Community Property Flashcards
California
California is a community property state. All property acquired during the course of a marriage is presumed to be community property. All property acquired before marriage or after separation is presumed to be separate property. In addition, any property acquired by gift, devise, or bequest is presumed to be separate property. With these basic principle in mind, each item of property will be examined.
Quasi-community property is property acquired by either spouse that would have been community property had the spouse been domiciled in California at the time of acquisition.
Source of Acquisition
To determine the character of an asset, a court will trace back to the source of funds used to acquire it.
Premarital Agreement
To be valid, a premarital agreement must: (i) be in writing, (ii) have been entered into voluntarily, and (iii) not be unconscionable.
- An agreement is involuntary if the party against whom enforcement is sought was not represented by counsel, unless that party:
(i) was advised to consult an attorney at least seven days before the agreement was signed,
(ii) expressly waived the right to independent counsel, and
(iii) was fully informed of the basic effects of the agreement in a separate writing. - An agreement is unconscionable if a judge finds that it is unfair and:
(i) the objecting party was not fully advised of the financial status of the other party,
(ii) did not waive such disclosure, and
(iii) could not reasonably have obtained the information on his own.
Transmutation
During marriage, spouses may change the status of (transmute) their property. Such a transmutation must be made in writing and expressly declare that a change in ownership is being made. It must be consented to or accepted by the spouse whose interest is adversely affected.
The presumption that property is CP at divorce can be overcome only by a collateral written agreement or a statement in the documentary evidence of title that the property is SP. If there is no writing to the contrary, at divorce any SP contributions to the acquisition of CP are reimbursed to the SP contributor.
Personal Injury
Personal injury recovery against a third-party tortfeasor is characterized according to when the cause of action arose. If the cause of action arose during marriage, any recovery or settlement is CP, and at divorce, community estate personal injury damages are awarded entirely to the injured spouse (unless the interest of justice requires otherwise). If the cause of action arose after separation, it is the injured spouse’s SP.
Whether or not recovery is deemed SP or CP, the injured spouse must reimburse the community or the other spouse’s separate estate for any expenses paid on account of the injury.
Goodwill
Goodwill is essentially the difference between the total value of a business or professional practice and the value of its assembled physical assets. California courts generally use one of two valuation techniques:
(i) market sales valuation (the price the goodwill would command in a sale of the business) or
(ii) capitalization of past excess earnings (the present value of the future stream of income that the goodwill developed during marriage will generate in the business).
Education
At divorce, unless otherwise agreed, the community has an equitable right of reimbursement when community funds are: (i) used either to pay for education or loans incurred for education or training, and (ii) the education substantially enhances the earning capacity of the educated party.
Reimbursement may be reduced or modified by any of the following circumstances:
(i) the other spouse has also received community funded education,
(ii) the need for spousal support is reduced by the education or training, or
(iii) the community has already substantially benefited from the education or training.
There is a rebuttable presumption that if fewer than 10 years have passed between the contributions and the initiation of divorce, the community has not substantially benefited, but if more than 10 years have passed, the community has substantially benefited.
Stock Options
A form of employee compensation.
Treated as CP or SP depending on when and why they were earned.
Courts will probate the options to determine the respective CP and SP shares
Gifts
The writing requirement does not extend to gifts between the spouses of items of a personal nature that are used principally by the spouse to whom the gift is made and that are not substantial in value, taking into account the financial circumstances of the marriage.
Labor to Enhance Value of SP
A spouse may devote her community labor to the management of an SP business. The Van Camp and Pereira accounting methods can be used to apportion between the SP component of the business and the CP value added by the managing spouse’s labor during the marriage.
Van Camp
The managing spouse’s services are valued at the going market salary for such services. Family expenses that were paid from the business earnings are subtracted from the value of the manager’s services. The remainder, if any, represents the CP portion of the business, and the rest of the business is SP of the managing spouse.
Because the Van Camp accounting method assumes that the managing spouse’s services were ordinary when it imputes a market salary for those services, it should generally be used when the character of the separate business is largely responsible for its growth in productivity (when the appreciation is mostly passive).
Taking Assets in Joint Title (Divorce)
At Divorce, all property taken by a married couple in any joint form is presumed to be community property. Any SP used to acquire the jointly titled asset does not give the SP a pro rata ownership interest in the asset, but the spouse who contributed the SP is entitled to reimbursement without interest or appreciation
Pereira
Begins with the separate capital and imputes a fair rate of return, e.g., the current legal interest rate. The total SP interest is the principal plus the fair rate of return times the number of years the SP business was in operation and managed by the spouse during the marriage. The remainder is CP.
Because the Pereira accounting method assigns an ordinary rate of return to the business capital, it should generally be used when management by the spouse was the primary cause of the growth or productivity of the business.
Property Liable for Debts
All CP and the debtor spouse’s SP are liable for debts a debtor spouse incurred during the marriage, but the SP of the nondebtor spouse is not liable for debts a debtor spouse incurred during the marriage.
Property assigned to the nondebtor spouse at divorce is not liable for a debt when (i) the nondebtor spouse incurred no personal liability for the debt and (ii) the debt was assigned to the debtor spouse at divorce.
Even after spouses have separated, unless they made a separation agreement, each spouse remains personally liable for the debts incurred by the other spouse for common necessaries of life.
A spouse’s property is not liable for a debt incurred during marriage by his spouse and assigned to his spouse by the divorce court.
Tort Liability
A person is not liable, and his SP may not be reached, for his spouse’s torts except in cases where he would be liable if the marriage did not exist.
If the liability of the spouse is based on an act or omission that occurred while the married person was performing an activity for the benefit of the community, the liability is satisfied first from the CP and second from the SP of the married person. But if the married person was not performing an activity for the benefit of the community, the liability is satisfied first from the SP of the married person and second from the CP.
Liability for a tort attaches at the time the tort is committed.
Each spouse has a one-half SP interest in property held in joint tenancy.
A creditor of a spouse may attach the debtor’s one-half interest.
