Community Property Flashcards
(37 cards)
What does it mean for California to be a community property state?
California is a community property state. This means:
(1) All property acquired during the marriage is presumed to be CP
(2) Property acquired before marriage or after permanent separation is presumed to be SP
(3) Property acquired by gift or inheritance is presumed to be SP.
On what three factors does the characterization of an asset as either CP or SP depend?
The characterization of an asset as either CP or SP depends on three factors:
(1) The source of the asset (including the money with which it was purchased)
(2) Any actions by the parties that may have altered the character of the asset.
(3) Any statutory presumptions that apply to the asset.
How are personal injury awards characterized?
CP if cause of action arose during marriage, but it’s awarded as SP to the injured spouse at divorce.
How does liability for a personal injury affect the community?
Unless the tortfeasor spouse was acting for the benefit of the community when they committed the tort, the liability will accrue against the tortfeasor’s SP.
How are retirement benefits characterized?
CP if earned during marriage. Apply the time rule to apportion between CP and SP—that is, how much was earned during marriage versus outside of marriage?
How do disability pay or workers’ compensation get characterized?
CP if taken in lieu of retirement benefits. You apply the time rule.
SP if intended to replace future earnings.
How is severance pay characterized?
Argue both. The spouse that wants the money can argue that it’s CP because it’s being paid because of result of work done during marriage. The spouse that wants to keep the money will argue that it’s SP because it is intended to replace future wages.
How are stock options characterized?
(1) If they become exercisable during marriage, then stock options become entirely CP.
(2) If awarded during marriage but become exercisable after marriage, then it depends how they were earned and the employer’s intent. If awarded for past services, divide the time employed DURING marriage by the time employed UNTIL THE DATE the option becomes EXERCISABLE.
What is a business’s goodwill and how is it calculated?
Goodwill refers to the intangible value of the business’ reputation beyond personal skill or value of the assets.
When goodwill is generated by community labor, it’s deemed CP. Goodwil valued by:
- Market value method—the price of the goodwill in a sale of the business.
- Capitalization of excess earnings method—what is the excess value that the community contributed to the business and how what’s the future stream of income based on that excess value.
How are education and training characterized in the community?
Education and training are not considered property, but the community may be entitled to some reimbursements for direct educational expenses (tuition, books, etc.) if the educated spouse’s earning potential increased as a result of the education.
The educated spouse, however, can successfully argue that the community has already substantially benefited from the education when it happened a long time ago (10+ years, presumptively) or if the other spouse likewise received community-funded education.
How are assets purchased on credit during marriage?
Assets purchased during marriage on credit are community property, even if title is only held in one spouse’s name—that may weigh against concluding that it’s community property but it won’t be dispositive. Moreover, the lender’s primary intent will matter.
What is the Pereira accounting formula used for?
It’s one of two formulas (the other being Van Camp) used to determine how community labor used to enhanced the value of a SP business factors into how much the community, in turn, is entitled to receive as its shared of the increased value.
It’s typically used when the personal services—the time, skill, talent of the community—are the reasons why the SP business increased in value.
What is the Van Camp accounting formula used for?
It’s one of two formulas (the other being Pereira) used to determine how community labor used to enhanced the value of a SP business factors into how much the community, in turn, is entitled to receive as its shared of the increased value.
It’s typically used when the SP has value that is inherent in the character of the asset—it’s the unique nature of the SP asset, not the community’s labor contributions, why the SP business increased in value.
What is the Pereira accounting formula (variables)?
Pereira accounting is used when the increase in value is primarily a result of community labor. Using Pereira, you determine the value of the SP at the beginning of the business and give it the fair rate of return over the course of the marriage (usually 10% simple interest). The remainder is CP.
Value of SP Business @ Time of Marriage + The Business’s Fair Rate of Return (10% Interest of the SP Business Per Year of Marriage)
This is the SP. The community is entitled to the rest—we basically assume that the person would’ve increased their business at the rate of 10% simple interest per year without community labor.
What is the Van Camp accounting formula (variables)?
Van Camp accounting is used when the increase in value is primarily the result of the unique nature of the SP asset. Using Van Camp, you determine what a fair salary would be for the community labor, and multiply that by the years of marriage, and subtract any salary already received and any amounts paid for community expense. The result is CP. The rest is SP.
Fair Salary x Years of Marriage
From that, you subtract Any Salary Already Received During Marriage (usually, salary received x years of marriage), and also any Amounts Paid for Community Expense (household stuff).
This is the CP. The rest is SP.
What’s Van Camp accounting?
Van Camp accounting is used when the increase in value is primarily the result of the unique nature of the SP asset. Using Van Camp, you determine what a fair salary would be for the community labor, and multiply that by the years of marriage, and subtract any salary already received and any amounts paid for community expense. The result is CP. The rest is SP.
What’s Pereira accounting?
Pereira accounting is used when the increase in value is primarily a result of community labor. Using Pereira, you determine the value of the SP at the beginning of the business and give it the fair rate of return over the course of the marriage (usually 10% simple interest). The remainder is CP.
What rule governs businesses owned as SP that increase in value during a marriage?
When community labor is used to enhance the value of a SP business, the community is entitled to share in the increased value of the SP [e.g., here, although H’s business is SP, the CP is entitled to a share of the appreciation because H’s labor during the course of the marriage was used to increase the value of the business]
What are the two ways to alter the character of an asset?
(1) Prenuptial agreement.
- Must be in writing, must be signed by both parties, must be voluntary, and must not be unconscionable. No consideration is necessary.
(2) Transmutations.
- Since 1985, the law is that it cannot be oral: it must be in writing, signed by the party whose interest is affected, and express.
Exception to the writing requirement for transmutations: gifts.
What is a prenuptial agreement?
Parties may opt out of the community property characterizations through prenuptial agreements. For a prenuptial agreement to be valid, the agreement must:
(1) Be in writing
(2) Be signed by both parties
(3) Be voluntary
(4) May not be unconscionable.
It may NOT impact child support.
What does it mean for a prenuptial agreement to be unconscionable?
When it comes to prenuptial agreements, unconscionability means a spouse lacked a full, fair, and reasonable disclosure of the property and obligations of the other spouse.
The spouse did not waive the disclosure in writing, and the spouse couldn’t have reasonably had knowledge of the other spouse’s property or obligations, then the agreement is non-enforceable as unconscionable.
When are spousal support provisions not enforceable?
If either:
(1) Party against whom enforcement was sought was not represented by independent counsel at the time of signing.
(2) At the time of enforcement, the provision is unconscionable.
What is a transmutation, and what is the gift exception?
A transmutation refers to when spouses make legal changes to what would otherwise be covered by community property law. A transmutation must be:
(1) In writing + (2) An express declaration by the adversely affected spouse that the characterization/ownership of the asset is being changed.
The one exception is when it comes to tangible gifts between spouses that are not of substantial value (relative to the couple’s wealth).
What is a separation agreement?
In anticipation of divorce, spouses may enter into a separation agreement to resolve property issue. These may resolve other issues too: child custody, child support, and spousal support (that comply with statutory obligations and don’t withdraw the court’s jurisdiction).
This agreement can be set aside if there’s fraud, mistake, failure to disclose material information, or breach of fiduciary duty owed to a spouse.
