Essay Rules

Question 1

General Principles of CP

Answer 1

CA is a community property state. In a CP state, the marital economic community begins upon marriage and ends upon divorce, death of a spouse, or permanent separation without intent to resume the marital relationship. Property, earnings, or debt acquired during marriage are presumed to be CP. Property acquired by either spouse before marriage, by gift or inheritance during marriage, or after divorce/permanent separation is presumed separate property. Finally, property acquired by a married couple while living in a non CP state that would be characterized as CP if the couple had been living in CA at the time of acquisition is called quasi-CP.

Question 2

SP Presumption

Answer 2

Property acquired by either spouse before marriage, by gift or inheritance during marriage, or after divorce/permanent separation is presumed SP.

Question 3

CP Presumption

Answer 3

Any asset acquired or income earned by a married person while living with his/her spouse in CA is presumed CP.

Question 4

Transmutation

Answer 4

A transmutation refers to the changing nature of property from SP to CP, CP to SP, or SP to SP of one spouse to the other spouse. Before Jan 1 1985, oral agreements were sufficient to transmute property as long as there was evidence to support a transmutation. Under current law, to be valid a transmutation must (1) be in writing, and (2) contain language explicitly stating that ownership is being transferred by the spouse whose interest is adversely affected.

Question 5

Transmutation - Gift Exception

Answer 5

Gifts between spouses may constitute a transmutation despite the absence of a writing. This is limited to personal, tangible gifts (such as clothing and jewelry). However, if the gift is substantial in value, a transmutation will only occur if there is a writing.

Question 6

Premarital Agreement

Answer 6

Couples who want to marry but want to avoid California’s community property system may do so by entering into a premarital agreement. A premarital agreement: (1) must be in writing; (2) must be voluntarily signed by both parties (3) will be invalid if a party did not voluntarily sign it or if the agreement was unconscionable at the time it was made.

Question 7

Community Labor to SP Business

Answer 7

Generally, income from a SP business is characterized as SP, but if a spouse contributes labor to enhance the value of the SP business, then both spouses are entitled to a share of the SP business. Two different formulas are used to calculate the value – The Pereira approach and the Van Camp approach.

Question 8

Pereira approach

Answer 8

The Pereira approach is used if the increase in value can be attributed to the personal skills and effort of the managing spouse. Assumes that a spouse’s personal time, effort, character, energy, ability, and capacity are factors that caused an increase in the value of the SP business during the marriage.

Question 9

Pereira formula

Answer 9

SP = Value of the SP Business at the Time of Marriage + (Value of the SP Business at the Time of Marriage x Fair Rate of Return x Years of Marriage) ; CP = Fair Market Value (FMV) of the Business at Divorce – SP

Question 10

Van Camp approach

Answer 10

The Van Camp approach is used when the primary reason for the increase in value is a character of the separate property itself, rather than the labor of the spouse. Determines if the community has been adequately compensated for the personal efforts of a spouse.

Question 11

Van Camp formula

Answer 11

CP = (Reasonable Value of Services – Annual Family Expenses) × Years During Marriage ; SP = FMV of the Business at Divorce – CP

Question 12

Debts

Answer 12

Debts incurred by either spouse for necessaries of life will be assigned to either spouse according to the parties’ respective needs and abilities to pay at the time the debt was incurred. If the debtor spouse had SP or CP funds available at the time the debt was paid, then the non-debtor spouse can be reimbursed for any SP funds used to pay for the debtor spouse’s necessaries. Debts may also be characterized as SP at divorce if the debt was not incurred for the benefit of the community.

Question 13

Permanent separation

Answer 13

Ends the MEC. When the parties have a complete and final break in the marital relationship. Proved by evidence that: (1) at least one spouse has expressed the intent to end the marriage, and (2) the spouse’s conduct is consistent with the intent to end the marriage.

Question 14

Pension Plans

Answer 14

A pension plan is characterized based upon when it was earned and not when received. If the retirement benefits were earned both before and during marriage, the allocation between SP and CP must be calculated using the “time rule.”

Question 15

CP used to make mortgage payments on SP

Answer 15

The community acquires an interest in the property to the extent that the equity is enhanced by CP payments to the principal. The CP will acquire a pro-rata interest in the property in the proportion that the community-property payments bear to the total purchase price, including any appreciation in value during the time of CP payments.

Question 16

Comingling

Answer 16

Commingling occurs when the SP of one spouse is mixed or combined with the CP or the SP of the other spouse.

Question 17

Tracing

Answer 17

When property is acquired using funds from a commingled account, the burden of proof is on the SP proponent to show that SP funds were used to purchase the asset. The SP proponent must be able to trace the funds back to a SP source using the exhaustion method or the direct tracing method.

Question 18

Exhaustion method

Answer 18

SP proponent must prove that CP funds in the account were already exhausted by the payment of family expenses at the time that the asset was purchased.

Question 19

Direct Tracing Method

Answer 19

SP proponent must prove that there were sufficient SP funds available at the time that the asset was purchased and that she intended to use the SP funds to purchase the asset.

Question 20

Personal Injury /Settlements

Answer 20

Personal injury awards/settlements are CP if the cause of action arose during marriage. If before marriage or after permanent separation, then the award or settlement is the SP of the injured spouse. Upon divorce, CP personal injury awards and settlements are assigned entirely to the injured spouse so long as they have not been commingled with CP funds and the interests of justice do not require otherwise.

Question 21

Title in 1 spouse’s name

Answer 21

Title alone is not conclusive, and courts will always trace back to the source of the funds used to acquire the asset to determine its characterization. The special title presumption, which applies only at death, presumes that the form of ownership on the title represents the form of ownership interests of the spouses.

