Community Property Bar Flashcards
For basic assumptions, there are 5 mini paragraphs. What are the main concepts for each mini paragraph?
(1) CA is a community property state and what is CP and what is SP
(2) Who the burden is on and the concept of tracing
(3) MEC begin, end, facade
(4) Upon divorce, distribution of CP assets and liabilities and of SP
(5) At death, what surviving spouse receives
First mini paragraph on CA is a CP state and what entails CP and SP
California is a community property state. All property acquired during the marriage is community property. Property is separate property where it is acquired before marriage, after permanent separation, through gift or inheritance, the rents and income derived from separate property, and property purchased with separate property funds.
Second mini paragraph on the burden on the spouse
The burden is on the spouse claiming SP to defeat the CP presumption. Courts use the source rule to determine the character of the property by tracing the funds used to acquire the property.
Third mini paragraph on MEC
The Marital Economic Community (MEC) begins on the date of marriage. The MEC ends when either spouse dies, upon divorce, or when either spouse evidences the intent to not return to the marital relation coupled with conduct to support such intent. Where a couple maintains the facade of marriage, the MEC has not ended.
Fourth mini paragraph on upon divorce
Upon divorce, each spouse is entitled to 1/2 of the CP. This applies to assets as well as to liabilities. Each item of CP should be distributed evenly unless economic circumstances warrant a different distribution. Also, at divorce, each spouse keeps his or her own SP.
Fifth and last mini paragraph on upon death
Upon death, the surviving spouse receives 100% of the CP. Also, the surviving spouse is entitled to between a one-third and full interest in the decedent’s SP depending on how many, if any, issue or heirs were left behind.
How is income characterized?
Generally, all assets acquired during marriage are CP including income during marriage. The fact that income is placed in a separate account does not change the characterization.
Income made while living and separate apart is not considered within the definition of “during marriage” and is this the spouse’s SP.
Note: Tort awards are not income
How are tort awards characerized?
The date that characterizes the award is the date of the accident, not the date when the settlement was received.
Tort awards from before the marriage are SP.
Tort awards from during the marriage are CP during the marriage but are fully treated as the injured spouse’s SP upon divorce, unless the interests of justice dictate otherwise or the money has already been spent.
The CP or the SP of the non-injured spouse can seek reimbursement for expenses related to the injury.
Upon death, the awards are treated as CP.
How are tort liabilities characterized? What is the order upon which judgments can be paid?
Tort liabilities are the SP of the tortfeasor spouse unless the tortfeasor spouse was acting in the interests of the community.
Where the tortfeasor spouse did not act in the interests of the community, the tortfeasor’s SP should be exhausted first and then CP. The non tortfeasor spouse’s SP cannot be reached by creditors.
Where the tortfeasor spouse acted in the benefit of the community, the CP should first be exhausted and then the tortfeasor spouse’s SP. The SP of the non-tortfeasor spouse is not liable.
How are pensions characterized?
Pensions earned during the marriage are CP, regardless of whether the pensions are received during the marriage or after the marriage.
Where pensions are earned for work before and during marriage, the Time Rule is applied where the CP interest in the pensions is calculated by the number of years married while pension received over the number of total years the pension was received. This share is multiplied by the total amount of pensions available to determine the CP amount.
The remainder is SP. received during the marriage are CP.
Where
What is the rule regarding putting your pension benefits in a will and the one exception?
One may bequest their share of continuing benefits with the exception of ERISA benefits, which cannot be included in a will (where federal law preempts CA community property law)
Where the spouse eligible for retirement benefits chooses not to retire, what occurs?
The court may order a QDRO, a qualified domestic relations order, upon which the other spouse is entitled to receive benefits as if the spouse had retired.
How are stock options treated - overall header
If stock options vest during marriage, they are treated as CP.
If stock options are received during marriage but vest after marriage, one of two formulas is used.
If the purpose of the stock options was to incentivize the employee to remain with the company, what is the numerator? [metlife example]
Date the option was granted until the MEC ends
What is the denominator?
Date option granted until it becomes exercisable
If the purpose is to reward performance, what is the numerator?
Years employee married until MEC ended
What is the denominator?
Years employee married until shares became exercisable.
The figures above are CP. The share is multiplied by the total shares to determine the amount.
How is severance pay characterized?
Courts are split
Some treat as CP, where the pay recognized labor performed during marriage
Others treat as SP because it replaces future wages
For disability payments, what is the characterization approach?
Look to the intent of the payment
- If to replace current earnings: CP
- If to replace future earnings: SP
does CP or SP own the disability policy?
whichever pays the premiums owns the policy
How is good will defined and calculated at a high level and which part is CP
A business’s good will is the degree to which its reputation is regarded as a quantifiable asset, calculated by payments made in excess of the FMV in an acquisition. Good will is CP to the extent it was earned during the marriage
How is a spouse’s degree treated? the actual degree
Actual paper degree is always SP, even if the CP paid for the degree.
How are educational expenses treated where CP paid for it?
CP is entitled to reimbursement for educational expenses except in 3 situations
(1) Reduced the need for spousal support of the educated spouse
(2) The other spouse also benefitted from CP funding of education
(3) The community substantially benefitted from the education (presumed after 10 years)
How are educational loans treated?
Always the SP of the educated spouse
how are bonuses treated?
Use intent rule
If intent to reward labor during marriage - CP
If intent to provide for future earnings - SP
define whole life insurance
Whole life insurance provides lifetime coverage and contains a cash savings component, which the policy owner can draw upon.
what is the rule for interest in a whole life insurance policy?
Both CP and SP have an interest in the whole life policy. The CP measure is the amount of CP contributed to the policy divided by the total amount contributed. This share is multiplied by the total cash value.
