Community Property - CA (Main Deck)*

Question 2

WHAT 4 STEPS MUST YOU WALKTHROUGH WHEN APPROACHING A COMMUNITY PROPERTY QUESTION?

Answer 2

STEP 1: IDENTIFY STATUS & LENGTH OF RELATIONSHIP

A: Determine status of the parties’ relationship

B: Determine duration of economic community

STEP 2: CLASSIFY EACH RELEVANT ASSET

A: Time of acquisition

B: Source of asset & actions of parties

STEP 3: CONSIDER SPECIAL CIRCUMSTANCES

A: Particular assets/sources

B: Management & control issues

STEP 4: DISTRIBUTE PROPERTY

A: Creditor or third-party claims

B: Distribution at death

C: Distribution at divorce

Question 3

STEP 1 -

STATUS & LENGTH OF RELATIONSHIP:

LIST THE 5 TYPES OF INTERPERSONAL RELATIONSHIPS RELEVANT TO COMMUNITY PROPERTY QUESTIONS

Answer 3

1) Marriage
2) Domestic Partnership
3) Common-Law Marriage
4) Putative Marriage/Spouse
5) Unmarried Cohabitants

Question 4

MARRIAGE

(Define)

Answer 4

Definition: In California, marriage is defined as the legal union of a man and a woman.

Note:

1) Same-sex marriages performed in California from June 16, 2008 to November 4,2008 are recognized as valid.
2) Same-sex marriages performed outside ofthe state anytime before November 5, 2008 are recognized as valid marriages within California.

Question 5

WHAT IS REQUIRED TO CREATE A VALID MARRIAGE IN CALIFORNIA?

Answer 5

Rule: In California, a valid marriage requires:

1) Legal capacity of both parties.
a) At least 18 (or parental and court consent),
b) Not presently married or in a legally recognized partnership. AND
c) Not closely related by blood.
2) Mutual consent.
3) Marriage license. AND
4) Witnessed ceremony.

Question 6

DOMESTIC PARTNERSHIP

(Define)

Answer 6

Definition: Domestic partners are two individuals who live together, share a common domestic life, and have registered as domestic partners with the California Secretary of State.

Question 7

WHAT IS REQUIRED TO CREATE A VALID DOMESTIC PARTNERSHIP IN CALIFORNIA?

Answer 7

Rule: To become domestic partners in California, the parties must:

1) Share a common residence (i.e., live together),
2) Be at least 18,
3) Not be closely related by blood, AND
4) Either:
a) Be members of the same sex, OR
b) In an opposite-sex partnership, one party (or both) must be at least 62.

Note: If the parties meet these prerequisites, they must file a Declaration of Domestic Partnership with the California Secretary of State.

Question 8

WHAT RIGHTS & OBLIGATIONS DO DOMESTIC PARTNERS HAVE IN CALIFORNIA?

Answer 8

Rule: Under California law, registered domestic partners have the same rights, protections, and benefits, and are subject to the same duties and obligations as married couples.

Question 9

COMMON-LAW MARRIAGE

(Define & State the Rule)

Answer 9

Definition: A marriage that takes legal effect without license or ceremony when a couple lives together as husband and wife, and hold themselves out to others as a married couple.

Rule: Common-law marriage does not exist in California. However, California courts recognize common-law marriages legally formed in other states.

Question 10

PUTATIVE MARRIAGE

(Define)

Answer 10

Definition: A marriage in which both the husband and wife believe in good faith that they are married, but in fact are not formally married.

Question 11

PUTATIVE SPOUSE

(Define)

Answer 11

Definition: A spouse who believes in good faith that his or her invalid marriage is legally valid.

Note: The spouse’s belief in the validity of the marriage must be reasonable.

Question 12

WHAT RIGHTS DOES A PUTATIVE SPOUSE HAVE IN CALIFORNIA?

Answer 12

Rule: Any property that would have been Community Property if the marriage were valid is Quasi-Marital Property:

1) At divorce, the putative spouse will be granted one-half of the Quasi-Marital Property.
2) At the death of one spouse:
a) The surviving putative spouse will be granted the same intestate rights to Quasi-Marital Property as a legal spouse would have to CP, AND
b) The surviving putative spouse will be granted the same intestate rights as a legal spouse would have to a deceased spouse’s SP.

Question 13

UNMARRIED COHABITANTS

(Define & State the Rule)

Answer 13

Definition: Two people who live together in a marriage-like relationship, often as partners in life and with the suggestion of sexual relations, but who are not married, domestic partners, or putative spouses.

Rule: Unmarried cohabitants do not have the rights of spouses or domestic partners.

Note: California courts apply the principles of contract law to divide property:

1) If an express contract or cohabitation agreement has been entered into by the parties, courts will honor the terms of the agreement.
a) Exception: Courts will not enforce contracts in which sex was offered as consideration.
2) If no express contract was created, courts may find an implied contract to exist.
a) An implied contract may be formed based upon the parties’ behavior.
b) If an implied contract is found, courts will look to equitable remedies to distribute assets.

Question 14

WHY IS IT IMPORTANT TO DETERMINE THE DURATION OF THE ECONOMIC COMMUNITY?

Answer 14

Rule: Community Property can only be accumulated during the existence of the economic community. Property acquired before the economic community begins, or after it ends, is Separate Property.

Question 15

WHEN DOES THE ECONOMIC COMMUNITY BEGIN & WHEN DOES IT END?

Answer 15

Begin: The economic community begins with the marriage ceremony or registration of domestic partners.

End: The economic community ends at:

1) The death of either spouse/partner, OR
2) The permanent legal separation of the spouses/partners.

