Special Classification Rules Flashcards
Oil and Gas interests
If the land is SP, the bonus is SP, the royalty is SP, and the delay rentals are CP
Income Interest in Trusts
Income from a trust is created by someone other than the spouse is SP whether the trust was created before or during the spouse’s marriage
*Corporate Distributions
- Cash dividends received after marriage are CP; all other corporate distributions (stock slits, stock options) are SP
- Capital gains are SP
Royalty Income from Patents
Income from payments will be CP
Animals
The increase in value from separately owned cattle and other animals is CP
Livestock acquired by purchase are presumptively CP
Agreements Regarding Income from SP
Spouses may agree, either during marriage or before, that income from each spouse’s separate property will be that spouse’s separate property
*Income from Inter-spousal Gift
SP
gift itself is also SP
*Tort Recovery for Personal Injury
SP- disfigurement, pain and suffering, and loss of consortium
CP- medical expenses and loss of earnings
*If not specified in the reward, then entire amount will be CP
Reward for punitive damages, law is unclear
Life insurance policies
Inception of title rule applies
If the policy is taken out before marriage, it is the spouse’s SP subject to reimbursement claims
If taken out while couple is married but in a common law state, it will be SP
Military Retirement Benefits
A spouse has a CP right in normal military retirement benefits
The spouse does not have a community property right in disability military retirement benefits
Workers Comp Benefits
Will be CP to the extent that it is intended to replace earnings lost while the injured person is married
Employee Stock options
Community and separate formula used to determine SP depends on whether stock option was granted to spouse before or during marriage
Proration rule applies
Employee Bonuses
Prorate as earnings over entire year into separate or community as appropriate
*Closely held business interests
SP if owned before marriage but community estate entitled to reimbursement for time, toil, talent and effort expended by spouse to enhance separate estate; reduced by compensation received (salary)
If business formed during marriage- CP presumption, but separate ownership can be established through tracing.
Alter ego: if show that shareholders disregarded the entity of the corporation and made the corporation a mere conduit for transaction of their private business, and that the separate individualities of the corporation and its shareholders ceased to exist.
Partnership Interests
SP if spouse was partner at time of marriage (partnership assets belong to partnership), otherwise it will be CP
Mercantile Inventory
SP - spouse bringing stock of merchandise entitled to reimbursement in kind for inventory used and replenished during marriage
*Participation in Retirement Plan Begins During Marriage:
General
where participation in a retirement plan begins before marriage, the entire plan benefit is community property, valued as of the date of the divorce and subject to just and right division
This is true even if retirement benefit is not vested at time of divorce.
*Participation in Retirement Plan Begins During Marriage:
Defined Contribution Plan
Under a defined contribution plan (e.g. a 401k), the employee and/or the employer contribute a specified amount to a retirement account for the employee’s benefit.
Upon the employee’s retirement, the accrued plan benefit is either paid out in a lump sum or distributed in installment.
There is always measurable value in the employee’s account, which is easily determined upon the employee’s divorce.
*Participation in Retirement Plan Begins During Marriage:
Defined Benefit Plan
Pays retirement benefits in the form of an annuity in monthly installments.
Under most defined benefit plans, the retirement annuity is computed pursuant to a formula tied to years of service and the employee’s salary.
In a divorce proceeding, calculation of the value of the community interest in a defined benefit plan is based on the benefit the employee would receive if he were eligible to retire at the time of divorce.
The value of the community interest in the retirement plan is frozen at the time of the divorce.
Post-divorce increases in the retirement benefit attributable to post-divorce earnings will be the employee’s separate property.
*Participation in Retirement Plan Begins Before Marriage:
General
inception of title rule does not apply to employee retirement plans because retirement is assured to be earned throughout the employment and will be characterized in accordance with marital status at the time earned.
If the retirement plan began before marriage, the retirement benefit is part separate property and part community property.
*Participation in Retirement Plan Begins Before Marriage:
Defined Contribution Plan
if the spouse’s participation in a defined contribution plan (e.g. 401k, IRA) commenced before marriage, the tracing rules applicable to non-retirement assets apply to characterize the separate and community property components of the plan.
If the spouse was a participant in a a defined contribution plan at the time of marriage, any increase in the plan’s value will be traceable to three sources:
(i) contributions to the plan during marriage - community property
(ii) dividend and interest income - community property
(iii) appreciation in the value of the assets that were in the plan on the date of marriage - separate property
*Participation in Retirement Plan Begins Before Marriage:
Defined Benefit Plan
Community share is determined as follows: (years married in plan/years in plan at divorce) x value at divorce
The formula applied when divorce is after retirement is the same, except that: (number of years both married and participating in the plan/ is divided by the number of years employed) x value at divorce.
