law school outline: community property
- Timeline (not on bar exam)
- 1891: Spouse may not make a gift of CP personal property, or dispose of it for less than fair value, without written consent of other spouse (FC1100).
- 1917: Both spouses must sign to convey CP real property (FC1102 � with family lawyer fee exception).
- 1927: Interests of H&W in CP are existing an equal interests.
- 1951: Married women given right to manage and control their CP earnings, unless commingled with H�s property. Only H can manage and control CP real property.
- 1965: Personal residence in JT presumed CP at dissolution, JT at death.
- 1968: Personal injury damages called CP, but assigned to injured spouse, unless justice requires otherwise.
- 1970: No fault divorce, 50/50 split of CP.
- 1975: Equal management and control (FC1100); Married Woman�s Special Presumption for property acquired before 1975 (FC803).
- All JT property acquired after 1/1/84 presumed CP at disso (FC 2580, 2581)
- Absent K, party has reimbursement right for SP contribution for downpayment for acquisition of property for principal only. Lucas gift presumption no longer applies. (FC2640)
- Community entitled to reimbursement for contributions to education or training that substantially enhances earning capacity (FC2641, 4320).
- 1985: Transmutation requires written, express declaration (FC852).
- Once you determine C/P interest, remember to divide it in half to determine what each party gets.
- Marriage: Man and woman, capacity (age, no prior marriage), license, solemnization, filing completed license with county recorder (but also see Putative Spouse). Divorce: In CA it�s a dissolution or annulment. No fault required � just irreconcilable differences. Atty fees can be awarded in equity.
Apply unless parties have been altered by agreement, conduct, or how title was taken. S/P is acquired (FC 770):
- By either spouse before marriage
- During marriage by gift (no strings attached), will, or inheritance
- During marriage with the expenditure of separate funds, established by tracing
- After termination of economic community (separation).
- Rents, issue and profits from S/P
C/P: Property, other than S/P, acquired by either spouse during marriage, while domiciled in this state. (FC 760)
- Acquisition occurs when earned, not when received. If the labor occurred during marriage, it�s C/P.
- Includes rents and profits from C/P.
Community presumption: All assets acquired during marriage are presumptively C/P. Absent a showing of the parties agreement, or that title was taken so as to overcome the community presumption, the burden of proving that a particular asset is S/P is on the contending party.Termination of economic community
Occurs at time of perminant physical separation when one spouse has intent not to resume marital relation which is communicated to the other spouse.
- Trial separation does not qualify, because upon reconciliation the separation isn�t complete and final.
Division upon divorce
Valuation made as close to trial as possible (FC 2552). S/P: Court can dispose of jointly titled S/P upon request of either party; non-jointly titled S/P upon request of both parties. Each and every C/P asset must be divided equally, 50/50 (but spouse can consent to aggregate division) (FC 2550).
- Disparity in earning power is relevant only to spousal support.
- Exceptions: If economic circumstances warrant awarding certain assets wholly to one spouse. The other spouse must be compensated (so that each spouse ends up with 50% of the total economic value). Examples of the exemption:
- Family residence if division it would disrupt the children.
- Ongoing family business
- All shares of closely held corporation
- When one spouse misappropriates CP
- Educational and separate debts (treated as S/P)
- Tort liability not based on activity for benefit of community
- PI award to injured spouse (unless interest of justice requires otherwise)
Taxes will only be considered if they are immediate and nonspeculative, directly traceable as an effect of a court order. Interspousal transfers of property are not taxable events. When C/P liability exceeds assets: Relative ability of spouses to pay creditors is considered, to protect creditors.C/P which is unadjudicated at time of divorce: Court retains continuing jurisdiction to divide C/P in the future, unless the interests of justice require an unequal division. Unadjudicated C/P becomes tenancy in common. MSA can be set aside within 6 mos of judgment for mistake, inadvertence, surprise or excusable neglect. After 6 mos, can be set aside only for extrinsic fraud (courts favor finality of judgments).Death
- Lifetime and testamentary gifts of C/P
At death, surviving spouse gets � C/P, and decedent can devise his � interest in C/P and all of his S/P by will. If decedent dies intestate, surviving spouse gets 100% C/P. Neither spouse can make a C/P gift without other spouse�s written consent (includes life insurance policy paid for with C/P funds with TP beneficiary). Nonconsenting spouse can:
- Void the gift during lifetime of donor
- Upon divorce offset C/P assets to recover her �
- Upon death of gifting spouse revoke gift as to her � C/P from donee or from decedent�s estate.
