Community Property [Highly Tested Rules] Flashcards
What are the basic presumptions governing community property?
California is a community property state. All property acquired during the course of a marriage is presumed to be community property (“CP”). All property acquired before marriage or after separation is presumed to be separate property (“SP”). In addition, any property acquired during marriage by gift, bequest, devise or descent is presumed to be SP. To determine the character of an asset, a court will trace back to the source of funds used to acquire the asset.
What is separate property?
The following property is a spouse’s SP:
1. property owned by either spouse before marriage;
2. property acquired during the marriage by gift, bequest, devise or descent;
3. property acquired during the marriage in exchange for separate property, including the expenditure of separate funds; and
4. rents, issues and profits of separate property acquired before or during the marriage
What is the “married woman’s special presumption”?
Property acquired by a married woman in a writing, prior to 1975, is presumed to be her separate property
When does the marital economic community begin and end?
The marital economic community begins at marriage and ends at one spouse’s death or the date of separation
* For domestic partners, the economic community begins upon registration of the domestic partnership
When is the marital economic community terminated by separation?
To terminate the marital economic community by separation, there must be a complete and final break in the marital relationship, which requires:
1. a spouse to express an intent to end the marriage to the other spouse; and
2. conduct consistent with that intent
NOTE: The legislature has abolished the requirement that spouses must occupy separate households to be considered separated; thus, permanent physical separation suffices but is NOT required
How is community property distributed at divorce?
Unless the parties agree otherwise in writing or by oral stipulation in open court, the divorce court will divide the CP assets equally in kind, meaning each party is entitled to a one-half interest in each CP asset
EXCEPTION:
Where economic circumstances warrant, the court may deviate from in-kind division on such conditions as the court deems proper to effect a substantially equal division of the community estate
* Thus, the court may award a CP asset entirely to one spouse (as long as the total community estate is equally distributed) where, e.g., (1) in-kind division would diminish the value of the asset or jeopardize one spouse’s earning capacity, (2) loss of the family home would uproot the couple’s minor children, (3) the asset is intimately related to one spouse (such as a pension), or (4) the asset is a risky investment, and one spouse is financially better able to bear the risk than the other
When may the divorce court deviate from the equal division requirement based on a spouse’s misappropriation of CP or QCP?
If one spouse deliberately misappropriates the other spouse’s interest in CP or QCP during marriage (or while divorce is pending), the court may award an offset against the wrongdoer’s one-half share of the remaining CP or QCP
How are debts assigned by the court at divorce?
At divorce, the court must assign the outstanding debt without offset to the spouse who incurred the debt if it was NOT incurred for the benefit of the community
Property assigned to the non-debtor spouse at divorce is NOT liable for the debt if they incurred no personal liability for the debt
How are unpaid education debts assigned at divorce?
Unpaid education debts are assigned to the spouse who received the education in the absence of circumstances rendering such assignment unjust
* Thus, education debts are effectively treated as the recipient’s separate debt and are excluded from the equal division of assets and liabilities
When is the community estate entitled to reimbursement for education expenses?
At divorce, unless the parties sign an agreement to the contrary, there is an equitable right of reimbursement to the community when:
1. community funds are used either to pay for a spouse’s education or training or to repay a loan related thereto; AND
2. the education or training substantially enhances the earning capacity of such spouse
NOTE: Loans still outstanding at divorce are assigned entirely to the borrower spouse
What are equitable defenses to the right of the community estate to reimbursement for education expenses?
Equitable defenses to the right of reimbursement to the community for community funds to pay for a spouse’s education or training (including related loans) include:
1. the community has already substantially benefitted from the education or training (this is presumed if more than 10 years have elapsed since the degree was awarded, but can be rebutted);
2. the other spouse has received community-funded education; OR
3. the need for spousal support is reduced as a result of education or training
When may the divorce court deviate from the equal division requirement based on a spouse’s tort liability?
A tort liability incurred by one spouse that is NOT based on an activity for the benefit of the community is assigned, without offset, to the tortfeasor spouse
What is the time of valuation of assets and liabilities for distribution at divorce?
Assets and liabilities are valued as near to the time of trial as practicable unless circumstances warrant choosing some other date of valuation between separation and trial
What are the statutory schemes that may be used to set aside the property distribution provisions of a divorce decree?
