Community Property: Characterization Principles

Front 1

Inception of Title

SP or CP is determined when asset is acquired.

Inception of Title rule applies in all cases except employee retirement benefits and stock options.

Back 1

Subsequent events or expenditures NEVER affect characterization

Goes to creation of claim for reimbursement if the divorce was filed or the death occurred after September 1, 2009; if before, it would create a claim for economic contribution.

Front 2

If H enters into installment contract for home purchase that relates back to inception before marriage, the property is SP.

Back 2

After he dies, W's rights are as homestead (widow) and a claim for reimbursement (where payments/taxes paid out of CP).

Front 3

Where community funds used to reduce secured debt or make capital improvements on one spouse's SP, community does not have an ownership interest; claim for reimb. if divorce filed or death occurred after Sept. 1, 2009.

Benefits for use/enjoyment of property may be offset against a claim for reimbursement for expenditures to benefit a marital estate, except a spouse's separate estate may not claim offset for use/enjoyment of a primary or secondary residence owned wholly or partly by separate estate against contributions made by community to the separate estate.

Back 3

* Reimbursement for funds expended by marital estate for improvements to another marital estate is measured by ENHANCEMENT IN VALUE to benefitted marital estate.

Claim determ. by T.C. discretion. Divorce--> just and right division.

Front 4

Fixtures doctrine: addition (like house) follows character of the land

REIMBURSEMENT CLAIM: On dissolution of marriage, court may impose equitable lien on property of benefited estate to secure RC against that property by contributing estate.

Back 4

On death of spouse, court may, on application for RC brought by surviving spouse/personal rep of deceased/any other interested person, impose equitable lien to secure RC against property.

Front 5

Trial court has wide latitutde in determining amt of any RC, and whether RC recognized at all.

Back 5

Resolves claim using equitable principle. RC are not claim of right.

Front 6

In cases involving expenditure of CP on one spouse's SP (and vice versa), but no reduction of secured debt or capital improvements (e.g., community funds to pay premiums on life insurance policy that's one spouse's SP), equitable claim for reimb can be recognized

RC must exist between marital estates.

NO equitable claim for reimb when CP funds are expended for benefit of CP.

Back 6

Statutorily, reimbursement is not allowed for:

- payment of child support, alimony, or spousal maintenance
- living expenses of a spouse or child of a spouse
- contrib of property of nominal value
- payment of liability of a nominal amount; or
- spouse's student loan

Front 7

Property acquired while a couple is domiciled in a common law (Non-CP) state is that spouse's property in that state; stays SP-->

* Conflict of laws SP: Don't lose property rights by moving to new state. If it was yours in another state, still yours.

Back 7

"Community credit" presumption: goods purchased on credit during marriage, and funds borrowed during marriage, are presumptively on community credit.

Purchased goods or borrowed funds are presumptively CP.

--> Mixed ownership

Front 8

Quasi-CP Rule:
For purposes of marital property division upon DIVORCE, property acquired in another state CP if acquired in TX) is treated as CP and is subject to "just and right" equitable division.

Back 8

But upon death, other-state component would become SP.

Front 9

Due to CP system, TX does not have:

1) Elective share statute (surviving spouse always takes 1/2 of CP on death)
2) Doesn't recognize tenancy by the entireties estate

Back 9

9 CP states:

Louisiana, TX, NM, AZ, CA, NV, WA, Idaho, Wisconsin

Front 10

To overcome community credit presumption:

Facts show that Creditor agrees to look to solely the separate credit of borrowing spouse. If spouse default, can only seek to be made whole from separate estate.

Irrelevant: how title is held (under whose name).

Back 10

Show that lender limited as to security interest. If facts show that note was secured by mortgage on separate interest, insufficient: can sue on note, go after seucrity and any other property liable for community obligation.

Only case where separately-owned collateral used to secure note would make it a separate obligation: NON-RECOURSE NOTE

Front 11

GENERAL RULE: How title is held doesn't determine characterization --> inception of title (time and circumstances of acquisition).

