Special Classification Rules

Question 1

Oil and Gas interests

Answer 1

If the land is SP, the bonus is SP, the royalty is SP, and the delay rentals are CP

Question 2

Income Interest in Trusts

Answer 2

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

Question 3

*Corporate Distributions

Answer 3

• Cash dividends received after marriage are CP; all other corporate distributions (stock slits, stock options) are SP
• Capital gains are SP

Question 4

Royalty Income from Patents

Answer 4

Income from payments will be CP

Question 5

Animals

Answer 5

The increase in value from separately owned cattle and other animals is CP

Livestock acquired by purchase are presumptively CP

Question 6

Agreements Regarding Income from SP

Answer 6

Spouses may agree, either during marriage or before, that income from each spouse’s separate property will be that spouse’s separate property

Question 7

*Income from Inter-spousal Gift

Answer 7

SP

gift itself is also SP

Question 8

*Tort Recovery for Personal Injury

Answer 8

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

Question 9

Life insurance policies

Answer 9

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

Question 10

Military Retirement Benefits

Answer 10

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

Question 11

Workers Comp Benefits

Answer 11

Will be CP to the extent that it is intended to replace earnings lost while the injured person is married

Question 12

Employee Stock options

Answer 12

Community and separate formula used to determine SP depends on whether stock option was granted to spouse before or during marriage

Proration rule applies

Question 13

Employee Bonuses

Answer 13

Prorate as earnings over entire year into separate or community as appropriate

Question 14

*Closely held business interests

Answer 14

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.

Question 15

Partnership Interests

Answer 15

SP if spouse was partner at time of marriage (partnership assets belong to partnership), otherwise it will be CP

Question 16

Mercantile Inventory

Answer 16

SP - spouse bringing stock of merchandise entitled to reimbursement in kind for inventory used and replenished during marriage

Question 17

*Participation in Retirement Plan Begins During Marriage:

General

Answer 17

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.

Question 18

*Participation in Retirement Plan Begins During Marriage:

Defined Contribution Plan

Answer 18

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.

Question 19

*Participation in Retirement Plan Begins During Marriage:

Defined Benefit Plan

Answer 19

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.

Question 20

*Participation in Retirement Plan Begins Before Marriage:

General

Answer 20

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.

Question 21

*Participation in Retirement Plan Begins Before Marriage:

Defined Contribution Plan

Answer 21

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

Question 22

*Participation in Retirement Plan Begins Before Marriage:

Defined Benefit Plan

Answer 22

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.