Nonprobate transfers of C/P
Applies to insurance policy, bank accounts, mortgage, pension plan, retirement plans, trust, etc. Transfer can be made without a will. Holder of property (i.e. insurance co) isn�t liable if the transfer is against surviving spouse�s C/P interest unless holder is served with written notice of spouse. Otherwise, spouse has to sue beneficiary. Surviving spouse�s consent to transfer of C/P can be modified or revoked only before death of spouse.Widow�s election will: Applies when testator expressly requires election in will, or when testator gives away surviving spouse�s � C/P in will, as S/P. Surviving spouse must elect between:
- Taking under the will, thus allowing her interest in the C/P to be disposed of as decedent wanted; or
- Taking her � C/P interest ("statutory share") but relinquishing her gift under the will.
- But W can take her � interest and take any property that passes to her under intestacy (if any).
- No election needed where decedent devises "all my property" � that only includes decedent�s half of the C/P and his S/P.
Surviving spouse gets 100% of C/P Surviving spouse gets S/P:
- No heirs: 100%
- One child, grandchildren of one child, or parents: 50%
- More than one child, or grandchildren of more than one child: 33%
If surviving spouse dies intestate and without immediate family, issue of predeceased spouse can take, and if none, then to more remote kin of decedent.
- Real property from predeceased spouse within past 15 years sent up predeceased spouse�s family line. Personal property worth more than $10k sent up if spouse died not more than 5 years before decedent.
- Probate homestead can be set aside for surviving spouse or minor children as a tenancy for life, or until majority of child.
If all property is going to surviving spouse, no administration necessary. Real property can�t be transferred for 40 days, but after that property is free of spouse�s creditors or claims from heirs. File declaration of death with county recorder at time of property transfer (i.e. when surviving spouse sells).Altering The Character of Assets By Agreement
Agreement between the parties can transmutate any property, either individual assets, or everything. Agreement can be made prior to marriage or during marriage. Premarital agreement
Can agree on anything related to property or finances, including that during marriage each party�s salary and wages will be S/P, neither will claim a family allowance in the other�s estate, and that agreement will govern disposition of property on separation, divorce, or death, including the making of a will or trust and disposition of life insurance policies, and can deal with any other matter, including their personal rights and obligations.
- Except: Child support and spousal support, but spousal support waivers or limits more likely to be upheld if no minor children. Cannot waive duty to care for invalid spouse.
Must be in writing and signed by both parties (SOF applies), except oral agreement ok if fully executed (performed), or estoppel based on detrimental reliance.
- Marriage alone is not enough reliance to preclude writing.
- Conduct by a party in furtherance of the agreement is sufficient to prove that the K existed.
Defenses to enforcement
Not signed voluntarily; or Unconscionable when made, AND:
- No fair disclosure of other party�s property or financial obligations;
- Right to disclosure was not waived in writing; and
- Party seeking to avoid enforcement had no adequate knowledge of other party�s property or financial obligations.
Postmarital agreement transmutations
- Pre-1985: Oral agreement OK, both express and implied-in-fact
- Transmutation of SP to CP is presumed to be a gift of � interest to the other spouse. No tax because of unlimited marital gift tax exemption.
- Oral J/T agreements were still invalid � creation of JTWROS has always required a writing.
