Community Property

Front 1

separate property (SP)

Back 1

- property owned by either spouse before marriage

- property acquired during marriage by gift, will (devise), or inheritance (descent) (intestacy)

- SP produced by a written partition or exchange of CP

- tracing principle: property purchased w/ separate funds

- tort recovery for personal injury (disfigurement, pain & suffering, mental anguish, loss of consortium); but NOT tort recovery for earnings or lost wages or medical expenses

- [but loss of FUTURE earning AFTER THE PARTIES DIVORCE will be that spouse's SP]

Front 2

community property (CP)

Back 2

Property, other than SP, acquired by either spouse during marriage.

ex: (1) salary and wages of either spouse; (2) income from community assets
- [but, bonus owned by W before marriage is W's SP even if not paid until after marriage]

In TX, the income from SP is CP*, UNLESS:
(1) the spouses agree in WRITING that such income shall be that spouse's SP; OR
(2) gift from one spouse to other spouse: income from donated property is PRESUMPTIVELY the donee spouse's SP.

* the income is, however, the owning spouse's sole management CP

Front 3

the community presumption

Back 3

(1) All assets acquired during marriage presumptively belong to the community.

(2) All assets acquired on credit during the marriage are presumptively acquired on community credit.

* (3) All assets on hand whenever the issue is raised (divorce, CR's claim, death of spouse) are presumptively CP.
- [e.g., everything that exists on divorce is presumed CP]

=> The burden of proving that an asset is SP is on the party so contending, who must overcome the presumption by C&CE.

Front 4

inception of title rule

Back 4

The character of an asset, as SP or CP, is determined AT THE TIME THE ASSET IS ACQUIRED.

Subsequent events of expenditures (e.g., payment of remaining purchase price w/ community funds, using community funds to make improvements) NEVER affect the asset's characterization, but go only to the creation of a claim for ECONOMIC CONTRIBUTION.

Inception of title rule applies in all cases EXCEPT employee retirement benefits and stock options [in those instances, pro rata is used].

Front 5

economic contribution: community funds expended on one spouse's SP

Back 5

Where community funds are expended to (1) reduce secured debt or (2) make capital improvements on one spouse's SP, the community has a claim for ECONOMIC CONTRIBUTION that matures on termination of the marriage.

- Note: a claim for economic contribution also arises if spouse uses separate funds to pay down secured debt on or improve (i) CP or (ii) the other spouse's SP.

Front 6

effect of economic contribution

Back 6

If the marriage is terminated by divorce, the claim for economic contribution is a community asset that is subject to "just and right" division along w/ all other CP.

If the marriage is terminated by a spouse's death, the spouse's 1/2 CP share of the EC claim passes under the spouse's will or by intestate succession.

Front 7

computation of claim for economic contribution in cases involving reduction of secured debt

Back 7

In cases involving reduction of secured debt, the amt of the claim is computed by multiplying the EQUITY in the property on the date of divorce or a spouse's death by a FRACTION.

Equity: current value of property minus amt of outstanding secured debt

Numerator: amt of principal debt reduction attributable to community funds [how much debt reduced by community funds]

Denominator: principal debt reduction + equity in the property on date of 1st contribution of community funds

EC = current equity * (PDR) / (PDR + equity 1st)

Hint 7

Note: if the entire balance of the secured debt is paid off w/ community funds (e.g., amt of outstanding secured debt is 0 at the time of death or divorce), then the amt of equity in the property is the FMV of the property

Front 8

computation of claim for economic contribution in cases involving capital improvements

Back 8

If community funds were expended to make improvements on the property, the dollar COST of improvements is added in as an economic contribution of CP, and is added to BOTH sides of the fraction.

EC = current equity * (PDR + improvement cost) / (PDR + equity 1st + improvement cost)

Hint 8

Note: if community funds are used to make capital improvements on one spouse's SP and the case does NOT involve paying secured debt, the formula still works. the only difference is PDR = 0 b/c there is no secured debt to be paid.

Also note: if there is no secured debt, current equity and equity 1st will both be FMV of property at the appropriate time

Front 9

lien to secure claim for economic contribution

Back 9

If the marriage ends in divorce the court MUST secure a claim for EC by imposing an EQUITABLE LIEN on the property of the benefited estate.

