Community Property California Bar Exam Long Outline


COMMUNITY PROPERTY

  1. BASIC PRESUMPTIONS

    1. California is a community property state. All property acquired during the marriage is presumed to be CP, while all property acquired before marriage or after permanent separation, or by gift or inheritance is presumed to be SP. Property acquired in a SP state by either H or W before they became domiciled in CA is quasi-CP. Upon death or divorce quasi-CP is treated as CP.

      1. The characterization of an asset as either CP or SP depends on three factors: (1) the source of the asset, (2) any actions by the parties that may have altered the character of the asset, and (3) any statutory presumptions that apply to the asset.

      2. In order to determine the character of any asset, the courts will trace back to the source of funds used to acquire the asset. A mere change in form of an asset does not change its characterization. E.g., capital gain from the sale of SP is SP.

    2. Absent a showing of the parties agreement or that title was taken in a form that overcomes the community presumption, the burden of proof is on the party claiming SP.

    3. The economic community ends when (1) there is permanent physical separation AND (2) intent not to resume marital relation

  1. CHARACTERIZE EACH ASSET

    1. Personal Injury Awards are CP if the cause of action arose during marriage. If the cause of action arose before marriage or after permanent separation, the award is SP.

      1. At divorce, CP personal injury awards will be awarded entirely to the injured spouse

      2. Personal injury liabilities are always the SP of the tortfeasor, unless tort occurred while spouse was acting for the benefit of the community, then look to SP first, next CP.

    2. Retirement Benefits are CP if earned during the course of the marriage. For retirement pensions and other retirement benefits earned before and during marriage, courts apply the time rule to determine how much of the pension is attributable to CP labor and how much is attributable to SP labor: (present value) x (# years wrkd during marriage / total # years wrkd)

    3. Disability pay and workers comp benefits are either CP or SP depending on the wages they are designed to replace. To the extent disability benefits are taken in lieu of retirement benefits, disability benefits are treated as retirement benefits, and thus are CP. For distribution – CP until parties separate, thereafter earner’s SP.

    4. Courts are split on severance pay. May argue that it’s SP b/c it replaces future wages. Or CP where it the result of labor performed during the marriage.

    5. Stock options are a form of employee compensation and are treated as CP or SP depending on when they were earned. Courts use the time rule to determine the respective CP/SP shares.

    6. Business and professional good will is CP to the extent it is earned during marriage.

    7. Education and training are NOT CP. But, the community may be entitled to reimbursement when CP funds are used to pay education expenses and the education enhanced the spouse’s earning capacity UNLESS the community has substantially benefited from the earnings of the educated spouse (10 years → presumption) OR other spouse also received comm. funded ed.

    8. Funds borrowed during marriage, and goods purchased on credit during marriage are presumptively CP. But, look to the primary intent of the lender. Who or what was the lender primarily looking to for satisfaction of the debt?

    9. Business owned before marriage, which greatly increased in value after marriage:

      1. Rule: 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]

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.

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.

  1. Altering the Character of Assets

    1. Parties may opt out of the community property and separate property characterizations by agreement, either as to particular asserts or as to all acquisitions.

    2. Premarital agreements must be in writing, singed by both parties.

      1. Unless (1) full performance or (2) estoppel based on detrimental reliance.

      2. Defenses to enforcement:

        1. It was not signed voluntarily

          1. Bonds case: involuntary mean an 11th hour ultimatum.

          2. 2001 statute: agreement is involuntary unless:

            1. Represented by independent counsel when signed (or waived representation in a separate writing) AND

            2. Given at least 7 days to sign between being presented w/ agreement and advised to seek legal counsel and the signing &

            3. If not represented by independent counsel, was fully informed in writing (in a language in which the party was proficient) of terms and basic effect.

        2. It was unconscionable (question of law for the judge)

          1. Generally, unconscionable if no fair, reasonable and full disclosure of the other party’s property or financial obligations

          2. Waivers of spousal support are unenforceable if (1) party was not represented by independent legal counsel at the time of signing OR (2) the provision is unconscionable at time of enforcement.

    3. Transmutations (marital agreements):

      1. Before 1985, oral transmutations were permitted, whether express or implied.

      2. On or after Jan. 1, 1985: must be (1) in writing, (2) signed by the spouse whose interest is adversely affected, AND (3) must expressly state that a change in ownership is being made. Exception for gifts of tangible property of a personal nature.

