Community Property Midterm

Question 1

Community Property

Answer 1

Assets owned in common by husband and wife as a result of having been acquired during the marriage by means other than an inheritance or a gift to one spouse, each spouse generally holding a one-half interest in the property.

Question 2

Separate Property:

Answer 2

Property that a spouse owned before marriage or acquired during marriage by inheritance or by gift from a third party, and property acquired during marriage but after the spouses have begun living separate and apart.

Question 3

3 PRINCIPLES OF CALIFORNIA CP LAW

Answer 3

1. Equality: Spouses share an equal one-half interest in CP, no matter their actual contribution to acquisition.
2. Tracing: Purchases take on the character of purchase funds, and other acquisitions take on the character of their source, whether labor, investment or whatever.
3. Contractual Modification: The parties to a marriage retain the right – before, during, and at the end of marriage – to alter most (but not all) of the default CP rules by agreement.

Question 4

Commingling

Answer 4

CP and SP can be mixed together. The term commingled property communicates that an asset is partially owned as CP and as one/both spouses’ SP.

Question 5

Title Doesn’t Matter

Answer 5

When an asset is acquired during
marriage and titled in one spouse’s name only, the
unnamed spouse obtains an equitable ownership interest
in the acquisition. CP assets are owned by both spouses.

Question 6

Domiciled In State

Answer 6

Outside state is quasi cp

Question 7

Tracing

Answer 7

by a preponderance of the evidence, that the property was
purchased by or derived from SP.

Question 8

Lender’s Intent Test

Answer 8

In a dispute between the spouses, the general presumption characterizes borrowed funds as CP unless the lender extended the loan solely on one spouse’s SP information and assets.

Question 9

Lucrative Acquisition

Answer 9

SP: The result of gratuity or a windfall received during marriage. Gifts received for no consideration whatsoever.

Question 10

Inheritance and Gifts

Answer 10

SP unless specifically to both

Question 11

Possession

Answer 11

Proof of possession during marriage is not
sufficient to raise a CP presumption. Nor is possession
during marriage necessarily determinative of acquisition
during marriage.

Question 12

Joint Title Presumption

Answer 12

For the purpose of division of property on dissolution of marriage or legal separation, property held in one of these forms is presumed to be CP

Rebuttal:
* A clear statement in the deed that the property is SP.
-OR-
* Proof that the parties have made an enforceable written agreement that the property is SP.

Question 13

Profits of SP

Answer 13

rents, issues and profits of SP are also
characterized as SP

Question 14

Engagement or Wedding Gifts

Answer 14

Before marriage, an engagement or wedding gift is
received by the prospective spouses as individuals, not as
spouses. They own it as concurrently held SP.

Question 15

Revocability of Wedding Gifts

Answer 15

Generally, an engagement gift made by a
third party is irrevocable. The donor can change this
outcome by expressly making the gift conditional upon the
occurrence of marriage.

a wedding gift titled in one
spouse’s name raises the general CP presumption.
Rebuttal is by tracing. If rebuttal is successful, the spouse
whose name is not on title retains an equitable interest in
the wedding gift as concurrently owned SP.

Question 16

WEDDING GIFTS BETWEEN WOULD-BE
SPOUSES

Answer 16

Between parties to a contemplated marriage, gifts made
during the engagement period (i.e. before marriage) are
the recipient’s individual property. Upon marriage, these
gifts get redefined as the recipient’s SP.

If They Break-up:
1. Where either party to a contemplated marriage
makes a gift of money or property to the other on the
basis or assumption that the marriage will take place,
2. In the event that the recipient refuses to enter into the
marriage as contemplated
-OR-
That it is given up by mutual consent,
3. The donor may recover such gift.

Question 17

Living Separate and Apart Test

Answer 17

1. The spouse has expressed to the other spouse his or her intent to end the marriage.
   -AND-
2. The conduct of the spouse is consistent with his or her intent to end the marriage.

Question 18

Do The Spouses Need to Move-Out?

Answer 18

Not necessarily anymore:

Question 19

Premarital Agreement

Answer 19

Prospective spouses may execute premarital agreements that include SP clauses. A SP clause can provide, for example, that specifically identified assets or streams of assets are or become the SP of the acquiring spouse upon acquisition during marriage. Or, it can incorporate by reference a SP inventory into the contract. Or, it can provide that a certain asset be characterized as SP upon dissolution or the death of a spouse.