If the marriage ends on the death of a spouse, an equitable lien is imposed ONLY IF application for the lien is made by SS, the personal representative of the deceased spouse, or any other interested person.

Subject to homestead restrictions, the equitable lien may be imposed on any property of the benefited marital estate and is not limited to the benefited property itself.

Front 10

equitable claim for reimbursement

Back 10

In cases involving expenditure of CP on one spouse's SP (and vice versa) but NOT involving reduction of secured debt or capital improvements (e.g., community funds used to pay premiums on life ins. policy that is one spouse's SP], an EQUITABLE CLAIM FOR REIMBURSEMENT can be recognized.

Claims that are statutorily denied recognition as reimbursement claims: (1) payment of child support, alimony, spousal maintenance; (2) living expenses of a spouse or child; OR (3) payment of a student loan owned by a spouse.

Note: if CP funds expended on CP, NO claim for economic contribution and NO claim for equitable reimbursement

Front 11

common law state conflict principles

Back 11

(1) In a C/L state H's salary is his property; and W's salary is her property.

(2) In a C/L state, how title is held determines ownership. If title is in H's name, it's his property; if title is in W's name, it's her property; if title is in both spouses' names, it's their property: either a tenancy in common, joint tenancy, or tenancy by the entireties.

(3) Property rights are not lost by moving to a different state. [e.g., if it was H's property in another state, it is H's SP in TX.

Front 12

quasi-community property

Back 12

property acquired in another state, which would have been CP if acquired under the same circumstances in TX

Quasi-community property only applies to division upon divorce [treated the same as CP and is subject to "just and right" equitable division]; it does NOT apply to distributions on death [in such case, quasi-CP treated as SP of particular spouse].

Front 13

CP states (9)

Back 13

Louisiana, Texas, New Mexico, Arizona, California, Nevada, Washington, Idaho, Wisconsin

[TWIN CLAW NM]

Front 14

When can presumption of "community credit" be rebutted?

Back 14

Two fact patterns in which "separate credit" can be established:

(1) non-recourse note: in extending credit, lender agreed to look SOLELY to the borrowing spouse's estate for satisfaction of the obligation
- e.g., H signing purchase money obligation "H, for his separate estate" is C&CE to rebut community credit presumption; absent such a clear designation, it is presumed that H signed on behalf of the community estate

=> the mere fact that one spouse's SP is pledged or mortgaged as security for the obligation does NOT, by itself, overcome community credit presumption
- Reason: CR is not limited to SI in satisfaction of the debt; CR could sue on the note, which is a community obligation

(2) spouse intends to pay debt w/ proceeds of sale of SP

Hint 14

Note, that a deed naming only one spouse as grantee is insufficient to rebut the community credit presumption. Recall: unlike C/L states, how title is held does not affect character (ownership) of an asset; if property is acquired during marriage it is presumed to be CP unless rebutted by C&CE.

Front 15

Effect of how title is taken: When does title affect classification?

Back 15

Generally, how title is held does not determine characterization.

Exceptions:
(1) if one spouse uses separate funds, but takes title in other spouse's name, a rebuttable presumption arises that the spouse intended to make a gift to the other spouse's separate estate; extrinsic evidence admissible to show no gift intended
=> same facts, but spouse uses community funds: community presumption applies, but gift can be shown by a preponderance of the evidence

(2) spouse uses community funds, but title in other spouse's name "as her sole and separate property"
- b/c this is a significant recital, this is the other spouse's SP; absent fraud or mistake, parol evidence rule bars any contradictions of the recital
=> W uses community funds and a significant recital to acquire property w/o H being a party to the transaction: property is CP

Front 16

adverse possession begun before marriage, completed during marriage

Back 16

Where claimant entered the property under a "rightful" claim [e.g., mistaken deed description] before marriage, the property is his SP. The title by AP relates back to the claimant's entry under a rightful claim.

If a squatter ["naked trespasser" w/o rightful claim] enters onto land, then marries, and perfects title by limitation during the marriage, the land is CP. This is b/c a trespasser on the land of another acquires no right whatsoever until the limitations period expires. If the limitations period expires during marriage, it is presumptively CP b/c title acquired during marriage.

