Community Property Essay

Front 1

Basic CP Presumptions

Back 1

California is a community property state.
In a community property state, the marital economic community begins upon marriage and ends at a) divorce, b) death of a spouse, or c) 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 a) before marriage; b) by gift or inheritance during marriage; or c) after death, divorce, or a permanent separation, is separate property.
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.

Front 2

Valid Marriage

Back 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.

Front 3

Management & Control of Community Property

Back 3

Community Personal Property: Each spouse has equal management and control over major personal property transactions. Exceptions:
a) Bank accounts in one spouse’s name only
b) Gifts to 3rd parties
c) Community business

Management and control of community real property:
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.

Front 4

Premarital agreements

Back 4

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.

Front 5

Transmutations

Back 5

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.

Front 6

Division of Property at Divorce

Back 6

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.

Front 7

Division of Property at Death

Back 7

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.

Front 8

Commingled bank accounts

Back 8

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.

Front 9

Goodwill of CP business

Back 9

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.

Front 10

Education degrees and professional licenses

Back 10

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.

Front 11

Retirement pensions

Back 11

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.

Front 12

Stock options

Back 12

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.

Front 13

Disability Pay

Back 13

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.

Front 14

Life insurance

Back 14

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.

Front 15

SP business rules

Back 15

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.

Front 16

Credit purchases

Back 16

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.

Front 17

Improvements

Back 17

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.

Front 18

Personal injury recovery

Back 18

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.

Front 19

Debt

Back 19

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.

Front 20

Joint Tenancy

Back 20

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

Front 21

Right of Reimbursement

Back 21

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.

Front 22

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

Back 22

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.