Community Property

Question 1

What does Separate Property include?

Answer 1

It includes:

1) Property acquired prior to marriage;
2) Property acquired after separation;
3) A gift, devisee, or bequest;
4) Property acquired with separate funds; AND
5) Profits from separate property.

Question 2

How will courts determine the character of an asset?

Answer 2

They will trace back the source of the funding used to acquire the property.

*A change in the form of the property will NOT change its characterization.

Question 3

What happens to Community Property (CP) upon divorce?

Answer 3

All CP is divided equally between the spouses, and aspouse’s Separate Property (SP) will remain his/her own.

Question 4

What is Quasi-Community Property (QCP)?

Answer 4

Property acquired in another state that would be considered Community Property if acquired in CA.

*At divorce, QCP is treated as CP.

Question 5

What happens to QCP upon death?

Answer 5

The surviving spouse has a 1⁄2 interest in QCP titled in decedent. (The decedent DOES NOT have any rights in QCP titled in surviving spouse’s name.)

Question 6

When does the married woman’s special presumption give the wife a presumption of Separate Property?

Answer 6

If:

1) Title is taken in her name alone; AND
2) The property was acquired prior to 1975.

Question 7

When does the economic community end?

Answer 7

When:

a) Either spouse dies;

OR

b) Permanent physical separation (permanently living apart + no intent to continue marriage).

Question 8

What is a Putative Spouse, and what is he/she entitled to?

Answer 8

A spouse that has a good faith reasonable belief that he/she is married.

They are entitled to quasi-marital property (QMP) which is treated like CP upon divorce.

*QMP ends once a person learns they are not lawfully married.

Question 9

Unmarried Cohabitants

What will courts enforce under the Marvin case?

Answer 9

Agreements between cohabitating couples that are not married (as long as they are not expressly based on performance of illicit sexual acts).

Question 10

What are the rights of each spouse to manage and control Community Property?

Answer 10

They may sell, encumber, or otherwise dispose of CP without the other’s consent.

Question 11

What are the four exceptions to a spouse’s right tomanage community property?

Answer 11

1) Personal property transfers of CP for less than fair and reasonable value.
2) If one spouse is managing a business, they are given primary management and control of that business.
3) Transfers of community Real Property requires BOTH spouses to join the transaction.
4) Inter Vivos gifts of CP require written consent.

Question 12

Fiduciary Duties

What duty does the confidential relationship of marriage impose?

Answer 12

The duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.

Question 13

Fiduciary Duties

What two acts are considered a breach of the duties imposed by marriage?

Answer 13

1) An intentional grossly negligent/reckless dissipation or destruction of property; and
2) A gain in financial advantage at the expense of the other spouse.

Question 14

When do courts apply the Moore Principle?

Answer 14

When property is acquired with comingled funds (both CP and SP) AND there is no title presumption.

*CP and SP are apportioned based on their relative contributions.

Question 15

How is jointly titled property acquired during a marriage treated under the Anti-Lucas Statute?

Answer 15

At divorce: It is treated as presumptively CP, but any SP used for the purchase is entitled to reimbursement.

At death: SP used to acquire jointly titled property is presumed to be a gift. (NO REIMBURSEMENT, unless otherwise agreed).

Question 16

Personal Injury Awards – Against 3rd

Parties During marriage/divorce
vs.
Before or after marriage

Answer 16

During marriage: personal injury awards/settlements are CP.

At divorce: assigned entirely to the injured spouse (unless funds were comingled or there is economic hardship).

Before/after marriage: award is SP of injured spouse.

Question 17

Personal Injury Awards – Against Spouse

Who receives a personal injury award when the cause of action is against the spouse?

Answer 17

Personal injury awards/settlements against a tortfeasor spouse are ALWAYS the SP of the injured spouse.

Question 18

When will courts use the Pereira Method to determine CP/SP business interests at divorce?

Answer 18

When business growth is mostly due to the spouse’s labor and abilities.

Owning spouse receives original principal value, plus a 10% annual rate of return. Remaining value of business is CP.

Question 19

When will courts use the Van Camp Method to determine CP/SP business interests at divorce?

Answer 19

When business growth is mostly due to the character and nature of the business itself.

The community receives a reasonable salary REDUCED by expenses, and remaining value of the business is the SP of the owning spouse.

Question 20

How is the “Goodwill” of a business defined?

Answer 20

The intangible value of the business reputation beyond personal skill or value of assets.

*When goodwill is generated by community labor it is deemed CP.

Question 21

How is Goodwill valued?

Answer 21

By either:

a) The Market Value Method – price in sale of business; OR
b) Capitalization of Excess Earnings Method –present value of the future stream of income that the goodwill developed during marriage.

Question 22

How do courts determine the CP interest in a Whole Life Insurance Policy that was paid for with CP and SP funds?

Answer 22

They use the Buy-in-Rule, which states that CP value is apportioned using the formula below:

of premium payments made with CP

divided by

total number of premium payments

Question 23

Is Term Life Insurance designated as CP or SP?

Answer 23

Under the Final Payment Rule, it is designated as CP or SP according to the characterization of the last payment made.

Question 24

How are stock options deemed if they were awarded during marriage, but become exercisable after marriage?

Answer 24

It depends on how they were earned and intent of employer.

If awarded for past services: CP value is the time employed during marriage divided by the time employed until the date the option becomes exercisable.

If awarded to encourage the employee to stay: CP value is the time from the date the option was granted to the economic community ended divided by the time from the option was granted to the date the option becomes exercisable.

Question 25

Is a Loan taken out during the marriage considered a community or separate debt?

Answer 25

The personal credit of a spouse belongs to the community during marriage. Thus, a loan taken out is community debt (unless the lender’s primaryintent for giving the loan was the spouse’s SP usedas collateral).