Post-1/1/85 (FC 852)
- Must be in writing;
- Will doesn�t qualify as evidence of transmutation in a proceeding commenced before death of testator.
- Signed by spouse whose interest is adversely affected; and
- Must expressly state that a change in ownership is being made.
- Exception: Gifts of tangible property of a personal nature which are not substantial in value taking into account the circumstances of the marriage (i.e. birthday and anniversary gifts); and nonprobate beneficiary designations.
Rights upon death
Rights which can be waived: All rights, including intestate succession, probate homestead, right to set-aside, family allowance, right to elect C/P against will, statutory share, appointment as personal representative, interest in property subject to nonprobate transfer. Valid waiver requires:
- Signed by surviving spouse
- Fair and reasonable disclosure of assets
- Waiver of disclosure requires independent legal counsel at time of signing, unless waiver made a fair and reasonable disposition of rights of surviving spouse, or surviving spouse had or should have had adequate knowledge of decedent�s assets (constructive disclosure).
- Not unconscionable.
After 71/187, C/P remains C/P if transferred into revocable trust if power to modify may be exercised by both spouses (FC 761).Effect of how title is taken
- Property acquired prior to 1975: Married Women�s Special Presumption
- Where C/P was used to acquire property with written title in married woman�s name before 1975, the property is presumptively the wife�s S/P, unless title refers to H&W as married.
- SP: "Jane Doe", "Jane Doe, a married woman", tenancy in common with TP, "[both names]" (T/C).
- T/C: H�s � is C/P, and W�s � is S/P, so W gets a total of 75% of the property and H 25%.
- "[both names] with right of survivorship" creates J/T
- "Mr. and Mrs. Hobie Gates" or "[both names] as husband and wife" is C/P
- Rational: H had sole control over C/P, and therefore by allowing title in W�s name, H must have intended a gift.
- Creates irrebutable presumption protecting BFP who buys asset from W in reliance on the fact that it is titled in W�s name and therefore is W�s S/P.
- Creates rebuttable presumption between H and W, and H can rebut the presumption by showing H didn�t intend to make a gift to W. Example: H concerned about creditor�s claims or W took title in her name w/o H�s knowledge or consent.
Property acquired after 1975: Characteristic of source funds controls. Title taken in one spouse�s name alone does not overcome C/P presumption. Presumptions from title in both spouse�s name: C/P vs J/T
Common Law: J/T had equal, separate interests with right of survivorship to other J/T at death. Lucas (1980, codified in FC 2580 and 2581): Issue arises when S/P is used to purchase J/T, T/C or C/P asset, and S/P contributor later wants to reclaim her interest. Lucas says that because title was taken equally, C/P intended, and tracing or S/P�s intent could not overcome C/P presumption, unless expressed in deed or written agreement.
- Anti-Lucas statute (FC 2640): S/P contributions to C/P made after 1984 is entitled to reimbursement w/o interest of : Downpayment, Improvements, Principal payments on mortgage (DIP). No reimbursement for interest payments, taxes, insurance, appreciation, maintenance, etc. Reimbursement cannot exceed net value of property.
- For purposes of death: How title is taken controls, and tracing will not overcome presumption. However, evidence can be introduced to prove transmutation (but after 1995, must be in writing).
- "[name of parties] as joint tenants" is presumptively J/T and title passes to survivor by right of survivorship.
- "[name of parties]" is presumptively C/P
- At death, C/P basis is stepped-up to value of entire asset, but with J/T only � interest is stepped up.
- If title isn�t in joint and equal form, or there is no title, tracing rule applies, and S/P contribution appreciates in value along with asset (pro rata � Moore/Marsden).