Exception: Where 1 spouse uses SP, takes title in other spouse's name, property is other spouse's SP.

Rebuttable presumption of gift. (if name in both; 1/2 SP gift to her)

Back 11

When spouse participates in transaction and there is a SIGNIFICANT RECITAL, absent fraud or mistake, the parol evidence rule bars a spouse's testimony offered to contradict the deed.

Front 12

If one did not participate in transaction (i.e., it happened w/o knowledge) and property acquired with expenditure of community funds, then it's CP.

Back 12

Participation usually easy to meet. Mere signing of a real estate contract or perhaps mere presence when conveyance documents are drafted.

Front 13

Title by AP relates back to entry under a rightful claim.

Back 13

If AP due to naked trespassing (no right, equitable or otherwise), then there is no right to which his acquired title could relate back. Property becomes CP.

Front 14

Life Insurance Policies


First premium payment determines SP/CP character of policy.

Back 14

If one makes gift of CP, other spouse can attempt to challenge beneficiary designation under FRAUD ON THE SPOUSE doctrine.

Front 15

If community funds used to pay premiums, community has an equitable claim for reimbursement. (Not economic contribution, bc there's no reducing secured debt or making improvements)

Back 15

Reimbursement claim arises only when funds of one marital estate are expended to enhance value of another marital estate.

If CP expended on CP, there's no reimbursement.

Front 16

Employment retirement benefits accumulated during marriage are CP (regardless of whether vested at time of divorce).

If participation in defined benefit plan began before marriage, value of CP component is reduced by fraction: Years married and employed / Total Years employed

Back 16

If not eligible for retirement, decree can take 2 forms:

1) "If as and when received"- court makes just/right division; value of CP frozen at time of divorce. OR
2) H can cash W out by awarding her other assets of equal value

Front 17

Nonparticipant spouse does not have devisable interest in a qualified plan if she predeceases the participant spouse.

In characterizing SP/CP of a defined contribution plan, use tracing rules. If account actively traded, might need CPA.

Back 17

SP component would be assets in account as of marriage, including appreciation in value thereon.

CP is additional contrib to acct during marriage plus interest and dividend income on the account (income from SP is CP)

Front 18

McCarty: SC ruled that federal preemption prevented spouse from having a CP interest in a military retirement plan.

--> Uniformed Services Former Spouses' Protection Act (USFSPA): Spouses of military personnel have CP rights in a military retirement plan.

Back 18

But, military disability retirement pay is NOT CP; USFSPA doesn't apply.

Front 19

If person has option to take reg retirement benefit OR disability retirement, this doesn't allow them to "elect" to defeat other spouse's CP interest.

Subject to just and right division on divorce. Same for disability policy acquired with CP funds.

Back 19

* The character of worker's comp paid during marriage is determined by when the loss of earning capacity occurred.

Front 20

If stock option is awarded during marriage but doesn't vest until after end of marital community, a proration formula is used in determining what portion of the option is CP and SP.

Back 20

Years from date options awarded to divorce date / Years from date option awarded to exercisable date [That is CP; remainder is SP]

Front 21

Community may make:

Equitable Claim for Reimbursement for TTT (time, toil, talent) expended by spouse to enhance separate estate beyond that reasonably necessary to maintain and preserve his separate estate and reduced by compensation received for his time and effort in form of salary, bonus, other fringe benefits.

Back 21

Value TTT (beyond that reasonably necessary) - Actual Renumeration Received = Amount of Reimbursement Claim

Value TTT: what persons in similar positions would receive
Actual Renumeration: value of time rea necessary to preserve separate estate; compensation received in salary/bonus/dividends/benefits

Front 22

Comingled Bank Accounts:

While community presumption applies to comingled and tracing is difficult, apply "Community Out First" Rule ("Lowest Intermediate Balance" Rule)

Back 22

When SP and CP funds are comingled in account presumed that CP are drawn out first.

SP funds sink to the bottom- once it's gone, never getting back.