CALIFORNIA COMMUNITY PROPERTY - Amazon S3s3.amazonaws.com/mythm-vids-prod/CA.Chang... · CALIFORNIA COMMUNITY PROPERTY . ... Trace the steps back to show that the source of funds

CALIFORNIA COMMUNITY PROPERTY PROFESSOR HELEN Y. CHANG

GOLDEN GATE UNIVERSITY SCHOOL OF LAW

CHAPTER 1: CALIFORNIA’S SYSTEM OF COMMUNITY PROPERTY

A. Basics of Community Property

1. Marital Estate or Marital Economic Community

o Includes all of the community property assets

2. Presumptions based on date or manner of acquisition

a. General Community Property Presumption

Community property includes all property acquired during marriage, except that which is acquired by gift, bequest, devise, or descent

b. General Separate Property Presumption

Separate property includes all property acquired:

• Before marriage • After the parties are living _________________________________________ • After the parties are divorced • By gift, bequest, devise, or descent

3. Principles

a. Principle #1 - Principle of Equality (or Principle of Equal Division)

Community property is owned equally (50-50) between spouses Both considered to have ___________ contributed to the wealth and success of the

marital estate Actual contribution is not considered

b. Principle #2 - Principle of Tracing (see below)

c. Principle #3 - Principle of Contractual Modificaton (see below)

B. Types of Classifications of Property

1. Separate Property (SP)

o Property not acquired through the __________, efforts, and ____________ of the parties while married

2. Community Property (CP)

o Property acquired ____________ marriage that does not qualify as separate property

3. Quasi-Community Property (QCP)

o Property that would have been classified as CP if the parties had been _____________ and _______________ in California at the time of acquisition

o Generally treated the same as community property

Example 1: Husband and Wife are married and domiciled in New York. They use salary to acquire property in New York under Husband's name. They move to California and file for divorce. The property in New York will be classified as ________________________________ because it would have been CP if the parties had been married and domiciled in California at the time of the purchase.

4. Quasi-Marital Property (QMP)

o Property is acquired by a putative spouse (i.e., one who believes in good faith that he or she is legally married, but actually is not)

o QMP is acquired during a ________________ marriage o Generally treated the same as community property

C. Use of Classification of Property

1. Determines a party’s rights in the property regarding:

o Divorce o Death o ________________ rights o Management and control

2. Transmutation

o A ______________ to the classification of a property

3. Principle #2 - Principle of Tracing (the Source Rule)

o Process of determining the source of funds used to acquire a piece of property’s o A change in _____________ does not change the classification of the property o Used to __________ the Presumption of CP or Presumption of SP

Trace the steps back to show that the source of funds used to acquire a specific asset came from a different property classification.

Example 2: Husband and Wife have a co-mingled joint bank account, made up of both community property and separate property. Both spouses deposit their paychecks into the account, plus Wife also deposits money from a trust

2 | © 2015 Themis Bar Review, LLC | California Community Property

fund account. Wife withdraws money to buy stocks. Because the stocks were purchased during the marriage, it is presumed to be CP. To rebut this presumption, Wife must use the Principle of Tracing to show that the source of funds used to acquire the stock was her separate property.

4. Principle #3 - Principle of Contractual Modification

o Parties may remove themselves from the CP system (in whole or in part) by entering into contractual agreements (prenuptial or ___________________) where the parties set out which portions of the CP system they wish to keep.

Example 3: Spouses enter into an agreement that wages will be separate property instead of general community property.

D. Answering a Community Property Question

• Determine which presumption applies.

o General Community Property Presumption o General Separate Property Presumption o Special Presumption of Title o The Married Woman's ________________ Presumption o Special Community Property Presumption

• Determine who wants and who doesn't want the presumption to apply.

o The person who wants to apply the presumption has the burden of evidence. o The person who doesn't want the presumption to apply has the burden of proof for

rebuttal. o Proof must be by a preponderance of the evidence for a ____________________________.

Proof must be by ______________________________ evidence for a special presumption. o Consider what evidence each person will have.

• Determine whether or not the person rebutting the presumption has met her burden of proof.


CHAPTER 2: PARTIES IN THE CALIFORNIA COMMUNITY PROPERTY SYSTEM

A. Types of parties

1. Legally married couples

2. Putative spouses

3. Registered domestic partners

4. Same-sex legally married couples

5. Common-law married couples from other states

B. Legally Married Couples

1. Legal marriage requirements

a. Consent

Both persons agree to be married to each other.

b. Capacity

A person must be ______________________, except A person between _____ and 18 may get married with _____________ consent and

court approval.

c. Compliance with Legal Formalities

License Solemnization (i.e., marriage __________________) Authentication

2. Specifically not legal marriages

a. Common-Law Marriage

California ______________________ recognize common-law marriages created in California.

