Community Property Gsf

Front 1

How to Write a Community Property Essay

Back 1

1. Explain basic presumptions
2. Discuss any threshold issues
3. Analyze the Character of each asset or liability (5)
4. What is the Final Disposition?

Front 2

Analyze the Character of each asset or liability? (Step 3)

Back 2

1. When and Where was the Asset acquired
2. What was the source of funds used to acquire the asset?
3. Has any action been taken by the parties that might change the character of the property?
4. Do any special presumptions apply to this item of property?
5. Does this item of property fall under a special classification?

Front 3

What are the basic presumptions governing CP law? (4)

Back 3

1. Marital Economic Community (MEC)
2. Separate Property
3. Community Property
4. Quasi-Community Property

Front 4

Are there any threshold issues affecting all items of property in question?

Back 4

1. Distribution of Property at Divorce
2. Distribution of Property at Death
3. Creditor's rights to Property
4. Unmarried Couple's Property Rights

Front 5

When and where was the asset acquired?

Back 5

1. Out-of-state CP & QCP

Front 6

What was the source of funds used to acquire the asset?

Back 6

1. Lucas and Anti-Lucas Statute
2. Property Purchased from Commingled Bank Account
3. CP Funds or CP Labor Enhance Value of SP Business
4. CP Funds used to improve or pay principal on SP Property
5. Property purchased with Credit

Front 7

Have any actions been taken by the party to change the character of the property?

Back 7

1. Management and Control of Property
2. How agreements affect Property Rights

Front 8

Does this item fall within a certain classification?

Back 8

Special Categories:
1. Personal Injury Recovery
2. Education/Training Expenses
3. Business/Prof Goodwill
4. Stock Options
5. Pension Benefits
6. Disability Pay & Worker's Comp
7. Severance Pay
8. Life Insurance
9. Property Insurance

Federal Premption

Front 9

Marital Economic Community (MEC)

Back 9

The marital economic community begins at marriage, and ends at divorce, death of a spouse, or a permanent physical separation and an intent not to resume the marital relationship

Front 10

Separate Property (SP) (Def)

Back 10

1. Property acquired before marriage
2. Wages received during marriage are characterized as SP if they were earned before marriage
3. During marriage, its SP if acquired by gift, bequest, devise, or descent or purchased with SP funds
4. Property acquired after death, divorce or permanent separation

Front 11

Separate Property (written rule)

Back 11

Separate property is property acquired before marriage by either spouse, during marriage by gift, bequest, devise or descent, or after death divorce or permanent separation

Front 12

Community Property (CP)

Back 12

Property acquired during marriage or temporary separation is presumptively community property

One can overcome the CP presumption through statutory evidence, written title evidencing a gift, an agreement the property is SP, or purchase funds traced to an SP source

Front 13

Quasi-Community Property (QCP)

Back 13

Property acquired by either spouse while domiciled in a non-community property state that would have been CP if the couple had been domiciled in CA at time of acquisition

1. QCP is treated like SP during marriage after moving to CA

2. QCP is treated like CP upon divorce

3. Upon death, surviving spouse has a 1/2 interest in decedent's QCP, but the decedent has no rights to survivor's QCP

4. QCP treated like CP for purposes of creditor's rights

Front 14

Distribution of Property at Divorce

Back 14

1. Equal Division Requirement
2. Deviation from Equal Division Requirement

Front 15

Equal Division Requirement

Back 15

Upon divorce, all CP assets are divided equally between the spouses based upon an item theory of distribution

1. Court will divide CP assets equally between spouses, absent a property settlement agreement

2. Court will consider disparity in earning power only when calculating spousal support

3. To divide property, courts use item theory of distribution where each spouse is entitled to 1/2 of each item of CP, not the half of the aggregate.
*Exception: when economic circumstances warrant otherwise

Front 16

Deviation from Equal Division Requirement

Back 16

Court decisions where economic circumstances warranted an unequal division of CP assets

1. Family Residence - not uproot children
2. Shares of closely held corp -- so ppl would not have to work together anymore
3. Pension Benefits - go their separate ways
4. Artwork - destroyed if divided in half
5. Stockholder voting control - splitting would diminish voting control

Front 17

Statutory Exceptions to equal division requirement

Back 17

1. Misappropriation
2. SP debts: assigned to debtor spouse
3. Tort liability: assigned to tortfeasor spouse
4. Personal Injury recovery: PI recovery is awarded to the injured spouse unless the interests of justice require otherwise, but injured spouse will never receive less than 1/2 of recovery
5. Negative community: Court may assign debts to one spouse when community liabilities exceed community assets, taking into account each spouse's ability to pay debts