The remainder is SP.
Note: The non cash proceeds are determined by whichever estate paid the premium last.
Define term life insurance and the rule on characterization
Term life insurance provides coverage for a specific term less than life and does not have a cash savings component. The policy is usually paid annually.
The policy belongs to whichever estate paid the LAST premium
What is the rule for devising life insurance?
Life insurance is a CP interest. The holder cannot devise the spouse’s one-half CP interest without the spouse’s consent.
Note
When life insurance tested, unclear whether term or whole. Analyze both and explain why it is more likely to be one or the other. For example, if the policy is paid annually, it may be more likely to be term insurance.
What happens where the community is used to enhance the value of a SP business?
Where the community is used to enhance the value of the SP business, the community has a share in the increase in the business’s value.
What are the 2 approaches California courts use?
(1) Pereira
(2) Van Camp
What is the approach for Pereira?
The Pereira approach is used when the primary reason for the increase in the business’s value is the spouse’s own expertise and skill.
Under this approach, the SP is calculated as the original principal value of the business plus (an annual rate of return, usually 10%, against the business) for every year the couple was married while the business was in operation.
The remainder is CP.
What is the approach for Van Camp?
The Van Camp approach is used where the increase in the value of the business is primarily due to market and industry forces (as opposed to the spouse’s own expertise and skill).
Under this approach, the CP is calculated by a market salary for the spouse for every year worked at business during the marriage, less all the household expenses paid less all salary taken (also for years married and in business).
The remainder is SP.
In cases of a premarital where all wages are each spouse’s SP, you will not subtract out the salary taken element. You don’t need to do the math, just say this expense will not be deducted.
Listen to exam tips
iii. Importance of 3 Ways to Terminate MEC
1. Recall: Permanent separation (e.g., separated + files for divorce) ends the MEC, as does divorce, or death of either spouse.
iv. Years
1. Recall: The duration of years used is the number of years the business was in operation, and the formula ends when the MEC ends
v. Exam Tip
1. Pereira is for personal skills. Pay interest on the SP, the rest if CP.
2. Van Camp is for a valuable company. Look at the value of community labor. The rest is SP.
vi. Exam Tip – fact pattern in which one spouse enters marriage with portfolio of stock also uses the approach above.
vii. Exam Tip
1. Anytime SP business involved, establish why it is a SP business
2. Do not assume business acquired during marriage is CP
3. After establishing business is SP, address both Pereria and Van Camp. Go through equations and calculations.
4. Finish by explaining which approach the court will likely use and why.
viii. Pereira/Van Camp Fact Triggers
1. Business started before marriage
2. Business inherited during marriage
3. Business started with SP funds during marriage
4. Business started during marriage with CP labor—explain why Pereira/Van Camp does not apply
When does reverse Pereira or Van Camp apply?
Reverse applies where the SP is used to improve a CP business
Here, you do the same equations but you flip the variable you start with. So for Pereira, where you usually start with SP, here, you start with CP. And for Van Camp where you start with CP, here, you start with SP.
what issue to mention on every comm prop exam
transmutation
Define a premarital agreement
A premarital agreement is an agreement before marriage where the two parties agree to characterize their property in a certain way.
4 high level requirements for a valid pre marital agreement?
(1) In writing and signed by both parties;
(2) Purpose must not promote divorce;
(3) Voluntary; AND
(4) Non unconscionable
- (1) In writing, signed by both parties;
- (2) Must not promote divorce;
Then Voluntary - what are the 4 requirements
The party who is challenging the purported agreement is:
(1) Represented by independent counsel;
(2) At least seven days before signing to review the proposal;
(3) If not represented by counsel, was fully informed of terms and effect of document in a language they understand; AND
(4) Spouse executed a document provided that she received the information.
Define not unconscionable
Fair process in which party receives full disclosure of financial situation of other party
Waivers for child support will not be enforced
Waivers for spousal support are unenforceable if:
- Party not represented by independent counsel
or
- Terms unconscionable
3 ways to defend enforcement of prenup
Laches (unreasonable delay and prejudicial effect)
Estoppel (detrimental reliance)
Define transmutation
A transmutation is an agreement to change the character of property from SP to CP, from CP to SP, or from one spouse’s SP to another spouse’s SP.
Before 1985, oral transmutations were permissible
From 1985 onwards, transmutations are valid if:
(1) Written;
(2) Signed by the party whose interest is being adversely affected; AND
(3) Expressly declares that a change in ownership is being made
exception to transmutation requirement?
Gifts of personal nature that are insubstantial in nature
rule on extrinsic information related to proving a transmutation
Extrinsic evidence is not permitted to evidence a transmutation (e.g., cannot bring in a will)
What is the Married Women’s Special Presumption?
For all property titled in a woman’s name alone before 1975, the property is presumed to be her SP.
What are 2 ways a husband may rebut the Married Women’s Special Presumption?
(1) H did not intend to make the gift and had some other reason for putting title in her name (e.g., shielding asset from creditors)
(2) W took title in her name without husband’s knowledge or consent
Note
Arises only when:
1. Title taken in W’s name alone before 1975 (property is W’s SP)
2. Title in name of W and H before 1975, but title is not joint, and not as “H&W” or “Mr. & Mrs.” (would be ½ W’s SP, ½ CP)
3. Title in name of W and some third party (including husband) before 1975 (W would be TIC with the third party)
What are the four ways to take in joint title?
(1) Joint tenancy with right of survivorship
(2) Tenancy in common
(3) As CP
(4) As CP with a right of survivorship
Recall: Joint tenancy: Each spouse owns a one-half interest as SP when alive.