Question 16

WHEN DOES LEGAL SEPARATION OCCUR?

Answer 16

Rule: Legal separation occurs when:

1) One or both spouses/partners lack present intent to continue or resume marital relations,
2) One or both spouses/partners have communicated such intent to the other, AND
3) There is actual physical separation.

Question 17

STEP 2 -

CLASSIFY EACH RELEVANT ASSET:

LIST THE 3 WAYS CAN PROPERTY CAN BE CLASSIFIED IN A COMMUNITY PROPERTY SYSTEM

Answer 17

1) Separate Property (SP)
2) Community Property (CP)
3) Quasi-Community Property (Quasi-CP)

Question 18

SEPARATE PROPERTY

(Define)

Answer 18

Definition: Separate Property is:

1) Property acquired by either spouse before marriage or after permanent separation,
2) Property acquired during marriage by gift, devise, or bequest,
3) Rents, issue or profits of SP,
4) Property acquired during marriage with SP funds.

Question 19

COMMUNITY PROPERTY

(Define & State the Rule)

Answer 19

Definition: Community Property is property earned or acquired during marriage to which each spouse is entitled one-half interest.

Rule: All property acquired during marriage is presumptively CP unless the property is:

1) Given to one spouse by gift, devise or bequest,
2) The rents, issue, or profits of SP, OR
3) Property acquired with the proceeds of SP.

Question 20

QUASI-COMMUNITY PROPERTY

(Define)

Answer 20

Definition: Quasi-Community Property is property acquired in a non-community property state by a married couple that would be CP if the couple had been domiciled in California at the time of acquisition.

Question 21

HOW DO YOU DETERMINE THE CLASSIFICATION OF EACH ASSET?

Answer 21

Step 1: Determine the time of acquisition.

Step 2: Determine the source of the asset.

Step 3: Determine the effect of the parties’ actions.

Question 22

WHAT RELEVANCE DOES THE TIMING OF ACQUISITION HAVE TO THE CLASSIFICATION OF PROPERTY?

Answer 22

Rule: The timing of acquisition determines the presumptive classification of the property:

1) If acquired before marriage/partnership, the asset is presumptively SP.
2) If acquired during marriage/partnership, the asset is presumptively CP.
3) If acquired after permanent legal separation or divorce, the asset is presumptively SP.

Question 23

WHAT RELEVANCE DO THE SOURCE OF AN ASSET & THE ACTIONS OF THE PARTIES HAVE TO CLASSIFICATION OF PROPERTY?

Answer 23

The source of an asset (or the source of the funds used to purchase the asset), together with the actions of the parties, may alter the classification of an asset

Question 24

SOURCE OF FUNDS:

ASSETS PURCHASED FROM A COMMINGLED BANK ACCOUNT

(State the Rule)

Answer 24

Rule: When separate and community funds are commingled in a bank account, a purchase made with funds from that account are presumptively CP unless the spouse/partner claiming an SP interest can demonstrate that separate funds within the account were used to purchase the asset.

Question 25

SOURCE OF FUNDS:

TRACING

(Define)

Answer 25

Definition: Tracing is the method by which one spouse attempts to identify separate funds that have been commingled with community funds in order to claim as SP the funds or assets acquired with the funds.

Note: Though tracing most often appears as a method for a spouse to establish funds or assets as SP. It may also be used to identify and thus preserve CP.

Question 26

SOURCE OF FUNDS:

HOW CAN FUNDS BE TRACED?

Answer 26

Rule: Tracing can be accomplished by either the Direct Method or the Exhaustion Method.

Direct Method: The tracing party must show that at the time the contested asset was purchased:

1) Separate funds sufficient to purchase the asset were available in a commingled account, AND
2) The tracing party intended to use separate funds to purchase the asset as SP.

Exhaustion Method: The tracing party must show that, at the time the contested asset was purchased, all community funds in a commingled account had been exhausted by payment of family expenses.

Question 27

SOURCE OF FUNDS:

USE OF COMMUNITY AND SEPARATE FUNDS TO PURCHASE AN UNTITLED ASSET

(State the Rule)

Answer 27

Rule: When a spouse uses both community and separate funds to purchase an untitled asset, a presumption arises that the asset is CP.

Note: The spouse claiming an SP interest may rebut the presumption by tracing the funds used to purchase the untitled asset. If she can demonstrate that the asset was partially purchased with SP, the community’s interest is proportional to the percentage of CP funds used to purchase the asset (i.e., a pro rata share). Appreciation of the asset is allocated between CP and SP according to the proportional interest of each.

Question 28

SOURCE OF FUNDS:

DOWNPAYMENT WITH SEPARATE FUNDS & PAYMENTS WITH COMMUNITY FUNDS

(State the Rule)

Answer 28

Rule: If SP is used to make a down payment on an asset, and CP is used to make payments during marriage, the community estate takes a pro rata share of the property, determined by the reduction in debt principal from CP payments.

Equation: Amount Debt Principal Reduced with CP Funds / Purchase Price = Pro Rata Share of CP.

Question 29

SOURCE OF FUNDS:

MORTGAGE ON INHERITED/GIFTED PROPERTY PAID WITH COMMUNITY FUNDS

(State the Rule)

Answer 29

Rule: If mortgage payments on SP are made with CP funds, the community estate takes a pro rata share of the property, determined by the amount the debt’s principal was reduced with community funds.