Front 18

Distribution of Property at Death

Back 18

A spouse can transfer all of his separate property and 1/2 of CP by will

1. If gift made w/o other spouse's consent, nonconsenting spouse can void the gift in entirety during donor's lifetime, but upon donor's death, surviving spouse can only recover her 1/2 interest

2. Widow Election (next card)

Front 19

Widow's election

Back 19

If testator tries to devise *all* of CP by will, or has included an explicit widow's election clause in the will, then surviving spouse must make an election b/w her CP rights or her rights under the will

1. If no election clause and T only passes his 1/2 CP interest in the will, widow can assert both her CP rights and her rights *under the will*

2. Under the Will: accept Testamentary gift, but allow her 1/2 CP interest to be disposed

3. Against the will: and assert her 1/2 CP ownership interest, but must give up T gift

Front 20

Distribution of Property by Intestacy

Back 20

If spouse dies intestate, his 1/2 interest in CP passes to surviving spouse, and surviving spouse's share of Decedent's SP depends upon number of heirs that survive decedent
a. All of SP if Decedent has no surviving heirs
b. 1/2 of SP if decedent has only one surviving heir
c. 1/3 of SP if decedent has more than one surviving heir

Front 21

"All My Interest"

Back 21

Courts will interpret this to mean that decedent, intestate, was only attempting to pass his 1/2 CP interest when he used the language

Front 22

Property Distributed by Intestacy

Exam Tip

Back 22

Watch out for whether Testator/Decedent attempted to devise 100% of the CP. If so, then the widow has the opportunity "elect" even if there is no widow clause.

Front 23

Creditor's Rights to Property (Big Picture)

Back 23

1. Property that is liable for debts
2. When debt is incurred
3. Personal liability for debt upon divorce
4. Right of reimbursement for payment of certain debts
5. Tort liability

Front 24

Creditor's Rights to Property

Back 24

Upon divorce, a spouse is personally liable for debts incurred or that were assigned to her by the court

Creditor's can reach:
1. CP
2. Debtor spouses SP

Front 25

Creditor's Rights to Property --

Right of Reimbursement for payment of certain debts
* spousal/child support
* Necessaries

Back 25

1. The non-debtor spouse can be reimbursed for CP funds used to pay child/spousal support from a previous relationship, but only if the debtor spouse had SP funds available at the time to pay the debt

2. The non-debtor spouse can be reimbursed for SP funds used to pay for the debtor spouse's "necessaries", but only if the debtor spouse had SP or CP funds avail at time to pay the debt

Front 26

Creditor's Rights to Property --

Tort Liability

Back 26

CP is subject to the tort liability of either spouse.

If tortfeasor was acting for the benefit of the community, liability is first satisfied from CP and then from Tortfeasor's SP.

If tortfeasor not acting for benefit of the community, then liability is satisfied from Tortfeasor's SP and then from CP.

Either way, non-tortfeasor spouse's SP is not reachable by Creditors

Rationale: Do not want to punish the non-tortfeasor spouse if tortfeasor not acting in benefit of community.

Front 27

Unmarried Couple's Property Rights

Back 27

1. Requirements for lawful marriage
2. Unmarried Cohabitants
3. Putative Spouse
4. Domestic Partners

Front 28

Requirements for a lawful marriage

Back 28

In California, a lawful marriage requires "legal capacity" and "the performance of formal legal procedures."

Front 29

Unmarried Cohabitants

Back 29

Property disputes between unmarried cohabitants are governed by general contract principles and if there is no express contract, a cohabitant may prove the contract was implied by contract

1. Governed by general contract principals

2. If no express K, can show by implied K

3. If later marry, K law applies to property acquired during cohabitation

4. If cohab later divorce, CP law applies only to property acquired during marriage

Front 30

Putative Spouse --

An apparently valid marriage, entered into by good faith, but invalid for a technicality.

Back 30

To qualify as a putative spouse, a person must have a "good faith belief" based upon "objective reasonable grounds" that she is lawfully married, but once that person discovers that the marriage is not valid, her quasi-marital property rights no longer accrue

1. All property that would be CP or QCP if couple had been legally married at time of acquisition is called quasi-marital property (QMP)

2. A bad faith putative spouse may have a claim to QMP rights accumulated by good faith spouse, but putative spouse status fails if claimant knew marriage was invalid

Front 31

Domestic Partners

Back 31

Community property rules apply to domestic partners registered in CA, so all reference to "husband, wife, or spouses" should be read to include domestic partners

**Domestic p'ship status is "only" available to
1. Same-sex couples
2. Elderly opposite-sex couples receiving social-security benefits

Front 32

When and Where was the asset acquired?

