Community Property Flashcards
Community Property General Principles (Intro Paragraph)
California is a community property state.
In a community property state, the marital economic community begins upon marriage and ends at divorce, death of a spouse, or a permanent physical separation with an intent not to resume marital relationship.
Property, earnings, or debt acquired during marriage are presumed to be community property.
Property acquired by either spouse before marriage; by gift or inheritance during marriage; or after divorce or a permanent separation is presumed to be separate property.
Finally, property acquired by a married couple while living in a non-CP state that would be characterized as CP if the couple had been living in CA at the time of acquisition is called quasi-community property.
Marriage
A marriage is valid in CA where there is a consensual civil contract between two people followed by the performance of certain legal procedures.
The marital economic community begins at the date of marriage and ends at permanent separation, dissolution, or the death of one spouse, whichever occurs first.
Permanent Separation
- occurs when there is a complete and final break in the marital relationship:
1. one spouse has communicated to the other spouse his intent to end the marriage; and
2. the spouse’s conduct is consistent with his intent to end the marriage - After permanent separation earnings and accumulations of each party are considered SP
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
Void or Voidable Marriage
Since a lawful marriage requires capacity, a marriage can be found void or voidable f the following reasons:
- void: a marriage will be found. once for reasons such as bigamy or incest
- Voidable: A marriage will be found voidable at the election of the interested party for reasons such as fraud, coercion, sexual incapacity and lack of consent.
Estoppel of Putative SPouse
One may be estopped to assert putative spouse status if the party making the assertion knew that the marriage was not valid or knew that it was invalid but acted as though it was valid.*
*Jurisdictional split on how to treat these people.
Quasi-Marital Property
The property acquired by a putative spouse will be classified as QMP.
Unmarried Cohabitants
Courts follow general contract principles and us resulting or constructive trusts and quasi-K principles to allocate property for unmarried cohabitants
Premarital Agreement
A premarital agreement is one made before marriage that is to become effective upon marriage in which parties agree to the characterization of their property and may limit support obligations. Usually used to avoid the CP system and must meet stringent requirements to become valid.
Requirements of a Valid Premarital Agreement
- Must not promote divorce
- Writing required and signed by both parties
- Must be made voluntarily
- represented by independent counsel at the time the agreement was signed or advised to seek independent counsel or waived it in a separate writing
- presented with the agreement and advised to seek independent counsel at least seven days prior to signing
- If unrepresented by counsel, party against whom enforcement is sought must be fully informed in writing of the terms/rights party is giving up in a language in which he is proficient and declared in writing hat he received the info and who he got it from
- Not under duress, fraud, undue influence, did not lack capacity
- Must not be unconscionable at the time it was signed (did not have adequate knowledge of the wealth of the other party and did not waive right to disclosure of wealth)
Child Support and Spousal Support in a Premarital Agreement
- Child support cannot be waived in the premarital agreement
- Spousals support can be waived if he spouse against whomever enforcement is sough was presented by independent counsel at the time the agreement was signed and provision is not unconscionable at the time of dissolution
How to characterize an asset?
All property acquired by married persons while domiciled in CA is characterized as CP or SP. the original characterization is based on the source of funds and the timing.
Earnings and Accumulations are deemed SP when
- Living apart
2. Legal separation
Permanent Separation Assets
After permanent separation, property of each party is treated as SP.
Quasi-Community Property
QCP is all property, real or personal, wherever situated, acquired by either spouse while domiciled in a non-CP state, which would have been classified as CP had the parties been domiciled in California at the time of acquisition.
Quasi-Marital Property
QMP is property acquired during a void or voidable marriage, which would have been CP or QCP if he marriage had not been void or voidable.
The property of a putative spouse is classified as QMP.
QMP is treated the same as community property or quasi community property.
Title Title when Source of funds SP, but title is CP
When the source of funds for a property is SP, but title is taken jointly, it is presumed to be a gift the the community and characterized as CP, unless there is a contrary written intent, subject reimbursement at divorce (Anti-Lucas rule)
Title Presumption when Source of funds is CP, but title is SP
Property will retain its characterization as CP, unless there is a written transmutation*
*Gift Exception: where a spouse intends to give the other spouse a gift and title is taken in a way to evidence that gift, the property will be the SP of the gifted spouse. There is no writing requirement.
