Community Property California Bar Exam Short Outline

Community Property – Checklist

  1. Basic Presumptions [you MUST put this at the top of EVERY community property essay]

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.

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.

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.

  1. Characterize each asset

Personal injury awards

CP if cause of action arose during marriage, but awarded to injured spouse @ divorce

Personal injury liability

SP of the tortfeasor spouse unless occurred while acting for the benefit of the community

Retirement benefits

CP if earned during the marriage → apply the time rule to apportion between CP and SP.

Disability pay/workers’ comp

CP if taken in lieu of retirement benefits → apply the time rule.

SP if intended to replace future earnings.

Severance pay

Split in authority →

CP b/c result of work done during marriage. SP b/c replaces future wages

Stock options

CP b/c form of employee compensation. → apply the time rule

Business/professional good will

CP to the extent earned during the marriage

Education and training

Not property. But, community is entitled to reimbursement for educational expenses paid by CP funds if the the educated spouse’s earning potential increased as a result of the education. However, there will be no reimbursement if (1) the community substantially benefited from the education (10+ years) or (2) both spouse received community funded education.

Assets purchased on credit during marriage

CP. But, look to the primary intent of the lender

Business owned before marriage, which increased in value during marriage.

Community labor used to enhance value of a SP business → the community entitled to a share of the increased value. Two ways to calculate the community’s share

  • Pereira accounting → increased value primarily due to community labor. Value of business at beginning + fair rate of return = SP, the rest is CP

  • Van Camp accounting → increased value due to the unique nature of SP asset Fair salary for community labor x years of marriage – salary already received – amounts already paid to community expenses = CP, the rest is SP.

  1. Altering the Character of an Asset

    1. Pre-marital agreement: must be in writing, voluntarily signed by both parties

      1. Voluntary? Bonds case v. 2001 statute

      2. Unconscionable? Full, fair and reasonable disclosure. Waiver of spousal support → must be represented by counsel.

    2. Transmutations:

      1. Pre-1985 → oral permitted

      2. Post 1/1/85 → must be in writing, signed by the party whose interests affected, express

  2. Effect of How Title is Taken

    1. Married Woman’s Special presumption: Property taken in W’s name alone pre 1975 = her SP unless (1) H shows other reason or (2) w/out H’s knowledge or consent.

      1. Property taken as H & W pre 1975 = SP, TIC

      2. Property taken as H & W post 1975 = CP

    2. Property taken in joint title:

      1. At death: Lucas provisions apply

        1. Property taken in joint title = CP, unless contra agreement (oral or written)

        2. Any contribution of SP = gift → no reimbursement

      2. At divorce: Lucas provisions do not apply

        1. Pre-1984: Property taken in joint tenancy = SP of each spouse ½ interest each

        2. Post-1984: California family law applies → property taken in joint title = CP unless contra written agreement.

          1. But, may seek reimbursement for contributions of SP to DIP.

        3. 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. Note: conflict with transmutation rule.

    3. Property taken in separate title (post 1975) → apply source rule. Exhaustion or direct tracing.

  1. Effect of Parties Actions on Characterization

    1. Pro rata rule: community takes a pro rata portion of the property measured by the % of principal debt reduction attributable to CP. Applies to:

      1. Installment purchase made before marriage, and subsequent payments made w/ CP

      2. Land inherited during marriage, mortgage paid off w/ CP

      3. Whole life insurance purchased before marriage, premiums paid w/ CP

    2. Reimbursement Rules:

      1. CP used to improve SP → improvements become part of the SP. May seek reimbursement for greater of cost of improvement or increased value attributable to CP unless one spouse uses CP to improve other souses SP, then usually presumed a gift.

      2. SP used to improve CP

        1. At death → Lucas rule → presumed gift → no reimbursement unless contra agreement

        2. At divorce → anti-Lucas statute → reimbursement for DIP

    3. Commingled Bank Accounts:

      1. Does not transform or transmute SP into CP, but burden on spouse claiming SP to show that each asset acquired was purchased w/ SP funds (tracing or exhaustion)

      2. Family expenses presumed paid w/ CP

  2. Management & Conveyances of CP

    1. During the marriage, each spouse has equal management and control of all community assets. Thus, each spouse has full power to buy or sell CP and contract debts w/out the other spouse’s joinder or consent. Note: does not apply to quasi-CP.

    2. Exceptions:

      1. Spouse managing CP business has primary management and control

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

      3. Both spouses required to convey community real property. (1 yr SoL if sale to a BFP. If not a BFP, voidable at any time. Must refund purchase price).

      4. Neither spouse can make an inter vivos gift of CP w/out the other spouse’s consent. Voidable until death of gifting party, then non-consenting spouse may only recover ½ CP.

  3. CP & Creditors

    1. All CP and the debtor’s SP are liable for the debt of one spouse incurred before or during the marriage. Except earnings of the non-debtor spouse cannot be reached for premarital debts if held in a separate account and not commingled w/ CP funds.

    2. SP of non-debtor spouse can only be reached for satisfaction of the necessary debts of the other.

  4. Distribution

    1. At divorce: 50/50 unless the interest of justice requires otherwise.

    2. At death:

      1. May devise all SP and ½ CP by will

      2. No will, survivor entitled to all CP, 1/3 – all of SP.

    3. Quasi-CP treated as CP

    4. Quasi-marital property (putative spouse) treated as CP

  5. Preemption

    1. Supremacy clause → fed law preempts inconsistent state law. In some instances, fed law preempts CA from applying community property principals to certain assets: US savings bonds, federal homestead claims, military life insurance benefits.

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