Out of State CP
Quasi-CP

Back 32

QCP retains its SP nature after a couple moves to CA, but QCP is treated like CP upon divorce or for purposes of Creditor's rights. Upon death of acquiring spouse, surviving spouse has a 1/2 interest in decedent's QCP.

1. Definition & treatment of QCP
2. Upon death:
2a. If acquiring spouse dies, then surviving spouse has 1/2 interest in QCP
2b. If non-acquiring spouse dies, then that spouse has no interest in QCP acquired by surviving spouse

3. If couple lives in CA at time they acquire property in another CP jurisdiction, property is treated as CA property (WA, ID, NV, AZ, NM, WI, TX, LA)

Front 33

Division of Out-of-State CP and QCP realty

Back 33

When dividing out-of-state CP or QCP realty upon "divorce", courts will award the realty to one spouse and equal offsetting assets to the other spouse

Front 34

Lucas & Anti-Lucas

1. What two things are required for Anti/Lucas to apply?

2. What are these two rulings really about?

3. Anti-Lucas: SP contributor can be reimbursed for...

4. No reimbursement for...

5. This only applies when...

Back 34

1. Title taken in Joint/Equal Form AND Both SP & CP used to purchase asset

2. About reimbursement for SP contributions.

Lucas:
Under the Lucas ruling, property purchased with SP and CP funds before Jan 1st, 1987 is presumptively CP if spouses took title in "joint and equal" form. PLUS, the contribution of SP is considered a GIFT and non-reimbursable.


ANTI-LUCAS:
As a result of the anti-lucas statute, the CP presumption for property purchased with SP and CP funds after Jan 1st, 1987 is rebuttable and the SP contributor can be reimbursed for "downpayments, improvements and principle payments upon divorce" (DIP)

How can one rebut?
1. Via Collateral Written Agreement
2. Explicit Statement in title that the property is SP or "not CP"

No reimbursement for:
a. interest payments
b. appreciation of asset

Applies only to DIVORCE or LEGAL separation, NOT to DEATH!

Front 35

Property purchased from Commingled Bank Account

1. Def
2. Methods

Back 35

Property purchased from a commingled bank account is not presumptively CP, but the BoP is on the SP proponent to show that SP funds were used to purchase the asset. The SP proponent can use either the exhaustion method or the direct tracing method to prove that SP funds were used to purchase the property.


Not presumptively CP when purchased from commingled bank account, but the BoP is on the SP proponent to show that SP funds were used to purchase the asset

2. Tracing Methods:
--a: Exhaustion Method: At time asset purchased, CP funds exhausted via payment of "family expenses"

**Presumptions:
1. Family expenses paid with CP funds, and SP funds only used when CP funds exhausted
2. SP funds used to pay for family expenses are a GIFT to community (no rt to reimbursement)
3. Can not use recapitulative accounting

--b: Direct Tracing: At time asset purchased, there were sufficient SP funds available and SP proponent intended to use them

Front 36

Presumptions applying to Family Expenses

Back 36

1. Food, clothing, housing, recreation.
2. Family expenses are paid with CP, and SP funds only used when CP funds are exhausted
3. SP funds used to pay for family expenses are GIFTS to community (no rt of reimbursement)
4. No recapitulative accounting to show that family expenses exceeded total CP

Front 37

CP Funds or CP Labor

Enhance value of "SP business"

Two methods/equations

Back 37

Rule: When CP funds or CP labor enhance the value of a SP business, courts will apply Van Camp or Periera to calculate the CP portion of the business. Van Camp is used when the character of the business was the primary reason for its growth or productivity, and Periera is used when the personal skills and effort of the managing spouse increased the value of the business.


1. Van Camp (Value Character)(Favor SP)
**When character of business is primary reason for its growth/productivity

2. Periera (Personal Skills and effort)(Favor CP)
**When personal skills/effort of managing spouse are primary reasons for growth

Front 38

Van Camp

Back 38

Value character of business
1. Favors SP estate
2. When character of business is primary reason for growth/productivity
3. Other factors to consider: spouse paid a substantial salary or drew large bonuses, implying community well compensated

Equation:

Market Salary - Family expenses paid from earnings = CP portion of business; SP = remainder

Front 39

Pierera

Back 39

1. Personal Skills/Efforts
2. Favors CP
3. Factors: spouse worked long hrs or drew a modest salary

4. Equation:

Value of managing spouse's SP business (at time of marriage) + fair rate of return (10% per yr.) = SP portion; remainder is CP

Front 40

CP Funds used to Pay Principal on or Improve SP property

Back 40

When CP funds are used to pay the principal on SP property, the community establishes a pro-rata ownership interest to the extent that CP mortgage payments reduced the principle debt.
**not triggered by payments of (IMP) Insurance premiums, Mortgage Interest, Property taxes


When one spouse uses CP funds to improve the other spouse's SP property, the funds are presumed to be a gift, although the community may be granted a right of reimbursement if the court rejects that presumption.