Equation: Amount Debt Principal Reduced with CP Funds / Purchase Price = Pro Rata Share of CP

Question 30

SOURCE OF FUNDS:

COMMUNITY FUNDS USED BY ONE SPOUSE TO ENHANCE OWN SEPARATE PROPERTY

(State the Rule)

Answer 30

Rule: If one spouse uses community funds to enhance her own SP, the community is entitled to the greater of:

1) A reimbursement for the community funds spent, OR
2) The amount the property’s value was enhanced.

Question 31

SOURCE OF FUNDS:

COMMUNITY FUNDS USED BY ONE SPOUSE TO ENHANCE OTHER SPOUSE’S SEPARATE PROPERTY

(State the Rule)

Answer 31

Rule: In California, there is a split of authority as to whether the community estate is entitled to a reimbursement for community funds spent by one spouse to improve the other spouse’s SP:

1) In some jurisdictions, a gift of the CP is presumed.
a) Note: A presumption of gift can be rebutted by agreement.
2) In other jurisdictions, the gift presumption is rejected, and the community estate is reimbursed.

Question 32

ACTIONS OF PARTIES:

LIST 4 WAYS A COUPLE CAN OWN PROPERTY IN JOINT & EQUAL FORM

Answer 32

1) Joint Tenancy
2) Tenancy in Common
3) Community Property
4) Community Property with Right of Survivorship

Question 33

TAKING PROPERTY IN JOINT & EQUAL FORM:

JOINT TENANCY

(Define)

Answer 33

Definition: A property in which both spouses own an undivided one-half interest, and the surviving spouse automatically becomes the owner of the entirety upon death of the other.

Language: “To H and W, as joint tenants.”

Question 34

TAKING PROPERTY IN JOINT & EQUAL FORM:

TENANCY IN COMMON

(Define)

Answer 34

Definition: A property in which both spouses possess a one- half interest in the property, but with no right of survivorship.

**Language:” **To H and W, as tenants in common.”

Question 35

TAKING PROPERTY IN JOINT & EQUAL FORM:

COMMUNITY PROPERTY

(Define)

Answer 35

Definition: Property in which both spouses possess an undivided one-half interest, which neither may partition, and in which there is no right of survivorship.

Language:“To H and W, as community property,” or “To H and W, as husband and wife.”

Question 36

TAKING PROPERTY IN JOINT & EQUAL FORM:

COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP

(Define)

Answer 36

Definition: Property in which both spouses possess an undivided one-half interest, which neither may partition, and in which there is a right of survivorship.

Language:“To H and W, as community property with right of survivorship.”

Question 37

TAKING PROPERTY IN JOINT & EQUAL FORM:

LIST 2 RULES TO CONSIDER WHEN SP & CP FUNDS ARE USED TO MAKE A PURCHASE

Answer 37

1) Lucas Rule
2) Anti-Lucas Rule

Question 38

TAKING PROPERTY IN JOINT & EQUAL FORM:

SEPARATE & COMMUNITY FUNDS CONTRIBUTED TO PURCHASE PRICE (LUCAS)

(State the Rule)

Answer 38

Rule: The taking of title in joint and equal form is inconsistent with an intent to preserve an SP interest. The spouse who contributed SP funds is presumed to have made a gift to the community.

Note: This presumption may be rebutted by a written or oral agreement between the spouses that the contributing spouse would retain an SP interest.

Right to Reimbursement: There is no right to reimbursement for SP contributions made to CP (presumption of gift).

Question 39

TAKING PROPERTY IN JOINT & EQUAL FORM:

SEPARATE & COMMUNITY FUNDS CONTRIBUTED TO PURCHASE PRICE (ANTI- LUCAS)

(State the Rule)

Answer 39

Rule: If title is taken in joint and equal form, the asset is presumptively CP.

Note: This presumption may be rebutted by a written agreement or an express statement in the deed that the contributing spouse will retain an SP interest.

Right to Reimbursement: There is a right to reimbursement (without interest) for SP contributions made to:

1) The purchase of the property,
2) Improvements made to the property, AND/OR
3) Payments of the mortgage principal (not interest).

Question 40

TAKING PROPERTY IN JOINT & EQUAL FORM:

WHEN SHOULD YOU APPLY LUCAS?

Answer 40

1) For all purchases of property taken in joint and equal form before 1/1/1984. apply Lucas for all properties.
2) For purchases of property taken in joint and equal form from 1/1/1984 through 12/31/1986. apply Lucas for all properties other than joint tenancies.
3) For all purchases of property taken in joint and equal form on or after 1/1/1987. apply Lucas if the marriage ended in the death of a spouse.

Question 41

TAKING PROPERTY IN JOINT & EQUAL FORM:

WHEN SHOULD YOU APPLY ANTI-LUCAS?

Answer 41

1) For all purchases of property taken in joint and equal form before 1/1/1984, do not apply Anti-Lucas.
2) For purchases of property taken in joint and equal form from 1/1/1984 through 12/31/1986. apply Anti- Lucas for joint tenancies only.
3) For all purchases of property taken in joint and equal form on or after 1/1/1987. apply Anti-Lucas if the marriage ended in divorce.

Question 42

TAKING PROPERTY IN JOINT & EQUAL FORM:

MARRIED WOMAN’S SPECIAL PRESUMPTION

(State the Rule)

Answer 42

Rule: Property purchased prior to 1975 with CP funds and title taken in a form other than CP or joint tenancy is presumptively the SP of the married woman.

Note: The presumption can be rebutted by the husband showing that a gift was not intended, or that he was unaware of the form in which title was taken.

Example: Under the Married Woman’s Special Presumption, if land was purchased by H and W with title as H and W as tenants in common or “to H and W,” then W would hold 50% of the property as SP, and H would hold 50% of the property as CP. At divorce, W would receive 75% of the property.

