Community Property / Family Law Flashcards
When CA community property (CP) law applies
The parties:
1) have a legal marriage; and
2) are domiciled in CA.
Opening Presumption
All property acquired during marriage by the labor or earnings of either spouse is presumed CP.
All property acquired before marriage or after divorce, death, or permanent physical separation is presumed separate property (SP). All property acquired during marriage by gift, bequest, devise, or descent is SP.
At divorce, spouses are entitled to one-half interest in CP.
The characterization of an asset as CP or SP depends on:
1) the source of the item;
2) actions of the parties that may alter the character of the item; and
3) the statutory presumptions affecting them.
Quasi Community Property (QCP)
QCP is property that was acquired outside of CA that would be considered CP if it were acquired in CA. QCP is treated as SP until death, dissolution, or divorce. At divorce, QCP is considered CP.
Marital Economic Community (MEC)
Begins at marriage and ends upon divorce, death of either party, or permanent physical separation with no intent to rekindle the marriage.
Pre-Marital Agreements
A pre-marital agreement allows parties to contract outside of community property laws and is valid if:
1) in writing and
2) signed by both parites.
These agreements are not valid if:
1) involuntary (e.g., no independent legal cousenl, party didn’t have at least 7 days to review agreement, party wasn’t fully informed in a language they understand, agremeent executed under duress, fraud, undue influence, or lack of capacity); or
2) unconscionable (e.g. ,terms are unfair or party did not understand the other party’s property).
Meretricious Relationship
Property is governed solely by the agreement of the unmarried parties. Here, 2 persons are not holding themselves out as a married couple, but their cohabitation is more than a roommate agreement.
Rights of Each Spouse
CP may be bought, sold, and managed by either spouse. They may buy or sell CP without the other spouse’s consent. They may not, however, sell property for less than FMV.
If one spouse is managing a business, they are assumed to have primary control of the business’s assets.
If the CP is real property, written consent is required of both spouses.
Anti-Lucas Statute
Jointly titled property purchased by a married couple after 1987 is presumed CP at divorce. Funds used from SP to complete this purchase are to be reimbursed to the paying party upon dissolution.
Before 1987: Lucas Rule - SP was presumed to be a gift to CP and not reimbursable.
Fiduciary Duties
Each spouse has a duty to exercise good faith in their marital financial dealings.
(E.g., look for the spouse that buys property in their own name with CP funds. Despite titling in their own name, if CP funds are used to purchase, it’s a CP asset).
Joint Checking Account
Is CP, and anything purchased from this account is CP (regardless of whether the parties have a verbal agreement to the contrary).
Personal Injury Awards
If a personal injury award was won by either spouse while married, it will be considered CP.
However, upon dissolution they become the SP of the injured spouse.
(This does not apply in situations where the funds were comingled or in cases where the uninjured spouse suffers from some form of economic hardship).
Separate Property Business
If a spouse has a separate business that gains value through the work of the spouse that owns the business, their work will be accounted for in CP calculations by using either the Pereira or Van Camp method.
(Remember that the labor of the owning spouse is a CP asset - if they are extremely talented, expect the CP portion of the business value to be even larger).
Pereira Method
Use the Pereira method when the spouse’s skill, knowledge, and ability is the driver of growth. Use when spouse is highly talented.
Under this method, the spouse receives the original principal value (OPV) of the business, plus an annual rate of return calculated at 10% OPV (this is their SP). The value remaining will be CP.
(E.g.: Restaurant purchased for $100 and earns 10% for 6 years. 100 + (100 x 0.1 x 6) = $160 (the owner’s SP). If the restaurant is worth $300 at divorce, then 300 - 160 = $140 is CP).
Van Camp Method
Use the Van Camp method when the nature of the business itself is the key driver of business growth/the market made the business more valuable.
Under this method, the community simply receives a reasonable salary in return for the community labor. This is the contribution to the community for the owning spouse’s labor, with the remaining value of the business remaining in the owning spouse’s SP.
(Here, since the business is SP and the business in and of itself appreciates, that appreciation tends to remain SP. However, some level of salary will be assigned to the owner who works for his company, and that salary will be CP).
Transmutations
In order for spouses to change the nature of an asset, for example from SP to CP, they must agree to do so, without the need for consideration.
Post-1985: these changes must be expressed in writing, signed, and consented to by the giver of the gift.
Pre-1985: these changes could be oral, written, or inferred.
Transmutations are not required for personal gifts between spouses of insignificant value.
Creditor Access to Property
Creditors may attack CP if the debt was incurred during the course of the marriage.
Special rules, however, apply to debts that were incurred prior to the marriage, where funds of a non-debtor that were not comingled may be untouchable and where SP may be attacked to pay for necessities.
Tracing
When property is acquired during the course of a marriage with comingled funds, a court may attempt to apportion ownership of the asset through tracing. If the record does not provide enough granularity to assign comparative ownership, the property will be considered CP.
Assignment of Debt
Upon dissolution of marriage, the court is free to assign CP debt to either spouse based on their ability to pay the debt.
Loans
In order to determine the character of a loan, the court will look to the intent of the lender. If based on income, the loan will likely be CP, but if based on security consisting of SP assets, it may be deemed SP.
Creditors Reaching Community Property
A creditor cannot reach the CP of the other spouse after divorce unless:
1) that spouse incurred the debt; or
2) the debt was assigned to that spouse by the court.
Pensions
If a pension is earned during marriage, then it is CP. It can be paid as received or cashed out and is computed by taking the number of years required to vest and proportionally dividing the net into CP. As such, if it takes 20 years to vest and the marriage was for 10 years during the vesting period, the community property is 50%. Since CP is 50%/50%, the other spouse gets 25%.
Medical Bills
Medical bills will be paid from CP. If CP is depleted, SP of the unaffected spouse will be used to make payment, which is entitled to reimbursement by the injured spouse.
Education Expenses
If CP funds are used for educational expenses, they will be reimbursed to CP because they personally enhance the receiving spouse’s earning potential. However, exceptions exist if both spouses received CP funds for education, if the education was over 10 years ago (it’s assumed that the Community benefited from the increased earning potential for that period), and also if the receiving spouse will be better suited post-dissolution to pay for their own needs.
Child Support
CP used to make child support payments (for children conceived prior to the marriage) will be reimbursed from the owing spouse’s SP.