Front 17

life insurance policies

Back 17

For insurance policies, 1st premium payment determines SP or CP.
- Note: if it's SP in another state that would have been CP if acquired in TX it will be treated as quasi-CP in a divorce.

If the policy was SP & named someone other than W as B, W has an equitable claim for reimbursement for premiums paid w/ CP [on H's death, W gets 1/2 CP funds used to pay premiums].

If the policy was CP & named someone other than W as B, W does NOT have an equitable claim for reimbursement for premiums paid w/ CP (a reimbursement claim arises only when funds of one marital estate are expended to enhance the value of another marital estate; this would be CP expended on CP).
- but, W might challenge the B designation under the fraud on the spouse doctrine

Front 18

employee retirement benefits

Back 18

Employee retirement benefits accumulated during marriage are CP (whether or not vested at time of divorce).

There are two basic types of employee retirement plans: (1) defined benefit plan and (2) defined contribution plan

Front 19

defined benefit plan

Back 19

Under a defined benefit plan, amt of retirement benefit is tied to salary level and years of service.

sample formula: (2%) x (yrs. of service) x (avg of 3 years' highest salary)

If participation began DURING marriage, the entire annuity benefit (valued on the date of divorce) would be CP.

If participation began BEFORE marriage, the community interest is the value of the annuity benefit the spouse would receive if he began participating in the plan on the date of marriage and was eligible to retire on the date of the divorce.

Hypo: H employed by X Co. in 1986, married W in 1996, and divorced W in 2006. At the time of his marriage to W in 1996, H's highest-3-yr salary avg was $50K. At the time of divorce, the highest-3-yr salary avg was $100K.
- using the above formula, 2% x 10 yrs service [date of marriage to divorce] x $100K highest-3-yr salary avg = $20K CP (subject to "just and right" division in divorce proceeding); the remainder of this is H's SP

Front 20

defined benefit plan: if H is still working upon DIVORCE, there's 2 options as to how to distribute the retirement in the decree:

Back 20

(1) "If, as, and when received" decree: W gets her share of the value of the community interest in H's defined benefit plan as dictated by the "just and right" division of the community estate when H RETIRES.
- the value of the CP component is FROZEN at the time of divorce; future increases in the pension, resulting from salary increases or a higher "years" multiplier, will represent post-divorce earnings, H's SP

OR (2) cash W out by awarding her other assets of equal value, leaving entire pension plan w/ H.

Front 21

Does nonparticipant spouse have a devisable interest in a qualified defined benefit plan if she predeceases the participant spouse?

Back 21

Of course, if the nonparticipant spouse (NPS) in a qualified pension retirement plan DIVORCES the participant spouse, her CP interest in a qualified plan is recognized [under federal law, the NPS can get a QDRO (qualified domestic relations order), and receive payments from the plan].

BUT, due to federal preemption, NPS's rights END if she PREDECEASES the participant spouse.

Front 22

defined contribution plan

Back 22

Under a defined contribution plan (e.g., 401K plan), the employee (and in many plans the employer) makes contributions to an acct for the employee, which grows w/ accrued interest and future contributions. Upon the employee's retirement, the accrued plan benefit is either paid out in lump sum or distributed in installments. Thus, there is always a measurable value in the employee's acct, which is easily determined upon the employee's divorce.

Front 23

defined contribution plan: tracing rules

Back 23

In characterizing the SP and CP components in a defined contribution plan, tracing rules apply.

SP = assets in the acct as of marriage, incl appreciation in value thereon (e.g., if the value of the 50 shares of stock in the acct before marriage appreciate, H gets that increase in value)

CP = everything else (additional post-marriage contributions and interest/dividend income on the acct)
- recall, income from SP is CP

Hypo: At the time of H's marriage, his DC acct held 1000 shares of common stock, then valued at $36/share. When H divorced W, there was $144K in H's retirement acct, which held 3000 shares of common stock, then valued at $48/share.

H's SP: 1000 shares x $48/share = $48K
CP: $144K - $48K = $96K

Front 24

military retirement benefits

Back 24

Under the Uniformed Services Former Spouse's Protection Act (USFSPA): spouses of military personnel have CP rights in a military retirement plan.

BUT, spouses do NOT have CP rights in military DISABILITY retirement pay.

