Community Property

In what ways can property be held during a marriage (or purported marriage)?

(1) SP (separate property)
-one spouses

(2) CP (community property)
-50/50

(3) QCP (quasi-community property)
-50/50 acquired out of state

(4) QMP (quasi-marital property)
-Putative spouse

Community Property Defined

Property, other than separate property, acquired by either spouse during marriage.

-Absent an agreement or title to the contrary, the burden of proof that a particular asset is NOT CP is on the contending party.

When does the economic community end?

(1) Permanent physical separation

AND

(2) Intent not to resume the marital relation by either spouse

-Exception:
Maintaining the facade of marriage

How is community property divided at divorce?

Equal Pro Rata Division
(50/50 per item)

UNLESS:

Equity Exceptions: "interest of justice"
(1) Family residence
(2) Shares of closely held corporation
(3) Pension

Statutory Exceptions
(1) Misappropriation of CP by one spouse
(2) Educational Debt
(3) Tort liability during a non-community activity
(4) Personal injury award
(5) Community liabilities exceed assets

What can spouse 1 do if spouse 2 makes:

(1) a lifetime gift of CP?

(2) a testamentary gift of CP?

(1) a lifetime gift of CP:
(a) Set aside the gift in its entirety; or
(b) Take equal offsetting CP

(2) a testamentary gift of CP
(a) Set aside 1/2 of the gift (her CP interest);
(b) Take under the will (widow's election will)

-Each spouse has the power of testamentary disposition over all of his/her SP but only over 1/2 of the CP

How are funds borrowed during marriage classified?

(1) Presumed community loan
(2) Classified according to the intent of the lender

Fiduciary Duties Owed by Spouses

(1) Not gain an advantage from transactions
-Presumption of undue influence

(2) No grossly negligent or reckless investments of CP
-Breach of duty

Requirements of a Premarital Agreement

(1) Writing
(2) Signed by both parties

Exceptions to the signed writing requirement for premarital agreements?

(1) Fully executed
(2) Estoppel based on detrimental reliance

Defenses to the enforcement of a premarital agreement?

(1) Involuntarily signed

Presumed involuntarily signed unless
(a) Independent legal counsel
(b) 7 day allowed before signing
(c) If no counsel:
-fully informed
-in lay language
-document declaring what they were told and who told them

(2) Unconscionable

(a) when made there was,
(b) no fair and full disclosure,
(c) right to disclosure not waived, and
(d) no knowledge of other party's assets

What can't a premarital agreement limit?

Child support

Community Property Approach

(1) Source of asset

(2) Actions taken to change character of property

(3) Presumptions that affect the character of property

(4) Disposition

Quasi-CP

QCP is property acquired by either spouse that would have been CP had the spouses been domiciled in CA at the time of acquisition. At divorce, QCP is treated as though it were CP.

Presumption for Property Held in JT

Property held by spouses in JT is presumed CO for purposes of distribution at divorce.

Action of changing SP to being held as JT

(1) Property held as JT by spouses is presumed CP

(2) Spouse who originally held property as SP is entitled to reimbursement for FMV of property at time deeded to JT

What is not CP

Property acquired before marriage or after dissolution or legal separation, or property acquired during marriage by gift, devise, descent, bequest or bequeath.

Is a premarital agreement that promotes divorce enforceable?

NO

However, a premarital agreement that paid W $100k in the event of a divorce did not violate this prohibition.

Is the issue of unconscionability an issue of law or fact?

LAW

The court is to decide this issue.

Important Dates

1975:
-Married woman's special presumption
-Pre-1975

1984:
-Anti-lucas statutes
-Pre-1984 lucas controls; no reimbursement; assumed gift

1985:
-Oral transmutations
-Pre-1985

Elements of a valid transmutation?

(1) Pre-1985
-Oral or written
-Express or Implied-in-fact agreement

(1) 1985-present
-Written
-Signed by adversely affected spouse
-Expressly states change in ownership to be made

Exceptions to the 1985-present transmutation requirements?