Question 22

Equal Right to Management & Control - Gift of CP to Third Party

Answer 22

If one spouse gifts or otherwise disposes of personal CP for less than fair/rsbl value without the other spouse’s written consent, the non-consenting spouse has the power to ratify the gift or revoke the gift and sue to recover the gift.

Question 23

Equal Right to Management & Control - Sale of Lease CP Real Property

Answer 23

Both spouses must participate in the sale/lease of real property for more than one year. If title to the CP real property is held in one spouse’s name only and a BFP does not know of the other spouse’s existence, the BFP’s purchase of the property will be presumed valid. The other spouse has one year to file an action to void the transfer.

Question 24

Premarital agreement - Involuntary (Defense)

Answer 24

Party seeking enforcement of agreement must show (1) other spouse sought independent legal counsel at the time of signing (or waived this right after being advised to seek independent legal counsel at least seven days before the agreement is signed); (ii) had at least 7 days between the time the agreement was first presented and the time the agreement was signed; (iii) fully understood the nature and terms of the agreement ; and (iv) the agreement was not executed under duress, fraud, or undue influence.

Question 25

Premarital agreement - Unconscionability (Defense)

Answer 25

An agreement is unconscionable if, when it was executed, the party was not provided a fair, reasonable, and full disclosure of the property or financial obligations of the other party; she did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party; and she did not have, or reasonably could not have had, adequate knowledge of the property or financial obligations of the other party.

Question 26

Fiduciary Duties

Answer 26

Ea spouse owes the other a duty to act in the highest of good faith with respect to the other spouse in management and control of the CP.

Question 27

Necessaries of Life

Answer 27

Living costs including food, clothing, shelter, and medical expenses. While living together and married, a spouse’s CP and SP are liable for the other spouse’s debts relating to the necessaries of life. Upon divorce, non-debtor spouse no longer liable. When living apart, a spouse’s CP and SP are still liable for the other spouse’s debts related to essential expenses (necessaries).

Question 28

Stock Options

Answer 28

The characterization of stock options depends upon the type of compensation they are designed to replace. To the extent stock options were earned during the MEC, the community is entitled to a share in the value. In calculating the share that the community is entitled to for stock options, courts apply the Hug and the Nelson formulas.

Question 29

Hug Formula (Past Efforts)

Answer 29

If the stock options are given to compensate an employee for past services, courts in previous cases have applied the Hug formula to calculate the MEC’s fractional share of the stock options. (DOH – DOS) / (DOH – DOV) = CP

Question 30

Nelson Formula (Retention Incentive)

Answer 30

If the stock options are given to incentivize continued employment, the court has applied the Nelson formula. (DOG – DOS) / (DOG – DOV) = CP

Question 31

Child and Spousal Support

Answer 31

Child support payments from a previous marriage are treated like a debt before marriage, and thus characterized as a SP debt. However, during the course of the marriage, the community is liable for the debt, but the non-debtor spouse’s SP is not liable. One spouse may seek reimbursement against the other when CP is applied to satisfy child support payments arising out of a prior relationship and the debtor spouse had SP available to pay the debt at the time.

Question 32

Unmarried Cohabitants

Answer 32

An unmarried couple’s property will be distributed based on contract principles. Express contracts between non-marital partners will be enforced unless based upon meretricious sexual services. If there is no express contract, the courts will look for an implied contract or understanding. Courts may also distribute based on unjust enrichment and fairness principles.

Question 33

Work-related awards

Answer 33

Work-related awards such as worker’s compensation and disability awards are characterized based upon the wages they are designed to replace. If they are intended to replace marital earnings, then it is CP. If, however, they are intended to replace wages earned prior to the marriage or after permanent separation, they are SP.

Question 34

Anti Lucas

Answer 34

As of 1987, all jointly held property (JT, tenancy in common, tenancy by the entirety) acquired during marriage is presumed to be CP upon divorce. The presumption can be rebutted by an express writing evidencing the spouses’ intent to hold the prop as SP. If a spouse contributes SP to the purchase of the prop, she/he has a right to reimburse for the amount of contribution (but not any increase in value).

Question 35

Lucas

Answer 35

Prop taken in joint form (JT, tenancy in common, tenancy by the entirety) was presumed to be CP upon divorce. Before 1987, this presumption could be rebutted by evidence that the spouses did not intend to hold the property as CP. Any SP used to purchase the property was presumed to be gift and there was no right to reimbursement (unless there was an agreement).

Question 36

Married woman’s special presumption

Answer 36

Before January 1, 1975, if a married woman was the title owner to property without her husband or if she was on the title with a third party, then the property was presumptively her SP. Since January 1, 1975, each spouse has equal management and control over CP. Equal means that both spouses must participate in those decisions regarding major personal property transactions.

Question 37

Fiduciary duties - breach

Answer 37

Failure of a spouse to obtain the consent of the other spouse when making gifts or selling/leasing the property, gives rise to a breach duty (req proof of deliberate misappropriation or grossly negligent/reckless conduct). The innocent spouse can seek a greater share of CP due to the breach. The action must be brought within three years from the date the spouse bringing the action had knowledge of the breach.

Question 38

Tort Obligations

Answer 38

The community estate is subject to the tort liability of either spouse depending on the nature of the tortfeasor’s actions at the time of the tort. If the tortfeasor was acting for the benefit of the community (e.g., taking the couple’s children to school), then liability is first satisfied from the community estate and then from the tortfeasor’s SP. If the tortfeasor was not acting for the benefit of the community (e.g., driving to a mistress’s house), then liability is first satisfied from the tortfeasor’s SP and then from the community estate.