But, Hypo: H could elect to take, at his option, either a regular military retirement benefit at $1200/mo OR disability retirement at $900/mo; he chooses disability retirement.
- W has a CP interest in the disability retirement b/c H cannot "elect" to defeat W's CP interest

Front 25

disability insurance benefits

Back 25

Long-term disability benefits resulting from an injury during marriage are CP, whether the benefits are provided by an employer as an employee benefit or paid under a disability insurance policy that was purchased w/ community funds.

Thus, such benefits are subject to just and right division in a divorce proceeding.

Front 26

worker's compensation

Back 26

Unlike disability benefits, worker's compensation benefits are regarded as compensation for lost earning capacity. As a result, such benefits are characterized according to WHEN THEY ARE RECEIVED, and not when the disability or injury occurred.

To the extent that such benefits will be paid after the parties' divorce, the benefits are the injured party's SP, and thus are not subject to just and right division in a divorce proceeding.

Front 27

stock options

Back 27

A stock option gives an employee an option to purchase shares of the company's stock at a set price on a certain date in the future. Stock options invariably provide that they are not "vested," and that the option-holder must be employed by the company when the option becomes exercisable.

Front 28

stock options: characterization of CP and SP

Back 28

If the stock option is awarded during marriage but does not vest until after the marital community has ended, a proration formula is used in determining what portion of the option is CP and what portion is SP.

Proration rule:
Numerator: period (years) from date options are awarded to date of divorce
Denominator: period (years) from date option awarded to date of vesting

Hypo: On 1/20/2002, W (married to H) is awarded stock options that are exercisable if she is still employed w/ the company on 1/20/2008. W divorces H in 1/2006.

pd (yrs) from date options awarded to divorce: 4 yrs
pd (yrs) from date options awarded to vesting: 6 yrs
- pro rata fraction is 4/6; so 2/3 is CP, and 1/3 is W's SP

Front 29

business interests

Back 29

A business interest (e.g., pship interest, stock in close corp.) owned BEFORE marriage = SP

But, if it increases in value during marriage, the community might be entitled to an EQUITABLE CLAIM FOR REIMBURSEMENT for the value of TTT (time, toil, & talent) expended by H to enhance his SP.

To determine this amount (if any):
(1) value of TTT expended [how much would persons in similar positions as H receive?]
MINUS (2) value of TTT reasonably necessary to preserve H's separate estate
MINUS (3) compensation received by H in salary, bonus, dividends, fringe benefits

Hint 29

of course, if the SP business interest pays distributions during marriage, it's CP (income from SP is CP!)

Front 30

commingled bank accounts: the "community first" rule

Back 30

While the community presumption applies to commingled bank accts, and tracing to establish SP is difficult, apply the community out first rule also known as the LOWEST INTERMEDIATE BALANCE RULE:

when SP and CP funds are commingled in a bank acct, it is presumed that CP funds are withdrawn first (visualize, SP sinks to the bottom, so CP skimmed off first)

Hypo: W inherited $25K as SP; commingled it in a bank acct w/ CP, and the acct went from $12,500 at lowest to $50K at highest. On H's death, W argues here $25K is SP.
- ct uses LIB rule => W gets $12,500 as SP

Front 31

division of property on divorce

Back 31

First determine what is in the community estate, but after that, the judge determines how to divide it up.

"Just and right" equitable division of property applies only to CP and quasi-CP (both community property & liabilities).

Note, a gift cannot be made to the community. By constitution, gifts are SP. So, if a gift is made to H&W as CP, it is actually 1/2 SP for ea. of them.

Divorce court cannot divest separate title of one spouse and award it to the other spouse.
- exception: SP can be set aside for support of minor children of the marriage

Front 32

factors used by court in making a just and right division

Back 32

- fault in breaking up the marriage (the only non-economic factor) - unclear whether fault can be taken into account in a "no fault" divorce case (argue both ways)

factors relating to relevant economic status:
- disparity of incomes and earning capacities, and future support needs
- relative business opportunities, financial condition, and obligations
- relative educations, capacities, and abilities
- disparity of ages and relative physical conditions
- size of the community estate
- size of each party's separate estate
- whether one party has wasted or depleted community assets
- length of the marriage
- children of the marriage
- child care responsibilities
- benefits (innocent) spouse would have received from continuation of marriage
- (new statute): tax consequences as to specific assets (e.g., a highly appreciated asset will generate capital gains tax when sold)

Front 33

only the trial court may make a just and right division

Back 33

Wide latitude is given to trial judge's determination regarding the division of property upon divorce. The Ct of Appeals may reverse a decision ONLY if the division is so disproportionate as to be manifestly unjust and an abuse of discretion. Even then, the Ct of Appeals cannot order a different division after reversing the trial court's order. They may only reverse and remand; they may NOT reverse and render.