If CP funds used to improve spouse's *own* SP, then SP not presumed to be a GIFT and community can be reimbursed for the greater of
1. Improvement costs
2. Amount by which improvement increased property value

Front 41

Property Purchased with Credit

Back 41

Purchases made with borrowed funds are treated like "cash purchases" in terms of ownership interest. When credit or purchase money loans are used to purchase property, the property is presumptively CP, but the presumption can be overcome by proving that the lender relied primarily on the borrowing spouse's SP in granting the loan or extending the credit.

1. Purchases made with borrowed funds are treated like cash purchases in terms of ownership interest when property is acquired

2. Credit or purchase money loans trigger the CP presumption

3. The borrowing spouse can overcome the CP presumption by using the "intent of lender" test to prove lender relied primarily on the borrower's SP in extending the credit

4. The personal credit of either spouse during marriage is CP if it is based on earning capacity or personal creditworthiness

5. Loans can not be apportioned, but courts can still apportion the asset paid for by the loan

6. Subsequent actions of the parties in paying off a mortgage loan may change the character of the asset under the buy-in rule

Front 42

Management & Control of the Property

Back 42

1. Rules regarding control of SP & CP
2. Conveyances of Real Property
3. Exceptions to the Equal Control rule for Personal Property
4. Gifts of Community Property

Front 43

Rules regarding control of CP/SP

Back 43

Each spouse has "exclusive" management and control of his SP, and "equal" management and control of CP

1. Subject to certain exceptions, either spouse acting alone may buy, sell, spend, or encumber all of the CP

Front 44

Conveyances of Real Property

Back 44

Both spouses "must" jointly execute a written instrument in order to validly convey community real property.

1. One spouse can NOT make a non-testamentary transfer of her 1/2 CP interest in real property w/o consent of other spouse.

2. If CP sold to BFP and one spouse misrepresents his marital status, the nonconsenting spouse has one year to void the transfer.

3. Transfers to BFPs are presumed valid (but nonconsenting spouse can still void the conveyance by proving she didn't consent)

Front 45

Gifts of Community Property (CP)

Back 45

If one spouse makes a gift to a 3p w/o other spouses consent, the nonconsenting spouse can void the gift in its entirety during the donor's lifetime. If donor dies, she can still recover her 1/2 CP interest in the gift.

Front 46

Exceptions to Equal Control rule for personal property

Back 46

1. Personal Belongings
-- one spouse can't transfer hh furnishings or clothing w/o written consent of other spouse
--nonconsenting spouse can void the transfer at anytime during/after marriage and does not need to refund the purchase price

2. Business
--spouse who operates/manages the business has primary control
--managing spouse must give prior written notice to nonmanaging spouse for sale/lease/exchange of prop
--if no notice given, nonmanaging spouse can seek remedy only if managing spouse's behavior has substantially impaired her 1/2 interest in CP, but in no event may she void the transfer

Front 47

Premarital Agreements

Back 47

A valid premarital agreement must be in writing and voluntarily signed in presence of independent legal counsel, but oral agreements are still enforceable if the promise was carried out by the promisor or the promisee detrimentally relied on the oral contract

Scope:
Limitations: can not promote divorce, can't be unconsciouable, must be signed in front of independent legal counsel

Front 48

Oral and Written transmutations during marriage

Back 48

Oral transmutations made before Jan 1985 are enforceable, but any transmutations made after that date must be in writing, signed by the spouse whose interest is adversely affected and expressly state that a change in ownership is being made

Front 49

Affect of Title Agreements on Property Rights

Back 49

1. Joint Tenancy
2. Tenants in Common
-- "property conveyed to A and B is presumed T/C if conveyance occurred before 1975
3. Community Property:
-- property conveyed to A and B is presumed to be CP if conveyance took place after 1975
3. CP with rt of survivorship (CPWROS)
-- ownership interest: each spouse owns an undivided 1/2 CP interest in asset with rt of survivorship

Front 50

Married Woman's Special Presumption

Back 50

Presumption before 1975:

1. Property is presumptively SP, if in W's name only

2. 1/2 SP interest if TIC (H has a 1/2 "CP" interest

3. W has 100% SP, H has no interest if title taken in W's name only and a 3p

4. *** The rule for property acquired after 1975 is that when on espouse purchases property and puts title in other spouses name, it is intended to be a GIFT

The Married Woman's Special Presumption applies to property acquired before 1975 if title was taken in wife's name only, if H and W took title as TIC or if title was taken in wife's name only and a 3P

Front 51

Personal Injury Recovery

Back 51

Personal Injury recovery caused by a 3rd party tortfeasor is the injured spouse's SP before/after marriage, but tort recovery is CP if injury occurred during marriage.

