Divorce

Question 1

Community Labor Used to Increase SP Business (started BEFORE marriage)

Answer 1

Spouse may use community labor to manage SP business. Community is then entitled to share of appreciation in value of business because the spouse’s labor during the marriage was used to increase that value.
* Must apportion SP portion and CP value based on the extent of community labor

Court uses the method that achieves substantial justice between parties
* Van Camp method
* Pereira method

WRITE WHICH METHOD SHOULD BE USED!!!

Question 2

Van Camp Accounting Method

Answer 2

Used when appreciation in value is passive and primarily from the unique nature of the SP asset/market or economic circumstances
* Determine a fair salary for the community labor (usually going market rate)
* Multiply by the years of marriage
* Subtract any salary already received and family expenses over the years of marriage
* = CP
* Rest of business = SP of managing spouse

More for SP

Question 3

Pereira Method

Answer 3

Used when appreciation in value is primarily due to spouse’s community labor/management (long hours, creativity, effort)

SP: Gets the initial value of SP + reasonable rate of return during the years married
* Determine value of SP at beginning of business (“principal”)
* Add reasonable rate of return per year (usually the legal interest rate of 10%)
* Multiply rate by number of years married

Remainder is CP

More for CP

Question 4

Premarital Agreements

Answer 4

Parties can avoid CP presumption by entering into premarital agreement that designates what remains SP.

Valid premarital agreement = voluntary + not unconscionable

Question 5

Premarital Agreements - Voluntary

Answer 5

Not voluntary unless court finds that party against whom agreement is being enforced:
* had independent legal counsel or waived right in writing
* had at least 7 days to review and sign agreement
* if no counsel, was fully informed of basic effects of agreement in separate writing

Question 6

Premarital Agreements - Unconscionable

Answer 6

Spousal Support
* challenging party didn’t have independent legal counsel at signing, or
* had counsel but provision is unconscionable at time of enforcement

Everything Else
* challenging party not given full and fair disclosure of property/financial obligations of other party
* didn’t waive such disclosure in writing
* couldn’t have reasonably obtained info/ended up with inadequate knowledge of those obligations

Question 7

Debt During Marriage

General rule of creditors?

Answer 7

Encumbers all CP and debtor’s SP but not SP of other spouse

Defense: If debtor breached fiduciary duty, non-debtor spouse might have claim to recover half of CP.

General Rule of Creditors: Creditors can reach any property over which debtor has legal right of management and control.

Question 8

Tort Liability of Spouse

Answer 8

Encumbers all CP and tortfeasor’s SP

Order: If tort arose from activity done for benefit of the community, take from CP first then tortfeasor’s SP
* If not for benefit of community, SP then CP

Right to Reimbursement: If CP used first even though tortfeasor spouse had SP, then non-debtor spouse can get reimbursed to extent of SP that could’ve been used

Question 9

Personal Injury Recovery by Spouse

Answer 9

If cause of action arose during marriage: all CP

Divorce: goes entirely to injured spouse
* Injured spouse must reimburse CP or other spouse’s SP for any expenses paid for injury

Question 10

Debt Before Marriage

Answer 10

Encumbers all CP and debtor’s SP
* Child support from prior relationship is considered debt before marriage

Exception: If nondebtor spouse keeps earnings (normally CP) in a separate account and doesn’t commingle with CP, then can’t be reached by debtors
Right to Reimbursement: If CP used even though debtor spouse had SP, then non-debtor spouse can get reimbursed to extent of SP that could’ve been used

Question 11

CA - Allocation of Debts on Divorce

Answer 11

CA distinguishes debts allocated to community and debts allocated to each spouse as a separate obligation (only for allocating unpaid debt for divorce)
* If spouse didn’t incur a debt and wasn’t assigned the debt by court, their 1/2 of CP from divorce and SP are NOT subject to debt

Separate debt: Debt before marriage

Question 12

When can creditors of one spouse reach SP of other spouse?

Answer 12

Doctrine of Necessities - each spouse has duty to support other spouse and minor children, so each spouse is personally liable for debts incurred by other spouse for necessaries of life (food, clothing, medical bills)
* Applies during separation; only ends upon divorce

Right to Reimbursement: If CP used even though debtor spouse had SP, then non-debtor spouse can get reimbursed to extent of SP that could’ve been used

Question 13

Gift of CP During Marriage

Answer 13

Requires written consent from other spouse (can also ratify it later)

While donor alive, nonconsenting spouse can revoke entire gift

When donor dead, nonconsenting spouse can recover their 1/2 CP interest from donor’s estate OR donee

Question 14

Termination of Marital Economic Community

Answer 14

Marital Economic Community begins at marriage and ends either upon death of a spouse or the date of separation

Separation requires complete and final break in marriage, which means
* a spouse expresses intent to end marriage to other spouse
* there’s conduct consistent with that intent (ex. living separately)

Question 15

Implication of funds being “wage replacement”

Answer 15

Funds intended to replace wages that would’ve been earned during marriage are CP (even if you get them after divorce)

Question 16

Fiduciary duty of spouses - Undue influence

Answer 16

Each spouse owes the other the highest good faith and fair dealing in management and control of CP.

Undue Influence: Rebuttable presumption of undue influence created when one spouse gains advantage over the other in a property transaction
* Advantaged spouse must prove other spouse freely and voluntarily entered into transaction, with full knowledge and understanding of transaction’s effect

Question 17

Management and Control

Answer 17

Each spouse has exclusive management and control over their SP.
* QCP is SP for management/control purposes.

Each spouse has equal management and control over CP.
* Either spouse can spend, sell, buy, or encumber ALL CP.