Question 43

ACTIONS OF PARTIES:

MARITAL AGREEMENTS

(Define & State the Rule)

Answer 43

Definition: An agreement between spouses concerning the division and ownership of marital property made before or during marriage.

Rule: A couple may opt out of or alter the protections provided by community property law through a contractual agreement before or during marriage. Marital agreements may apply to specific or all assets.

Note:

1) Marital agreements made before marriage are prenuptial agreements.
2) Marital agreements made during marriage are transmutations.

Question 44

PRENUPTIAL AGREEMENTS

(Define & State the Rule)

Answer 44

Definition: An agreement made by a couple before marriage to determine property division (and often spousal support) in the case of divorce or death.

Rule: A prenuptial agreement must be:

1) In writing, and
2) Signed by both parties.

Question 45

PRENUPTIAL AGREEMENTS:

VALIDITY OF ORAL AGREEMENTS

(State the Rule)

Answer 45

Rule: Oral agreements are valid if:

1) Both parties acted upon the agreement. AND
2) One party is estopped from denying the validity of the agreement due to detrimental reliance by the other.

Note: This is an exception to the general rule that prenuptial agreements must be in writing to be valid.

Question 46

FOR WHAT PURPOSES MAY PRENUPTIAL AGREEMENTS BE USED?

Answer 46

Rule 1: Prenuptial agreements may:

1) Limit property rights, AND/OR
2) Waive property rights.

Rule 2: Prenuptial agreements may not:

1) Promote divorce,
2) Limit or waive child support.

Question 47

WHAT REQUIREMENTS MUST BE MET TO WAIVE RIGHTS THROUGH A PRENUPTIAL AGREEMENT?

Answer 47

Rule: To validly waive rights through a prenuptial marital agreement:

1) The waiving party must:
a) Be represented by independent legal counsel when the agreement is signed, OR
b) Have expressly waived independent counsel, in writing, after having been advised to seek independent counsel, AND
2) At least 7 days must have passed from the time the waiving spouse was presented with the agreement to the time he or she signed it.

Exception: If the waiving party is waiving the right to spousal support, he or she may not waive the right to counsel and must be represented by independent counsel at the time of signing.

Question 48

UNENFORCEABLE PRENUPTIAL AGREEMENTS

(State the Rule)

Answer 48

Rule: Prenuptial agreements will be held unenforceable in the case of:

1) Fraud,
2) Coercion, AND/OR
3) Unconscionable terms.

Question 49

TRANSMUTATIONS

(Define)

Answer 49

Definition: Transmutations are agreements made during marriage that affect the status of property.

Note: The validity of a transmutation depends on when the agreement was executed. Transmutations are divided according to date for analysis of validity:

1) Marital agreements executed before January 1,1985.
2) Marital agreements executed on or after January 1,1985.

Question 50

TRANSMUTATIONS:

MADE BEFORE 1/1/85

(State the Rule)

Answer 50

Rule: Transmutations made before January 1, 1985 are valid if made in any of three ways:

1) Oral agreement,
2) Written agreement, OR
3) An agreement inferred from the parties’ behavior.

Question 51

TRANSMUTATIONS:

MADE ON OR AFTER 1/1/85

(State the Rule)

Answer 51

Rule: Transmutations made on or after January 1,1985 must be:

1) In writing,
2) Signed by the spouse whose interest is adversely affected, AND
3) Expressly state that a change in ownership is being made.

Exception: The writing requirement does not apply to personal gifts of minimal value.

Note:

1) An express statement in a will changing the status of property cannot be used to prove a transmutation in a divorce proceeding.
2) A deed may satisfy the express writing requirement, if the party making the transmutation had the power to change the character of the asset.

Question 52

STEP 3 -

SPECIAL CIRCUMSTANCES:

LIST 5 CATEGORIES OF ASSETS THAT ARE GOVERNED BY SPECIAL RULES

Answer 52

1) Personal Injury Settlements
2) Insurance (Property, Whole Life, Term & Heath Insurance)
3) Education Expenses
4) Employment-Related Interests
a) Retirement Pensions
b) Replacement Benefits (Disability Pay & Severance Pay)
c) Stock Options
d) Professional Goodwill
e) Business Ownership
5) Assets Affected by Federal Preemption

Question 53

CP OR SP:

PERSONAL INJURY SETTLEMENTS

(State the Rule)

Answer 53

Rule: Whether personal injury settlements are classified as CP or SP depends upon the timing of the injury:

1) If the injury occurred during marriage, the settlement is CP:
a) At divorce, however, the entirety of the recovery is awarded to the injured spouse if recovery funds were not commingled with community assets to a degree that tracing is no longer possible.
2) If the injury occurred before marriage or after permanent separation, the settlement is SP.
3) If the injury resulted from other spouse’s tortious conduct, the settlement is SP regardless of when the injury occurred.

Question 54

CP OR SP:

PROPERTY INSURANCE PROCEEDS

(State the Rule)

Answer 54

Rule: Whether proceeds of property insurance are classified as CP or SP depends upon the status of the property insured:

1) Property insurance proceeds paid on CP assets are CP.
2) Property insurance proceeds paid on SP assets are SP.

Note: If CP funds were used to pay insurance premiums on an SP policy, the community estate is entitled to reimbursement for the funds used to pay the insurance premiums.