1. Before/after -- injured spouse must reimburse CP or other spouses SP for injury-related expenses

2. Inj during marriage is CP, but will be treated as SP upon divorce as long as i)not already been spent, ii)commingled with CP funds

3. Upon death - treated like CP

4. If tortfeasor is injured person's spouse, then tort recovery is SP

Front 52

Education/Training Expenses

Back 52

The community has right of reimbursement for one spouse's education expenses if CP funds were used to pay for expenses, the earning capacity of the educated spouse was substantially enhanced, and the spouses did not waive the rt of reimbursement by a signed agreement

1. Defenses to reimbursement:
--more than 10+ years have passed b/w education/divorce and community has substantially benefited from education
--other spouse also received education paid with CP funds
--education reduced need for spousal support

2. Outstanding loans at divorce are assigned to educated spouse

3. Community can be reimbursed for direct education expenses only, NOT LIVING EXPENSES

Front 53

Business/Professional Goodwill

Back 53

Business and professional goodwill represent those qualities that generate income beyond that derived from labor of a spouse and the reasonable return on capital and physical assets

**Goodwill treated as CP if created during Marriage.

Use two valuation techniques:
1. Market sales valuation
2. Capitalization of past excess earnings attributable to goodwill

Front 54

Stock Options

Back 54

Stock options awarded during marriage are community property, and courts use the "time rule" to apportion the CP ownership interest.

Numerator: date option awarded to date MEC ended

Divided by:

Denominator: date option awarded to date it can be exercised

equals = % CP (SP = 1 - %CP)

Front 55

Pension Benefits

Back 55

Vested or unvested pension benefits earned during marriage are CP and courts use the "time rule" to apportion the CP ownership interest

*Treated like deferred compensation and classified according to when they are earned

*If spouse not eligible for PB, then NPS can either:
1. Cash out via assets of same value
2. Receive the benefits when and if received

If qualified to receive benefits at time of divorce, use the TIME RULE

Numerator: yrs employed during marriage

Denominator: total yrs of employment

O/W if NPS dies, then NPS Estate gets no rights to the PB

Front 56

Disability Pay/Worker's Comp

Back 56

Disability pay or worker's comp benefits are treated like wage replacement and classified according to "when received" not when earned (UNLIKE Pension Benefits), and the characterization of the benefits depends on what it is intended to replace.

Intended to replace:

1. Marital earnings = CP
2. Post-divorce = SP
3. Retirement Benefits = CP

Front 57

Severance Pay

Back 57

If severance pay resembles a retirement pension b/c it was earned via employment during marriage, treated like CP

If severance intended to replace "lost earnings" then it is treated like SP after divorce or permanent separation

Front 58

Life Insurance

Back 58

1. Upon death: if policy paid with CP funds, 3p beneficiary and surviving spouse each get 1/2 interest in ins. proceeds. If policy paid with CP and SP, proceeds are characterized as CP in proportion to % of premium payments made with CP funds

Upon divorce: proceeds are characterized as CP in proportion to the % of premium payments made with CP funds

Proceeds for term insurance (policy w/ no current cash value b/c it has no investment feature and covers no more than risk of death):

1. Upon death: cts will use either apportionment method or hold that characterization or the final premium payment will determine whether the proceeds are CP/SP

Upon divorce: most courts hold that the policy has no value b/c there is no investment future

Front 59

Federal Preemption

Back 59

Federal law preempts CP law
1. Federal homestead claims (depends on law)
2. Armed forces life ins (SP)
3. US Savings Bonds (SP unless fraud)
4. Social Security: (SP)

Front 60

Property with Federal Aspects

Back 60

1. railroad retirement benefits
2. military retirement benefits
3. military & VA disability
4. civil/foreign serv pension
5. Copyrights

Front 61

Rental Income

Back 61

Characterized by its source.

If source is SP, then Rental Income is SP

If source is CP, then Rental income is CP.