Management and Control of Community Property Flashcards
Personal Property
Includes everything that is not land or real estate (clothing, jewelry, money, belongings)
General Rule: either spouse has management and control over community personal property, so either spouse can spend CP as if it were his or her SP and control the earnings of the working spouse
1975 Cutoff
Prior to 1975 – H had management and control over CP, except for W’s CP earnings if not commingled
From 1/1/1975 – Spouses have equal management and control
a. Law is retroactively applied to property earned, acquired or attained pre-1975
Limitations on General Rule about management and control of personal CP
- Bank accounts in one spouse’s name
- Family dwelling; Apparel
- Gifts to Third Parties
- Community Property Business
Bank Accounts in One Spouse’s Name
Access is limited to that spouse
Other spouse may obtain court order to have name added
Any CP in account remains CP, doesn’t transmute to one of their SP
Family Dwelling/ Apparel
Before a spouse sells, conveys, or encumbers CP used as the family dwelling, or the furniture, furnishings, or fittings of the home, or the clothing or wearing apparel of the other spouse or minor children which is community personal property, spouse must get written consent of the other spouse
If spouse fails to obtain written consent, encumbrance is void, creditor must return any item the creditor takes to satisfy the encumbrance
a. Policy protects spouse and children before creditors
Gifts to Third Parties
Before a spouse gives or disposes of CP personal property for less than fair and reasonable value, they must get the written consent of the other spouse
During Marriage: a nonconsenting spouse can ratify the gift or revoke it and sue to recover all of the property for the community
After Death of Donor Spouse: a nonconsenting spouse can ratify the gift or void the gifts up to ½ of its value
Fields v. Michael
a. Facts: H gives away $480K to various people without W consent, those people eventually use it up. W could not recover money from third parties, so she wanted to sue H’s estate
b. Holding: court allows her to do so because courts are more concerned with trying to make the wrong spouse whole
c. Takeaway: a spouse whose CP rights have been violated is entitled to pursue whatever course is best calculated to give effective relief
Something given in return for fair and valuable consideration is not a gift
Community Property Businesses
Primary management and control is in the spouse who operates or manages the businesses (which is all or substantially all CP)
Prior Written Notice is required for major transactions like selling/leasing, exchanging, encumbering all or substantially personal property used in business
a. Notice, not consent
b. Failure to provide notice may entitle other spouse to sue for breach of fiduciary duty or obtain an accounting (but cannot invalidated the sale)
i. If spouse sells, but there is no monetary loss, hard to argue any injury
Management and Control of Community Real Property
General Rule: both spouses have equal management and control
Joinder:
i. Required for sale, conveyance, encumbrance, or leases over 1 year
ii. Spouses must join in executing an instrument in which community real property is sold, conveyed, encumbered, or leased for 1 year or more
Joinder Rule – there is a presumption of validity of the sale if the purchaser in good faith did not know about the marriage of the spouse who sold the property
1. Happens when title is held in one spouses name and sells without other joining
2. Other spouse can void the sale, but the community has to pay the bona fide purchaser back (need to make the buyer whole again with current value of property)
iv. If one spouse encumbers property without the other joining, the encumbrance is void
Fiduciary Duties in Management and Control
Spouses owe each other a fiduciary duty that includes:
- Highest good faith and fair dealing
- Neither spouse shall take any unfair advantage of the other
- Same rights and duties as nonmarital business partners
Fiduciary Duties last until the time that all assets and liabilities have been divided
Specific Fiduciary Duties: Duty to Disclose
Must disclose true and full information regarding any CP transaction
- Before 2001: upon request
- 2001 and after: Without demand (affirmative duty to disclose)
Failure to disclose is only a breach if it results in impairment (decreased value of spouse’s half interest in CP)
Duty continues after separation until final distribution of assets
Also includes:
1. Access at all times to books kept regarding a transaction: business records, bank accounts, retirement funds, bills
- Accounting: a spouse should be responsible for benefits or profits of CP in order to protect and answer to the other spouse (if you make a bunch of money on some transaction, need to inform spouse
Specific Fiduciary Duties: Duty of Care
Refrain from grossly negligent or reckless conduct, intentional conduct, or a knowing violation of the law
Need gross negligence or reckless conduct, ordinary negligence is not a breach
Marriage of Duffy
i. H took $500K out of an IRA and invested in stock, lost half
ii. Holding: court holds that investing all retirement savings in volatile stock is not a breach because there isn’t a duty to be reasonably prudent investor
iii. Takeaway: overturned by 2002 legislation, so it could be a breach, but should be discussed, may be fact specific.
Intentional misconduct or knowing violation of the law is a breach:
Beltran: H forfeited his pension because of a criminal conviction, so he had to reimburse the community for the amount of the pension
Stitt: W had to pay attorneys fees to defend against embezzlement charges. W was solely responsible for the fees, they were not a community debt because her actions were knowing violation of law
i. It is not a breach if you get sued and have to use CP funds to defend against the suit
Specific Fiduciary Duties: Unfair Advantage
If one spouse is advantaged by a transaction, a presumption arises that the advantaged spouse exercised undue influence over the other spouse
Burden of proof on advantaged spouse to rebut the presumption by establishing:
1. Transaction was freely and voluntarily entered into
2. With full knowledge of all facts, and
3. With complete understanding of its effects
Investing your own SP rather than CP is not a breach
Marriage of Lucero
Facts: H used SP funds instead of CP to reinstate a pension, thus making the pension his SP and depriving W of her CP interest in it
Holding: this is taking unfair advantage of W because it actively deprived her of her share of the pension
Takeaway: it is a breach to use SP to deprive a spouse of CP opportunities/investments
Marriage of Delaney
Facts: H has SP residence, decides to convey to couple as joint tenants, affecting transmutation (signed by adversely affected party). Advantage to W, but H had dementia and she acted as his financial advisor, H did not understand
Holding: W has advantage, presumption of undue influence, W cant rebut it due to H’s dementia
Takeaway: breach by forcing spouse to give up a CP interest in property, cant show it was free and voluntary to rebut presumption
Marriage of Mathews
Facts: W executes deed giving her CP interest in home to H as his SP
Holding: no breach, valid transmutation, W managed all finances and full understood, H was able to rebut presumption
Takeaway: if you can prove it was freely and voluntarily entered into, presumption is rebutted