(1) Gifts of tangible personal property
-Must not be substantial in nature considering couple's finances

NOTE:
Typical SOF defenses do NOT apply (e.g., estoppel, part performance)

May a statement in a will or revocable trust be used to satisfy the post-1985 transmutation requirements?

NO, not if the trustor/testator is still living.

-A will is revocable and so is a revocable living trust

-These instruments are NOT even admissible

Married Woman's Special Presumption

(1) Pre-1975

(2) CP used to purchase

(3) Written title acquired
-NOT a receipt
-Deed or pink slip needed

(4) Title in wife's name
-NOT "H and W, husband and wife"
-NOT "H and W, as joint tenants"

(5) Presumed wife's SP
-Rebuttable as between W and H
-NOT rebuttable as between H and BFP who purchased from W

If the wife's name is on the title of property acquired pre-1975, what are the only two ways that title could be taken to that would not giver rise to the Married Woman's Special Presumption?

(1) Hobie Gates and Winkie Gates, husband and wife.

OR

(2) Hobie Gates and Winkie Gates, as joint tenants.

NOTE:
-Hobie Gates and Winkie Gates.
-50% W's SP
-50% CP
-Therefore 75% W; 25% H

Reimbursement of SP use to purchase CP in joint form and/or used to improve CP.

**Pre-1984**
(1) Issues arising on Divorce
-Lucas Controls
-Presumptively CP
-No reimbursement

(2) Issues arising on Death
-Lucas Controls
-Presumptively CP
-No reimbursement

**1984-Present**
(1) Issues arising on Divorce
-Anti-lucas statutes control
-Still presumptively CP
-But reimbursement allowed for: DIP
-DIP: Down Payment; Improvements; Principal on Mortgage

(2) Issues arising on Death
-Lucas Still Controls
-Presumptively CP
-No reimbursement

What can be used to rebut the 1984-present (anti-Lucas) presumption that property held in joint form is CP?

(1) Express statement in the deed that it is SP

OR

(2) Written agreement by the parties that it is SP

What is the spouse who contributed SP to a CP asset entitled to upon divorce, and how is it calculated?
(anti-Lucas statutes (1984-present))

Reimbursement WITHOUT interest for:
DIP

(1) Down payments
(2) Improvements
(3) Principal paid on mortgage

What triggers an Anti-Lucas analysis?

(1) Property acquired in JOINT FORM (1/1/84 - present)
-This triggers the presumption that it is CP

(2) Some SP was used to acquire or improve the property
-If all CP, the asset is CP

(3) DIVORCE

(4) Reimbursement w/o interest for DIP
-Down payments
-Improvements
-Principal paid on mortgage

What triggers a Lucas analysis?

(1) past - 12/31/83

(2) Property acquired in JOINT FORM
-This triggers the presumption that it is CP

(3) Some SP was used to acquire or improve the property
-If all CP, the asset is CP

(4) DIVORCE or DEATH

(5) NO Reimbursement

OR

(1) 1/1/84 - present

(2) Property acquired in JOINT FORM
-This triggers the presumption that it is CP

(3) Some SP was used to acquire or improve the property
-If all CP, the asset is CP

(4) DEATH
-ONLY

(5) NO Reimbursement

Situations and relative analysis:

(1) H uses CP to improve his OWN SP

(2) H uses CP to improve his W's SP

(3) SP used to improve CP

(1) H uses CP to improve his OWN SP
-CP entitled to reimbursement
-Greater of cost to improve OR enhanced value (buy-in)

(2) H uses CP to improve his W's SP
-Split jdx
-Jdx 1 Gift no reimbursement
-jdx 2 Greater of cost to improve OR enhanced value (buy-in)

(3) SP used to improve CP
-Lucas or Anti-Lucas
-No reimbursement OR
-DIP reimbursement W/O interest

Life Insurance

(1) TERM
Funds used to make last premium payment determines character,
i.e., if CP used to pay last premium, insurance proceeds are CP
(visa versa)

(2) WHOLE LIFE
Pro Ration Rule
Percentage of CP used towards premiums v. Percentage of SP used towards premiums

Commingled Accounts

Methods of accounting

(1) Recapitulation Method (NOT ALLOWED)
-Total CP expenses exceed Total CP income
-Therefore, remainder in account is SP

Recapitulation Method is NOT allowed because the challenging party must establish that EACH ASSET was purchased with SP.

