Community Property

Question 1

How to start every essay

Answer 1

1) CA is a CP state
2) There is a community presumption, in which all property that is acquired during marriage by labor of either spouse is presumed to be CP
3) There are four areas of SP: (i) property acquired b/f marriage; (ii) will / gift / inheritance; (iii) property acquired during marriage w/ separate funds; (iv) rent/issue/profits derived from SP.
4) To determine the character of an asset, a court will trace back to the source of funds used to acquire it.
5) CP can only be earned during the marital economic community. The marital economic community begins at marriage and ends when one party evinces an intent not to resume the marital relation and there is conduct consistent with that intent (e.g., divorce; death).
6) At divorce, CP assets are equally divided in kind, unless some special rule requires deviation or the spouses agree otherwise. A spouse’s SP remains her SP at divorce.

Question 2

When does the marital economic community begin and end?

Answer 2

Begins: @ marriage

Ends: when one party evinces an intent not to resume the marital relation + there is conduct consistent with that intent. The EC ends upon death of one spouse or the date of separation.

Question 3

How can the CP presumption be overcome?

Answer 3

(i) by showing the property was acquired by gift or was the fruit of SP; or
(ii) by tracing the acquisition to an SP source

Question 4

Stock Options

Answer 4

If they vest during marriage, then treated as CP.

If they are only awarded during marriage, but vest after divorce/death, then…

––Marriage of Hug [deferred comp]: JD / JE = CP portion
––––JD = years from job to divorce
––––JE = years from job to date exercisable

––Marriage of Nelson [encourage retention]: AD / AE = CP portion
––––AD = years from date granted to divorce
––––AE = years from date granted to date exercisable

Question 5

Goodwill

Answer 5

If goodwill of business is earned during marriage, there are two valuation techniques

(i) Market Sales Valuation: what would the value be if the business was sold? [lower]
(2) Capitalization of Past Excess Earnings: present value of future income stream stemming from goodwill [higher]

Question 6

Education + Training

Answer 6

Not treated as devisable property. But upon divorce, equitable right of reimbursement to community if (1) CP funds used for edu. expenses AND (2) edu. substantially enhances earning capacity. Outstanding loans @ divorce go solely to educated spouse

• Defenses:
  (i) already reaped benefit (10+y b/n contribution and divorce);
  (2) other spouse received CP-funded edu.;
  (3) need for spousal support substantially reduced by ability to engage in gainful employment

Question 7

Valuing business / investments owned b/f marriage that increase in value during marriage

Answer 7

Pereira: use when spouse’s management efforts primarily contributed to growth of business
SP = Biz value @ marriage + (Biz value @ marriage X 10% X years married)

Van Camp: use when nature of the business was reason for the growth
CP = annual market salary for spouse’s service minus annual family expenses

Question 8

Lucas + Anti-Lucas Statutes

Answer 8

This will come up when spouses have taken property as joint tenants

Upon death of a joint tenant: Per Lucas, taking title as joint tenants raises a presumption that property is CP, such that any SP used for down-payments is deemed to be a gift to the community, and there will be no reimbursement.

Upon divorce of joint tenants
––Under the Anti-Lucas statute, as to ownership, taking title as joint tenants raises a rebuttable presumption of CP.
––Under the Anti-Lucas statute, as to reimbursement, a spouse who contributed SP to property held in joint tenancy will be entitled to reimbursement for down payments, improvements, and principal payments on mortgage [D-I-P]

Question 9

Classification: Personal Injury Recovery

Answer 9

Spouse-π v. 3P
––If CoA arises during marriage, PI award = CP
––If CoA arises after marriage, PI award = SP
––Upon divorce, community estate PI damages are given to injured spouse, unless interests of justice require otherwise. Note: if interests of justice are triggered, the non-injured spouse cannot get more than half

Spouse-π v. Spouse-π
––Recovery goes to injured spouse

Question 10

Classification: Retirement Pension

Answer 10

Treated as CP if the RIGHTS were earned during marriage–when benefits are ultimately received is immaterial.