Front 34

later discovered CP (not partitioned at divorce)

Back 34

Later-discovered CP not partitioned at divorce is subject to just and right division in separate action brought for that purpose.

POLICY: otherwise, there's an incentive to hide assets b/c would only lose 50% of the asset

SOL for such an action: 2 yrs after other party repudiated claim of community ownership (e.g., when H say "no, it's my SP")

Front 35

spousal maintenance (limited)

Back 35

To be eligible:
(1) couple must be married for 10 yrs;
(2) spouse must lack sufficient property to provide for her minimum needs; AND
(3) the spouse seeking maintenance must either: (i) be unable to support herself b/c of a disability; (ii) be custodian of a disabled child; OR (iii) lack employment skills adequate to provide for her minimum reasonable needs.

Maximum award: LESSER of $2500 per month of 20% of the spouse's avg monthly income
- payments are limited to the shortest period that will enable the spouse to obtain appropriate employment or develop an employable skill, but CANNOT continue for more than 36 mos

Front 36

factors to consider in awarding spousal maintenance

Back 36

- lack of employment history and skills
- physical and mental condition
- contributions as a homemaker
- contributions to H's earning ability
- H's ability to meet his personal needs and child support obligation

Front 37

modification of limited spousal maintenance award

Back 37

Award can be modified DOWNWARD (but not upward) upon showing that circumstances of either party have materially and substantially changed.
- (e.g., H has less income)

Front 38

termination of limited spousal maintenance award

Back 38

Award terminates (1) on death of either party, OR (2) if W remarries or cohabitates w/ another person.

Front 39

alimony

Back 39

Alimony is an allowance in the nature of future periodic payment which a court orders as a personal obligation for support after a final decree of divorce.

There is NO alimony in TX, EXCEPT

(1) "temporary alimony": support payments "until a final decree is entered"

(2) contractual alimony: if the parties agree to a property settlement that includes periodic payments to a spouse, the fact that the agreement is incorporated into the divorce decree, does not make it court-ordered alimony

(3) in rem periodic payments IF referable property not easily divided & it is in rem (no personal liability)
- e.g., H keeps the property (e.g., stock in close corp.) & W gets a periodic payment to compensate her

Front 40

effect of divorce on life insurance (& pension plans) that is SP

Back 40

If the policy is H's SP (b/c H bought it before marriage), policy is not mentioned in the divorce decree, & W is still the named B at H's death:
- §: divorce terminates W's rights as B (treats former spouse as having predeceased the insured) [but, rights of former spouse's relatives are not terminated], UNLESS:

(1) H renames W as B after divorce;
(2) divorce decree names W as B; or
(3) the life insurance policy is part of a qualified ERISA plan, in which case federal preemption overrides the state divorce rule, and W takes notwithstanding divorce

Front 41

effect of divorce on life insurance that is CP

Back 41

If the policy is CP (b/c H bought it while married), policy not mentioned in the divorce decree, & W is still the named B at H's death:

b/c the community life insurance policy was not mentioned in the divorce action, H and W became tenants in common, 1/2 each. this is omitted property. the "divorce revokes" rule applies only to H's 1/2 community interest [alternate beneficiary would take since H is dead]. W keeps the other 1/2 interest as her CP share.

Front 42

goodwill: not subject to division

Back 42

The goodwill of a professional solo practice is not a NOT a property interest that can be divided upon divorce b/c it is not owned separate and apart from the spouse's person.

Cf. if H owned a professional corp., the shares of stock are property subject to just & right division upon divorce, even though their value includes H's goodwill.
- to divide goodwill, it must be separate from the person and have commercial value

Front 43

professional degree: not subject to division

Back 43

A professional educational degree is NOT property subject to division upon divorce, even for reimbursement of CP funds expended in obtaining it.

