Community Property Flashcards
How to approach CP on exam?
- Explain presumptions (CP, SP, QCP, QMP)
- Validity of marriage & prenup
- Breakdown property (source/timing, actions that change character, special rules)
- Answer call of question
What is marriage? When does marital community start and end?
Marriage is a civil contract between 2 people followed by legal procedures.
The marital economic community begins on the date of marriage and ends at:
1. Permanent separation
2. Dissolution
3. Death
(Whichever occurs first)
Domestic partnerships?
All couples (gay or straight) can elect domestic partnership. Exactly the same rights as married couples. CA recognizes domestic partnerships from other states.
Permanent Separation
What is it?
Complete and final break in marriage. Requires (1) intent and (2) conduct consistent with intent.
What is it called if someone believes they are married in good faith, but is not legally married?
Putative spouse.
When might a marriage be considered (1) void or (2) voidable?
(1) marriage is unlawful (bigamy or incest)
(2) fraud, coercion, incapacity, lack of consent
If a spouse knew the marriage was invalid but acted like it was, what remedy is available?
Estoppel to prevent spouse from becoming PUTATIVE spouse.
What is property called acquired by a putative spouse and how is it treated?
Quasi-marital property (QMP). It is treated exactly the same as CP (and QCP).
Are mere cohabitants considered a marital community? If not, how does a court deal with their property upon separation?
No. A court will apply contract/quasi-contract principals and remedies to allocate property.
What is property acquired during marriage presumed to be?
Community Property
What is property acquired before marriage or after separation presumed to be?
Separate property
What is property acquired by gift, bequest, devise, or descent presumed to be?
Separate property
What is rent, issue, and profit derived from SP are presumed to be?
Separate property
What is CP?
California is a community property state. All property, real or personal, wherever situated, acquired by a spouse during marriage is presumed to be part of the marital economic estate (community property, CP).
What is a premarital agreement?
An agreement made before marriage to characterize property (SP or CP) and limit support obligations.
What are the requirements for an enforceable premarital agreement?
- Must not promote divorce
- Writing (no consideration necessary)
- Voluntary
- Not unconscionable
A court will presume a premarital agreement is involuntary unless:
- Represented by counsel or waived counsel in separate writing
- Given agreement and advised to get counsel 7 days before signing
- If unrepresented, informed of rights they are giving up
- No lack of capacity, duress, fraud, undue influence
- Other relevant factors
Can child support be waived? How about spousal support? If so, under what conditions?
Child support CANNOT be waived.
Spousal support can be waived if spouse (1) had independent counsel at signing and (2) not unconscionable at dissolution
What are earnings and accumulations presumed to be if earned while living apart from spouse? How about if earned during legal separation?
Separate property
What is quasi-community property (QCP) and how is it treated?
Any property acquired by a spouse in a non-CP state (i.e., not in CA), but would have been considered CP if spouse lived in a CP state (CA). Treated exactly the same as CP/QMP.
What is quasi-marital property (QMP) and how is it treated?
Property acquired during a void/voidable marriage, which would have been CP/QCP if marriage had been valid.
Property of putative spouse is QMP.
QMP is treated exactly the same as CP/QCP.
Inconsistent Title
- If the source of funds is SP, but title is jointly obtained, what is the presumption?
- If the source of funds is CP, but title is taken by only one spouse, what’s the presumption?
Any exceptions?
- Presumed to be gift to community, but subject to reimbursement after divorce.
- Property will remain CP (unless written transmutation or evidence of gift)
At DEATH of a spouse, what is jointly titled property presumed to be?
At DIVORCE, what is jointly titled property presumed to be?
What if a spouse used SP to contribute to the jointly titled property in each case?
Lucas - At death, jointly titled property presumed to be CP, and NO RIGHT TO REIMBURSEMENT.
Anti-Lucas - At divorce, jointly titled property presumed to be CP, BUT there is a RIGHT TO REIMBURSEMENT of spouse that contributed SP.
Defense to enforcement of premarital agreement (other than the basic requirements)
Laches - unreasonable delay and prejudice
Estoppel - detrimental reliance
What are reimbursements of SP contributions limited to?
“DIP”
- Down payments
- Improvements
- Payments to principal of loan (not interest)
Prior to 1975, if a married woman acquired property in writing, what kind of property is it presumed to be?
What is the presumption called?
Presumed to be SP.
Married Women’s Special Presumption (MWSP)
Under MWSP, if a married woman and a 3rd party acquired title together, what is the presumption?
Tenancy in common (unless title says otherwise)
Under the MWSP, prior to 1975, if a married woman acquired property with her spouse, what is the property presumed to be?
CP if the title identifies them as married, otherwise, tenancy in common.
The MWSP applies to property acquired prior to what date?
1975
What is tracing?
If an asset changes form, it may be traced back to its source to determine proper characterization (CP or SP).
If SP funds are commingled with CP funds, does the character change?
Not necessarily. If spouse can trace source of funds to SP, it will remain SP, but it remains their burden to trace.
If SP and CP funds are commingled, what is the presumption for expenditures on family expenses?