(2) Exhaustion Method
-CP funds were insufficient to purchase asset at the time it was purchased BUT SP funds were sufficient

(3) Direct Tracing
-SP available AND H intended to use SP to purchase SP asset

Does Lucas or Anti-Lucas apply to bank accounts that are taken in joint form?

NO

Bank accounts are governed by the probate code and therefore NOT governed by these rules.

Pereira

v.

Van Camp

PEREIRA (pro-CP)

*used when community labor was primary reason for appreciation in value of the asset

(1) Take starting value of the separate property business ($100k)

(2) Using 10% as fair rate of return, calculate rate of return over course of marriage. (e.g., 10% per year for 10 years)

(3) Add starting value of business + total fair rate of return = SP investment

(4) Subtract SP investment from the value of the business NOW to determine CP portion

VAN CAMP (pro-SP)

*used when the uniqueness of the asset or circumstances surrounding it was reason for the appreciation

(1) Calculate a fair salary for spouse's CP labor put in to the Business.

(2) Subtract from CP labor CP living expenses to determine CP labor surplus.

(3) Multiply CP surplus by the # of years of marriage = total CP surplus

(4) Take CURRENT value of Business subtract total CP surplus = SP

Interesting thoughts about Van Camp and Pereira

If H owned a business prior to marriage worth $100K and at divorce the business was worth $5 million, H is going to argue that the enormous increase in value was NOT attributable to his skill or labor, but rather to luck. If he can establish that the business' value increased because he was just in the right place at the right time, the Van Camp formula will be used, and he will walk away with MUCH more.

Are the Van Camp or Pereira formulas used for business acquired after marriage?

NO

ONLY for business that were the SP of one of the spouses before the marriage.

Pension Benefits

Pro Ration Rule

Pension * (years of services while married / total years of employment to retirement)

If H is not yet eligible for retirement, what are W's options as for his pension?

(1) Get a "when and if received" decree
-H will have to pay when and if received

(2) Cash her out with other assets

(3) Court can retain jdx and determine later

Can H avoid having to pay W her interest in his pension or retirement proceeds by:

(1) continuing to work after he is eligible to retire

OR

(2) electing disability retirement as opposed to regular retirement

NO

(1) continuing to work does not defeat W's present right to a vested retirement benefit

(2) although disability pay is not CP, if it is taken in lieu of retirement it is CP

Are disability retirement and workers' compensation benefits classified as CP or SP?

It depends.

They are classified when they are received.
Therefore, if received after separation or divorce they are SP.

Severance Pay

JDX Split

Some courts consider it replaced lost earnings therefore SP

Other courts consider it something that accrued during marriage and therefore CP

Stock Options

Look to the "primary intent of the ER in granting the option"

(1) IF given as an award for PAST services
(years employed while married)
÷
(years employed until option becomes exercisable)

(2) IF given as an incentive to stay with the company in the FUTURE then SP
(years from date option is granted to divorce)
÷
(years from date option granted to exercisable)

Professional Goodwill

GOODWILL is CP

GOODWILL FORMULA:

Net annual return from business (business profits)
LESS
Reasonable value of H's services (salary)
LESS
Reasonable return on business' physical assets (ROI; 10%)
EQUALS
Excess earnings attributable to goodwill (Capitalism:)

Is a partnership agreement that places a "cap" on the amount of goodwill a dissolving partner is entitled to taken into account when determine the value of goodwill the other spouse is entitled to upon divorce?

yes, BUT it is ONLY a factor.

Is a professional degree "property" subject to division?

NO

-But CP may be entitled to reimbursement

Educational Reimbursement

ANY educational expenses that "enhances the earning capacity" of one spouse must be reimbursed.