  1. EFFECT OF HOW TITLE IS TAKEN

    1. Married Woman’s Special Presumption

      1. Where property is taken in the married woman’s name alone, prior to 1975, that property is presumed to be her SP. Based on the fact that prior to 1975 the H was given sole management and control of the community assets and thus, any property taken in the W’s name was presumed to have been a gift to her.

      2. The presumption can be rebutted by a showing that (1) H did not indent to make a gift to W but had some other reason for taking title in her name [e.g. creditors’ claims] or (2) W took title in her name w/out H’s knowledge or consent.

      3. Arises only when:

        1. Title taken in W’s name alone before 1975 (property would be W’s SP)

        2. Title in name of W and H before 1975, but title is not taken in joint tenancy form, and not as “H & W” or “Mr. & Mrs.” (would by ½ W’s SP, ½ CP)

        3. Title in name of W and some third party before 1975 (W would be TIC w/ 3rd P)

    2. Taking Assets in Joint Title: Lucas and Anti-Lucas Rules

      1. At death, Lucas applies. Under Lucas, when a married couple takes title in joint and equal form, it is presumptively CP. Any SP used to acquire the asset is presumed to be a gift to the community unless agreement to the contrary. So no reimbursement.

      2. At divorce, under California Family Law, when a married couple takes title to asset in joint tenancy after 1984, the asset is presumed to be CP for purposes of divorce.

        1. The CP presumption can be rebutted only by:

          1. Express statement in the deed that the property is SP and not CP or

          2. Written agreement by the parties that the property is SP and not CP

        2. But, at divorce, spouse who made post 1984 contributions of SP to the acquisitions or improvements of CP is entitled to reimbursement w/out interest for contributions to downpayment, improvements, or principal payments on the mortgage (DIP) (but not interest on the mortgage, taxes, insurance, etc.)

        3. Plus, a spouse who deeds SP into jointly titled property is entitled to a right of reimbursement for the fair market value of the property at the time it was deeded into joint tenancy.

    3. Absent joint and equal title, apply the source rule – two permissible methods:

      1. Exhaustion: at the time the asset was purchased, community funds in the account had already been exhausted by the payment of family expenses, and therefore the asset must have been purchased with separate funds.

      2. Direct tracing: at the time the asset was purchased, there were separate funds available, and the SP proponent intended to use SP funds to purchase an SP asset.

    4. Taking Assets in Separate Title: Can argue that taking title in one spouse’s own name (even where CP used to make the purchase) indicates a gift to that spouse, so that the property is her own SP. Must argue there was an oral transmutation prior to 1985. Post 85, need a writing.

  1. effect of parties’ actions on characterization of assets

    1. Pro Rata Rule: The community estate takes a pro rata portion of the property measured by the percentage of principal debt reduction attributable to the expenditure of community funds.

      1. Formula: CP = principal debt reduction attributable to CP / purchase price

      2. Applies where:

        1. An installment purchase is made before marriage, and subsequent payments are made w/ CP after marriage.

        2. During marriage W inherits land subject to mortgage and pays it off w/ CP

        3. H purchases a whole life insurance policy (cash value) before marriage, and subsequent premiums are paid w/ CP after marriage. But, not term life insurance policy (no cash value, last premium pay. determines character).

    2. Reimbursement Rules:

      1. CP used to improve SP:

        1. Where spouse uses CP to improve own SP → improvements become part of the SP. The community can seek reimbursement for the greater of the cost of improvements or the enhanced value of the SP attributable to the CP.

        2. Where spouse uses CP to improve the other spouse’s SP → split in authority

          1. Some courts presume gift.

          2. Other courts reject the presumption of gift and grant reimbursement.

      2. SP used to improve CP:

        1. In divorce: Community may seek reimbursement w/out interest for DIP

        2. In death: NO reimbursement unless proof of agreement (Lucas). SP is deemed a gift and becomes part of the CP.

    3. Commingled bank accounts:

      1. The mere fact that SP funds are commingled with CP funds does not transform or transmute the SP into CP. However, the burden of proof is on H to show that each asset was acquired w/ separate funds (through tracing or exhaustion).