That CP funds were used, even if SP funds are available.
What are the two methods of tracing?
- Exhaustion: must show at time of purchase that all CP funds in commingled account had been exhausted by community expenses.
- Direct Tracing: (1) SP funds were available, AND (2) SP owner intended to use the funds.
What is an agreement made during marriage to change the character of property called?
Transmutation.
Does a transmutation require a writing?
Any exceptions?
What is the crucial date?
Yes, if after 1985, except minor gifts.
No, if before 1985.
What fiduciary duties do spouses have to each other?
- Full disclosure: all material facts about community assets/debts
- Good faith and fair dealing: can’t take advantage of each other.
Community PERSONAL property. Who has control? Can one spouse sell? Any exceptions/limits?
Each spouse has absolute power of disposition (except through will, since the spouse can only give away 1/2).
A spouse cannot make a gift or dispose of property for less than FMV without the written consent of the other.
Community REAL property. Can one spouse convey? Can one spouse lease? If not, what happens if one spouse does (BFP vs non-BFP)?
Sale/conveyance: BOTH spouses must execute deed.
Lease: BOTH spouses must sign lease OVER ONE YEAR.
3rd Party Rights:
BFP - Conveyance by one spouse to BFP is presumed valid, but can be voided by other spouse within 1 year.
Non-BFP - Conveyance can be voided at any time.
What management rights does a spouse have of a community business?
The spouse in charge of a community business can make all business decisions ALONE, but must give written notice to other spouse of sale of all or substantially all personal property used in business.
If the marital community contributes to a SEPARATE business, what do courts do upon divorce? Does character of business change?
Community is entitled to reimbursement via Pereira or Van Camp methods. No change to character.
What two methods are used to determine the value of contribution (and thus reimbursement) of the community to a separate business? When is each used?
Pereira - used if increased value of business is primarily due to skill and effort of managing spouse.
Van Camp - used if increased value of business is due to character of business itself, not the labor of the the spouse.
What is the Pereira formula?
SP interest = SP contribution (i.e.,value of business at time of marriage) + reasonable rate of return (i.e., 10% x SP contribution x years of marriage in business)
CP interest = Value of business at divorce (or when it ended) - SP interest
What is the Van Camp formula?
CP interest = FMV salary (each year) - family expenses (each year) - actual salary taken (each year)
SP interest = Value of business at divorce - CP interest
What happens if Pereira/Van Camp provide inadequate compensation to the community?
Equitable Apportionment
- Can award difference between FMV of services and amount actually received by community
- Or, court can order payment of the other spouse’s half of the difference after division of marital property
What happens if SP contributes to a community business after separation?
Reverse Pereira/Van Camp.
What is the Reverse Pereira formula?
CP interest = CP contribution (value at time of separation) + reasonable rate of return (10% x value at time of separation x # of years after separation)
SP interest = value of business - CP interest
Reverse Van Camp
SP Interest = FMV salary - family expenses - salary taken since separation
CP Interest = value of business - SP interest
What happens if community contributes to separate real property?
How is the community’s interest/share calculated?
“Marriage of Moore”
Community gets proportional ownership interest to the extent community reduction PRINCIPAL debt of property.
CP interest = $ CP contributed to principal / original loan balance
CP share = CP interest x capital appreciation
What happens if one spouse contributed SP to another spouse’s SP?
Prior to 2005, it was presumed a gift.
After 2005, right to reimbursement (“DIP”).
What happens if a spouse contributed SP to CP?
Prior to 1984, presumed gift to community.
After 1984, it is reimbursable if it can be traced to SP (DIP).
What if CP is used to improve OTHER spouse’s SP?
Jurisdictional split. Some presume gift, others have right of reimbursement.
What if CP used to improve spouse’s OWN SP?
Right of reimbursement, or value of property increase, whichever greater.
Personal Injury Claims
If injury occurs before marriage, how is recovery characterized?
If injury occurs during marriage, how is recovery characterized?
If injury occurs after marriage, how is recovery characterized?
BEFORE - tort recovery is SP
* However, if CP was used to pay expenses during marriage, those are reimbursable.
DURING - tort recovery is CP, unless other spouse is tortfeaser. At divorce, $ which has not been spent or commingled will be given to injured spouse (except in interest of justice, but no more than 50% to other spouse).
AFTER - tort recovery is SP.
If an injured spouse dies during marriage, how is the recovery characterized?
CP
How are pension/retirement plan earnings characterized?
If earned wholly DURING marriage, CP, regardless of whether it has vested or is exercisable.
If earned BEFORE and DURING, use the Time Rule.
What is the Time Rule?
Use to apportion pension/retirement plans and stock options earned BOTH before and during marriage.
CP = Total pension/stock x (# of years married while earned / total years while earned)
What are the two approaches courts use to divide pensions/stocks?
- Reservation of Jurisdiction - court reserves jurisdiction until retirement, then apportions
- Cash-Out - court awards entire pension to employed spouse, and awards other CP assets to other spouse to meet value (using an actuary).
- If a stock option vests during marriage, what is it characterized as?
- If a stock option is awarded during marriage, but is exercisable after marriage, what happens?