Jointly Titled Property Benefitted by Expenditures of SP
Lucas: At death, jointly titled property of either spouse is presumed CP at the death unless there is an express agreement to the contrary. No right to reimbursement for SP contributions.
Anti-Lucas: At divorce or legal separation all jointly titled property of the spouses is presumed to be CP, unless an express agreement t the contrary. Right to reimbursement for SP contributions. But only for down payment, improvements, or principal payments on a lan. (Think DIP)
Community Property Presumption applies to
-Property acquired using funds from the labor of either spouse during the marriage
Separate Property Presumption applies to
- Property acquired before marriage
- Property acquired by gift, devisee, or bequest
- Property acquired with SP funds
- Profits made off of SP property
Tracing
A mere change in form of an assert does not change its characterization as CP or SP, thus tracing is permitted to establish the source e of funds used to acquire an asset
Commingled funds tracing
Commingling of SP funds with CP funds does not necessarily transform or transmute the property from SP to CP if the spouse advocating that a piece of property is SP can trace the source of funds used to acquire property to SP funds. The new property will then be characterized s the source of funds dictate
Burden is on spouse asserting the asset was acquired with the SP funds
Family Expenses Presumption
When tracing funds, there is a presumption that expenditures for family expenses were made with CP funds even if SP funds were also available.
Exhaustion Tracing Method
Requires showing that at the time the property was purchased, all CP funds in a commingled account had been exhausted by community expenses, and thus only SP funds were available to purchase the property
Direct Tracing Method
Requires showing a direct link from SP funds tot the purchase such that there were sufficient SP funds in the account were available at the time of the purchase and the SP owner intended to use SP funds to make the purchase
Unable to Trace to SP
property considered CP
Joint Title of Real Property over Tracing
Joint title trumps tracing for real and personal property
Transmutation
A transmutation is an agreement between spouses made during marriage to alter the ownership characterization of property.
- Since 1985, writing required, clearly describing change in the ownership, and consent of the adversely affected spouse
- Before 1985, could be oral, written, or inferred from the conduct of the parties
Gift Exception to Transmutation for Gifts Between Spouses of Insubstantial Value
Where a spouse intendeds to give the other spouse. a personal gift such as clothing, wearing apparel, jewelry or other tangible articles of a personal nature, of relatively insubstantial value used solely or principally by the spouse to whom the gift is made, taking into account the marital assets, the property will be the SP of the gifted spouse. No writing required
Other exceptions to transmutation?
There are otherwise no exception to the writing requirement allowing for extrinsic evidence to prove e the transmutation. A statement in a will is not admissible to prove the transmutation. Detrimental reliance will not be taken into account.
Fiduciary Duties of Spouses
- Full Disclosure: Each spouse has a fiduciary duty to the other spouse to fully disclose all material facts about community asserts and debts and to provide equal access to all information upon request
- Good Faith and Fair Dealing: Each spouse has a fiduciary duty to use the highest good faith and fair dealing with the other spouse and to never take unfair advantage of the other.
Community Personal Property Rights
- Management and control of the community personal property belongs to either spouse with absolute power of disposition, other than testamentary, as they have with their separate property estate
GIFT EXCEPTION: A spouse may not make a gift of community personal property at less than fair and reasonable value without the written consent of the other spouse.
TESTAMENTARY LIMITATION: Each spouse can only dispose of one-half of their CP through a testamentary disposition (will or trust), since the other spouse owns the other half, but can dispose of their SP
Personal Property of Family Dwelling
A spouse may not sell, convey, or encumber community personal property used in the family dwelling, furnishings, clothing of children or the other spouse without written consent fo the other spouse
Community Businesses Management and Control
A spouse who is in charge of managing and controlling a community business can make all business decisions alone but must provide the other spouse with written notice of a sale or disposition of all or substantially all of the personal property used in the business ops
Community Real Property
Leases and Conveyances
- Sale or lease: Both spouses must execute to convey/sell property or for leases greater than one year
- Conveyance to a third Person: to BFP, presumed valid but can be voided within one year of filing instrument
- Conveyance to a non-BFP (did not take for value or had notice that the other spouse had an interest): can be voided at any time
CP Contributions to SP Businesses
Use Pereira or Van Camp - when CP funds or labor enhanced the value of an SP business
Two different formulas are used to calculate the value – The Pereira approach and the Van Camp approach. Trial courts have discretion to use whichever approach best suits the facts and circumstances of the case.