The grounds and time limitations for setting aside the property distribution provisions of a divorce decree are governed by two statutory schemes: (1) Code of Civil Procedure Section 473(b); and (2) the Family Code
What are the grounds and time limitations for setting aside the property distribution provisions of a divorce decree under Code of Civil Procedure Section 473(b)?
Under Code of Civil Procedure section 473(b), a court may relieve a party from a judgment taken against them through their mistake, inadvertence, surprise or excusable neglect
* Generally, the party must move for relief within 6 months after the judgment
* After this period has expired, a party’s grounds for relief from a judgment are limited to situations where the party has effectively been “deprived of his day in court”
* Extrinsic fraud, extrinsic mistake or duress are sufficient grounds to relieve a party from judgment after the 6-month period has expired, but intrinsic fraud or mistake are NOT
NOTE: Under section 473(b), relief is liberally granted
What are the grounds and time limitations for setting aside the property distribution provisions of a divorce decree under the Family Code?
Under the applicable provisions of the Family Code, both varieties of fraud and mistake (extrinsic and instrinsic) are sufficient to relieve a party from judgment, but the statute of limitations varies depending on the grounds:
* A motion based on actual fraud, perjury or mistake (mutual or unilateral) must be brought within 1 year after the date on which the movant discovered or should have discovered the fraud or perjury, or within 1 year after the judgment
* A motion based on duress or mental incapacity must be brought within 2 years after the judgment
* A motion based on failure to comply with disclosure requirements must be brought within 1 year after the date on which the movant discovered or should have discovered the failure to comply
When does a surviving spouse have a duty to elect whether to take under the terms of the decedent’s spouse’s will or assert their CP ownership rights?
When Will Contains Explicit Election Provision
A testator may insert a clause in their will stating that the surviving spouse must elect either (1) to take under the terms of the will or (2) assert their CP ownership rights
* Such a clause is enforceable in accordance with its terms
When Will Does NOT Contain Explicit Election Provision
When there is no explicit election clause in the will, the surviving spouse may assert BOTH her CP rights and her rights under the decedent spouse’s will as long as it would not upset the decedent spouse’s testamentary plan
* However, an election is required when the decedent spouse’s will attempts to pass the surviving spouse’s one-half interest in CP because it would be inconsistent to allow the survivor to assert CP rights against the will and also take the property the decedent has left her in the will
How does a decedent’s separate property pass by intestacy?
An intestate decedent spouse’s separate property passes in whole or in part to the surviving spouse according to three statutory formulas:
* If the decedent has no surviving issue, parent, sibling or issue of a deceased sibling (neice/nephew), then the surviving spouse receives ALL of the decedent spouse’s separate property
* If the decedent leaves only one child or one issue of a deceased child, or has no children but has a surviving parent, sibling or issue of a deceased sibling, then the surviving spouse receives 1/2 of the deceased spouse’s separate property
* If the decedent leaves more than one living child, one living child and the issue of one or one more deceased children, or the issue of two or more deceased children, then the surviving spouse receives 1/3 of the deceased spouse’s separate property
What is the character of a spouse’s tort recovery for a tort committed by the other spouse?
If the other spouse was the tortfeasor, the tort recovery is the victim spouse’s SP
* Otherwise, the tortfeasor would benefit from their wrongful act
What is the character of a spouse’s tort recovery for a tort committed by a third party?
If a third party commits a tort against a spouse during marriage, any tort recovery is community property
* At divorce, community estate personal injury damages will be awarded entirely to the injured spouse (assuming it can be traced and was not already spent) unless the interests of justice require otherwise
What is the order of satisfaction for tort liabilities?
Tort Based on Activity for Benefit of Community
A tort liability incurred by one spouse while performing an activity for the benefit of the community will be satisfied:
1. first, from community property; and
2. second, from the tortfeasor spouse’s separate property
Tort NOT Based on Activity for Benefit of Community
A tort liability incurred by one spouse that is NOT based on an activity for the benefit of the community will be satisfied:
1. first, from the tortfeasor spouse’s separate property; and
2. second, from community property
NOTE: If the order of satisfaction is not followed, the adversely affected spouse may seek reimbursement from the other spouse
What are a spouse’s management and control rights with respect to community property?