- CP
- Depends:
A. If for compensation of past services: Portion earned during marriage is CP and interest is calculated using Time Rule.
B. If for compensation of future services: SP.
How is disability pay and Worker’s Comp treated?
Depends on what it is intended to replace:
- If used to replace earnings DURING marriage: CP
- If used to replace earnings AFTER marriage: SP
- If used to replace pension earnings, use Time Rule.
How is severance pay treated?
Same as disability/worker’s comp. Depends on what it is intended to replace.
How are bonuses treated?
Depends what they intend to reward:
- If awards work during marriage, CP.
- If awards work after marriage, SP.
- If more like a gift, SP.
How is education and associated expenses acquired during marriage treated?
Education is NOT a community asset, even if community pays for it. However, CP gets reimbursed for costs + interest.
Is there any defense against reimbursement of education expenses?
- If CP already substantially benefitted; presumed after 10 years
- If offset by education expenses of other spouse.
- If education reduced need for spousal support.
What is the difference between whole life insurance and term life insurance?
Whole life: has investment component that allows it to accumulate cash value
Term life: no investment component, no cash value.
If a spouse named a third party beneficiary in a WHOLE life insurance policy, what happens with regard to the community at death or divorce?
At death or divorce, the proceeds will be allocated in proportion to the number of premiums paid by with community funds. If only paid with community funds, the surviving spouse gets half, and the 3rd party gets half.
If a spouse names a third party beneficiary on a TERM life insurance policy, what happens at divorce and death?
No cash investment vehicle associated with term life insurance.
At divorce: courts hold that the policy has no value.
At death: court will look to see who paid LAST premium payment to determine whether its CP or SP.
How is good will of business characterized?
Good will is transferable property. To the extent good will is earned during marriage, it is CP.
Valuation techniques:
- FMV - difficult
- Compare excess earnings to similar businesses.
How does federal preemption play into this?
Federal law may designate some property/benefits as solely the property of a spouse, which trumps CA law. Ex. Federal pension SS benefits Military benefits U.S. Savings Bonds
How are credit acquisitions during marriage treated?
Rebuttable presumption that credit purchases are CP debt.
Look to factors:
- Intent of lender - Was loan based SOLELY on a spouse’s SP? If so, SP debt.
- Earning capacity - If loan is based on earning capacity of a spouse, it is CP debt, because earnings are CP.
How do you determine the timing of debt for creditors’ rights?
- Contract
- Tort
- Child/spousal support debt
- Other
- Contract - at time contract was made
- Tort - when tort occurs (not when awarded)
- Child/spousal support - treated as debt BEFORE marriage (thus SP), even if court order came during marriage
- Other - at time obligation arises
What is the community liable to creditors for? Any exceptions?
The community is liable for all debts incurred BEFORE and DURING marriage, regardless of which spouse incurred the debt.
Exception: if a spouse puts marital earnings in a separate bank account that debtor spouse can’t withdraw from, debtor spouse’s creditors for PREMARITAL DEBT can’t touch that.
If injury or damage is caused by a spouse, is the other spouse PERSONALLY liable?
No, unless they would be liable even if they weren’t married.
However, community assets can be reached.
If spouse commits injury/damage, in what order is recovery satisfied?
- Benefit of the community: If act occurred during marriage for benefit of community, the CP property first, tortfeasor’s SP second.
- Not for benefit of community: Tortfeasor’s SP first, CP second.
Order of Debt Satisfaction
If debt is incurred for community interest?
If debt is incurred for individual interest?
- CP first, then SP
2. SP first, then CP
Order of Debt Satisfaction
If a SP debt is incurred BEFORE marriage, what can creditors reach?
All CP and all DEBTOR spouses’ SP, but not non-debtor spouse’s SP (and not non-debtor earning IF placed in separate account that debtor can’t withdraw from).
Order of Debt Satisfaction
If SP debt is incurred DURING marriage, what can creditors reach?
All CP and all debtor spouse’s SP, but not SP of non-debtor spouse, unless the debt was for “necessaries of life” (food, shelter, medical), in which case non-debtor’s SP can be reached.
NOTE, this also applies post-separation, pre-divorce!
Division/Distribution
How is property divided at divorce?
CP: assets/debts divided evenly, unless special rule applies
SP: each spouse retains their own
QCP/QMP: same as CP
If spouse maintains 2 marriages: court will divide equally among participants or among non-guilty participants (jurisdictional split).
Division/Distribution
How is property divided at death?
What happens if deceased spouse tries to devise more than his share of the CP?
Deceased spouse can devise ALL SP and 1/2 CP.
If intestate, surviving spouse gets:
- All CP
- All SP if no issue or parents, 1/2 SP if one issue or parent, 1/3 if more than one issue.
Note: Joint tenancies are not subject to CP rules, and automatically transfer to surviving spouse.
Note 2: property outside of CA is subject to that state’s intestacy laws.
If deceased spouse tries to devise more than his 1/2 of the CP in the will, surviving spouse must elect to either take (1) his half of CP, or (2) their remaining interests in the will, BUT NOT BOTH.
