Community Property (CP) Flashcards
Separate Property (SP)
- Property owned or claimed by the spouse before marriage
- Property acquired by the spouse during marriage by gift, devise, or descent
- Recovery for personal injuries sustained by spouse DURING marriage, EXCEPT recovery for medical expenses and loss of earning capacity during marriage = CP
Separate Property: Special Rules
- Spouses can by written agreement partition or exchange b/t themselves all/part of their CP, then existing or to be acquired (result = becomes that spouse’s SP)
PARTITION = current or future CP into SP
CONVERSION = SP into CP (immediately effect) - If 1 spouse makes a GIFT of property to the other spouse, presumption = it’s SP and includes all income that might arise from gift
- TRACING PRINCIPLE = Assets purchased with separate funds are themselves SP
- Character is determined under laws of state in which H and W are domiciled at time of asset’s acquisition; ownership is NOT altered when couple moves to another state
- Property acquired in another state that would’ve been CP if acquired in TX is treated as “QUASI-CP” for division upon DIVORCE
Community Property (CP)
- Everything that’s not SP
- Income from SP belongs to CE
- Property possessed by either spouse during or on dissolution of marriage is PRESUMED CP
- Burden of proof is on party arguing for SP, must establish by clear and convincing evidence
Classification: Inception of Title Rule
Asset’s character is determined at time of acquisition; no subsequent actions will alter the character
Installment purchases begun before marriage = SP (despite being completed after marriage)
Assets purchased during marriage = CP presumption
Assets acquired on credit during marriage = CD presumption
- Source of funds later used to pay off debt is irrelevant!
- Rebuttal in 2 situations: (1) lender agrees to look solely to separate estate of borrowing spouse; or (2) spouse purchases with borrowed funds with intent of immediately paying debt with proceeds from sale of SP
Adverse Possession begun before marriage but completed during marriage
- entered under “rightful” claim= SP
- naked trespasser = CP
Claims for Reimbursement
Remedy (upon termination of marriage) when 1 estate (CE, H’s/W’s separate estate) has been used to either contribute to or improve another marital estate
MAY be waived, released, assigned or partitioned in pre-martial or marital property agreement!
Unsecured debts or life ins. policies = $ for $
Secured debts = measured by reduction in principal
Benefits for use/enjoyment of property may be OFFSET (court has discretion) against a claim for reimbursement, EXCEPT that the separate estate of spouse may NOT claim offset for use/enjoyment of primary/secondary residence owned wholly or in part by the separate estate
Measure for CAPITAL IMPROVEMENTS = value of the enhancement to the benefited estate
Measure for TIME, TOIL, AND EFFORT (i.e., if 1 spouse owns a business, the non-owning spouse can be reimbursed for other spouse’s TTE expended on separate business if there is inadequate compensation during marriage) = value of TTE (beyond that reasonably necessary to preserve estate)
LIENS on Dissolution/Death: court may impose equitable lien on property of a benefited marital estate to secure a claim for reimbursement against that property by a contributing marital estate
Non-reimbursable Claims
- Payment of CS or spousal maintenance
- Living expenses of a spouse or child of a spouse
- Contributions of property of a nominal value
- Payment of a liability of a nominal amount
- Student loan of one spouse (womp womp)
- Spousal gifts
Effect of Title
CL states = how title is taken determines ownership
TX/CP states = deeds/title is NOT controlling! CP presumption applies!
Conveyance with CF is presumed CP, but intent to make a gift can be shown by a preponderance of the evidence
If consideration for conveyance is H’s SP, there is a presumption of a gift to W’s separate estate
SF used + title in both spouses’ names = presumed to be gift to other spouse (can be rebutted by extrinsic evidence, and then it’s considered SP of spouse who furnished consideration for its acquisition)
Title in spouse’s name “as sole and SP” will be presumed SP if both spouses participate in transaction but presumed CP if only 1 participates
Commingling of SP and CP: Tracing
CP presumption can be overcome by tracing!