Pereira Approach
Favors the CP, used when increase in value is primarily because of the spouse’s management skills
- SP Interest =Value of SP business at the time of marriage + (value of sp business at the time of marriage * reasonable rate of return * # of years married)
- CP interest = value of business at time of divorce - SP interest
Van Camp
Favors the SP estate, used when character of the business is the primary reason for business growth
- CP = (reasonable value of spouse’s services - family expenses) * number of years married
- SP= FMV of business at divorce - CP
CP contributions to SP real property (Marriage of Moore)
The community gets a proportional ownership interest to the extent CP payments reduce the principal debt.
- CP interest = the amount CP contributed to the principal reduction dived by total original amount of loan/balance
- CP Share = the CP interest multiple by the amount of capital appreciation
- Excluded costs: payments for interest, taxes, and insurance are excluded in the calculations
SP contributions to CP property or business
When a CP business continues to be operated by one of the spouses and increases in value during separation, a business acquired during marriage (CP) that increases in value after separation becomes a commingled asset subject to a SP share, b/c of the labor of a spouse post-separation
Reverse Van Camp
SP= reasonable value of spouse’s services during separation - family expenses paid during separation
CP= FMV of business at divorce - SP
and Reverse Pereira
CP= FMV of CP business at separation + (FMV of CP business at separation * fair rate of return * #of years of separation)
SP = FMV of business at divorce - CP
Personal Injury Recovery
- Classification depends on the timing of the cause of action which arises upon the infliction of injury
1. During Marriage: CP - upon death of injured spouse, CP, upon divorce, awarded to injured spouse entirely unless economic hardship (injured spouse must get at least half)
2. after permanent separation/divorce: SP of injured spouse
3. Reimbursement allowed: The CP or SP of the noninsured spouse is entitled to reimbursement from the SP money received by the injured spouse for any expenses incurred on behalf of the injured spouse
Bonuses
Good work performed during marriage = CP
Good work performed after separation/divorce = SP
Personal gift = SP
Education/Training Acquired
Not a community asset/debt, even when the community pays for it unless written agreement to the contrary
Right to reimbursement: community is entitled to reimbursement for CP contributions to education/training that substantially enhanced the earning capacity od the party, with interest, accruing from the end of the clad near year in which the contributions were made, UNLESS 1) community substantially benefited from education (presumed after 10 years); 2) education is offset by the CP funded education received by the other spouse; 3) education reduced need for spousal supprot
Whole Life Insurance
Whole life insurance provided lifetime death benefit coverage and has an investment component that allows it to accumulate a chaste value for the policy if tit were to be forfeited. Estate paying premiums controls, CP and SP estate have an interest in the cash value of the policy t the extent that they paid the premiums.
- CP interest = amount CP contributed / total amount contributed (SP and CP)
- SP interest = amount SP contributed /total amount contributed (SP and CP)
- Multiple the SP and CP interest by total cash value of insurance to determine their respective amounts*
* A non-spouse beneficiary is limited to the deceased spouse’s SP and one-half CP share; surviving spouse if not the named beneficiary gets the other half of the CP share.
Business Goodwill
Goodwill is an intangible quality that includes the reputation and future business potential of a professional practice. Goodwill is the value of a business or a professional practice in excess of the value of its combined physical assets and labor of the spouse.
The business subject to goodwill must be an entity, not merely a natural person.
Division: If a spouse has developed a business or professional practice during marriage, any goodwill in that business or practice is a CP asset that is capable of equal division at divorce.
Valuation requires expert testimony, two common methods: 1) market-sales valuation or capitalization of past earnings compared to typical peer business
Federal Preemption
Under Supremacy Clause, federal law preempts inconsistent state law when specific types of income or liabilities are designated as the sale property of one spouse under federal law, but they otherwise would be community property under state law. (APPLY EVERY TIME THERE IS A FEDERAL ASSET)
Credit Acquisitions
Rebuttable presumption that property purchased with borrowed funds during marriage is CP debt. Can rebut with 1) intent of lender test: showing that the lender relied exclusively on SP when extending credit.
