necessarily the owner) of the company and undercompenstes himself, then the community estate has a reimbursement claim for the total amount of undercompensation.

Question 44

how are personal injury awards treated?

Answer 44

compesnation for personal injury is separate property

the idea is that if you lose an arm you are losing part of yourself.. compensation for that should be separate

however, that is for the personal injury damages itself. damages for medical expenses or recovery for lost earnings are both community property

Question 45

can you make a PRE-marital agreement to alter the characterization of stuff

Answer 45

may agree to most things, but cannot agree to anything that:

1. ADVERSELY affects child support; or
2. violates public policy

Question 46

can you make MARITAL (during marriage) agreements to alter shit?

Answer 46

agreements that are consistent with FIDUCIARY DUTIES can partition and exchange EXISTING property AND FUTURE property, including income from separate property

Question 47

if you made a premarital or martial agreement and change your mind, how can you set it aside?

Answer 47

two methods for setting aside the agreement:

1. prove the agreement was involuntary; or
2. prove there was not full and fair disclosure, the right to receive disclosure was not waived, the spouse did not have adequate knowledge of the other spouse’s property, AND the agreement is unconscionable (so EVEN UNCONSCIONABLE agreements are allowed with full disclosure)

Question 48

what is sole-management community property?

Answer 48

property a spouse would have owend had the spouse not been married

typically consists of spouse’s wages and income from a spouse’s separate property

power to manage on own

Question 49

what is joint-management community property?

Answer 49

sole-management property that has been COMMINGLED with other property.

no power to manage on own

Question 50

how is joint-management community property transfered

Answer 50

once something is considered joint-management community property, it requires BOTH spouses to consent to the transfer or the transfer is VOID

Question 51

discuss management agreements

Answer 51

so as you would expect each spouse has the power to manage his or her own separate property on his/her own (so with or without an agreement). they also have power to manage sole-management community property with or without an agreement.

for joint-management community property, most marital agreements include a provision for management. spouses will also often enter into a management agreement without even knowing it. for example if you open a joint account that is considered joint-management community property, the fine print when you make the account will say that either spouse can withdraw/manage without the consent of the other

Question 52

recall that if one spouse goes accrused a debt during marraige, that is a community obligation. if only one spouse breaches a contract or defaults on loan, the contract creditor can reach that person’s ___ and cannot reach ____

Answer 52

1. sole-management community property of the debtor;
2. joint-management community property of the debtor; and
3. separate property of the debtor

cannot reach community property subject to the sole management of the other spouse

e.g., imagine a wife incurs a debt. the husband puts his wages in an account that is in his name only (so sole-management account), the income put into the account is of course community property (and the community estate has an obligation to pay back the wife’s debt). however, because the account is sole-management community property, the creditor cannot reach it.

Question 53

what can a tort judgement creditor reach?

what is the rationale of dis shit?

Answer 53

all of the tortfeasor’s:

• separate property
• sole management community property
• joint management community property

all of the OTHER spouse’s:
-sole management community property

rationale: unlike in a contract context, where the contract counterparty gets to choose who they transact with, a tort victim doesn’t get to choose by whom he gets run over

Question 54

if a spouse takes a debt which he is personally liable for, gets divorced, and then has a judgement against him for the debt, what can and cannot the creditor go after?

Answer 54

after divorce, the non-signing spouse is not personally liable for the debt. however, the creditor may collect the judgment from joint-management community property that was awarded during the divorce.

NOTE: this applies to both contract and tort liability

Question 55

how is community property divided upon divorce?

what does this mean?

Answer 55

community property is divided in a manner that is JUST AND RIGHT having due regard for the spouses and their children, if any

texas courts can UNEQUALLY divide community property in a way the the court deems to be justs and right. factors primarily relate to EARNING CAPACITY, such as:
-business opportunities
-education
-good health
-the impact of giving up a career for domestic purposes (raising children, etc)
Can also consider the SIZE OF SEPARATE ESTATES
Other factors considered:
-length of the marriage
-age of the parties
Court may also consider which parent will have primary possession of any children of the marriage, if it impacts the party’s earning capacity

Question 56

how is separate property divided upon divorce?