Subject to various exceptions, EACH spouse has EQUAL management and control of community property
* This means EITHER spouse, acting alone, may buy, sell, spend and encumber the ENTIRETY of any community property
* BUT: Each spouse only has testamentary control of his or her one-half interest in the community property
What is the “personal belongings” exception to spouses’ equal right to manage and control community property?
A spouse may not sell, convey or encumber community personal property used in the family dwelling, household furnishings, or clothing of the spouse or minor children without the written consent of the other spouse
Nonconsenting Spouse’s Power to Void Transfer
When such property is unilaterally sold, conveyed or encumbered by one spouse, the nonconsenting spouse may void such a transfer in its entirety at any time during or after marriage and does not need to return the transferee’s consideration
What is the “business” exception to spouses’ equal right to manage and control community property?
A spouse who is operating a business or an interest in a business that is all or substantially all community personal property has the primary management and control of the business or interest
Written Notice Requirement
The managing spouse may act unilaterally in all transactions but must give prior written notice to the other spouse of any sale, lease, exchange, encumbrance or other disposition of all or substantially all of the community personal property used in the operation of the business
Limited Remedy for Managing Spouse’s Failure to Give Written Notice
If the managing spouse fails to give the required notice, the nonmanging spouse has a remedy only if the managing spouse’s behavior has substantially impaired her one-half interest in the community estate
What is the rule regarding transfers of community real property?
Both spouses must join in executing any instrument by which community real property is sold, conveyed or leased for more than one year
Nonconsenting Spouse’s Power to Void Transfer
When such property is unilaterally conveyed by one spouse, the nonconsenting spouse must bring an action to void the transfer within one year of the recording of the conveyance
* This statute of limitations only applies to conveyances to bona fide purchasers without notice of the marital relationship, which are presumed valid
* The nonconsenting spouse must overcome this presumption by demonstrating that she did not in any way consent to or participate in the transfer
* If the presumption is overcome, the nonconsenting spouse may void the conveyance but must first return the bona fide purchaser’s purchase price
* NOTE: If the transferee was not a bona fide purchaser, the nonconsenting spouse may void the conveyance at any time
What are the rules regarding liens on community real property?
A nonconsenting spouse may entirely void a security interest in community real property granted to a creditor by the other spouse
Family Law Attorney’s Real Property Lien Exception
A spouse may unilaterally encumber her one-half interest in community real property in order to pay reasonable fees of an attorney representing her in a divorce action
What are the rules regarding inter vivos gifts of community personal property?
A spouse may not make a gift of community personal property without the written consent of the other spouse
* But the nondonor spouse may ratify the gift in a separate writing (e.g., will)
Avoidance of Unauthorized Gifts
* During the donor spouse’s lifetime, the nonconsenting spouse may revoke the gift in its entirety
* After the donor spouse dies, the nonconsenting spouse may recover her one-half interest in the unauthorized gift from the donee or the donor’s estate
What is the jointly titled property presumption?
All property held by spouses in joint form is presumed to be community property for purposes of distribution at divorce or legal separation
* The presumption can be overcome only by a collateral agreement or a statement in documentary evidence of title (e.g., a deed) that the property is separate property and not community property
What is the Marriage of Lucas rule?
Under the Marriage of Lucas rule, when spouses take title to property in joint and equal form (i.e., the title lists both spouses) and use one spouse’s SP to pay for a portion of the property, the property is presumptively CP and the spouse who contributed SP is deemed to have made a gift to the community
* Unless a contrary agreement is established, the spouse contributing SP to the purchase has no separate ownership interest and no claim for reimbursement
When does the Marriage of Lucas rule apply?
In cases involving the death of one spouse, Marriage of Lucas applies: the spouse contributing SP to the purchase of jointly titled property has no claim for reimbursement from the deceased spouse’s estate unless she can establish there was an agreement to the contrary
What does the anti-Lucas statute provide?
For purposes of division on divorce, the spouse who made contributions of SP to the acquisition or improvement of jointly titled CP is entitled to reimbursement without interest for contributions to down payments, improvements or principal payments on the mortgage (“DIP”)
