Rule Statements

Question 1

Basic CP Presumptions

Answer 1

California is a community property state. In a community property state, the marital economic community begins upon marriage and ends at divorce, death of a spouse, or a permanent physical separation with an intent not to resume marital relationship.

Property, earnings, or debt acquired during marriage are community property.

Property acquired by either spouse before marriage; by gift or inheritance during marriage; or after death, divorce, or a permanent separation, is SP.

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-community property.

Question 2

Valid Marriage

Answer 2

A valid marriage requires the consent of two parties who have legal capacity to enter into the contract of marriage and formal legal procedures.

Question 3

Community Personal Property

Answer 3

Each spouse has equal management and control over major personal property transactions. Exceptions: bank accounts in one spouse’s name only, gifts to 3rd parties, community business

Question 4

Community Real Property

Answer 4

Either spouse has the management and control of the community real property. However, both spouses must execute an instrument leasing, conveying, or otherwise encumbering community real property for longer than one year.

Question 5

Premarital agreements

Answer 5

Premarital agreements, which must be in writing and signed by both parties, are enforceable without consideration. Oral agreements may be enforceable if the promise is fully executed by the promisor or the promisee detrimentally relied on an oral agreement.

Question 6

Transmutations

Answer 6

To be valid, a transmutation must be in writing, and contain an express declaration of the spouse whose interest is adversely affected. The document must contain language expressly stating that ownership of property is being changed, unless the exchange is for tangible gifts of a personal nature between spouses that are insubstantial in value.

Question 7

Division of Property at Divorce

Answer 7

California is a no-fault state, so there is an equal division of community property at divorce. Exceptions to this rule are when an asset is closely associated with one spouse, equal division would reduce value of property or one spouse’s earning capacity, or one spouse is better situated to bear an investment risk.

Question 8

Division of Property at Death

Answer 8

At death, the character of property is presumptively as expressed in the title, under the special title presumption. The effect is that a surviving spouse takes 1⁄2 of each item of decedent’s CP and quasi-CP, and the non-acquiring spouse has no interest in any quasi-CP acquired by the surviving spouse.

Question 9

Commingled bank accounts

Answer 9

Commingling occurs when the SP of one spouse is mixed or combined with the SP of the other spouse or with marital property. 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 one of the two following ways: direct tracing or the exhaustion method.

Question 10

Goodwill of CP business

Answer 10

Goodwill is treated like CP if it was created during the marriage. Courts use two valuation techniques to calculate the value of goodwill: market sales valuation through expert testimony, or capitalization of past excess earnings created by goodwill.

Question 11

Education degrees and professional licenses

Answer 11

Education degrees acquired during marriage are not treated as CP. The community is entitled to reimbursement if CP funds were used to pay for the education costs, the earning capacity of the educated spouse was substantially improved, and the married couple did not contractually waive the right of reimbursement.
The educated spouse can raise the following defenses to reimbursement: the divorce occurred more than 10 years after the education was received and the community substantially benefited from the education during that time, the other spouse also received an education paid for with CP funds during marriage, or the education reduced the need for spousal support upon divorce.

Question 12

Retirement pensions

Answer 12

Both vested and unvested pensions are treated as CP. If the employed spouse is eligible for pension benefits upon divorce, then a court will calculate the CP interest in the retirement pension earned during the marriage using the “time rule.” If the employed spouse is ineligible, then retirement pension plans are divided as a division in kind or a cash-out.

Question 13

Stock options

Answer 13

To the extent that stock options are compensation for earnings during the marriage, the community has an apportioned interest in the value of the stocks. Courts apportion the CP interest as earned from the time when the employed spouse started working for the company and accruing stock option rights. If the stock options replace earnings after divorce or separation, then the options are SP.

Question 14

Disability Pay

Answer 14

If disability pay is intended to replace marital earnings or retirement benefits, then it is characterized as CP. If it is intended to replace earnings after dissolution, then it is characterized as SP.

Question 15

Life insurance

Answer 15

At divorce, a court will characterize the proceeds of a whole life insurance policy as CP in proportion to the number of premium payments that were made with community funds. Unlike whole life insurance, term life insurance does not have an investment component, and it covers only the risk of death. At divorce, courts generally hold that the policy has no value because there is no investment component.

Question 16

SP business—Van Camp and Pereira

Answer 16

Two different formulas are used to calculate the community interest in an SP business: the Van Camp and Pereira approach. The Pereira approach is used if the increase in value can be attributed to the personal skills and effort of the managing spouse. On the other hand, 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.

Question 17

Credit purchases

Answer 17

In the absence of evidence that the seller relied “solely” on the purchaser’s SP in extending credit, the acquired property will be characterized as community property.

