Community Property-Specific Assets

Question 1

How are personal injury awards treated?

Answer 1

CP if the cause of action arose during marriage. If COA arose before marriage or after permanent separation, SP.. If recovery is for an inter spousal tort, recovery is the injured spouse’s SP. The SP of the tortfeasor spouse must be used to pay the recovery before resorting to CP.

Question 2

What happens to CP personal injury awards at divorce?

Answer 2

General rule is that the full amount is award to the injured spouse, unless the interest of justice requires otherwise, in which case the injured spouse must get 50% at a minimum. CP is reimbursed for expenses if paid out of CP.

Question 3

How are personal injury liabilities addressed?

Answer 3

SP of the tortfeasor spouse, unless tort occurred while spouse was acting for the benefit of the community, in which case you first look to SP and then CP.

Question 4

How are retirement pensions addressed?

Answer 4

Viewed as deferred comp, so look to what percentage is earned during marriage, not what is paid out during marriage. In other words, if you are already retired and earning pension when you get married, all SP. If part earned before marriage and part earned after, then courts use the time rule, which gives the community a share based on the number of yrs worked during marriage. Years earned during marriage divided by total years earned equals CP; rest is SP. Present value x (years earned during marriage/total years earned).

Question 5

How is disability pay and worker’s comp pay treated?

Answer 5

Generally viewed as wage replacement, so treated same way as wages, generally CP if paid out during marriage. However, depending on circumstances, retirement benefits could be disability pay and be the basis for an argument that all retirement benefits are CP bc replacement wages. (Note: Look for facts like early retirement and sick spouse._

Question 6

Severance pay?

Answer 6

Depends. If argued that it replaces future wages, may be SP or part SP after perm separation. If to replace earned benefits accrued during marriage, CP.

Question 7

Bonuses?

Answer 7

Earned during marriage – CP. Earned after marriage/PM– SP. Doesn’t matter when paid. Need to look at when earned. Might have to be prorated if separation occurs during year earned – i.e., the time rule would be applied to award community its proportional interest.

Question 8

Game show and lottery winnings?

Answer 8

Generally treated as CP if awarded during marriage. Theory is that it is the result of some time, energy or services of the winning spouse. Could try to argue gift.

Question 9

Stock options?

Answer 9

Form of employee compensation. Treated as CP or SP depending on when they are earned. Time rule used to determine respective shares.

Question 10

Business and professional good will?

Answer 10

CP if earned during marriage. CP gets its shared. Need expert to evaluate.

Question 11

Education and training?

Answer 11

Ed and training are SP, not a community asset or debt, as it is personal to the person obtaining it and is not transferrable. Hence at dissolution, it remains an asset of the acquiring spouse. However, the community can be reimbursed for educational expenses made during marriage if CP is used to pay educational expenses, and the education substantially increases the spouse’s earning capacity (whether the potential is realized or not)
Rebuttable presumptions re reimbursement:
–If 10 or more years has elapsed since completion of education, rebuttable presumption that the community has already benefitted (presumed reimbursed);
–Less than 10 years, community presumably not benefited and is entitled to reimbursement (BUT SUBJECT TO REDUCTION).
–Reimbursement includes interest.
–Educational expenses include tuition, books, supplies and transportation BUT NOT ORDINARY LIVING EXPENSES.
–Reductions: other spouse also received community funded education, or reduced need for spousal support for educated spouse.
–Educational debt assigned solely to the educated spouse, even if part of loan used for living expenses.

Question 12

What count as educational expenses?

Answer 12

books, supplies, tuition, transportation BUT NOT ordinary living expenses.

Question 13

How do you show substantial enhancement re education?

Answer 13

Show with expert evidence an increase in earnings capacity. Not necessary to show actual increase in earnings.

Question 14

Life insurance?

Answer 14

Whole life policies have cash value. Apply time rule to when premiums are paid. Term insurance considered to have no cash value at divorce. With term life insurance, the entire policy is considered community property – which would give the spouse the right to 50 percent of the death benefit – if income earned during the marriage were used to pay the most recent premium. The other 50 percent would go to the named beneficiary. In other words, without written waiver, decedent can only devise 1/2 to bene other than spouse. If not clear whether policy is whole or term life on exam, analyze both, and pick one.

Question 15

Property insurance proceeds?

Answer 15

Depends on character of underlying property. However, even if SP, if CP used to pay premium, CP entitled to reimbursement.

Question 16

Money or property from a loan made during marriage?

Answer 16

Presumptively CP, but to overcome presumption, look to INTENT OF THE LENDER. To show it’s SP, show that lender relied primarily or exclusively on spouse’s SP in making loan–for example, if SP asset was used as security. If relying on earnings capacity, CP.

Question 17

Business owned before marriage?

Answer 17

When community labor is used to enhance the value of a SP business, community entitled to a share of the increased value of the SP. (EG: H’s business is SP. CP entitled to appreciation bc H’s labor during the marriage increased the value.) Courts allocate the appreciation either using the Periera or Van Camp allocation rules. Note that after permanent separation, community has no further claim on SP business.

Question 18

What is the Periera accounting method?

Answer 18

Test assumes that the bulk of the increase in value stems from the increased effort (time, skill, labor), and that the SP is entitled to a reasonable rate of return of approximately 10% per year. The difference between the value of the investment on date of dissolution and the net value of the capital invested, inclusive of the 10% annual return, will be the CP interest in the account.

Question 19

What is the Van Camp method?

Answer 19

This applies when the increase in value of the business is primarily the result of the unique nature of the SP asset or the economy–for example, growth due to capital appreciation. Under this method, the CP is essentially reimbursed for compensation for the spouse. Under this method, you determine a fair salary for community labor, multiply that by the years of marriage, subtract any salary already received and any amounts paid for community expense. The result of that calculation is CP. The rest is SP. (Parties will argue what ever method is best.)

Question 20

Business created after marriage?

Answer 20

If the seed money is CP, the appreciation is CP.

Question 21

CP business that appreciates after permanent separation?

Answer 21

If initial investment in business was CP, and one spouse continues to work after perm separation and business appreciates, reverse Periera or Van Camp. RP equals awarding the CP the value of investment at reasonable rate of return. Reverse VC equals working spouse gets salary, rest CP.

Question 22

What is the time rule? When applied?

Answer 22

Where property is acquired based on the time and effort of one spouse and the period of acquisition includes time during the marriage as well as before and/or after it, the community is entitled to a proportional interest. Consider this rule in context of pensions, bonuses, etc.