Question 55

CP OR SP:

WHOLE LIFE INSURANCE

(State the Rule)

Answer 55

Rule: The classification of whole life insurance policies depends upon the source of funds used to pay the policy premiums:

1) If premiums are paid with SP, the policy is SP.
2) If premiums are paid with CP and the named beneficiary is someone other than the surviving spouse, then:
a) The surviving spouse will receive one-half interest, AND
b) The named beneficiary will receive the deceased spouse’s one-half interest.
3) At divorce, the percentage of the policy’s cash value that is deemed CP will be determined by the percentage of the policy premiums paid with community funds.

Question 56

CP OR SP:

TERM LIFE INSURANCE

(State the Rule)

Answer 56

Rule: The classification of term life insurance policies depends upon the source of funds used to pay the policy premiums:

1) If premiums are paid with SP, the insurance policy is SP.
2) If premiums are paid with CP and the named beneficiary is someone other than the surviving spouse, then:
a) The surviving spouse will receive one-half interest, AND
b) The named beneficiary will receive the deceased spouse’s one-half interest.

Note: Because term life insurance has no current cash value, it holds no value to be distributed at divorce.

Question 57

CP OR SP:

HEALTH INSURANCE COVERAGE

(State the Rule)

Answer 57

Rule: At divorce, health insurance coverage is treated as SP, leaving no interest to divide.

Note: Health insurance coverage is controlled by the terms of the policy agreement, and most policies cancel coverage of the insured’s spouse upon divorce.

Question 58

CP OR SP:

EDUCATION EXPENSES

(State the Rule)

Answer 58

Rule: Education and training generally are the SP of the educated/trained spouse. However, the community will be entitled to a reimbursement for one spouse’s education/training expenses if:

1) The education was paid for with community funds. AND
2) The education increased the earning capacity of the trained spouse.

Question 59

CP OR SP:

WHEN MAY REIMBURSEMENT FOR EDUCATION EXPENSES BE REDUCED?

Answer 59

Rule: Reimbursement for educational expenses may be reduced if:

1) More than 10 years have passed since the education was completed,
2) Community funds were also used to pay for other spouse’s education/training, OR
3) The education received reduces the educated spouse’s need for spousal support.

Question 60

CP OR SP:

RETIREMENT PENSIONS

(State the Rule)

Answer 60

Rule: Retirement pensions are CP to the extent pension benefits were earned during marriage.

Note: At divorce, courts apply the Time Rule to determine what percentage of the pension to apportion to the community.

Question 61

TIME RULE

(State the Rule)

Answer 61

Rule: Pension rights earned both during and outside of the economic community are mixed CP/SP assets. The amount apportioned to the community estate is determined by the amount of time the pension was earned while the pensioner was part of the economic community.

Note: To calculate the amount of a pension that will be apportioned to the community estate under the Time Rule, courts use the following equation: Years of marriage during which pension was earned / Total years employed while pension was earned = Amount of pension classified as CP.

Question 62

CP OR SP:

DISABILITY & WORKER’S COMPENSATION

(State the Rule)

Answer 62

Rule: The classification of disability and worker’s compensation depends upon the earnings the compensation is intended to replace:

1) Disability and worker’s compensation are CP if they are intended to replace marital earnings
2) Disability and worker’s compensation are SP if they are intended to replace pre- or post- marital earnings

Question 63

CP OR SP:

SEVERANCE PAY

(State the Rule)

Answer 63

Rule: The classification of severance pay depends upon the earnings the compensation is intended to replace:

1) Severance pay is CP if it is intended to replace marital earnings.
2) Severance pay is SP if it is intended to replace pre- or post- marital earnings.

Question 64

CP OR SP:

STOCK OPTIONS

(State the Rule)

Answer 64

Rule: Stock options awarded during the economic community as compensation for a spouse’s personal efforts are CP.

Note: Courts apply the Time Rule to determine the percentage to be apportioned to the community estate.

Question 65

CP OR SP:

PROFESSIONAL GOODWILL

(State the Rule)

Answer 65

Rule: Professional goodwill is a community asset to the extent it was earned during marriage.

Note: Professional goodwill can be valued in two ways:

1) Market Valuation - The market value at which the goodwill could be sold. OR
2) Capitalization Method - The value of future earnings as a result of goodwill, discounted to present value.

Question 66

CP OR SP:

WHAT DETERMINES HOW ASSETS & PROFITS OF A BUSINESS OWNED BY ONE SPOUSE ARE CLASSIFIED?

Answer 66

Rule: The apportionment of a business owned by one spouse depends upon when the business was founded and the accounting method used:

1) If the business was started during the economic community, the entire business is CP.
2) If the business was started before the economic community, the business will be classified as part CP and part SP, with apportionment dependent upon the accounting method used (Van Camp or Pereira).

Question 67

BUSINESS OWNERSHIP:

WHEN SHOULD PEREIRA BE USED & WHAT IS THE CALCULATION METHOD?

Answer 67

Rule: The Pereira method should be used when the skills of the business-owning spouse were the primary force driving the growth of the business.

Calculation:

1) SP = Original Value of the Business + Reasonable Rate of Return
2) CP = Business Value - SP

Question 68

BUSINESS OWNERSHIP:

WHEN SHOULD VAN CAMP BE USED & WHAT IS THE CALCULATION METHOD?

Answer 68

Rule: The Van Camp method should be used when capital investment or qualities inherent to the business itself are responsible for the growth of the business.

Calculation:

1) CP = Value of Spouse’s Services (market rate) - Family Expenses Paid from Business Earnings
2) SP = Business Value - CP

Question 69

WHAT ROLE DOES FEDERAL PREEMPTION PLAY IN COMMUNITY PROPERTY?