Rationale: to call a professional degree "property" would result in an award of post-divorce earnings, which is prohibited [CANNOT divest a spouse of his SP]

- even if H paid for W's education, there is no claim for economic contribution (not a secured debt or capital improvement of SP) or equitable claim for reimbursement (b/c the expenditures were not on property)

Front 44

bigamy (being married to two people at the same time)

Back 44

If parties are not legally married (e.g., H marries W2 w/o legally divorcing W1, H and W2 are not legally married), then no CP exists b/w H and W2.

Front 45

W2's awareness of bigamous marriage

Back 45

If W2 unaware that H is already married to W2,
- W2 is called a putative spouse and the relationship is characterized as a joint venture or pship
- to divide CP obtained during the "marriage," analogize to CP
- e.g., H earned $100k during bigamous marriage. W2 gets 1/2 ($50K) and H & W1 get 1/2 as CP

If W2 was aware that H is already to W1,
- the relationship is "meretricious" and W2 recovers NOTHING; in above ex, H & W1 get entire $100K as CP

Front 46

bigamous marriage: effect of divorcing W1 (or W1 dies)

Back 46

W2 and H would now be married

** once the impediment to marriage is removed, the marriage is valid and all future acquisitions will be CP of H & W2

Front 47

the income from separate property is community property

Back 47

R: income from SP is CP

Exceptions:
(1) spouses agree in WRITING that income from each party's SP shall be SP.
(2) gift from one spouse to another: income from interspousal gifted property is presumptively donee spouse's SP
(3) [not really an exception]: capital gains - such gain merely reflects the increased value of the SP

Front 48

trust income interests

Back 48

If a gift is of INCOME coming from the trust only, and NOT the underlying trust principal (e.g., trust: "income to H for life, remainder to his children"), then "property acquired by gift is SP" rule applies; the income is SP.
- the "income from SP is CP" rule does not apply b/c the trust isn't SP (H doesn't own it at all)

Cf. All income from the trust is CP from the point at which H has the unrestricted power to withdraw PRINCIPAL but doesn't withdraw it (e.g., trust: "income to H until age 30, then to H;" all income after age 30 is CP)
- the point: outright ownership was totally w/n H's control

Front 49

mineral interests

Back 49

If H owns mineral interests as SP, the income type from that mineral interest are classified as:

(1) bonus payments and royalties are SP
(2) delay rentals are CP (treated as rental income, & income from SP is CP!)

Bottom line: delay rentals are the ONLY mineral lease distributions that are classified as CP

Front 50

corporate distributions

Back 50

Cash dividends paid on stock are CP b/c this is income from SP.
- this is the ONLY type of regularly encountered corporate distribution that is CP.

All other corporate distributions are SP.
- stock dividends; stock splits (merely representing a change in the corporate structure); stock options; new securities issued as the result of a merger, consolidation, etc

Capital gain from sale of stock - SP (all proceeds from sale of SP = SP)

Mutual fund
- regular dividend: CP (income from SP is CP)
- capital gains dividend - SP (came from sale of SP, so it's SP)

Stock options awarded during marriage are CP and are subject to just and right division in decree

Front 51

increase from animals

Back 51

the increase from SP animals is CP (puppies, kittens, lambs, colts - all are CP)

Front 52

premarital agreements: Uniform Premarital Agreement Act

Back 52

(1) must be in WRITING and SIGNED by both parties

(2) no consideration for the agreement is required

(3) parties can agree on ANYTHING EXCEPT to (1) limit either party's child support obligation, OR (2) agree that, after they marry, one spouse's SP shall be CP [they can convert SP into CP after they marry, but not in a premarital agreement]

Examples:
- parties can agree that income from each party's SP shall be SP
- agreement can govern the disposition of property on separation, divorce or death, incl. the making of a will or trust and the distribution of life ins. policies
- agreement can waive rt to homestead, exempt personal property, family allowance, and can deal w/ any other matter including their personal rights and obligations
- agreement that each party's salary and wages shall be that party's SP
- agreement can waive rt to spousal maintenance or spousal support upon divorce

Front 53

setting aside the premarital agreement

Back 53

In order to set aside a premarital agreement, it must be established:

(1) that the agreement was not signed voluntarily; OR

(2) was "unconscionable when made" AND (i) there was no fair disclosure of H's property or financial obligations; (ii) the right to disclosure was not waived in writing; AND (iii) W had NO adequate knowledge of H's property or financial obligations

Burden of proof on "unconscionability" issue or that agreement was signed involuntarily is on party seeking to avoid the agreement.