Commingled bank accounts = CF out first presumption
- limited by the “lowest intermediate balance” principle
CP Survivorship Agreements
Spouses may agree IN SIGNED WRITING that all or part of CP becomes property of SS on the other’s death
May be revoked by written to other spouse
Effect = title passes by right of survivorship as a non-probate transfer
SS is laible to account to deceased spouse’s personal rep. for property received to extent necessary to discharge liabilities of the deceased spouse
- 2-year SOL for creditors to come after SS
Pre-marital Agreements
- Must be in writing and signed by both spouses
- NO consideration required
- During marriage, can be amended or revoked only be a writing signed by both parties
- MAY contract as to property rights (re: SP and CP including income, etc.)
- MAY modify or eliminate spousal support
- MAY contain choice of law provisions
- May NOT contract around CS rights
Unenforceable if
- Not executed voluntarily, or
- Unconscionable when made AND (i) no fair disclosure was given of property/obligations of other spouse, (ii) the right to disclosure was not waived in writing, and (iii) party had no adequate knowledge of that info
- Unconscionability = matter of law for the court
Special Rules: O&G interests, income interest in trust, corporate distributions, royalty income from patents and animals
- O&G interests: if land is SP, bonus is SP and royalty is SP… but delay rentals are CP
- Income interest in a trust: trust created by someone other than spouse is SP whether created before or during marriage (but if spouse has unrestricted right to the trust corpus, the income is CP)
- Corporate distributions: cash dividends received during marriage are CP; all other distributions (stock splits, stock dividends, stock options) are SP; capital gains are SP
- Royalty income from patents: 1 spouse holds patent at time of marriage, royalty payments is “revenue” of he SP and thus is CP
- Animals: increase in value from SP animals is CP
Tort Recovery from Personal Injury
$ for disfigurement and pain and suffering = SP
$ for medical expenses and loss of earning capacity CP
Loss of consortium = SP of other spouse
Life Insurance
Inception of Title rule applies!
Retirement Plans: Plans Begun During Marriage
If participation begins during marriage, the ENTIRE plan benefit is CP (valued as of date of divorce and subject to just and right division)
Defined contribution plan (e.g., 401k) = there is always a measurable value in the employee’s account that can be divided upon divorce
Defined benefit plan (e.g., monthly annuity payments) = in divorce, we freeze at that moment and ask how much CE would receive if he were eligible to retire at that time (post-divorce increases will be employee’s SP)
Retirement Plans: Plans Begun Before Marriage
Inception of title rule does NOT apply!!! Retirement benefit is part SP and part CP!!!
Defined contribution plan (e.g., 401k) = tracing rules apply!
- (i) contributions to plan during marriage = CP
- (ii) dividend and interest income = CP
- (iii) appreciation in value of assets that were in the plan on the date of marriage = SP
Defined Benefit Plan = longstanding CL!
- Divorce BEFORE retirement: CE share = (years married in plan / total years in plan at divorce) X (2% X years of service X average of 3 highest annual salaries)
- Divorce AFTER retirement: CE share = (years married in plan / years employed during plan)
Adverse Possession
- If entered onto land under CLAIM OF RIGHT, then eventual title relates back to original entry (inception of title occurs at this date–SP if before marriage or CP if during)
- If entered the land as a NAKED TRESPASSER, then title vests when he completes the possession period (inception of title occurs at this date)
Life Insurance Policy
Inception of title rule applies!
Divorce terminates spouse’s status as beneficiary under a SP or CP policy UNLESS:
- divorce decree names spouse as B
- spouse renames ex as B after divorce
- spouse was originally named B in trust for, or on behalf of, a child of both spouses
- plan is part of employer pension plan governed by ERISA, meaning federal law preempts state law rule that divorce terminate’s B-spouse’s status
If spouse uses CP to pay for most premiums on SP plan, community has claim for reimbursement
Spouse can take out CP policy and name someone else as B: treated like gift of CP and other spouse is protected by Fraud on the Spouse Doctrine (W can recover her 1/2 of CP)
Business Interests
Corporations
- inc. before marriage = inception of title rule applies to make it SP
- inc. during marriage = using tracing to determine fraction of CP/SP depending on CF/SF
Partnerships
- before marriage = SP
- any income earned during marriage = CP
Goodwill
- BUSINESS goodwill (earned before marriage = SP; earned during marriage = CP)
- PROFESSIONAL goodwill is NOT property!!!