To determine CP portion of mixed asset (where employee continues to work after divorce) [time rule]: PV of pension X contribution years during marriage / total contributing years

Note: ERISA preempts CA law, such that the death f a NPS will relinquish her right to benefits

If spouse can retire, but refuses to do so, court can force private employer to pay the non-employee spouse her share of benefits; if the working spouse as a public employer, he will have to pay, as though he had retired

Question 11

Classification Disability Pay or Workers’ Comp

Answer 11

Classification depends upon the intended purpose…
––If intended to replace marital earnings –> CP
––If intended to replace post-divorce earnings –> SP

Don’t get confused if the facts state that the disability benefits or WC were earned during marriage–for this asset, that is irrelevant.

Also: treat severance pay the same

Question 12

Classification: Life Insurance

Answer 12

Term Insurance (no cash value): whoever pays last premium is the owner of the policy/proceeds at death

Whole Life Insurance (term insurance + savings plan): Apply pro rata rule to cash value of policy and last premium rule for remaining proceeds

Question 13

Classification: property insurance proceeds

Answer 13

If CP used to pay premiums to insure SP, and there is a casualty of the SP, the proceeds are SP, but community has right of reimbursement

Question 14

Requirements for Premartial agreement

Answer 14

(1) writing complies with SoF
––Defenses: full performance of oral promise; estoppel
(2) voluntary

Note: consideration is NOT required

Question 15

Can a premarital agreement limit or waive spousal support?

Answer 15

Yes. Such agreements are NOT per se UNenforceable

Question 16

When is a premarital agreement unenforceable?

Answer 16

• Promotes divorce
• Involuntary
• Unconscionable
• Burdened party did not have adequate disclosure of other party’s wealth

Question 17

What are the requirements for a VOLUNTARY premarital agreement?

Answer 17

(1) rep’d by independent counsel or expressly waived
(2) received 7 days b/f signing with advisement to seek independent counsel
(3) if not rep’d by independent counsel, must have been fully informed in writing of rights being given up + proficiency in language
(4) no duress, fraud, undue influence in execution

Question 18

Transmutation

Answer 18

Changing character of property during marriage

Requires a writing that declares a change in ownership status
––Exception: gifts of insubstantial value

No EE is allowed to establish

Note: when one spouse gains an advantage over another spouse in a transaction, there is a rebuttable presumption of undue influence. This can be rebutted by PoTE.

Question 19

What are the four ways that a married couple can jointly hold property

Answer 19

(i) Joint Tenancy: undivided one-half interest (each is SP) w/ right of survivorship
(ii) Tenancy in common: undivided one-half interest
(iii) CP: undivided one-half interest and neither spouse can partition the whole
(iv) CP with Right of Survivorship

Question 20

What is the presumption for jointly held property at divorce?

Answer 20

All property held in joint form (JT; TiC; CP; CP w/ RoS) is presumed to be CP for purposes of distribution at divorce

Question 21

Property purchased from commingled funds

Answer 21

Two important presumptions:
–(1) available community finds are presumed to have been used to pay for family expenses
-(2) a gift is presumed when SP is used to pay family expenses

Two ways to trace

• -(i) Exhaustion: @ time asset was purchased, community funds had been exhausted by payment of family expenses
• -(ii) Direct Tracing: @ time asset was purchased, there were sufficient separate funds and purchasing-spouse intended to use those separate funds to purchase

Question 22

What happens when...
––CP used to pay off purchase price of SP
––CP used to improve own SP
––CP used to improve other's SP
––SP used to improve other's SP

Answer 22

CP used to pay off purchase price of SP
––principal debt reduction ratio = CP

CP used to improve own SP
––no gift presumed; community gets reimbursement

CP used to improve other’s SP
––gift presumed

SP used to improve other’s SP
––no gift presumed; contributing spouse gets reimbursement

Question 23

How is community property divided upon divorce?

Answer 23

Unless otherwise agreed to, or the circumstances warrant it, each spouse is entitled to a one-half interest in each community asset.

Question 24

When will a divorce court deviate from equal division of CP assets? [6 situations]

Answer 24

i) Breach of fiduciary duty: one spouse misappropriates
ii) Liabilities exceed assets: relative ability of each spouse to pay is considered
iii) Educational debts: those loans stick with educated spouse
iv) Tort liability: if liability was not the result of incurring a benefit for community, the tortfeasor spouse is solely responsible
v) separate debt incurred
vi) PI award

Question 25

Quasi-CP

Answer 25

Property that would have been CP had the spouse been domiciled in California @ time of acquisition.

