Community Property - Texas Bar Exam 2010

Front 1

Separate Property

Back 1

Separate property is either:
1. owned by either spouse before marriage
2. acquired during marriage by gift, will, or inheritance
3. tort recovery for personal injury (pain and suffering, disfigurement)
4. loss of future earnings after the parties divorce

Front 2

Community Property

Back 2

Property other than separate property, acquired by either spouse during marriage; examples:
1. salary and wages of either spouse
2. income from community assets
3. income from SP is CP (unless spouses agree in writing that such income will be SP or it is a gift from one spouse to other spouse)
4. tort recovery for earnings

Front 3

Community Presumption

Back 3

All assets on hand whenever the issue is raised (divorce, death of spouse, creditor's claim) are presumptively CP

Burden of proving asset is SP is on party so contending, who must overcome CP presumption by clear and convincing evidence

Front 4

Inception of Title Rule

Back 4

Character of an asset is determined at the time the asset is acquired

Applied in all cases, except 2:
1. Employee retirement benefits
2. Stock options
(these are considered forms of compensation - part of spouse's earnings)

Front 5

Reimbursement for Community Funds Expended on One Spouse's Separate Property

Back 5

Where community funds are expended to reduce secured debt or make capital improvements on one spouse's SP, the community does not have an ownership interest, rather, the community has a claim for reimbursement if the divorce was filed or death occurred after Sept 1, 2009

Reimbursement for funds expended by marital estate for improvements to another marital estate is measured by the enhancement in value to the benefited marital estate

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

Front 6

Reimbursement for Separate Funds Expended on One Spouse's SP

Back 6

In cases involving expenditure of CP on one spouse's SP (and vice versa) but not involving reduction of secured debt or improvements, an equitable claim for reimbursement can be recognized

Reimbursement is now allowed for:
1. child support or alimony
2. living expenses of a spouse's child
3. contributions of property of a nominal value
4. student loan owned by spouse

Front 7

Property Brought to Texas from Another State

Back 7

Apply the inception of title rule; follow 3 conflict principles:
1. In common law state, husband's salary is his property; and wife's salary is her property
2. In common law state, how title is held determines ownership
3. Conflict of laws SP: if it was one spouse's property in the common law state, it is that spouse's separate property in Texas (you don't lose property rights by moving to a new state)

Front 8

Quasi-Community Property

Back 8

Form of property owned by married couple; if couple moves to CP state from non-CP state, property that couple acquired in the non-CP state may be considered quasi-CP; quasi-CP is treated just like CP when one the couple divorces and is subject to "just and right" equitable division

Front 9

Tracing

Back 9

assets purchased with separate funds (or with proceeds from sale of separate assets) are themselves SP; this is determined by trading the property back to the funds used to purchase it

Front 10

Community credit presumption

Back 10

all funds borrowed and all goods purchased on credit during marriage are presumptively on community credit

burden of proving that a particular asset is SP is on the party as contending; separate ownership must be established by clear and convincing evidence

Front 11

Effect of How Title is Taken

Back 11

How title is held (H's or W's name alone or both) does not determine characterization; rather, under the inception of title rule, it is the time and circumstances of the acquisition that determine character; there are exceptions to the general rule:
1. where one spouse uses separate funds, and takes title in other spouse's name, there is a reubttable presumption of a gift to the spouse who holds title in name
2. when spouse participates in transaction and there is a significant recital (ex. as her sole and separate property), absent fraud or mistake, parol evidence rule bars a spouse's testimony offered to contradict the deed

Front 12

Management of SP

Back 12

Each spouse has sole power to manage, control, dispose of his SP without other spouse's joinder or consent (exception: if property qualified as homestead, then both spouses must join in the conveyance)

Front 13

Management of CP

Back 13

Three categories of CP:
1. Wife's sole management CP
2. Husband's sole management CP
3. Joint management CP

Front 14

Sole management CP

Back 14

each spouse has sole power to manage, control, dispose of his or her sole management CP (spouse's salary and income from spouse's SP)

Front 15

Joint management CP

Back 15

if one spouse's sole management CP is mixed or combined with other spouse's CP, property is subject to joint management

if title is taken in both spouses' names, presumption arises that asset is joint management CP

Front 16

Life insurance policies

Back 16

inception of title rule applies in determining whether life insurance policy is SP or CP; under this rule, the first premium payment determines ownership

Front 17

Employee retirement benefits

Back 17

employee retirement benefits are treated differently from life insurance policies due to the source of contributions to the plan; an employer's contributions to a retirement plan are a form of indirect compensation and fall under the rule that income earned by either spouse during the marriage belongs to the community

Front 18

Stocks

Back 18

for stock options and restricted stock, proration rule is applied to determine the SP and CP interests

for options/restricted stock awarded during marriage, portion that is CP is computed pursuant to a fraction: (period from date stock granted to date of divorce/period from date stock granted to date option is exercisable or restriction is removed)