Question 26

What does the Anti-Lucas Statute state?

Answer 26

That upon divorce, any SP used to acquire jointly titled property is entitled to reimbursement.

At death, SP used to acquire jointly titled property is presumed to be a gift (no reimbursement is allowed), UNLESS otherwise agreed.

*Reimbursement includes: down payments, payments for improvements, and principal payments.

Question 27

CP used to improve the other spouse’s SP

vs.

CP used to improve a spouse’s own SP

Answer 27

CP used to improve other spouse’s SP: Courts are split. In some courts, CP is presumed a gift. Other courts have held that the community is entitled to reimbursement.

CP used to improve a spouse’s own SP: The community is entitled to reimbursement (for either cost of improvement or the increase in value of SP).

Question 28

SP used to improve CP

vs.

SP used to improve other spouse’s SP

Answer 28

SP used to improve CP: the spouse is entitled to reimbursement (for either the cost of the improvement or increase in value).

SP used to improve other spouse’s SP: the spouse is entitled to reimbursement for the amount of contribution made.

Question 29

When is the community entitled to reimbursement for Professional Degrees acquired during the marriage?

Answer 29

When:

1) CP funds are used to pay educational expenses including loans; AND
2) The education enhanced the spouse’s earningcapacity.

Question 30

When is reimbursement NOT required to the community for Professional Degrees acquired during a marriage?

Answer 30

Where:

a) The community has substantially benefited from the education (after 10 years a benefit is presumed);
b) The other spouse received community funded education; OR
c) The education lessens the need for spousal support.

Question 31

When can Community Property be used to make child support payments from a prior marriage?

Answer 31

When SP is NOT available.

When CP is used to make payments and SP WAS available, then the community is entitled to a reimbursement.

Question 32

When is a spouse entitled to reimbursement whenthey expend their SP for the other spouse’s medicalexpenses?

Answer 32

When:

a) Community Property was available; OR
b) If the debtor spouse had available Separate Property.

Question 33

Pro-Rata Rule

How are payments made with CP treated whenpaying a spouse’s SP loan?

Answer 33

The community is entitled to a pro-rata ownership share of the property for amounts that reduced the principal debt on the asset.

Payments for mortgage interest, taxes, and insurance DO NOT count as reducing the principal debt.

Upon divorce: The community is entitled to reimbursement for its pro-rata share of SP.

Question 34

What is a Transmutation, and when is it valid?

Answer 34

An agreement between spouses during marriage to change the character of an asset.

It’s valid only if (1985 and later):

1) It’s in writing;
2) Signed and consented to by spouse whose interest is adversely affected; AND
3) It expressly declares a change in ownership.

Question 35

Transmutations
What is the Gift of Insubstantial Value exception?

Answer 35

CP will be transmuted into SP by a gift from one spouse to the other, if the gift is:

1) Tangible property of a personal nature;
2) Used solely by the recipient spouse; AND
3) Insubstantial in value (considering the lifestyles of the two parties).

Question 36

When is an oral Prenuptial Agreement valid?

Answer 36

When:

a) It’s fully performed; OR
b) If the party detrimentally relied on the agreement.

Question 37

When is a Prenuptial Agreement valid?

Answer 37

When in writing and signed by both parties.

Question 38

When will a Prenuptial Agreement be deemed Unenforceable?

Answer 38

If it is:

a) Involuntary;
b) Unconscionable; OR
c) Encourages divorce.

Question 39

When will a Prenuptial Agreement be deemed Unconscionable?

Answer 39

If:

a) The terms are unfair; OR
b) If a spouse DID NOT know the extent of the other spouse’s property before signing theagreement.

Question 40

When will a Prenuptial Agreement be deemed Involuntary?

Answer 40

It is deemed involuntary UNLESS a court finds all of the following:

1) The party (against whom enforcement was sought) was represented by independent legal counsel or waived counsel requirement in writing;
2) The party has not less than 7 days to review the agreement;
3) If unrepresented: the party (against who enforcement was sought) was fully informed of the terms and is proficient in the language used in the agreement; AND
4) The agreement was NOT executed under duress, fraud, undue influence, or lack of capacity.

Question 41

Can creditor’s reach CP to satisfy debts incurred before or during the marriage?

Answer 41

Yes, including debts for child and spousal support. But, a non-debtor spouse’s earnings are protected if:

1) The debt occurred before the marriage; AND
2) The earnings were held in a separate account to which the debtor didn’t have access and no cominglingoccurred.

Question 42

SP can only be reached to satisfy a spouse’s ownpersonal debts.

What are the TWO exceptions where both CP and SP can be reached to satisfy such debts?

Answer 42

Necessities: The community is obligated to pay for a spouse’snecessities during marriage. When separated = only obligated during emergency situations.

Tort Liability: If the debtor was acting to benefit the community when the tort occurred, then CP must be used before reaching SP. If debtor was not acting to benefit community, then SP must be used first.

Question 43

When can a creditor reach CP awarded to a spouse AFTER divorce?

Answer 43

When the spouse incurred the debt OR was assigned the debt by the court.

*A debt is incurred at the time the obligation to pay arises.

Question 44

How are assets divided upon divorce?

Answer 44

Each spouse gets 1⁄2 of each community asset UNLESS the court determines that the interests of justice require a different division.

Question 45

What exceptions will change the division of assets upon a divorce?

Answer 45

1) Misappropriation by one spouse;
2) Separate debt;
3) Educational debts = assigned to spouse who incurred the education;
4) Tort liabilities = assigned to tortfeasor spouse if liability was NOT for community benefit;
5) Family home = awarded to spouse given custody; and
6) Closely held corporations.