Under the Full ____________ and ___________ Clause of the U.S. Constitution, California recognizes valid common-law marriages entered into in states that permit such marriages.

b. Void and Voidable Marriages

1) Void Marriages

• Void from the ___________ • Any party with ____________________ can challenge the marriage. • No ________________ adjudication is needed.


2) Voidable Marriages

• Legal and valid until they are declared void • _________________________ to the marriage can challenge the marriage. • Judicial adjudication is required to void a voidable marriage.

3) Bases for void marriages

a) Incest

o Marriage between individuals too closely related o ____________ cousins may marry in California.

b) Bigamy

o One party is already legally married to someone else.

4) Bases for Voidable Marriages

a) Underage party

b) Bigamy exception for a spouse believed to be ____________

c) Unsound mind

d) Force or _________

e) Physical incapacity, when it continues and appears to be _________________

f) _____________ that vitiates consent

o Fraud must go to the essentials of the marriage. o Misrepresentations as to party’s character, wealth, or status are insufficient to

make the marriage void.

c. Unmarried Cohabitants (Meretricious Partners)

Have the same contractual rights and equitable remedies as other adults

C. Putative Spouses

• Property acquired during the putative marriage is _____________________ property and is treated and divided the same as CP.

• Requirements for putative spouses:

o At least one party has a _________________ belief that they are legally married.

Objectively reasonable belief no longer required

o The parties attempted (in some way) to comply with the _______________________ required for marriage.


D. Registered Domestic Partners

• Typically applies to same-sex couples, but also applies to opposite-sex couples who are over the age of 62

• Legally registered domestic partners are part of the CP system (the term "married couples" generally includes registered domestic partners).

• 2012 Changes to the Domestic Partnership Law:

o Domestic partners are no longer required to share a common _________________. o Persons under the age of _____ may establish a domestic partnership if they have the

consent of one ______________ and approval of the court. o Domestic partners may file a ______________________ registration.

E. Same-Sex Legally Married Couples

F. Common-Law Married Couples (from other states)


CHAPTER 3: PRESUMPTIONS FOR CLASSIFICATION OF MARITAL PROPERTY

A. Basics

• California has five presumptions that apply to the classification of marital property. • These are _______________________ presumptions.

o Burden of production is on the party seeking to apply the presumption

This typically involves evidence regarding when the property was acquired.

o Burden of proof is on the party rebutting the presumption

General presumptions are rebutted by a _______________________ of the evidence. Special presumptions are rebutted by _______________________________ evidence.

B. General Presumptions

1. General Community Property Presumption

o Property acquired ____________ marriage is presumed to be CP, except property that is acquired through gift, bequest, devise, or descent.

2. General Separate Property Presumption

o Property is presumed to be SP if acquired:

Before marriage After the spouses are living ______________ and apart After _____________ During marriage by gift, _______________, devise, or descent

C. Special Presumptions

1. Rules

o If a general presumption and a special presumption can both be applied, the special presumption has priority over general presumption.

o To rebut a special presumption, one must show that the parties did not want the special presumption to apply ( ___________ intent).

2. The Married Woman’s Special Presumption

o Property acquired by a married woman in her own name or in her name and a third party's name (not her husband) before ________ is presumptively her SP.

As of January 1, 1975, both spouses may have management and control over CP. Before 1975, only a husband could have _______________________________ over CP.

Example 4: In 1974, Husband and Wife have a joint bank account. Wife takes out $10,000 to buy a sailboat in her name. Because only Husband has the right


to control and manage the money in that account, it is presumed Husband wanted Wife to use the money to buy the boat in her name and that the sailboat is ________________________________.

o To rebut the presumption, a husband must show clear and convincing evidence that he lacked donative intent.

3. The Special Presumption of Title

o Applies only at ____________ o The form of title at death is the presumptive form of ownership.

Example 5: Husband and Wife hold real property as joint tenants. Husband dies. Wife, as the sole surviving joint tenant, owns the property entirely.

o To rebut the presumption, one must produce clear and convincing evidence of contrary bilateral intent.

4. Special Community Property Presumption

o Applies only at _____________ o Brings all jointly-held property into the CP system, including

Joint tenancy Tenancy by the entirety Tenancy in common

o Changed following 1984 Legislation

To rebut Special CP Presumption, there must be a ______________ that shows the parties' intent not to hold this property as CP at divorce.

Before 1984, parties could use ______________ evidence to rebut the presumption. There is a right of reimbursement for separate property contribution.

Example 6: Husband and Wife buy a house for $100,000 and take title as joint tenants. Wife contributes $20,000 from her SP funds. If Wife dies, the Special Presumption of Title applies and Husband takes the entire property.