If credit is based on earning capacity, it is a CP debt because earning capacity is a community asset
Timing of Debts
Creditors rights dare determined by the time a deb was incurred.
- K debt is incurred at time K was made
- Tort debt at the time or occurs
- Child or spousal support that does not arise out of the marriage is treated as incurred before marriage
- Everything else at the time the debt arises
Creditors Rights Follow Management Rights
CP is liable for all debts incurred before and during marriage by either spouse regardless of which spouse has the management and control of the property and which spouse incurred he debt.*
Except: earnings of non debtor spouse are not liable for premarital debts of the other spouse if they are kept in a separate account over which debtor spouse has no access to
Divorce Division of Assets
Equal division rule: at divorce all community assets and debts are divided evenly and each spouse retains their SP debt and uses.
QCP: treated the same as CP all will be divided evenly
Exception for Necessaries of Life
A non debtor spouse’s SP is liable for debts of the other spouse if incurred during marriage and for necessaries of life for the spouse or a child. (Good, shelter, medical care)
Exception for post separation common necessaries
A non-debtor’s spouse SP is liable for debts of other spouse even if it was incurred post separation but before divorce and for common necessaries
Tort Injury/Damage caused by a spouse
A married person is not personal liable for injury or damage caused by the other spouse, unless the married spouse would be liable if not married.
Benefit for the community: If act/omission leading to the injury or damage occurred during marriage for the benefit of the community, the liability should be satisfied from the community estate first and the SP of the debtor spouse second
No Benefit: act or omission leading to injury occurred during marriage but not for the benefit of the community, hen liability will be satisfied by Debtor’s SP first and then CP estate second
Reimbursements are available to either estate (CP, or either, spouse’s SP - if the debt is one that should have been first satisfied by another estate
Special Presumption of Title at Death
The form of ownership on the title is presumed to be the nature of the ownership interest of the spouses at death. If one name on the property, can be presumed to be SP if the source of funds used to purchase the property was SP.
Special presumption of title at death can be rebutted by clear and convincing evidence that both spouses did not intend to hold the property as stated in the title.
Retirement Benefits
-If the retirement benefits are based upon the number of years employed and were partly earned before marriage, courts apply the “time rule” to determine the SP and CP interests.
CP interest: numerator (# of years employed while married)/denominator (# of years under the retirement plan)
CP share = multiple CP interest * total benefit
If the spouse is not yet eligible for benefits at the time of divorce, the court will apply one of two methods to award the CP share: 1) division-in-kind, court reserves jxn until payment or 2) cash out, if present value can be ascertained, then non-participant spouse is awarded cash or assets equal to the value of their CP share of the benefits
Stock Options
Stock options awarded by an employer are a form of compensation and will be CP to the extent they replace earnings during marriage. Stock options remain CP so long as they were accrued during marriage, even if they are not exercisable until after divorce.
Use HUG or NELSON formula to determine the SP and CP interests.
HUG: if the stocks are granted to compensate an employee for past services (or to attract a new employee), then the court will calculate the amount of time between the date of hire (“DOH”) and date of separation (“DOS”). DOH-DOS will be divided by the amount of time between the date of hire and the date the options vested to get the CP share of stock options.
The SP is equal to # of shares - CP.
Nelson Formula: if stock options are granted to incentivize continued employment, then the court will calculate the amount of time between the grant (“DOG”0 and the date of separation (“DOS”). (DOG-DOS) will be divided by the amount of time between the date of grant and the date of vesting = CP share. SP = # of shares - CP.
Disability Benefits
Characterize disability benefits, including worker’s compensation benefits, by what hey are intended to replace. Earnings during marriage are CP; earnings after divorce/separation are SP. IF disability benefits are taken in lieu of retirement benefits, they are treated as CP to the extent the payment is replacing a retirement benefit.
Disability Benefits
Characterize disability benefits, including worker’s compensation benefits, by what hey are intended to replace. Earnings during marriage are CP; earnings after divorce/separation are SP.