Same proration approach taken with respect to options/restricted stock awarded prior to marriage; portion that is SP is computed by fraction: (period from date stock granted to date of marriage/period from date stock granted to date option is exercisable or restriction is removed)

Front 19

Bonuses

Back 19

Proration rule applies to a bonus paid to one spouse at end of the year; bonus deemed to have been earned for effort during entire year, not just last few months of year

Front 20

Commingled Bank Accounts - CP Out First

Back 20

When SP and CP funds are commingled in a bank account, it is presumed that CP is drawn out first

Front 21

Division of Property

Back 21

Each spouse entitled to his SP, but CP is subject to "just and right division" between spouses

Under "just and right division," court may consider:
1. Age
2. Relative physical condition of parties
3. Abilities
4. Earning power and business opportunities
5. Education
6. Need for future support
7. Size of community estate
8. Size of each party's SP
9. Length of marriage
10. Children of marriage and child care responsibilities
11. Fault in breakup of marriage
* Court may set aside one spouse's SP for support of minor children of the marriage

Front 22

Division of Property - Standard of Review

Back 22

Wide latitude is given trial judge's determination regarding the division of property upon divorce; it is not sufficient reason to reverse that the Court of Appeals might reach a different decision; indeed, a decision will be reversed only if division is so disproportionate as to be manifestly unjust and an abuse of discretion

Can court consider fault if it is a no-fault divorce? argue both ways

Court of Appeals must reverse and remand; cannot render judgment on just and right division

Front 23

Spousal Maintenance

Back 23

Court may order periodic payment from future income of one spouse for support of other spouse only if:
1. duration of marriage was 10 years or longer
2. spouse seeking maintenance lacks sufficient financial resources to provide for her minimum reasonable needs
3. spouse seeking maintenance:
a. is unable to support herself because of an incapacitating disability
b. is the custodian of child from the marriage who requires substantial care because of disability
c. lacks earning ability adequate to provide support for her minimum reasonable needs

Front 24

Limitations on amount of spousal maintenance

Back 24

maintenance award cannot exceed the lessor of:
1. $2500 per month or
2. 20% of obligor spouse's average monthly income

Statute sets out a laundry list of factors to be considered in fixing amount:
1. duration of marriage
2. age, employment history, earning ability, and physical and emotional condition of spouse seeking maintenance
3. time needed by that spouse to acquire sufficient education and training to be employable
4. property brought into marriage by either spouse
5. contributions of spouse as homemaker and to education and earning ability of other spouse
6. ability of other spouse to meet his own needs
7. any marital misconduct

Front 25

Limitations on duration of spousal maintenance

Back 25

Limited to shortest period of time that will allow spouse to obtain appropriate employment or develop skill, unless spouse's inability to gain employment is because of disability, duties as custodian of young child, or some other impediment to gainful employment; maintenance cannot remain in effect more than 3 years

Modification can be downward (never increased) upon showing that the circumstances of either party have materially and substantially changed (terminates on death or if recipient remarries or cohabits with another person)

Front 26

Income from SP

Back 26

Income from SP is CP (unless parties agree otherwise)

Front 27

Increase from animals

Back 27

Increase from animal that was SP is CP (ex. H bought dog before marriage; dog is SP; dog has puppies during marriage; puppies are CP)

Front 28

Premarital Agreements

Back 28

Parties may agree to anything in premarital agreement as long as provision doesn't violate public policy or statute and doesn't adversely affect either party's child support obligation
-Requirements: in writing; signed by both parties
-Defenses to enforcement: involuntary execution or unconscionability - 3 part test:
1. party arguing against enforcement must prove he wasn't provided a fair/reasonable disclosure of property of financial obligations of other party
2. party must prove that he didn't give a written waiver of right to disclose
3. party must prove he didn't have an adequate knowledge of property or financial obligations of other party
-Legal representation of both prospective spouses with conflicting interests in drafting a premarital agreement is unethical

Front 29

Power to Challenge Gifts of CP

Back 29

One spouse can make "reasonable" gifts of CP as long as gifts are not so disproportionate as to be "in fraud of spouse's community rights"

Factors considered:
1. relationship of donee to donor (ex. gift to H's girlfriend is presumptively fraudulent, but gift to relative tends to support gift against challenge)
2. amount of gift in relation to community estate
3. whether spouse is adequately provided for out of remaining community estate
4. whether there are any special circumstances that justify gift
5. whether gift was of donor's sole management CP

Applies to life insurance policy if, for example, H names mistress or child from first marriage is beneficiary (test = fraud on the spouse doctrine, weight the equity factors)

Front 30

Tort Liability

Back 30

All CP is subject to tort liability of either spouse; tort judgment can reach everything except other spouse's SP