Exceptions
* Real property transfers: both spouses must join
* Personal belongings (clothing/furniture)
* Spouse managing business is given primary management and control
* If bank account is in name of one spouse alone

Exceptions for CP:
* Can’t sell or encumber personal property in family dwelling without written consent
* Can’t gift CP without written consent
* Can’t dispose of substantially all/all personal property in CP business without prior written consent
* Can’t convey, encumber, or lease real property without consent [one spouse can’t encumber/transfer their 1/2 interest by themselves]

Question 18

How does CA court have jx over out-of-state property upon death/divorce?

Answer 18

CA doesn’t have in rem jurisdiction to change title to land in another state BUT can basically do this by requiring parties to execute whatever conveyances are necessary to divide the property

Question 19

Stock Option

• If option awarded during marriage but not exercisable until after separation (after marital community ends)

Answer 19

Courts apply “time rule” to determine community interest in stock options. It looks at the employer’s primary intent in granting the option.

Stock Option as Award for Past Service: (Marriage of Hug) - aka deferred compensation
* Numerator: Date of employment to date of separation (when economic community ends)
* Denominator: Date of employment to date when options can be exercised

Stock Option to Encourage Continued Employment (Marriage of Nelson)
* Numerator: Date options are granted to date of separation
* Denominator: Date options are granted to date when options can be exercise

Question 20

Stock Option
* If option becomes exercisable (vests) during marriage

Answer 20

CP

Question 21

Reimbursement for Education

Answer 21

Education/professional degree is not divisible property and is NOT CP. However, upon divorce, there is equitable right of reimbursement, with interest to community IF CP used to:
* Pay for education
* Repay loan incurred from education, and
* Education substantially enhances earning power of student

Reimbursement reduced when:
* both spouses funded education through CP
* recipient was able to get employment that substantially reduces need for spousal support, or
* community already substantially benefitted (rebuttable presumption of benefit if more than 10 years between contributions and divorce)

Question 22

Business and Professional Goodwill

Answer 22

Goodwill: Difference between total value of business and value of physical assets; it’s an intangible value that includes reputation, clients, etc. of business
* Professional goodwill usually is inherent in particular practitioner-spouse and can’t be sold/transferred, but CA treats as CP.
* Usually spouse running business gets whole business and other spouse gets 1/2 its equivalent value in other CP.

Valuation Techniques
* Market sales valuation: what a willing buyer would pay for goodwill (usually smaller)
* Capitalization of past excess earnings: calculates present value of future income generated by goodwill

Partnership Agreement: Even if a partnership agreement may try and preemptively offer their own valuation of goodwill (essentially capping it), court usually won’t let them and will use one of the two valuation techniques instead.

Question 23

If business started during marriage?

Answer 23

It’s CP and each spouse gets 1/2 of value of business

Pereira and Van Camp do NOT apply

Question 24

Property with title as joint tenants but paid partly with or improved with SP: what happens upon divorce?

Title presumption applies

Answer 24

Ownership: Presumption of CP, subject to equal division on divorce, unless
* Express statement in deed/title that states property/part of it is SP
* Written agreement that property/part of it is SP

Reimbursement: Spouse that contributed SP can get reimbursed without interest for DIP:
* Down payment
* Improvements
* Principal payments made on mortgage (but not mortgage interest)

Anti-Lucas Statutes

Question 25

Other Special Classifications

Answer 25

Retirement Benefits
* CP if earned during marriage
* If retirement pension or other retirement benefit earned before and during marriage, court uses time rule to separate CP and SP interests

Disability Pay/Worker’s Comp Benefits
* Can be either CP or SP - look at the wages they were intended to replace

Severance Pay
* Courts split - some treat as SP because they view it as replacing future wages that would’ve been received after marriage
* Other courts view it as CP it was earned by employment during marriage (that led to collective bargaining agreement)

Question 26

SP Mortgage Before Marriage Paid Off Partially with CP - Proration Rule

Answer 26

If no title presumption applies, then apportion CP and SP interests by figuring out the percentage that each contributed to purchase price. CP and SP each have pro rata ownership interest in asset (Marriage of Moore)
* Mortgage is SP because it was acquired prior to marriage and lender’s intent was to rely on the spouse’s SP.

Community gets proportional ownership interest to the extent that community payments reduce the principal debt

Example: $100K mortgage obtained before marriage, $20K down paid with SP, $30K principal paid with CP
* Mortgage is SP because it was acquired prior to marriage and lender’s intent was to rely on the spouse’s SP.
* Total SP contribution is $20K down + $80K mortgage.
* Subtract CP contribution of $30K = $70K
* SP contribution is $70K/100K = 70%
* CP contribution is 30%
* Upon divorce, SP entitled to actual contribution $20K + 70% appreciation
* CP entitled to actual contribution of $30K + 30% appreciation

Question 27

CP used to improve SP of spouse

Answer 27

Spouse uses CP to benefit SP of other spouse
* gift presumed
* several intermediate appellate courts have rejected the
no-reimbursement rule and reimbursed the community even absent a reimbursement agreement.

Spouse uses CP to benefit spouse’s own SP:
* CP entitled to reimbursement and can get either the (a) cost of improvement or (b) increase in value of SP (whichever is greater)

Spouse uses SP to improve other spouse’s SP: entitled to reimbursement

Question 28

Distribution Upon Divorce

Answer 28

Community assets are divided equally in kind. Each spouse gets 1/2 of each community asset.
* QCP treated exactly like community property.

Deviations:
* misappropriation by a spouse
* liabilities exceed assets - relative ability of each spouse to pay debt is considered to protect creditors
* educational debts must be assigned to spouse who received education
* tort liabilities assigned tortfeasor spouse if liability wasn’t for benefit of community
* family home awarded to person given custody of minor children