DEFENSES:

(1) Community has substantially benefited from the education.
-10 year presumption

(2) Both spouses received CP-funded education

(3) Education reduces need for spousal support

How is Educational DEBT assigned upon divorce?

SOLELY to the spouse that incurred the debt.

Tort Awards and Settlements

(1) H sues W
-H's proceeds are his SP

(2) H sues 3rd
-CP during marriage
-CP upon death
-SP upon divorce if traceable unless inequitable

Tort Liability

(1) W injures 3rd while on an errand for the COMMUNITY
-Judgement satisfied 1st from CP
-2nd from W's SP
-NEVER from H's SP

(2) W injures 3rd while on a PERSONAL errand
-Judgement satisfied 1st from W's CP
-2nd from CP
-NEVER from H's SP

Management and Control

Equal management and control over CP
May contract debt and encumber w/o consent

EXCEPTION

(1) Business exception
-Family business cannot be sold w/o consent
-Remedy against other spouse if CP interest is substantially impaired
-NO remedy from 3rd party

(2) Real Property
-Non-consenting spouse can void sell at w/in 1 YEAR SOL if BFP
-Non-consenting spouse can void sell at ANYtime if NOT BFP

(3) Personal belongings
-Home furnishing cannot be sold w/o consent
-Non-consenting spouse can void sell at ANYtime

Exception to the general rule that REAL CP cannot be unilaterally encumbered?

Family law attorney's real property lien.

Can CP be reached to pay medical expenses incurred BEFORE marriage?

YES

UNLESS
CP Earnings of the other spouse are NOT commingled

Can SP be reached to pay medical expenses incurred by the OTHER spouse?

YES

Each spouse is personally liable for ANY debt incurred for NECESSARIES until DIVORCE (past the end of the economic community).
-Food
-Shelter
-Medical Attention

HOWEVER
If CP funds were available, CP must reimburse SP

Quasi-CP at Death

The QCP statute does not give the non-acquiring spouse an ownership interest. Therefore, QCP cannot be given by testamentary instrument by the non-acquiring spouse because QCP statutes are ONLY relevant upon divorce.

What is a "putative spouse?"

An individual who is NOT legally married BUT
has an "objectively reasonable and good faith belief" that their was a legal relationship.

Putative spouses are entitled to CP law protections.

When should Van Camp and Pereira be discussed?

ANYtime there is a SP business
-Owned prior to marriage
-Acquired during marriage w/ SP funds

NOTE:
Do not discuss if the business was acquired during marriage w/ CP funds

What should be discussed anytime time there is a savings bond at issue?

Federal preemption.

CP laws do NOT apply to savings bonds. Therefore, the name on the bond controls.

What property is liable for debt incurred:

(1) Before marriage

(2) During marriage

(3) After marriage

(1) Before marriage
-CP share of the spouse that incurred the debt
-SP of the spouse that incurred the debt

(2) During marriage
-CP in its entirety
-SP of the spouse that incurred the debt

(3) After marriage
-SP of the spouse that incurred the debt

When one partner is a good-faith putative spouse but the other knows of the defect in the attempted marriage, can BOTH claim to be putative spouses?

JDX split.

Argue both ways

Is a judgment to pay child support considered a pre-marriage debt?

YES, even if the judgment is entered after marriage.

Therefore, the property that is subject to the debt includes:
-CP share of the spouse that incurred the debt; AND
-SP of the spouse that incurred the debt

Are attorney's fees incurred during marriage in defending a paternity suit considered a pre-marriage debt?

NO

Therefore, the property that is subject to the debt includes:
-CP in its entirety; AND
-SP of the spouse that incurred the debt

Moore

If you buy property prior to marriage with a down payment from your own funds, but make payments with community funds during marriage, then your spouse will have community interest in the property. Community funds imply your spouse's money and yours as spent towards loan payment. The community interest is known as Moore Marsden interest, which is calculated using a formula known as Moore Marsden Rule.

Does CA recognize CL marriage?

NO

However, discuss:

-Putative spouse

-K agreements, so long as not based solely on sex