- Installment purchase: Characterized pro rata in accordance with source of principle payments. C/P used to buy or improve titled S/P
Using C/P to improve other�s S/P: Presumption of gift to other�s S/P. Overcome by agreement that community would be reimbursed. Using C/P to improve own S/P (without other�s consent): Community is reimbursed the greater of the actual C/P amount used, or pro rata value enhanced by the improvements (not appreciation in value).S/P used to buy or improve titled C/P
Presumption of C/P, and S/P presumed a gift to community. Overcome by showing of clear communicated intent to keep S/P or inference from conduct, but tracing isn�t available. Anti-Lucas statute (FC 2640): In divorce, S/P for acquisition or improvement of C/P is entitled to reimbursement without interest for contributions to Downpayment, Improvements, and Principal payments on mortgage (DIP).Commingled bank accounts
Family expense presumption: Presumption that family expenses were paid from C/P even though S/P was available. If some expenses were paid for with S/P funds, gift to community presumed, absent contrary agreement.
- Exhaustion method: Just before asset was purchased, all C/P assets were exhausted, subsequent purchase was S/P. Direct tracing method: Sufficient S/P funds available, and party intended to use S/P to buy asset (indicated by quick withdraw of recently deposited funds in a similar amount). Party commingling assets carries burden of record keeping to track S/P, otherwise C/P. S/P asset increases in proportional value.
Proponent of S/P may not use recapitulation to show that total family expenses exceeded total community income and thus all else was S/P.Classification problems raised by certain assets
- Life insurance (whole): Characterized pro rata in accordance with source of principle payments. Surviving spouse is entitled to � of the C/P interest. Life insurance (term): Last premium payment determines classification. Exception: If insured becomes uninsurable during S/P payment period, then pro rata rule applies. Property: Per character of underlying property, but community may have claim for reimbursement of premiums paid.
Business owned before marriage that appreciates greatly in value
- Applies to a S/P business where one party�s efforts during marriage increase the value of the business. C/P must be credited with a fair share of the profits rising from efforts during marriage.
- Evaluate both tests, use the method that results in substantial justice.
- Pereira: If increase caused by personal effort (time, skill and effort - a community asset), allocate a fair return on the value of business on date of marriage to S/P, plus S/P value at start of marriage, and excess is C/P. VanCamp: If increase caused by original S/P capital investment or the intrinsic value of the company, then value is mostly S/P. Also indicated if spouse drew a high salary, in which case C/P was already adequately compensated for value of the community (spouse�s) labor. Start with FMV of services rendered, minus family expenses paid from business income, equals community component, times number of years married. Remainder is S/P.
C/P in proportion earned during marriage, even if payment is deferred. If benefit is based on something other than time, apply same pro rata formula. If earning spouse is not yet eligible for retirement, options are:
- Cash out non-earning spouse (best).
- Decree that says that "if and when" spouse receives the money (vesting occurs), pension C/P is divided per a QDRO.
- Court retain jurisdiction until payment starts.
If earning spouse is eligible for retirement, but hasn�t yet retired, nonearning spouse can get lump sum payment of her C/P share. Since earning spouse could have retired, retirement benefit has matured. His election not to retire can�t defeat her right to the � C/P. If nonearning spouse dies, her interest in the pension plan is terminated, and the pension is not included in her estate. Also applies to federal military and railroad retirement plans � not preempted.Disability benefits is wage replacement and, if paid after divorce, it is replacing post-divorce S/P earnings, and is therefore S/P. Social Security is preempted by federal law, which has a scheme covering divorce.
- If earning spouse could take either disability benefits (S/P) or pension benefits (C/P), earning spouse cannot elect to defeat C/P interest in value of the pension benefit. If party takes S/P disability benefits, must pay other party what she would have gotten under C/P pension.