Unconscionability is a matter of law to be decided by the court.

Front 54

marital agreements

Back 54

Agreements made during marriage must be in writing and signed by both spouses, but no consideration is required.

Examples of marital agreements include conversion, partition, and exchange agreements.

** A marital agreement terminates upon divorce; even if the parties remarry, the agreement is not revived.

Front 55

marital agreement: conversion agreement

Back 55

Spouses can agree in writing (signed by both spouses) to convert SP into CP.

Note, an invalid conversion agreement (e.g., not signed by both parties) does not convert SP to CP. Instead 1/2 SP for ea. H & W.

Front 56

tax advantages of a conversion agreement

Back 56

If W's SP w/ a low basis appreciates (get capital gains if sold w/ a hefty capital gains tax), H & W can convert it to CP, and it will obtain a new basis on the death of the first spouse to die (Cf. if it stayed SP, it would only get the new basis if W predeceased H).

Also, if H predeceases W, he will have sufficient assets to utilize his $3.5 million estate tax exemption. W will have made a gift to H, but there are no gift tax consequences b/c of the unlimited gift tax marital deduction.

Front 57

disadvantages of a conversion agreement

Back 57

If parties develop marital problems, the converted property, as CP, will be "on the table" for just and right division.

Some protection against CRs' claims will be lost.

The (former) SP owner will lose the power of disposition over 1/2 the property.

Front 58

marital agreement: partition agreement

Back 58

Spouses can agree in writing (signed by both spouses) to make an unequal partition of CP land, then existing or to be acquired in the future.

A partition agreement is valid as against PRE-EXISTING unsecured CRs, UNLESS made w/ intent to defraud CRs.

Must file the partition agreement in the county where land is located; otherwise, it is invalid against subsequent CRs or BFPs w/o actual notice of the agreement.

Front 59

marital agreement: exchange agreement

Back 59

Spouses can agree in writing (signed by both spouses) to make an exchange of all or part of their property interest, then existing or to be acquired in the future.
- ex: valid exchange agreement where H exchanged 1/2 CP interest in property for W's 1/2 CP interest in other property
- spouses may also exchange all or part of their SP interests

Must be recorded in the county where land located to be valid against subsequent CRs or BFPs w/o notice.

Front 60

community property survivorship agreements

Back 60

Spouses may agree in writing that all or part of their CP becomes the property of the SS on the death of a spouse. The survivorship agreement can be as to specific assets, or it can apply to all CP now owned or acquired in the future.

Elements: (1) must be in writing and signed by BOTH spouses, AND (2) not revoked (either spouse may revoke by written notice to other spouse).

The agreement must contain one of the following phrases (or words to like effect): " with right of survivorship"; "will become the property of the survivor"; or "shall pass to the surviving spouse"

Front 61

proof of valid survivorship agreement after death of first spouse

Back 61

Upon the death of the first spouse, title passes by right of survivorship as a nonprobate transfer. Right of survivorship is valid w/o an adjudication.

§ authorizes a ct proceeding in which, upon proof of a valid agreement and that the agreement was not revoked, the ct enters an order adjudging the agreement valid. This order may be used as evidence of the spouse's ownership rights.

Front 62

protection of deceased spouse's estate and 3d parties w/o knowledge of survivorship agreement

Back 62

3d parties dealing w/ DECEDENT'S ESTATE w/o notice of the survivorship agreement are protected (e.g., executor not liable for sale of property, not knowing about survivorship agreement; the BFP takes good title).

3d parties dealing w/ SS (who didn't have notice of revocation) - 6 month rule: as long as the sale was more than 6 months AFTER decedent's death, the purchaser takes good title as against the decedent's successors

Front 63

palimony agreements

Back 63

An agreement b/w persons living together but not contemplating marriage must be in writing and signed by the party sought to be charged. This rule also applies to same-sex couples.

- NO oral palimony agreements

Front 64

lifetime gifts of CP

Back 64

Either spouse has an unrestricted power to make gifts of her SP w/o the other spouse's consent. In addition, one spouse can give his 1/2 community interest in an asset to the other spouse, making the asset the donee spouse's SP.