Question 20

Transmutation

Answer 20

A change in the character of property that
takes place during marriage. Spouses may change the
character of property from SP to CP, CP to SP, or from the
SP of one spouse to the SP of the other spouse.

Question 21

TENANCY IN COMMON

Answer 21

Each TiC has an undivided, fractional interest in the property. doesn’t necessarily have to be ½.
* Each TiC may transfer his/her interest to another person; it is freely alienable, devisable, and descendible.
* At Dissolution: TiC property is presumed to be CP.
* At Death: TiC property is characterized as concurrently held SP.

Question 22

JOINT TENANCY

Answer 22

Each JT has an undivided, fractional interest in the property. must each have ½ when the JT is for spouses.
* If a JT transfers his/her interest to another person, the JT is
severed and converts to a TiC.
* At Dissolution: JT property is presumed to be CP.
* At Death: JT property is characterized as concurrently held SP.
At the death of a JT, the surviving JT automatically becomes
the owner of the titled asset by the right of survivorship.

Question 23

COMMUNITY PROPERTY (title form)

Answer 23

Each spouse/DP has an undivided, one-half interest in the property.
* Each spouse/DP may devise his/her one-half interest to a third-party. converts title to TiC.
* Intestacy: The deceased spouse/DP’s one-half CP share will descend to the surviving spouse/DP.
* At Dissolution: CP is presumed to be CP.
* At Death: CP property is characterized as CP.

Question 24

COMMUNITY PROPERTY WITH THE RIGHT OF
SURVIVORSHIP

Answer 24

Each spouse/DP has an undivided, one-half interest in the
property.
* At Dissolution: CP with right of survivorship is presumed to be
CP.
* At Death: CP with the right of survivorship property is
characterized as CP. At the death of a spouse/DP, the
surviving spouse/DP automatically becomes the owner of the
titled asset by the right of survivorship.

Question 25

PERSONAL INJURY RECOVERIES

Answer 25

Personal injury claims and recoveries against a third-party that arose during marriage are characterized as CP.

Question 26

PERSONAL INJURY RECOVERIES AT DISSOLUTION

Answer 26

But different from other types of CP, at dissolution, damages and recoveries from personal injury claims are assigned to the spouse who suffered the injuries. Use tracing for lump sums gained during marriage and their use (ie buy property using sp) The court may also deviate from this rule in “the interests of justice,” but “at least one-half of the damages shall be assigned to the party who suffered the injuries.

Question 27

LOTTERY/GAMBLING WINNINGS

Answer 27

If bought with SP, then winnings SP. But winnings bought with CP are CP because SP contribution (skill) is far less than CP contribution (money).

Question 28

DEGREES

Answer 28

When a marriage dissolves, only the educated spouse walks away from the marriage with a property right to the human capital that his or her income-enhancing degree represents. (no right to earnings from the degree even if gained during marriage) But, the community can seek reimbursement for “community contributions to education or training of a party that substantially enhances the earning capacity of the party.” Contributions means “payments made for CP for education or training or for the repayment of a loan incurred for education or training.” It includes tuition, fees, and books. Reimbursement for loan payments from community funds includes loan payments on an education that took place long before the marriage.

Question 29

If degree is not income-enhancing

Answer 29

the trial court has discretion to deny the reimbursement.

Question 30

Substantially benefitted from a degree

Answer 30

Notable Exception: When the community has already substantially benefitted from the education, reimbursement is limited. If the community contributions were made 10 or more years before the divorce filing, the presumption is that the community has substantially benefitted from the education or training. 10 YEARS OR MORE

Question 31

RETIREMENT ACCOUNTS

Answer 31

Deferred compensation – such as a pension, IRA, or 401(k) – is characterized by the employee’s marital status during the period in which the deferred compensation was earned. When deferred earnings are earned entirely during a period when the employee is married, benefits are entirely CP. The nature of pensions varies based on the employer. While occasionally tied to the length of employment, other facts may dictate the pension’s value. A court will apportion a pension by the time rule if they can – SP or CP based on the ratio of time worked during the marriage. Otherwise, the court will apportion to reach a reasonable and fair outcome relative to the contributions of the community and separate estates.