Answer 69

Rule: Because federal law preempts state law, California community property law does not apply to certain assets governed by federal law.

Question 70

WHAT ASSETS ARE TREATED AS SEPARATE PROPERTY UNDER FEDERAL LAW?

Answer 70

Rule: The following remain the SP of the spouse who earned or purchased them:

1) Social Security Benefits,
2) United States Savings Bonds, AND
3) Military Disability and Insurance Benefits.

Note: Under federal law, holding title to a U.S. Savings Bond in two names provides both parties with a right of survivorship in the whole, regardless of whether the parties are married.

Example:

1) If H and W hold U.S. Savings Bonds in both names and H dies, W becomes owner of the whole.
2) If H and X hold U.S. Savings Bonds in both names and H dies, X becomes owner of the whole. W receives nothing.

Question 71

MANAGEMENT & CONTROL:

WHAT DUTIES DO SPOUSES OWE ONE ANOTHER?

Answer 71

Rule: Each spouse owes a fiduciary duty to the other spouse. The marital relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither may take unfair advantage of the other.

Question 72

MANAGEMENT & CONTROL OF SEPARATE PROPERTY

(State the Rule)

Answer 72

Rule: Each spouse has the exclusive right to manage and control his or her own SP.

Question 73

MANAGEMENT & CONTROL OF QUASI-COMMUNITY PROPERTY

(State the Rule)

Answer 73

Rule: Each spouse has the exclusive right to manage and control his or her own Quasi- CP, as if it were SP, until divorce or death.

Question 74

MANAGEMENT & CONTROL OF COMMUNITY PROPERTY

(State the Rule)

Answer 74

Rule: Each spouse has an equal right to management and control of CP. In general, a spouse may act unilaterally in his or her control over CP assets and funds while alive and married. However, a spouse has testamentary control (power to bequeath) only over his or her one-half interest in CP.

Question 75

MANAGEMENT & CONTROL OF CP:

REAL PROPERTY

(State the Rule)

Answer 75

Rule: When community realty is sold, borrowed upon, transferred or leased for more than one year, both spouses must consent to the transaction in writing.

Question 76

MANAGEMENT & CONTROL OF CP:

SALE OF REAL PROPERTY BY ONE SPOUSE WITHOUT CONSENT OF THE OTHER

(State the Rule)

Answer 76

Rule: The sale of community realty by one spouse without the written consent of the other spouse may be voided.

1) If the purchasing party was on notice of the marital relationship at the time of the sale, the non-consenting spouse may void the sale.
2) If the purchasing party was not on notice of the marital relationship at the time of the sale, the sale is presumed valid. However, if the non-consenting spouse evinced no consent to the sale (i.e., through words or actions), the non-consenting spouse may bring an action to void the sale within one year of the date of conveyance.

Note: The non-consenting spouse must bring an action to void a sale within one year of the date of the conveyance.

Question 77

MANAGEMENT & CONTROL OF CP:

BORROWING AGAINST REAL PROPERTY

(State the Rule)

Answer 77

Rule: Both spouses must consent to the encumbrance of community realty.

Note: If one spouse single- handedly uses community realty as collateral for a loan, the non-consenting spouse may void the encumbrance.

Question 78

MANAGEMENT & CONTROL OF CP:

PERSONAL PROPERTY

(State the Rule)

Answer 78

Rule: Household personal property of a spouse or minor children may not be sold without the written consent of the other spouse.

Note: The non-consenting spouse may void such actions at any time during or after marriage without returning the purchase price to the purchasing party.

Question 79

MANAGEMENT & CONTROL OF CP:

BUSINESS RUN BY ONE SPOUSE

(State the Rule)

Answer 79

Rule: A spouse who runs a business that is wholly or substantially CP need not confer with the other spouse and may act alone in all transactions.

Note:

1) Written notice is required for transactions that involve the disposition of all or substantially all of the personal property used in the operation of the business.
2) If the action results in a substantial impairment of the value of the non- consenting spouse’s one-half interest, the non-consenting spouse may seek damages against the other spouse for breach of fiduciary duty.

Question 80

MANAGEMENT & CONTROL OF CP:

MISMANAGEMENT OF COMMUNITY PROPERTY BY A MANAGING SPOUSE

(State the Rule)

Answer 80

Rule: The consequence of a spouse’s mismanagement of CP depends upon the timing of the occurrence:

1) Only deliberate mishandling of community assets by a managing spouse is actionable conduct if the transaction occurred before 2003.
2) Gross recklessness or negligent mishandling of community assets by a managing spouse is also actionable conduct if the transaction occurred in or after 2003.

Question 81

MANAGEMENT & CONTROL OF CP:

WHAT REMEDIES ARE AVAILABLE FOR MISMANAGEMENT OF CP BY A MANAGING SPOUSE?

Answer 81

Rule: The non-managing spouse may sue for damages if the managing spouse’s breach of fiduciary duty resulted in a substantial impairment of the non-managing spouse’s interest.

Note: An action for a managing spouse’s mismanagement must be brought within three years of the date the non-managing spouse had actual knowledge of the mismanagement.

Question 82

MANAGEMENT & CONTROL OF CP:

LIFETIME GIFTS OF COMMUNITY PROPERTY

(State the Rule)

Answer 82

Rule: Neither spouse may make a gift of CP without the other spouse’s written consent.

Note: If one spouse gives a gift from CP assets to a third party without the consent or knowledge of the other spouse:

1) The non-consenting spouse may revoke the gift in its entirety if the gift is discovered during marriage.
2) The non-consenting spouse may revoke her one-half interest in the gift if the gift is discovered at divorce or death.