      2. It is presumed that expenditures for family expenses were made w/ CP funds (to the extent available), even though it was known that SP funds was also available. However, b/c of commingling and inadequate records, where some expenses may have been paid by SP, it is presumed a gift to the community (absent contrary agreement).

  1. Management & Conveyances of CP

    1. During the marriage each spouse has equal management and control over all community assets, and thus has full power to buy or sell CP and contract debts w/out the other spouse’s joinder or consent. Except:

      1. Spouse managing a business is given primary management and control.

      2. One spouse cannot sell or encumber personal property used in family dwelling or clothing w/out written consent of the other spouse. Trx is voidable at any time.

      3. Conveyances of community real property requires joinder by both spouses.

(If to a BFP, 1 year SoL. If not to a BFP, no SoL, viodable at any time.)

    1. Neither spouse can make an inter vivosgift of CP w/out the other spouse’s written consent.

      1. Non-gifting spouse may take back the gift, and thus restore the community.

      2. But, if non-gifting spouse does not discover the gift until after the death of the gifting spouse, the non-gifter may set aside the gift only as to her ½ CP, not the entirety. Recovery will be from either the donee or the gifting-spouse’s estate.

      3. Same rule where one spouse purchases a life insurance policy and names a 3rd party as beneficiary. But, federal preemption prevents recovery of gifts of US savings bonds.

    2. CP & Creditors:

      1. Neither spouse can transfer or encumber her ½ interest in CP except one spouse can unilaterally encumber her ½ CP interest to pay a family law atty in divorce action.

      2. CP can be reached to pay debts incurred before and during marriage except earnings of nondebtor spouse cannot be reached for premarital debts if held in a separate account and no commingled w/ CP funds.

      3. Each spouse has a duty to support the other spouse and minor children of the marriage, so each spouse is personally liable for the other spouse’s Ks for necessities. Therefore, one spouse’s SP can be reached in satisfaction of necessary debt of the other (e.g. medical bills).

      4. At divorce, a creditor cannot reach CP awarded to a spouse unless that spouse (1) incurred the debt or (2) was assigned the debt by the court.

  1. Distribution

    1. At divorce, all CP will be divided 50-50 unless the court finds that “the interest of justice require an unequal division.”

      1. Generally, each and every asset must be divided 50-50 unless economic circumstances warrant awarding certain assets wholly to one spouse (and each spouse ends up with 50% of all CP in terms of total economic value).

      2. Exceptions to the general rule: (1) misappropriation by one spouse, (2) liabilities exceed assets, (3) education debts assigned to the educated spouse, (4) tort liabilities assigned to the tortfeasor, (5) family home may be awarded to the person who is given custody of the minor children.

        1. Spouses are subject to fiduciary duties that arise from their confidential relationship, imposing a duty of the highest good faith in dealing with each other. Thus, a crossly negligent and reckless investment of community funds is a breach of the spouse’s fiduciary duty.

    2. At death:

      1. If the spouse dies w/ a will, she/he is entitled to dispose of all SP and ½ of the CP.

        1. Survivor’s Duty to Elect: The surviving spouse must elect between the will and her CP rights when the decedent’s will attempts to pass the survivor’s ½ interest in CP.

      2. If the spouse dies w/out a will, the CP is awarded entirely to the surviving spouse. Between one third an all of the decedent’s SP will be awarded to the surviving spouse depending on whether there are issue or parents surviving.

    3. Quasi-Community Property: property acquired by the couple while living in another jx. which would have been classified as CP had the parties been domiciled in CA

      1. At divorce quasi-CP is treated exactly like CP. If the property is out-of-state, the court will divide all CP and quasi-CP in such a way that it is not necessary to alter the nature of the interests held in the out-of-state realty,

      2. At death, the survivor has a ½ interest in decedent’s quasi-CP. But, non-acquiring spouse who predeceases has no ownership interest in devise.

    4. Putative Spouse (one who reasonably believed she was lawfully married).

      1. Treat quasi-marital property the same as community property

      2. But, H who falsely tells W that marriage is valid has no putative spouse rights.

  1. Preemption

    1. Under the Supremacy Clause, federal law preempts inconsistent state laws. In some instances, federal law preempts CA from applying community property concepts to certain assets.

    2. Applies to: (1) fed. homestead claims, (2) military life insurance benefits, (3) US savings bonds

    3. Not: (1) R.R. retirement benefits, (2) military retirement benefits, (3) copyrights.

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