Question 32

SOCIAL SECURITY

Answer 32

Social Security is a public benefit, not a piece of property. As such, it is characterized as separate property.

Question 33

Introduction to use

Answer 33

California is a CP state. CP is defined as all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in the state. SP is property acquired before marriage or during marriage by gift, bequest, devise, or descent.

Question 34

COMMINGLED PROPERTY

Answer 34

Commingling occurs when property of one character is mixed with property of a different character. Commingling can involve the admixture of: * SP with CP, * the SP of one spouse with the SP of the other spouse, or * standard CP and CP from a personal injury suit.

Question 35

Sole Account

Answer 35

An account which only has one person’s name on the bank account contract. * Who can the bank work with: only the named person. * CP implications: If deposits in the account are CP, they remain subject to the beneficial ownership of both spouses, even if only one spouse has access to the account.

Question 36

Joint Account with Right of Survivorship

Answer 36

Default account that incorporates the right of survivorship. Sometimes referred to as a payable on death account.

Question 37

Joint Account without Right of Survivorship

Answer 37

Analogous to a tenancy in common. At death, each party’s interest in the account passes according to the account contract or through the decedent's estate.

Question 38

Joint Account held by [spouses] with Right of Survivorship that cannot be changed by will

Answer 38

Basic CP account with right of survivorship.

Question 39

Joint Account held by [spouses] that is specifically designated as a ‘CP’ account

Answer 39

Default CP account under CAMPAL.

Question 40

Titling Matters at Death

Answer 40

When a contract of deposit designates a “CP” account, the spouses retain all testamentary rights to the sums on deposit unless: * The bank agreement expressly provides otherwise. –OR– * The spouses expressly describe the account – in the bank agreement itself – as “CP with the right of survivorship.”

Question 41

OUTLINE OF COMMINGLED ACCOUNT RULES

Answer 41

1. All sums on deposit are presumed to be net CP contributions.  CP Presumption. 2. Once proved, net SP character contributions are owned as net SP deposits.  Basic Rebuttal/Tracing Rule. 3. A commingled account is made up of net contributions of different characters. Net character deposits retain their character despite being commingled.  Basic Commingling/Tracing Rule.

Question 42

CAMPAL rebuttal

Answer 42

Rebuttal by SP Claimant: * The sums on deposit can be traced from SP. -OR- * The married persons made a written agreement, separate from the deposit agreement, that expressly provided that the sums on deposit are SP. * Burden of Proof: Clear and Convincing Evidence

Question 43

Why CAMPAL

Answer 43

Gets back money, while SP tracing can get back property. Hence why Campal is "clear and convincing evidence" standard

Question 44

beneficial ownership

Answer 44

over funds in a commingled account, means theyre your SP or CP

Question 45

FAMILY EXPENSE EXCEPTION

Answer 45

During marriage, the spouses have a duty to support each other. Family support presumptively is paid for by the CP. If there are insufficient funds to pay for family expenses, the SP of either spouse becomes liable. * The SP spouse is presumed to have made a gift to the community to support the family. (no reimbursement for SP paying for family expense) * Family expenses include: food, housing, clothing, medical costs, recreation, etc.

Question 46

See v. See Rule

Answer 46

SP Rebuttal by Exhaustion: The SP claimant must show that, on the date of purchase, the CP sums on deposit in the account were exhausted (there wasn’t enough CP $ available to pay for the whole purchase). If not completely exhausted, then at least some of the ownership percentage is SP

Question 47

Requirements for Rebuttal by Exhaustion (See v See)

Answer 47

* Track the character of deposits, as they are made. * Track the character of withdrawals, as they are made. * Keep a running balance of SP and CP sums on deposit, including “family expenses.” * Rebuttals are specific to individual disputed items.

