Effect of Parties' Actions on Characterization Flashcards
Pre-Marriage Installment Payments
- applicability
i. product purchased before the marriage on installment payments, and installment payments paid with community property during or after marriage
ii. usually mortgages and whole life insurance policies - compare: lender’s intent controls if acquired on credit during marriage
Pre-Marriage Installment Payments - Proration rule
i. the community estate takes a pro rata portion of the property, measured by the percentage of principal debt reduced using community funds
ii. i.e. principal debt reduction paid out of CP (not other things like taxes/ insurance) ÷ purchase price
a. basically what percent is CP, what percent is SP?
iii. same rule applies regardless of whether the entire principal is paid off at time of divorce
- steps:
i. determine purchase price
ii. determine amount of principal paid with community property
iii. express as percentage
iv. apply percentage to value at termination of marriage to determine amount of CP - example:
i. W buys a $100k house, pays $20k down and pays off $10k. W marries H, and balance of mortgage ($70k) paid off with her salary (CP). House now worth $500k
ii. pro ration rule: $70k of $100k principal debt paid off with CP, so 70% of current house value is CP
iii. note: each spouse keeps half the CP (so half of the 70%) can be passed by the other spouse
Pre-Marriage Installment Payments– Insurance
- whole life insurance policy
i. insurance policy with cash value or investment features
a. pay periodic premiums (out of CP) and cash value upon surrender
ii. use pre-marriage installment payment rule
iii. H buys life insurance and names his mom the beneficiary. He paid 60% when single, and 40% after getting married from his salary (which is CP). W will get ½ of 40%. - term life insurance policy
i. last payment controls character
ii. ex. 100% CP if last payment made out of CP
Community Funds Used to Improve Separate Property
- note: this is about contributing CP to improve SP; do not confuse with Lucas situation (contribution of SP to CP)
- these cases are about the other spouse’s SP, for which community funds were used
Community Funds Used to Improve Separate Property – Suit by non-improving spouse
(i. e. CP used by other spouse on their own SP)
2. governed by property doctrine of fixtures – separate property remains separate.
- reimbursement is the sole remedy where the suing spouse did not make the improvements
i. this is contributing CP to SP, whereas Lucas only applies to contributions of SP to CP
ii. the reimbursement is the greater of the CP expenditure or the increase in value to the the property - policy: don’t want to allow spouses to feather their nests with CP funds. That’s why we give reimbursement.
- Reimbursed spouse gets greater of
i. CP expenditure
ii. Or increase in value. - example:
i. H owns a house, H marries W. H spends $50k of salary (CP) to renovate, increasing value from $200k to $280k. H and W divorce, W files suit
ii. W can get reimbursed for $80k. 1/2 of 80k = 40k.
Community Funds Used to Improve Separate Property – Suit by improving spouse
(i.e. CP used by suing spouse on other spouse’s SP)
- split of authority where the suing spouse is the one that made the improvement
i. reimbursement: some cases hold there is reimbursement (as above)
ii. no reimbursement: some cases presume there is a gift
a. presumption can be overcome w evidence of agreement to reimburse the community - policy: feathering the other spouse’s nest seems like a gift
- example:
i. H owns a house, H marries W. W spends $50k of salary (CP) to renovate, increasing value from $200k to $280k. H and W divorce, W files suit
ii. W can get reimbursed for $80k
Summary
- H expends CP to improve own SP (feathering his nest): reimbursement
- H expends CP to improve other spouse’s SP: split of authority on if there is reimbursement
- H expends SP to improve community property: anti-Lucas statutes (divorce) or Lucas (death)
Commingled Bank Accounts
- there mere fact that SP funds are commingled with CP funds does not transform or transmute the SP into CP
- the burden of proof is on the spouse claiming SP to show that each asset was purchased with SP funds
i. for example arguing for reimbursement because family living expenses exceeded CP income. So arguing that really stuff was purchased with spouse’s SP.
a. Not true. Burden to show that something was purchased with SP. Because of family expense presumption.
Commingled Bank Accounts – family expense presumption
when tracing, presumption that expenditures for family expenses were made with community funds (to the extent they were available, even if separate)
Commingled Bank Accounts– presumption of gift for inadequate records:
i. if SP in fact used to pay for family expenses, or if due to commingling and inadequate records some family expenses may have been paid with SP funds, there is a presumption of gift to the community with no reimbursement intended
Commingled Bank Accounts– Two accounting methods to satisfy burden of proof
i. exhaustion method: showing NO (ZERO) community funds left when the purchase was made
a. ex. H’s records show CP account balance of $3k, H deposits $20k SP, $5k family expense, then $10k stock purchase: stock purchase could be SP.
ii. direct tracing method: quick in quick out
a. available if
i) sufficient separate funds were available, and
ii) the spouse asserting SP intended to use SP funds to buy the asset
b. ex. $15k was in CP account, H deposits $12k SP, then writes $12k check to buy stock two days later
Commingled Bank Accounts– recapitulation accounting
cannot be used
i. recapitulation accounting: showing that community expenses substantially exceeded community income, meaning SP must have been used
ii. ex. H has $200k in account as SP, H and W get married and later divorced. H cannot use recapitulation accounting to show that community expenses far exceeded community income to prove that SP must have been used to purchase assets