Question 26

Does a decedent have rights in the survivor’s quasi-CP?

Answer 26

No. But a surviving spouse has 1/2 interest in decedent’s quasi-CP

Question 27

Putative Spouse

Answer 27

Not legally married, but has a subjective good faith belief she is lawfully married. Has almost the same property rights as lawful spouse (CP and quasi-CP)

Question 28

Management rights (SP + CP (real and personal))

Answer 28

Each spouse has exclusive management and control of SP. Each spouse has equal management and control over CP, meaning that either spouse can buy, sell, spend, or encumber CP.

Both spouses have to join in executing instrument conveying REAL property.

Personal Belongings exception: one spouse cannot unilaterally convey the personal belongings of another spouse. Non-consenting spouse can void the transfer and will not have to return purchase price to transferee.

Business exception: spouse running business that is all or substantially all CP has primary (rather than sole) management rights. Has to give prior written notice of any sale of all or substantially all of the personal property used in operation of the business.

Question 29

Management rights: gifting CP

Answer 29

One spouse cannot unilaterally gift CP. Requires consent. Non-consenting spouse can void gift during donor’s lifetime; after donor dies, can only get 1/2 interest.

Question 30

SoL for breach of fiduciary duty/mismanagement of CP

Answer 30

3 years after actual knowledge of the violation
-OR-
at death/divorce

Question 31

Order of satisfaction for tort debts

Answer 31

If spouse was acting for community –> CP first; then tortfeasor’s SP

If spouse was not acting for community –> SP first; then CP

Other spouse is not personally liable

Question 32

Lucas / Anti-Lucas: Trigger + Rules

Answer 32

Trigger: where spouses hold title to property in joint form (e.g., joint tenancy w/ right of survivorship) and SP funds were used to purchase and/or make improvements. What happens at death? What happens at divorce?

Death [Lucas]: Where title is held in joint form during the marriage, it is presumptively CP. The presumption can only be overcome by a writing that property is SP. As to ownership, the form of title will control. Where one spouse has made SP-contributions to the property, those will be deemed a gift to the community, absent a written agreement to the contrary.

Divorce [Anti-Lucas]: Where title is held in joint form during the marriage, it is presumptively CP. The presumption can only be overcome by a writing that property is SP. As to ownership, the form of title will control. Where one spouse has made SP-contributions to the property, that spouse will have a right of reimbursement to D-I-P: down payments; improvements; principal mortgage payments.

Question 33

Improvements
–H uses CP to improve H’s SP
–H uses CP to improve other spouse’s SP

Answer 33

–H uses CP to improve H’s SP
––Result: community is entitled to reimbursement (this is “feathering own nest”) for either cost of improvements or enhanced value

–H uses CP to improve other spouse’s SP
––Result: split of authority –> some courts allow for reimbursement; other courts do not allow reimbursement

Question 34

Setting aside community distribution – i.e., post-judgment relief. What are the two statutory schemes? What are the rules

Answer 34

Grounds for setting aside a community distribution after judgment are governed by the Code of Civil Procedure and the Family Code.

Extrinsic fraud, mistake, or duress [party is deprived of day in court]: no time limit under Code of Civil Procedure

Intrinsic fraud, mistake, perjury: must be brought within 1 year under Family Code

Question 35

Putative Spouse

Answer 35

• Not lawfully married
• Subjective good faith belief she is married
• Has same property rights as a lawful spouse
• But once putative spouse learns there is no lawful marriage, she no longer accrues putative spouse property rights

Question 36

Unmarried cohabitants

Answer 36

Apply general K principles

Question 37

Breach of fiduciary duty by managing spouse

Answer 37

Non-managing spouse must suffer substantial impairment in her interests

SoL is 3 years

Question 38

Division of assets at divorce [general rule]

Answer 38

At divorce, CP assets are equally divided in kind, unless some special rule requires deviation or the spouses agree otherwise. A spouse’s SP remains her SP at divorce.

Question 39

Pre-marital agreements: unconscionability

Answer 39

(1) unfair
(2) not full advised of other party’s financial status
(3) did not waive disclosure
(4) could not have reasonably obtained information on her own