However, there are restrictions on either spouse's power to make lifetime gifts of CP to a 3d party. TX law allows one spouse to make "reasonable" gifts of CP w/o the other spouse's consent and participation subject to the following doctrines:

(1) fraud on the spouse; and
(2) illusory trusts

Front 65

fraud on the spouse

Back 65

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

Proof of actual intent to defraud need not be established; circumstances surrounding the transaction may show "constructive fraud."

"weigh the equity" factors:
(1) relationship of donee to donor spouse
- a gift to an unrelated parted (e.g., H's gf) is presumptively fraudulent
- but if the gift is to a relative, this tends to support the gift against challenge

(2) amt of gift in relation to community estate

(3) whether there are any special circumstances that justify the gift

(4) whether spouse is adequately provided for out of remaining community estate

(5) whether the gift was of the donor's sole management CP

Hint 65

Same "fraud on the spouse" test applies to SP life insurance policy if (e.g.,) H, the insured, names mistress or child by his first marriage, as beneficiary.

In determining whether W can set aside the B designation as to her 1/2 CP, the test is the fraud on the spouse doctrine, considering the "weigh the equity" factors.

Front 66

illusory trusts

Back 66

If one spouse uses CP to create a revocable trust, and also retains the power to control the trustee in selling, encumbering, and investing the trust assets, the trust is ILLUSORY and can be set aside by the other spouse.

But, if settlor spouse only retains the right to revoke the trust, it is unclear whether this, by itself, is sufficient to make the trust illusory and subject to challenge. So, argue both ways.

Front 67

effect of divorce on preexisting CRs

Back 67

Divorce does NOT affect the rights of preexisting CRs.

If both spouses sign the note, they are both liable and their SP can be reached to satisfy the judgment.

If one spouse signed note, only that spouse is personally liable (no judgment lien can be placed against other spouse).
- if judgment lien only against one spouse, only enforceable against that one spouse, the judgment DR

If one spouse signed note, defaults, couple divorces, and DR spouse fails to pay, CR can seek to have a constructive trust imposed on the non-DR spouse's property.
- the action must be IN REM against property in non-DR spouse's hand; a personal action against non-DR spouse is NOT allowed

Front 68

classification of marital property for management purposes

Back 68

(1) W's SP

(2) W's sole management CP: W's salary; income from W's SP
- during marriage, W has the sole power to manage, control, and dispose of her sole management CP

(3) joint management CP: if sole management CP of one spouse is mixed or combined w/ sole management CP of the other spouse (e.g., joint checking acct), such CP is subject to their joint management, control, and disposition.

(4) H's sole management CP: H's salary; income from H's SP
- during marriage, H has the sole power to manage, control, and dispose of his sole management CP

(5) H's SP

Front 69

management powers: protection of BFPs

Back 69

If spouse had apparent authority over other spouse's SP, BFPs are protected.

Property titled in one spouse's name or in their possession (and not subject to documentary evidence of title, e.g., land, cars) is PRESUMED subject to that spouse's sole management.

POLICY: protect BFPs, who should be able to rely on apparent authority

Front 70

liability for torts

Back 70

If tort occurred DURING marriage,
- all CP is subject to tort liability of either spouse, so tort CRs can reach all CP and the SP of the liable spouse (everything but the other spouse's SP)

If tort occurred BEFORE marriage,
- tort CRs can only reach all assets over which spouse had management power: SP, sole management CP, and joint management CP

Front 71

liability on contracts

Back 71

There is a duty to support other spouse and minor children, so each spouse is personally liable for the other spouse's contracts for NECESSARIES (hospital bills, support of spouse and minor kids).

K for necessaries: CR can reach ALL assets, even other spouse's SP

K for non-necessaries: CR can only reach assets over which the liable spouse had management ports (SP, sole management CP, and joint management CP)

Front 72

setting mortgages aside

Back 72

Loans secured by CP under H's sole management (e.g., if H is named grantee on deed) do NOT require W's signature or consent.

Loans secured by CP or SP that is also a HOMESTEAD require both spouses' signatures (homestead joinder rule).
- so if H mortgages homestead w/o W's knowledge or joinder, W may set aside the mortgage on the homestead