Pg 5

Question 1

What is tracing?

Answer 1

Property can change its form, but a change in form does not change the character of the property. Tracing lets you go back to determine the character of an asset at its beginning.

Ie: if a wife has a car, sells it, puts some money in the bank and buys stock, the stock increases, she uses that profit to buy a house, to figure out the character of the house based on its source, you must trace the funds back to the car.

Question 2

If credit was given or a loan was taken out to acquire property, how do you determine its character?

Answer 2

Look at the intent of the lender. If a loan is used to purchase property, it takes on the character of SP or CP depending on what the lender was looking to for repayment.

Question 3

What is the time period to be considered when determining the characterization of a loan that is used to acquire property?

Answer 3

The moment that the loan is extended and it is based on what the creditor knew at the time that the loan was approved

Question 4

How do you determine the creditor’s intent to figure out the characterization of a loan that was taken out to acquire property?

Answer 4

Consider factors to determine if they were looking to SP or CP for repayment. These include: who signed the loan document, if the loan is secured or unsecured, the character of the property used to secure the loan, the value of the acquiring spouse’s SP, the purpose of the loan, etc.

Question 5

If a lender looked in part to SP and in part to CP to repay a loan, how is the loan characterized?

Answer 5

It is characterized as CP because courts refuse to apportion loan proceeds into partly separate and partly community if the lender relied primarily on SP and secondarily on CP.

Question 6

If the lender relied on one spouse’s good credit to make a loan, how is that loan characterized?

Answer 6

As community property

Question 7

If a wife mortgages her SP condo to get a loan to buy a commercial building, and the lender relies on her income from her law practice to repay the loan, what would the loan be characterized as?

Answer 7

Community property. Do not get distracted about what the mortgage is on, look at what the lender is relying on for repayment.

Question 8

What is the difference between a promissory note and a mortgage?

Answer 8

Banks want the promissory note to be repaid, but they only hold the mortgage as a security interest because they only care about the capacity to repay, they do not want the property

Question 9

What is involved in the “actions that change the character of property” category for characterization?

Answer 9

– commingling
– value enhanced during the marriage
– transmutations

Question 10

What should you do to determine actions that might change the character of property?

Answer 10

Look at the facts to figure out if either or both spouses have done anything to change the original character of the property based on its source. Identify any actions by the parties that might change the initial characterization.

Question 11

What is commingling?

Answer 11

When CP and SP are mixed in a single asset.

Question 12

If there has been commingling, how do you characterize the property?

Answer 12

It is presumed to be CP, but that presumption can be rebutted

Question 13

If a bank account has SP and CP funds, and money is withdrawn to pay for property, what is that money presumed to be?

Answer 13

Community property, even if the account has only one spouse’s name on it. But this is rebuttable through tracing

Question 14

What are the two different kinds of tracing you can do for a bank account that has comingled funds?

Answer 14

– direct tracing: presenting accurate records through a paper trail to prove that the property is SP and not CP
- exhaustion method or family expense doctrine: this is used if there are no records for direct tracing, so the party that wants to prove the money was SP has to show that the CP expenses exhausted the CP funds in the bank account before the disputed property was bought. The presumption is that if there are CP funds available in an account, they are used to pay family expenses. I.e.: if a CP owner can show that family expenses like mortgage and food exhausted a big chunk of the money, then the logical conclusion is that what was left was SP

Question 15

How are life insurance proceeds classified?

Answer 15

Usually premiums are paid through both SP and CP, so that makes it a mixed asset. This means that when the proceeds are paid, they have to be divided

Question 16

How do you determine the division of life insurance proceeds?

Answer 16

It depends on whether the insured spouse is dead or alive:
– dead: The proceeds are divided in proportion to how the premiums were paid according to pro rata apportionment. I.e.: if the decedent had a $100,000 insurance policy, and half of the proceeds were paid with SP before the marriage and half with CP, the spouse gets half and the decedent’s estate gets half
– alive [policy at divorce]: the policy can be characterized as an asset on dissolution depending on its type
• term life:
• whole life:

Question 17

If the facts on an essay do not say whether a policy is term life or whole life, what should you do?

Answer 17

Do a pro rata apportionment based on the character of the funds that were used to pay the premiums

Question 18

When does it matter if a life insurance policy was term life or whole life?

Answer 18

Only if there is a division of the policy at divorce, not at death

Question 19

What is a term life insurance policy?

Answer 19

This has no cash value and the premiums only cover the risk of death. Some courts say there’s nothing to divide, but others say that if the insured has the right to be insured at the end of the period, that is a property right, so the court tries to evaluate and apply as a pro rata apportionment to figure out the community’s share of it

Question 20

What is a whole life insurance policy?

Answer 20

This is a term life insurance plus a savings plan. It has cash value which is the amount the policy can be cashed in for or borrowed against and it is divided using a pro rata apportionment if some premiums were paid with SP and some with CP

Question 21

If the value of a business enhances during the course of the marriage, what do you do at dissolution?

Answer 21

You have to determine if it was a CP business or an SP business first

Question 22

What happens if an SP business’s value enhances during the course of the marriage?

Answer 22

If the SP business was started before the marriage with SP funds, it is SP, but if because of the owner spouse’s time, skill, and efforts, it increases in value during the marriage, that is for the community and it becomes a mixed asset.

It started as an SP because of its source, but because of actions, it became a CP interest too. This means that the community is entitled to the appreciated value of the business [a.k.a. the profits made during the marriage]

Question 23

How do you figure out the apportionment if an SP business enhances its value during the course of the marriage?

Answer 23

Apply both of these approaches:
– Pereira Method
– Vancamp approach

Question 24

How do you approach an issue when there is the enhanced value of an SP business and you have to figure out apportionment on an essay?

Answer 24

Use these words:

“Time, skill, and effort expanded by a spouse during marriage is CP. The wife spent her time, skills, and effort during the marriage as the owner spouse of the business, thereby greatly increasing the value of her SP business. Due to her actions of running the business, it increased in value by X amount of dollars. The wife’s CP labor that caused the business to grow should generate a CP interest in the enhanced value of the SP business during the marriage. There are two different methods to apportion this [Pereira and Vancamp].”