Question 48

Hicks-Mix Direct Tracing Rebuttal

Answer 48

Requirements for Hicks-Mix Direct Tracing Rebuttal: * On the date of the disputed purchase, both CP sums on deposit and SP sums on deposit were sufficient to make the disputed purchase. * On or near the date of the disputed purchase, the SP proponent declared an intention, in a writing separate from the account records, to make the purchase with SP sums on deposit. * Immediately after the purchase, the amount of that purchase was withdrawn from the SP sums on deposit. -AND- * Records prepared in anticipation of litigation are disallowed.

Question 49

CP Presumption

Answer 49

Need to prove something is SP with tracing and maybe CAMPAL

Question 50

Mortgages and loans secured with SP downpayment

Answer 50

Are CP

Question 51

Aufmuth Formula

Answer 51

CP Contribution/Purchase Price = CP% SP Contribution/Purchase Price = SP% Even on increase in value, use formula on increase amount

Question 52

Aufmuth Clues

Answer 52

On an exam, look for: 1. The existence of the marriage. 2. A purchase on credit. 3. Commingling of SP and CP fund sources.

Question 53

WHOLLY SP CREDIT PURCHASES

Answer 53

Starting point: An entirely (100%) SP asset is not a commingled asset. When a SP asset is purchased prior to marriage with a loan that is repaid during marriage with SP, that asset remains entirely SP.

Question 54

Vieux Rule Explained

Answer 54

* Before marriage, H and W “discussed and considered the purchase of real estate, and together viewed said property, and it was agreed between them that said property would be desirable to purchase.” * H paid the down payment (about 10% of the purchase price), and got a loan for the rest of the price. (all SP) * H and W married. * H and W used community funds to repay the loan, paying off about 20% of the purchase price. Community established an equitable ownership right in the property by its contributions to purchase.

Question 55

MOORE FORMULA What to look for

Answer 55

Spotting the Issue: 1. SP down payment. 2. SP loan. 3. Property purchased shortly before the marriage. 4. CP contributions to loan principal payments. 5. H+W divorce.

Question 56

Moore Formula

Answer 56

SP down payment + (SP loan - CP contributions) / Historic Purchase Price = SP% CP contributions / Historic Purchase Price = CP% * Adding in the Value of the Appreciation: * Appreciation = Fair Market Value at Divorce - HPP * SP% X Appreciation = SP Appreciation = SP% * CP% X Appreciation = CP Appreciation = CP%

Question 57

MARSDEN FORMULA What to look for

Answer 57

Spotting the Issue: 1. SP down payment. 2. SP loan. 3. Property purchased further from marriage. 4. Property value appreciates before marriage, and the SP proponent can provide an appraisal report dated on or near the date of marriage. 5. CP contributions to loan principal payments. 6. H+W divorce.

Question 58

MARSDEN FORMULA

Answer 58

* Start with the Moore formula. * Adding in Premarital Equity and Appreciation: * Equity = SP payments made before marriage * Appreciation = Fair Market Value at Marriage - HPP

Question 59

SP CONTRIBUTIONS TO AN ENTIRELY CP ASSET

Answer 59

* At dissolution, the SP contributor to a CP asset shall be reimbursed for the SP contributor’s contribution without interest or appreciation.

Question 60

CP IMPROVEMENTS TO SP PROPERTY

Answer 60

* When the non-owning spouse consents to the use of CP to improve the other spouse’s SP, no gift is intended. * If the improvement is a CAPITAL IMPROVEMENT, the CP estate is entitled to an equitable ownership interest in the property. A capital improvement is one that increases the SP’s fair market value. * If the improvement is a NON-CAPITAL IMPROVEMENT, the CP estate is entitled to reimbursement without interest for its contributions to construction costs.

Question 61

SEPARATE PROPERTY BUSINESSES Process

Answer 61

Analytical process: 1) SP claimant has the burden of proving that the business is in fact a SP business. 2) Then the community can show that community labor contributed “more than minimal effort” to the growth of the business’s value during the marriage. 3) The Court applies either Pereira or Van Camp, based on whichever furthers substantial justice between the parties.

Question 62

Choosing between Pereira and Van Camp:

Answer 62

* Pereira: The growth of the SP business is attributable to CP labor. * Van Camp: The growth is not attributable to CP labor, so the Van Camp formula reimburses the community for its labor, minus family expenses. The business at issue was a seafood company, with H as a significant stockholder. H’s stock value increased over time, but not due to his work.