IF disability benefits are taken in lieu of retirement benefits, they are treated as CP to the extent the payment is replacing a retirement benefit.
Term Life Insurance
The majority of courts hold a term life policy has no present value before death. Upon death, characterize the policy based upon the source of funds (whether SP or CP) used to make the final premium payment.
Effect of Separation on CP Business
-Comes up when a CP business continues to be operated by one of the spouses and increases in value during separation. A business acquired during marriage (CP) that increases in value after separation becomes a commingled asset subject to a SP share, because the labor of a spouse post-separation is SP.
Reverse Pereira Formula
CP= FMV of CP business at separation + (FMV of CP business at separation * fair rate of return * # of years of separation)
SP= FMV of Business at divorce - CP
Favored if increase in value of business due to spouse’s efforts and labor after separation
Reverse Van Camp Formula
SP= reasonable value of spouse’s services during separation - family expenses paid during separation
CP = FMV of business at divorce - SP
Favored if increase in value of business due to market conditions
Property Acquired on Credit During Marriage
Presumed to be CP.
Test: What is the intent of the lender? Did it intend to primarily rely on SP or CP as security?
-SP proponent can rebut CP presumption by demonstrating that the lender intended to primarily rely on SP assets as collateral when extending credit. Some courts heighten the test to the “sole intent” of the lender to rely on SP. The characterization applies to the property at the time it was acquired.
Property Acquired on Credit Before marriage
SP. But when an installment purchase is made before marriage (SP), but CP funds are used to pay down the debt during marriage, the CP estate acquires a pro rate interest in proportion tot he amount the principle is reduced by CP payments. Also applies to inherited property during marriage upon which a mortgage is later obtained and is paid down with CP payments.
Capital Improvements to Real Property
When a spouse spends funds on improving property during marriage, the issue is whether the money spent must be reimbursed or whether an ownership interest n the enhanced value is acquired.
- If SP used to improve SP of other spouse: as of 2005, there is a statutory right to reimbursement absent a waiver of the right to reimbursement or a written transmutation.
- SP Used to Improve CP: There is a statutory right to reimbursement (anti-lucas) if funds can be traced to an SP source.
- CP used to Improve SP: A CP contribution does. not chang the SP characterization of the property. There are two scenarios which this comes up: 1) CP used by a spouse to improve their own SP or CP used to improve the other spouse’s SP.
In both situations, CP estate has a right to the GREATER of the following:
Funds spent on the improvement will b reimbursed OR a community will Gian a pro rate interest in the enhanced value of the SP.
Establishing a Breach of Fiduciary Duty
Violation of duty to account, duty to disclose, Duty to obtain consent
To establish a breach of fiduciary duty, the spouse must show intentional misappropriation of grossly negligent or reckless conduct. Mere icnomptnece or negligence is not acitonable.
Remedies: accounting, added spouse’s name to tel, receiving a greater share of the CP, forfeiture of an asset if fraudulently concealed. During marriage, there is a three year SOL upon learning of a breach of dirt; or upon divorce or death of a spouse.
Division of Property at Death
Testate
-Each Spouse has a testamentary control over her SP and one half of the CP. The surviving spouse succeeds to her one-half interest in both the CP and QCP. A striving spouse may receive non-probate transfers, such as property held in JT, life insurance, and pension plan proceeds,
Surviving Spouse Election
-If a spouse’s will bequests their CP share and the surviving spouse’s CP share of a CP asset to a third party, the surviving spouse must elect between the will and her CP rights.
Intestate Succession: the surviving spouse inherits the deceased spouse’s one-half interest int he CP and QCP. IF the decedent has no heirs, the surviving spouse gets all of the dead spouse’s SP, if one heir, they split it, if more than one heir, 1/3 and 2/3rds to the others
Division of Debts Upon Divorce
Equal division rule: at divorce all community assets and debts are divided evenly and each spouse retains their SP debt and uses.
QCP: treated the same as CP all will be divided evenly
IF CP debts > CP assets, excess debt may be assigned in court’s discretion, consider parties relative ability to pay
Outstanding education loans obtained before or during marriage are assigned to the spouse who took out the loan.
Debt incurred during marriage but not for the benefit of the community can be assigned to the spouse who incurred the asset.