Debt
Debt incurred during marriage = CD unless creditor agreed to look only to borrowing spouse’s SP for repayment
CD does NOT mean spouses are jointly and severally liable
If spouse owns SP and takes out NON-RECOURSE mortgage, meaning lender agrees sole remedy is foreclosing on SP land = SD
Property Acquired in Another State
Divorce = courts treat it as quasi-CP/SP (based on what it would have been if acquired in TX)
Death
- in non CP states, spouse’s salary = SP
- in non CP states, title = determines ownership
- property rights do NOT change when they move to TX
Torts
Committed before marriage = creditor can reach the D’s SP, SMCP, and JMCP
Committed during marriage = All CP can be reached (other spouse’s SP is the only thing that can’t be reached)
Alimony
TX does NOT recognize court-ordered alimony for the support of a spouse after the divorce
Agreement b/t parties for contractual alimony is VALID and may be incorporated into court order (but is not enforceable by contempt)
An alimony judgment from another state is ENFORCEABLE in TX via full faith and credit clause
Dividing the Marital Estate
TX courts make “just and right” division of CP; CANNOT divide SP!
Can be overturned only if it is manifestly unjust and constitutes an abuse of discretion
Factors to be considered:
- spouses’ education, capacities, and abilities
- disparity of incomes
- disparity of earning capacity
- relative physical conditions
- relative financial condition and obligations
- disparity of ages
- size of separate estates
- size of CE
- length of marriage
- whether 1 party has wasted CP
- benefits that an innocent spouse would have received had the marriage continued
- tax consequences of division
- marital misconduct (adultery, cruel treatment by either spouse during marriage)
- history or pattern of FV
- contribution of spouse as homemaker
FAULT = considered by some courts if filed on fault grounds (some consider it anyway)
Spousal Maintenancec
4 cases for spousal maintenance:
(1) 10+ years of marriage = presumption that maintenance is not warranted unless obligee spouse exercised diligence in earning income or developing skills
- 10-20 years of marriage = 5 years max
- 20-30 years = 7 year max
- 30+ years = 10 year max
(2) FV committed during marriage against spouse or spouse’s child
- Marriage less than 10 years = 5 year max
(3) Spousal physical/mental disability
- Payments can last as long as eligibility persists
(4) Marital child’s disability requiring substantial care and personal supervision
- Payments can last as long as eligibility persists
ALWAYS must show spouse lacks sufficient property to provide for minimum reasonable needs
- Includes SP and CP from the obligor spouse
- Obligee does NOT have to spend down longterm assets or incur new debt
- Loss of employment or other circumstances that occur AFTER divorce are NOT grounds to institute a spousal maintenance award
Limits:
- Amount = LESSER of $5k/mo. or 20% of obligor’s gross income
- Shortest reasonable period that allows spouse to earn sufficient income UNLESS ability is substantially or totally diminished because of (1) spouse’s disability (2) spouse’s duties as custodian of young child of the marriage or (3) another compelling impediment to earning sufficient income
Terminates upon:
- Death of either spouse
- Remarriage of obligee
- Obligee’s cohabitation with a romantic partner
Maintenance can be adjusted DOWNWARD but not upward
Fraud on the Spouse
Equitable doctrine!
Reasonable gifts of CP to TPs are allowed, but excessive or capricious might constitute a fraud on the spouse… depending on:
- who got the gift
- size of gift in relation to CE
- whether the spouse can be made whole out of the remaining CE
Presumption of fraud = arises when 1 spouse disposes of CP unfairly OR without the other spouse’s knowledge or consent
- Burden shifts to donor to show that the use of CP funds was fair
Actual fraud = when donor spouse intended to deceive wronged spouse and intended to deprive her of her CE share
Constructive fraud = when donor makes gifts of CP but does NOT intend to deceive or deprive spouse of her community share
Remedies
- Challenging gift while donor is alive: gift can be set aside entirely
- Challenge after donor dies: gift set aside only as to wronged spouse’s 1/2 interest in the CP
- Divorce: court calculates a reconstituted estate and divides in just and right manner
- Death: court calculates a reconstituted estate and splits it 50/50
Management Rights
Spouse has SOLE MANAGEMENT (SM) (power to manage, control, transfer, encumber and dispose of) over:
- her SP
- what would’ve been SP if she were single (i.e., wages, and income from SP)
- presumptively, CP that is taken only in 1 spouse’s name
Spouses have JOINT MANAGEMENT (JM) over:
- property purchased with CF
- commingled SMCP
- presumptively, CP taken in both names