Awarded during marriage are C/P in the ratio of (months from date option awarded to date of separation) / (months from date option awarded to date option becomes exercisable). Risk of decrease in value is borne by employee-spouse, and non-employee spouse should be bought out ASAP.Severance pay
Takes the characteristic of what it is intended as (wages = C/P if preseparation, S/P of postseparation; pension = C/P; disability = S/P).Good will of professional practice
Goodwill: Difference between value of physical assets and the total value of the business. Qualities which generate income beyond labor and reasonable return on capital and physical assets. Determine by expert testimony, or capitalization of excess earnings (net annual return minus reasonable value of labor, minus reasonable return on capital and physical assets, multiplied by some number of years). C/P to the extent acquired during marriage. A buy-out agreement does not establish the value of goodwill, but is a factor.Educational expenses
Professional degree earned during marriage is not C/P. C/P entitled to reimbursement for direct educational expenses and living expenses, with interest, for degree which substantially enhanced earning capacity (FC 2641, 4320) unless:
- Written agreement to the contrary.
- Community has already substantially benefited from the earnings of the educated spouse (more than 10 years since degree)
- Other spouse received C/P-funded education
- Education enabled party to engage in employment that reduced need for spousal support (i.e. educated spouse entitled to spousal support, but would have been entitled to more if he hadn�t received education).
School loans are S/P debts.Tort and K liability
PI recovery by one spouse against other spouse is victim�s S/P. Where TP is tortfeasor, victim�s recovery is C/P if COA during marriage, but upon divorce the money will be awarded to the victim so long as the money hasn�t commingled with C/P so as to loose its identity (must be able to trace). If interest of justice requires otherwise, it can be C/P money on divorce. On death of victim, it�s treated as C/P. Where spouse was tortfeasor, all C/P is subject to liability.
- If tortfeasor was performing an act for the benefit of the community, then liability first satisfied from C/P, then from her S/P.
- If tortfeasor not performing an act for the benefit of the community, then liability first satisfied from her S/P, then C/P.
- Judgment creditor can not reach H�s S/P.
Pre-marriage creditors can reach C/P, but earnings of nondebtor spouse cannot be reached if held in separate account in which other spouse has no right of withdrawal, and not commingled with other C/P funds. Nondebtor�s S/P cannot be reached to satisfy debt incurred by other party during marriage, except K�s for necessaries � each spouse personally liable on other spouse�s K�s for necessaries because of duty to support. Debt should first be paid from C/P, and S/P can be reimbursed if C/P funds were available but not used. After divorce, creditor cannot reach C/P awarded to nondebtor spouse unless that spouse was assigned the debt by the court.Acquisitions on credit during marriage
Untitled goods purchased partially on credit during marriage are traced in proportion to character of funds used. However, the primary test is the primary intent of the lender.
- If looking towards party�s general creditworthiness, then C/P (presumption).
- If using S/P as collateral to a mortgage, then S/P (S/P proponent has burden).
Subsequent actions by the parties, such as paying off loan with C/P, changes character of the property under the proration or buy-in rule. Doesn�t include interest and tax payments.Federal preemption
ERISA preempts state law Armed forces life-insurance benefits regulations preempt state law and are treated as separate property. US Savings Bonds are treated as separate property Social Security preempts state lawManagement
Each spouse has exclusive management and control over his S/P and Q-S/P. Each spouse has co-equal management and control over C/P since 1975, regardless of when property was acquired. Either spouse may dispose of or use C/P. (FC1100). Exceptions:
- Disposal of C/P for less than FMV, including gifts, require written consent of other spouse, unless gifts are made mutually by both spouses or between spouses. During life of donee, nonconsenting spouse can revoke gift. After donor�s death, nonconsenting spouse can revoke his � interest. (FC1100)
- Business exception: Spouse operating business that is substantially C/P has sole primary management and control of the business. Spouse can act alone in all transactions, but must given written notice to other spouse before selling all or substantially all of the personal property used in the business. Failure to provide notice does not affect validity of transaction to TP, but spouse has remedy against managing spouse if transaction has substantially impaired spouse�s � interest in C/P estate. Personal belongings exception: One spouse cannot sell or encumber personal property used in the family dwelling (furniture, furnishings, etc.) or clothing without written consent of the other spouse. Transaction voidable by other spouse at any time (no statute of limitations), without paying any damages to BFP. Conveyance of C/P real property for more than one year, including leases: Joinder of both spouses required (FC1102). Nonconsenting spouse can void the transaction, including security agreement, within 1 yr for refund of purchase price, even if TP was a BFP. Nonconsenting spouse has burden of proof to show lack of consent. C/P liable for debts resulting from breach of K with buyer.