Question 63

Pereira Formula

Answer 63

Fair Market Value @ Dissolution – (Fair Market Value @ Marriage + Fair Rate of Return) = CP excess profits * Fair Rate of Return = Principal X Interest X Time The FRR represents what the SP business owner would have made on his/her investment, had the value of the business been invested in reasonably safe securities (stocks and bonds) over the course of the marriage. * 10% interest usually applies, unless told otherwise. (ie. Fair Rate of Return = $100K X 4% X 10 years = $40K)

Question 64

Van Camp Formula:

Answer 64

* Fair Market Value @ Dissolution – (CP Labor – Family Expenses) = SP * Labor = Annual Benchmark Salary X Years * Expenses = Annual Expenses X Years

Question 65

Judge Choosing Pereira or Van Camp

Answer 65

A judge has discretion to decide whether to apportion (Pereira) or reimburse the community (Van Camp) depending on which approach achieves substantial justice between the parties. Practically speaking this would require the judge to exercise discretion in favor of the approach that produces the better result for the party who prevails on the issue of what contributed – community labor or market forces – to the business’ growth.

Question 66

Personal property defined:

Answer 66

“Every kind of property that is not real is personal.” Civil Code § 663.

Question 67

Examples from the book of Personal Property

Answer 67

Accounts, businesses, cars, cash, debts, emails, investment accounts, loans, rents, tax refunds

Question 68

MANAGEMENT AND CONTROL OVER COMMUNITY PERSONAL PROPERTY

Answer 68

* Either spouse has the power to manage and control community personal property with the same absolute power of disposition, other than testamentary, as the spouse has over their own SP. * Testamentary Exception: Testamentary matters are excluded because a spouse only has the power to dispose of his or her one-half of a CP asset at death.

Question 69

MAKING GIFTS OF COMMUNITY PERSONAL PROPERTY

Answer 69

* Neither spouse can make a unilateral gift of community personal property without the written consent of the other spouse. Gifts can be ratified after the fact. * This rule doesn’t apply to gifts mutually given by both spouses to third-parties. * Gifts between spouses are governed by transmutation rules.

Question 70

Voiding a gift to 3rd party by one spouse after dissolution

Answer 70

Can recover half of gift value (CP apportionment)

Question 71

Voiding a gift to 3rd party by one spouse after death.

Answer 71

entitled to a one-half CP share of the gift as against deceased's estate or as against deceased's inter vivos gift donee.

Question 72

SELLING COMMUNITY PERSONAL PROPERTY

Answer 72

Neither spouse can sell community personal property without the written consent of the other spouse. These sales can be ratified after the fact. * The no-sale rule specifically applies to: * Sales for less than the fair and reasonable value of the asset. * The Family Dwelling, or the furniture, furnishings, or fittings of the home. * Clothing or wearing apparel of the other spouse or minor children. (includes trade tools)

Question 73

COMMUNITY PROPERTY BUSINESSES

Answer 73

* One spouse may have primary management and control over a community property business. * If that spouse wants to sell, lease, exchange, encumber, or dispose of all or substantially all of the community personal property in the business (all the money or assets), the manager-spouse must give prior written notice to the other spouse.

Question 74

COMMUNITY REAL PROPERTY

Answer 74

* Either spouse has the power to manage and control the community real property, but both spouses, either personally or by a duly authorized agent, must join in executing any instrument by which that community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered. * Remedy: The non-joined spouse has one year from recording of the transaction to void it.

Question 74

COMMUNITY REAL PROPERTY LEASE

Answer 74

* Either spouse has the power to manage and control the community real property, but both spouses, either personally or by a duly authorized agent, must join in executing any instrument by which that community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered. * Remedy: The non-joined spouse has one year from recording of the transaction to void it.

Question 75

QUASI-FIDUCIARY DUTIES AMONG SPOUSES

Answer 75

* Either spouse has access at all times to any financial/accounting books kept regarding a transaction for the purposes of inspection and copying. There is no obligation to keep books, but if you do, they must be open and accessible. * Either spouse must render upon request accurate and full information affecting any transaction that concerns the CP. * Either spouse holds as a trustee of any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the CP.