Question 83

MANAGEMENT & CONTROL OF CP:

TESTAMENTARY GIFTS OF COMMUNITY PROPERTY

(State the Rule)

Answer 83

Rule: Each spouse has the right to dispose of his or her one-half interest in the community estate through testament.

Question 84

STEP 4 -

DISTRIBUTION OF PROPERTY:

CREDITOR & THIRD-PARTY CLAIMS: SUPPORT OBLIGATIONS

(Define & State the Rule)

Answer 84

Definition: Support obligations are child support and spousal support.

Rule: Support obligations are treated as debts incurred before marriage. Thus, support obligations are the SP debt of the responsible spouse.

Note: The non-debtor spouse will have a claim for reimbursement if support payments were paid out of CP funds when the debtor’s SP funds were available.

Question 85

CREDITOR & THIRD-PARTY CLAIMS:

WHAT IS A TORT DEBT/OBLIGATION?

Answer 85

Definition: A tort debt is a financial debt or obligation that arises out of an action in tort.

Question 86

ARE SPOUSES PERSONALLY LIABLE FOR THE TORTIOUS CONDUCT OF THE OTHER SPOUSE?

Answer 86

Rule: A spouse may not be held personally liable for the tortious conduct of the other spouse solely on the basis of her status as a spouse. Thus, a tort creditor cannot reach the SP of the non- tortfeasor spouse.

Note: A spouse may be held liable for the tortious conduct of the other spouse where there is a basis for liability other than the marital relationship.

Example: If one spouse negligently strikes another person with the family car (a CP asset), the non-tortfeasor spouse would be liable as a joint owner of the vehicle, but not as a spouse.

Question 87

HOW ARE TORT DEBTS/OBLIGATIONS SATISFIED?

Answer 87

Rule: The order of satisfaction a creditor must follow for a tort liability depends upon when the debt was incurred:

1) If the tort was committed before or during marriage, the creditor may attach both the CP and the tortfeasor’s SP are liable.
a) If the tort was committed while engaged in activity for the benefit of the community: The creditor must first seek satisfaction from the community, then from the SP of the tortfeasor.
b) If the tort was committed while engaged in an activity for the benefit of the tortfeasor spouse: The creditor must first seek satisfaction from the SP of the tortfeasor, then from the community.
2) If the tort was committed after marriage, only the SP of the tortfeasor is liable.

Note: If the order of satisfaction is not followed, then the non-tortfeasor spouse will have a right of reimbursement.

Question 88

CREDITOR & THIRD-PARTY CLAIMS:

WHAT IS A CONTRACTUAL DEBT/OBLIGATION?

Answer 88

Definition: A contractual debt is a financial debt or obligation created by contract (e.g., a car loan).

Question 89

ARE SPOUSES PERSONALLY LIABLE FOR THE CONTRACTUAL DEBTS/OBLIGATIONS OF THE OTHER SPOUSE?

Answer 89

Rule: Generally, a non-debtor spouse is not personally liable for contractual debts incurred by the debtor spouse. Thus, a creditor cannot attach a non-debtor’s spouse’s SP in satisfaction of a debtor spouse’s liability.

Exception: A non-debtor spouse will be liable for debts incurred for a debtor spouse’s necessaries of life.

Question 90

DEBTS INCURRED TO BUY NECESSARIES OF LIFE

(State the Rule)

Answer 90

Rule: A non-debtor spouse is personally liable for debts incurred during marriage for necessaries of life by the other spouse.

Note:

1) This liability exists even after permanent separation and only expires on divorce.
2) The SP of the non-debtor spouse is only liable for the common necessaries of life, not for maintaining the debtor spouse’s station in life.

Question 91

HOW ARE CONTRACTUAL DEBTS/OBLIGATIONS SATISFIED?

Answer 91

Rule: The order of satisfaction a creditor must follow to collect on a contractual debt depends upon when the debt was incurred:

1) If the debt was incurred before or during marriage, then the creditor must first seek satisfaction from the debtor’s SP, then CP.
2) If the debt was incurred after marriage, then the creditor may only seek satisfaction from the debtor’s SP.

Question 92

CREDITORS’ RIGHT TO ATTACH COMMUNITY PROPERTY

(State the Rule)

Answer 92

Rule: Generally, if a creditor has the right to attach CP to satisfy a debtor spouse’s obligations, the creditor can attach all CP property regardless of whether the debtor spouse has management or control.

Question 93

HOW CAN A NON-DEBTOR SPOUSE AVOID HAVING HER EARNINGS ATTACHED TO SATISFY THE PRE-MARITAL OBLIGATIONS OF THE DEBTOR SPOUSE?

Answer 93

Rule: A non-debtor spouse can avoid having her wage earnings attached in satisfaction of debts incurred before marriage by the debtor spouse by depositing her earnings into a separate bank account in which the debtor spouse has no right of withdrawal.

Note: This rule does not apply to debts incurred during marriage.

Question 94

PROPERTY PURCHASED ON CREDIT DURING MARRIAGE

(State the Rule)

Answer 94

Rule: Funds borrowed during marriage to purchase property are presumptively borrowed on community credit.

Note: This presumption may be rebutted by showing that the lender relied primarily upon the borrowing spouse’s SP as collateral when making the loan.

Question 95

CREDITORS’ RIGHTS AT DEATH OF A SPOUSE

(State the Rule)

Answer 95

Rule: Creditors’ rights after the death of a debtor spouse depend upon whether the decedent’s estate enters probate:

1) If the estate is in probate, the probate court will characterize the debts as either CP or SP.
a) The court will satisfy the debts according to their classification.
2) If the estate is not in probate, then the surviving spouse becomes personally liable for the debts of the deceased spouse.
a) Debts will be satisfied through thesurviving spouse’s share of CP, Quasi-CP, and SP of the deceased spouse.