Question 18

Improvements

Answer 18

Since 2005, when a spouse uses her SP to improve the other spouse’s SP, she generally has a statutory right to be reimbursed for the contribution. Since 1984, a spouse using her own SP to improve CP is entitled to reimbursement for the funds expended. When a spouse uses CP to improve the other spouse’s SP, the community is entitled to either reimbursement for the funds expended or the enhanced value of the property, whichever is greater.

Question 19

Personal injury recovery

Answer 19

Personal injury recovery is SP if the injury is caused by a third-party tortfeasor before the marriage, and the injured spouse has to reimburse the community or the other spouse’s SP for any expenses caused by the injury. During marriage or upon death, the tort recovery is characterized as CP.

Question 20

Debt

Answer 20

A debt includes contract, tort, and other obligations, such as child or spousal support from a prior marriage. The community is liable for debts incurred by either spouse before or during marriage. However, debt incurred during marriage is SP if it is not incurred for the benefit of the community.
Other issues to consider for debt: reimbursement, creditor’s rights to reach CP and SP, liability for necessaries of life, child and spousal support, tort obligations

Question 21

Joint Tenancy

Answer 21

As of 1987, all jointly titled property acquired during marriage is presumed to be community property upon divorce. When the husband and wife make an agreement to hold the property jointly, the presumption that arises can be rebutted only by another agreement that the property is not held jointly.

Question 22

Right of Reimbursement

Answer 22

There is a right to reimbursement for SP contributions to CP if it can be traced to a SP source. Contributions include down payments, improvements and payments on the principal loan. There is no reimbursement for maintenance, taxes, insurance, or interest payments.

Question 23

Property Purchased with CP and SP Funds: Anti-Lucas Legislation

Answer 23

Before 1984, property was presumptively CP, SP funds presumed to be a gift to the community, and there was no right of reimbursement. Since then, the CP presumption has been expanded to include all property held jointly by married couples. The presumption is rebuttable by an express statement in a deed or collateral writing that the property is SP, and the spouse making the SP contribution has a right of reimbursement without interest.

Question 24

Transmutation - Gift Exception

Answer 24

A transmutation is the changing of the classification of property by agreement or transfer from CP to SP, or from SP to CP. Transmutations made on or after January 1, 1985 must be made in writing by an express declaration of the spouse whose interest in the property is adversely affected. Certain gifts are excluded from the express declaration requirement so long as the following are met: i) The gift is between spouses; ii) The gift is of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature, used solely or principally by the spouse to whom the gift is made; and iii) The gift is not substantial in value.

Question 25

Prenups (CA)

Answer 25

Couples who want to marry but want to avoid California’s community property system may do so by entering into a premarital (prenuptial) agreement specifying their own property-distribution system. Premarital agreements made on or after January 1, 1986, are controlled by the California version of the Uniform Premarital Agreement. A premarital agreement: i) must be in writing; ii) must be signed by both parties; and iii) is enforceable without consideration.

Question 26

Community Labor to SP Business

Answer 26

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. While the incorporation of a SP business during marriage does not change the character of the business, it must still be apportioned according to one of the two principles below. Two different formulas are used to calculate the value – The Pereira approach and the Van Camp approach. Trial courts have discretion to use whichever approach best suits the facts and circumstances of the case.

Question 27

Child Support

Answer 27

A child or spousal support obligation of a married person that does not arise out of the marriage shall be treated as a debt incurred before marriage. This means that the community estate will be liable for the debt unless the non-debtor spouse shields their earnings. If the non-debtor spouse does not shield their earnings, then the community estate is liable for the debtor’s spouse’s child support obligations. To protect CP earnings from liability, a non-debtor spouse must deposit their earnings into a separate bank account from which the other spouse has no right of withdrawal.

The non-debtor spouse can seek reimbursement for the community estate from the debtor’s SP, but only if the debtor spouse had separate income at the time to pay the debt.

Question 28

Defenses to reimbursement for education

Answer 28

The educated spouse can raise the following defenses to reimbursing the community estate for education costs: i) The divorce occurred more than 10 years after the education was received and the community substantially benefited from the education during that time; ii) the other spouse also received an education paid for with CP funds during the marriage; or iii) the education reduced the need for spousal support upon divorce.

Question 29

Goodwill

Answer 29

Business or professional goodwill is the intangible value that most businesses have based upon the expectation of future business and/or upon an established name or reputation. This goodwill generates income beyond the labor of the spouse and a reasonable return on capital and physical assets. Goodwill is treated like CP if it was created during the marriage. Courts use two valuation techniques to calculate the value of goodwill: i) market sales valuation through expert testimony, or ii) capitalization of past excess earnings created by goodwill.