Question 76

Withholding evidence of income and assets (duties)

Answer 76

The unlawful withholding of evidence of income and assets closes the door to the party’s rights of appeal on related issues. After a trial court exercises its discretion, the nondisclosing party cannot later complain that a related order is not based on the evidence that he or she refused to disclose in the first place. Could also be sanctioned + attorneys fees for opponent

Question 77

DUTY OF CARE AMONG SPOUSES

Answer 77

* The duty of care owed between spouses for the management and control of their CP requires them to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Question 78

Undue Influences (duties)

Answer 78

Duties are not necessarily breached when one spouse furthers his or her own interest. However, in any transaction in which one spouse obtains any unfair advantage over the other spouse, undue influence is presumed in favor of the adversely affected spouse. Duty of good faith. Rebuttal is by the benefitted spouse who must show that the nonacting spouse consented to the transaction after disclosure was made.

Question 79

Grolemund Principle (debts)

Answer 79

Since both spouses have the legal right to manage and control CP, either spouse can obligate the CP to the claims of creditors. A creditor can reach any property over which the debtor-spouse has the legal right to manage and control. At marriage’s end, unpaid liabilities like the mortgage, any credit cards that maintain a balance, and educational loans, etc., are assigned to one or both spouses, depending on when the debt was incurred and which of the spouses incurred the debt.

Question 80

CONTRACT LIABILITIES

Answer 80

* A contract liability is incurred when the contract is made. For example, when you sign the credit card receipt when you make a purchase, you’re creating a contract to repay that debt to the credit card company. * If made during marriage, the community estate, the debtor-spouse’s SP estate, and the non-debtor-spouse’s SP estate are all liable for any contract debt that was incurred by one or both spouses during marriage for “necessaries of life.” <-like family expenses

Question 81

NECESSARIES OF LIFE DOCTRINE

Answer 81

* A married person is personally liable for debts incurred for necessaries of life of the person’s spouse while the spouses are living together or separately. * “Necessaries of life are expenses necessary... considering all the circumstances – his station in life, his particular type of employment, etc.” * The community is liable for family expenses. If and when the community funds are exhausted, the SP becomes liable for family expenses without reimbursement. * During a period of separation, absent a court order otherwise, the non-debtor-spouse is personally liable only for the other spouse’s common necessaries of life.

Question 82

Contract Debt Rule

Answer 82

If made during marriage, the community estate, the debtor-spouse’s SP estate, and the non-debtor-spouse’s SP estate are all liable for any contract debt that was incurred by one or both spouses during marriage for necessaries of life.

Question 83

Contract Debts During Separation Rule

Answer 83

During a period of separation, absent a court order otherwise, the non-debtor-spouse is personally liable only for the other spouse’s common necessaries of life.

Question 84

TORT LIABILITIES

Answer 84

* Tort Liabilities: A tort liability is incurred when the tort occurs. * For a tort that occurs during marriage, if both spouses are tortfeasors, then the CP and SP estates of both spouses are liable for that obligation. * If the tort is the obligation of only one spouse, then the CP and the SP of the tortfeasor are liable. Tort creditors can reach the CP first if the tort was committed while performing an activity for the benefit for the community. ** Otherwise, they must exhaust the SP estate first. * **Includes almost every tort except domestic violence, gross negligence, or criminal activity.

Question 85

OTHER OBLIGATIONS

Answer 85

* Any other obligation that isn’t a contract or tort obligation can be charged against the CP estate when incurred before or during marriage by either spouse. * This includes: * Premarital child support obligations * Extramarital child support obligations. * Spousal support obligations to a former spouse. * Parental support obligations for an indigent parent or parents. * Support obligations are presumably paid by SP, but can be paid by CP with the right of reimbursement (except for parental support).

Question 86

PROTECTING THE NON-DEBTOR-SPOUSE FROM THE PREMARITAL DEBTS OF THE DEBTOR-SPOUSE

Answer 86

* The non-debtor spouse must continuously meet both elements: 1. The non-debtor-spouse must hold his or her CP earnings in a sole account that the debtor spouse has no right to withdraw from. 2. The non-debtor-spouse must keep those CP earnings uncommingled. * Avoids Grolemund by taking away the debtor-spouse’s management and control abilities.