Effect of Party's actions on Assets

Question 1

Installment purchase before marriage, payment with CP funds after marriage

Answer 1

Community estate takes a PRO RATA portion of the property

CP = (debt reduction attributable to CP/purchase price)

Rest is SP

Applies to property installment sales and WHOLE LIFE insurance policy

Question 2

Term Life Insurance policy

Answer 2

last premium determines the character. Either 100% SP or Cp

Question 3

Doctrine of Fixture

Answer 3

When CP used to improve YOUR OWN SP: improvements become party of the property. Mere expenditure of CP DOES NOT change ownership character of house

“feathering own nest”

Question 4

Spouse’s rights when CP used to improve YOUR OWN SP

Answer 4

Claim for reimbursement on behalf of the community

Community gets greater of the CP expenditure or the increase in value to the SP

Anti-Lucas does NOT apply b/c only expenditures of SP on CP trigger anti-lucas

Question 5

CP used to improve OTHER SPOUSE’s SP

Answer 5

Split of authority (mention both)

No reimbursement: presumption of a gift to other spouse’s estate from the community. Presumption of gift may be overcome only by evidence of agreement to reimburse teh community

Reimbursement: Grant reimbursement, no gift presumption

Question 6

SP used to improve CP

Answer 6

Anti-Lucas applies upon divorce or separation –> party who spent SP would get reimbursement (w/o interest) for DIP

If death, governed by Lucas and thus no claim for reimbursement unless proof of an agreement to reimburse

Question 7

Commingled Funds: burden

Answer 7

Mere commingling does NOT transmute Sp into CP, but burden of proof is on SP spouse to show that each asset was purchased with SP funds

Question 8

Family Expense Presumption

Answer 8

Presumed that expenditures for family expenses (food, housing, clothing, recreation) were made with community funds to the extent they were available, even though separate funds were available

Thus, because of commingling, some expenses very well may have been paid with SP. Dealt with by applying a PRESUMPTION OF A GIFT TO THE COMMUNITY WITH NO REIMBURSEMENT, absent an agreement to reimburse

Question 9

Exhaustion method

Answer 9

Tracing method to satisfy burden to show an asset was purchased with SP funds

Must show that at the time the asset was purchased, community funds had been exhausted through family expenses, thus asset could only have been purchased with SP

Question 10

Direct Tracing

Answer 10

Tracing method that satisfies burden to show an asset was purchased with SP funds

At time asset was purchased, (1) sufficient separate funds were available, and (2) spouse intended to use SP funds to buy the asset

Question 11

Pereira Accounting

Answer 11

Used when spouse’s time, skill, and effort are major factors in growth of business

Look for creative ideas, new techniques, long hours, and only a modest salary as factors

SP = separate capital PLUS (i.r. x number of years). Rest is CP

No taking out family expenses, unlike Van Camp

Question 12

Van Camp Accounting

Answer 12

Use where capital investment was the major factor in biz growth and spouse’s skills and efforts were less of a factor

Look for substantial salary and large bonuses (community was compensated). Think Valuable Company or Asset (VCA)

CP = value of spouse’s services at market rates MINUS family expenses paid from community funds and salary already received. Remainder is SP

Question 13

Exam Tips for Accounting

Answer 13

Court is not bound to adopt one or the other. Can select whichever formula would achieve substantial justice between parties.

Probably do both on exam

Question 14

Pension Benefits

Answer 14

Employee retirement benefits, vested or not, are community property if EARNED during marriage. Immaterial if actually received after divorce

Proration rule:
CP = (years employed while married)/(total years employed by company until retirement)

Question 15

Pension Eligible Spouse’s Choice to not Retire

Answer 15

decision to not retire does not defeat spouse’s present right to spouse’s pension. If spouse could have retired at the time of divorce, his retirement benefit had already matured

If divorce, can get a QDRO (qualified domestic relations order) and receive payments from the plan

If death, there is FEDERAL PREEMPTION under ERISA, which terminates the interest when a spouse predeceases the pension-egligible spouse

Question 16

Disability pay and Worker’s Compensation

Answer 16

Treated as wage replacement and thus are CP during marriage

But, if received after divorce, they are intended to replace separate earnings, thus are SP

Immaterial when earned, classified when they are RECEIVED

Note: if eligible spouse can choose between pension benefit and disability payment, and choose disability, other spouse will still retain an interest because cannot elect to defeat the community interest

Question 17

Severance Pay

Answer 17

No clear rule

Could be SP if received after divorce or permanent separation because it replace LOST EARNINGS

Could also be CP because it arose from a collective bargaining agreement and was thus earned by employment during marriage

Question 18

Stock Options

Answer 18

If exercisable (vests0 DURING marriage, it is CP. If not exercisable until marital community has ended, go to two approaches

Question 19

Marriage of Hug

Answer 19

When court determines that the stock options were awarded to reward employee for past services

Calculated from date of employment

CP = (employment date until date community ends)/employment date until date option becomes exercisable) x Multiplied by number of shares that can be purchased under the option

Equally split upon divorce

Rest is SP

Question 20

Marriage of Nelson

Answer 20

When court determines that stock options were awarded primarily to encourage spouse to remain with company

Calculated from date option granted

CP = (date option granted until date community ends) / (date option granted until date option becomes exercisable)

Equally split upon divorce

Question 21

Goodwill

Answer 21

Qualities that generate income beyond that derived from (1) professional’s labor; or (2) reasonable return on capital and physical assets

CP if earned during marriage, subject to equal division on divorce.

generally established by expert testimony at trial as to value

Question 22

Educational Expenses

Answer 22

Not divisible property. HOWEVER, unless agreement signed to the contrary, right of REIMBURSEMENT, with INTEREST, to community when (1) community funds are used to pay for education or training or repay a loan related thereto, AND (2) education or training SUBSTANTIALLY ENHANCES the earning capacity of the party

NOTE: Loans still outstanding at divorce are assigned SOLELY to the educated spouse

Reimbursement available if CP used to pay for education, or even if CP is used to pay for loans for education expenses incurred before marriage

Question 23

Defenses to reimbursement of education expenses

Answer 23

(1) community has already substantially benefitted from education or training (more than 10 years have passed between contributions and divorce); or (2) the other spouse has received community funded education

Question 24

Ways to valuate Goodwill

Answer 24

Market Sales Valuation: price the goodwill would command in a sale of the business or profession

Capitalization of past excess earnings: ascertains the PV of the future stream of income that the goodwill developed during marriage will generate