Answer 56

all separate property must be returned to the spouse who owns the separate estate*

*a separate property HOMSETEAD can be set aside to the spouse who does not own it for the benefit of the children while they are minors

Question 57

how is alimony determined in texas

Answer 57

trick question, bitch! there is no “alimony” in texas, but alimony judgments from other states will be enforced. also, there is a statutory spousal maintenance (covered on other slide) which can be like alimony

Question 58

how can a spouse qualify for spousal maintenance?

Answer 58

Spousal maintenance is intended to be a temporary rehabilitative measure for a spouse who is unable to be self-sufficient. For a spouse to be eligible for spousal maintenance, the spouse seeking maintenance must lack sufficient property (including separate property of the spouse) to provide for his minimum needs, and the spouse seeking maintenance must meet at least one of the following criteria:

1. the payor has been convicted family violence;
2. the spouse is unable to support himself or herself because of an incapacitating physical or mental disability;
3. the spouse is the custodian of a child and the child has an incapacitating physical or mental disability; OR
4. the marriage has been 10 years or longer

amount determined by looking at ALL relevant factors

Question 59

if qualified for spousal maintenance, what factors considered to determine amount, nature, and duration?

Answer 59

all relevant factors (even cheating)

Question 60

how does court determine duration of spousal maintenance?

Answer 60

A court may not order maintenance that remains in effect for more than:

i) 5 years, if…
the spouses were married to each other for less than 10 years + family violence in the last 2 OR the spouses were married to each other for at least 10 years but not more than 20 years;

ii) 7 years, if…
the spouses were married to each other for at least 20 years but not more than 30 years, or

iii) 10 years, if..
the spouses were married to each other for 30 years or more.

The courts are required to limit the duration of the maintenance order to the shortest reasonable period that allows the spouse seeking maintenance to earn sufficient income to provide for the spouse’s minimum reasonable needs. HOWEVER, If the requesting spouse’s ability to earn sufficient income to provide for the minimum reasonable needs is SUBSTANTIALLY OR TOTALLY DIMINISHED because of physical or mental disability or another compelling impediment to earning sufficient income (like custodial duties), the court may order maintenance for as long as the spouse continues to satisfy the eligibility criteria. The court may order periodic review of its order to determine whether the disability continues to render the spouse unable to support himself through appropriate employment.

Question 61

what is the max amount of spousal maintenance allowed?

Answer 61

The maximum award is the lesser of $5,000 per month or 20 percent of the obligor spouse’s average monthly gross income.

Question 62

can you modify spousal maintenance? when does it end?

Answer 62

can be modified upon showing a MATERIAL AND SUBSTANTIAL change of circumstances. can be modified for 5 years but cannot be modified upward, only downward

The maintenance award terminates if either party dies or if the party receiving maintenance remarries or cohabits with another person. After a hearing, the court shall order the termination of the maintenance obligation if the court finds that the obligee cohabits with another person with whom the obligee has a dating or romantic relationship in a permanent place of abode on a continuing basis.

Question 63

a spouse’s unreasonable gift of community property to someone else is considered

Answer 63

a fraudulent transfer and may be reconstituted back to the community estate

Question 64

what are some factors in considering if gift is unreasonable

Answer 64

1. how much was given
2. to whom it was given
3. how much is left after the gift

Question 65

what is the process of reconstitution of an unreasonable gift of community property

Answer 65

In making a just and right division, the court may grant any legal or equitable relief necessary to accomplish a just and right division, including:

i) Awarding to the wronged spouse an appropriate share of the community estate remaining after the actual or constructive fraud on the community;
ii) Awarding a money judgment in favor of the wronged spouse against the spouse who committed the actual or constructive fraud on the community; or
iii) Awarding to the wronged spouse both a money judgment and an appropriate share of the community estate.

If the community estate is insufficient to reimburse the wronged spouse, the spouse is entitled to recover the difference from the person who received the fraudulent gift. Carnes v. Meador, 533 S.E.2d 365 (Tex. App. 1975).