- Either spouse can encumber their � interest in real property to pay for atty�s fees for divorce.
Neither spouse can transfer or encumber "my � interest" in community property. Only the entire thing can be transferred or encumbered. Exception: Family law attorney representing her in divorce action can encumber � C/P in community real property. Bank account in the name of a married person is solely controlled by the named person.Fiduciary duty
Spouses must act in good faith. Full and ongoing disclosure of assets and liabilities and cooperating with discovery during dissolution. Access to books and records Accounting for any benefit or profit from C/P transaction made without consent. Party may release other from duty, such as when parties elect to deal at arm�s length or as legal adversaries. Remedy: If duty is breached, court may award innocent party any amount deliberately misappropriated by other party. Must award � of any asset undisclosed or transferred in breach of duty, plus atty fees and court costs. If malice, oppression or fraud exists, court must award the entire asset. Civil action can also be brought. 3 year statute of limitations, unless suit is done in conjunction with divorce action.TRO�s: Dissolution summons contains TRO restrictions on parties ability to transfer C/P, S/P, and insurance policies w/o consent of other party or court order, except for necessities of life and reasonable atty fees.Multistate problems / Quasi-C/P
- When one spouse lives in CA and the other spouse does not: The CA spouse can obtain a CA dissolution, and that will be recognized in all states per Full Faith & Credit. But spousal support and property rights cannot be decided without in personam over both parties or in rem over the property. Judgment purporting to dispose of rights without jurisdiction will not be supported by Full Faith & Credit (but the dissolution is still valid). CA, or another state, may later decide support and property decisions when that state gets jurisdiction. When both spouses move from CP to SP state: The law of the situs where real property is located, or where personal property was acquired, controls. SP state can create a resulting trust to avoid inequity. Title is not controlling. When both spouses move to CA: Upon death or dissolution of a married person domiciled (physical presence + intent to stay) in this state, Q-C/P is divided in half.
- Q-C/P: That property which was acquired while domiciled elsewhere which would have been C/P if they had been domiciled in this state at time of acquisition.
- Q-C/P has no effect until divorce, therefore spouse can dispose of during life, but surviving spouse can recapture under certain circumstances.
- If couple moves to CA from other C/P state (LA, TX, NM, AZ, WA, ID, NV, WI), the property is true C/P, not Q-C/P.
CA court can�t adjudicate ownership of foreign real property (no full faith and credit power), so it awards the land to the title holder, and offsets C/P with other assets. OR, CA court can order title holder to make the conveyance necessary, but that is questionable under full faith & credit.Outside marital relations
No common law marriage in CA, but CA does recognize marriages which are legal in the state created, unless violates criminal statutes (bigamy). K law
C/P and Family Code doesn�t apply without marriage. People living together may have an express or implied agreement regarding division and ownership of property, so long as the agreement isn�t founded solely on sexual services. Cohabitation K isn�t tacked on to subsequent marriage, but parties may bring K claim at divorce for pre-marriage cohabitation. Support award and property assignment possible if equity requires, but if p benefited economically from relationship and suffered no damage, no award. Very difficult to win because of problems of proof. Does not affect relationships w/TP�s.Putative spouseGood faith belief of lawful marriage (all the requirements met), but marriage was void or voidable. Assets acquired during that "marriage" is quasi-marital property, and is treated exactly the same as C/P. When there are two wives, one of the wives is clearly lawful, and the other is a putative spouse. Court has discretion to divide the property in equity. If spouse(s) had knowledge that marriage was void, putative spouse rules still apply based on estoppel: Spouse received the benefits of marriage, so he is estopped from denying the marriage.