Question 96

DISTRIBUTION OF PROPERTY:

DISTRIBUTION OF LIABILITIES AT DIVORCE

(State the Rule)

Answer 96

Rule: Generally, community liabilities are divided evenly between the spouses by the court upon divorce.

Note:

1) Each spouse remains personally liable for his or her own personal debts.
2) Each spouse is personally liable for the debts assigned to him/her by the court.
3) A right of reimbursement exists if the SP of one spouse is used to satisfy a debt assigned by the court to the other spouse.

Question 97

DISTRIBUTION OF PROPERTY:

WHAT HAPPENS WHEN COMMUNITY LIABILITIES EXCEED ASSETS AT DIVORCE?

Answer 97

Rule: If community liabilities exceed the community’s assets at the time of divorce, the court will consider each spouse’s ability to pay when allocating community liabilities. Thus, liabilities may be distributed unevenly.

Note: This is an exception to the general rule that assets and liabilities of the community are divided evenly.

Question 98

IN WHAT SITUATIONS CAN A SPOUSE SEEK REIMBURSEMENT FOR PAYMENT OF THE OTHER SPOUSE’S DEBTS?

Answer 98

Rule: A non-debtor spouse may seek reimbursement for payment of the debtor spouse’s debts if:

1) Child or spousal support payments were paid out of CP funds when the debtor’s SP funds were available,
2) The order of satisfaction for tort liabilities was not followed, OR
3) A non-debtor spouse’s SP was used to pay for the necessaries of a debtor spouse, and the debtor spouse had sufficient SP or CP interest to pay the debt.

Question 99

WHEN MAY A SPOUSE SEEK REIMBURSEMENT FOR PAYMENT OF THE OTHER SPOUSE’S DEBTS?

Answer 99

Rule: A spouse may seek reimbursement for payment of the other spouse’s debts with SP funds:

1) Within three years of learning about the payments (if still married),
2) In divorce proceedings, OR
3) At the death of the debtor spouse.

Note: If the non-debtor spouse learned of the payment of the debtor spouse’s debts more than three years before divorce or death of the debtor spouse and took no action, the non-debtor spouse loses his right to reimbursement.

Question 100

DISTRIBUTION AT DEATH:

BY TESTAMENT

(State the Rule)

Answer 100

Rule: A married person may distribute by testament:

1) All of his SP, AND
2) His one-half interest in CP.

Question 101

DISTRIBUTION AT DEATH:

BY INTESTACY

(State the Rule)

Answer 101

Rule: Assets of a married person who dies intestate will be distributed as follows:

1) All CP and Quasi-CP passes to the surviving spouse.
2) If decedent dies without issue, parents, sibling or issue of siblings, then decedent’s SP passes entirely to the surviving spouse.
3) If decedent dies with only one child or issue of that child, then one-half of decedent’s SP passes to the surviving spouse, and the remainder passes to decedent’s issue.
4) If decedent dies with two or more issue, then one-third of decedent’s SP passes to the surviving spouse, and the remainder passes to the surviving issue.

Question 102

DISTRIBUTION AT DEATH:

THE OBLIGATION TO ELECT

(State the Rule)

Answer 102

Rule: When a spouse dies leaving a valid will, the surviving spouse must choose to take either:

1) The share provided in the deceased spouse’s will, OR
2) The share of the estate as would pass to the surviving spouse under intestacy rules.

Question 103

HOW IS QUASI-COMMUNITY PROPERTY TREATED AT DEATH OR DIVORCE?

Answer 103

Rule: Quasi-CP is distributed at death and at divorce as if it were CP.

Question 104

RIGHTS OF SURVIVING SPOUSE IN DECEDENT’S TRANSFER OF QUASI-COMMUNITY PROPERTY BEFORE DEATH

(State the Rule)

Answer 104

Rule: Should a decedent transfer Quasi-CP without consideration and without the surviving spouse’s consent, the surviving spouse may compel the recipient of the property to restore the surviving spouse’s one-half interest in the property if the decedent spouse retained a right to income or survivorship (i.e., the transfer was illusory).

Question 105

COMMUNITY PROPERTY DIVISION AT DIVORCE:

EQUAL DIVISION RULE

(State the Rule)

Answer 105

Rule: In the absence of a settlement agreement, all CP (both assets and liabilities) will generally be split evenly between the spouses upon divorce, unless special circumstances warrant that particular assets/liabilities be wholly awarded to a single spouse.

Question 106

WHAT ARE THE EXCEPTIONS TO THE EQUAL DIVISION RULE?

Answer 106

Rule: The Equal Division Rule will not apply in the event of:

1) Misappropriation of CP by one spouse,
2) Educational debts that were accrued by one spouse,
3) Tort debts accrued by a spouse in an activity not carried out for the benefit of the community, OR
4) Personal injury awards or settlements that are awarded as the injured spouse’s SP.

Question 107

HOW IS OUT-OF-STATE PROPERTY TREATED AT DIVORCE?

Answer 107

Rule: California courts retain jurisdiction to divide the community estate during divorce proceedings and apply the Equal Division Rule. The Court may:

1) Divide the community evenly, awarding all out-of-state property to one spouse and compensating the other spouse with property of equal value in California, OR
2) Require the spouses to make the necessary conveyances to ensure compliance with the Equal Division Rule.