However, if Husband and Wife divorce, the property is subject to the Special CP Presumption and would therefore be divided 50-50.

After 1984, Wife's separate property contribution gets reimbursed to her (without interest).

Before 1984, Wife's $20,000 is presumed to be a gift.

o SP Contribution:

Includes: (i) ______________ payments, (ii) ____________ improvements, and (iii) Down payments


Excludes: (i) __________________ (ii) Insurance, (iii) Taxes, (iv) Interest


CHAPTER 4: CHARACTERIZATION OF PROPERTY, PART I

A. Commingled Bank Accounts

1. Definition

o An account that contains both CP and SP funds is a commingled account and is presumptively CP.

Example 7: A bank account includes spouses' paychecks (CP) as well as trust fund payments (SP). Stock purchased with money from this account will be presumptively CP.

2. Direct Tracing

o To rebut the general CP presumption, a party must show that the _____________ of the funds came from the SP deposits in the account, not the CP deposits.

Example 8: Spouse deposits a $10,000 salary check (CP) as well as a $3,369.71 trust fund distribution check (SP) into a bank account. The next day, Spouse buys stock for $3,369.71. To rebut the CP presumption, direct tracing could be used to show that the source of funds for the stock was the SP in the bank account because it was the exact amount of SP that Spouse placed in the account.

3. Indirect Tracing

o Family Expense Presumption (Exhaustion Method): CP funds are presumed to be used ____ (i.e., exhausted) to pay for _______________________ (e.g., utilities, gas, groceries, clothing). As with direct tracing, to rebut the general CP presumption a party must show that the source of the funds came from the SP deposits in the account.

Example 9: Spouse deposits a $10,000 salary check (CP) and a $3,000 trust fund distribution (SP) into a bank account. If family expenses are $11,000 for the month, the $2,000 left over is SP. If Spouse takes $1,000 from the account to buy stock, Spouse can argue that, under the Family Expense Presumption, any money remaining after family expenses are paid must have come from Spouse's SP.

B. Community Business Goodwill

• Applies to a community property business

o Started while ______________ o Deemed a community property business, even if only one spouse, or no spouse, works in

the business

• Goodwill


o Valid component of a business's value that can be calculated

The difference between ________________ and market value

o The intangible asset of reputation and ability to bring future earnings o Part of the community property asset o Goodwill value should be included when assessing the business value.

• California does not recognize goodwill as associated with an __________________.

C. Educational Degrees and Professional Licenses

• Educational degrees and professional licenses _______________ considered CP assets. • A spouse that assists with obtaining the degree or license may have a right of reimbursement

for direct educational expenses that substantially enhance earning capacity.

o Direct educational expenses

Includes books, registration, _____________ Does not include normal living expenses

o Substantially enhances earning capacity

Includes education that qualifies a person for a specific business or career Does not include courses taken for pleasure or hobby

o Ten-year rule

Only education obtained ________________ or less before the end of the marriage qualifies for reimbursement.

Presumption to be considered by court The marital community is presumed to have already ________________ from the

enhanced earning capacity.

Example 10: Husband works to support Wife while she attends law school. Upon passing the bar, Wife files for divorce. The law degree and license will be the property of Wife, but Husband has a presumed right of reimbursement for Wife's law school books, registration, and tuition.


CHAPTER 5: CHARACTERIZATION OF PROPERTY, PART II

A. Retirement Benefits

• Part of the CP system, whether _____________ or unvested

1. Commingled Benefits

a. Definition

Benefits acquired before and after marriage within the same account

Example 11: Before marriage, Husband works for Company for five years. During that time, he and Company make contributions to his retirement fund. After Husband marries, he and Company continue to make contributions to his retirement plan for five years. The retirement plan has commingled benefits, in which there is a CP interest.

a. Allocation

1) Time Rule

• Allocation is based on the percent of time that the employee was unmarried vs. the percent of time the employee was married.

Example 12: Continuing Example 11, Husband worked for Company for ten years. For five years he was single and contributing SP to the fund; for five years he was married and contributing CP to the fund. Because five years is 50% of ten years, the retirement fund is 50% SP and 50% CP.

2) Direct Contributions

• Allocation is calculated by adding how much employee-spouse contributed while single (SP) and how much he or she contributed while married (CP).

Example 13: Continuing Example 11, Husband contributed $200 per month to his account for five years while single, and contributed $100 per month to his account for five years while married. The allocation of the fund toward SP and toward CP would be the actual amount calculated (i.e., (200 x12) x5=SP; (100x12) x5=CP).

b. Distribution

1) Division-in-Kind Option

• The court reserves jurisdiction to supervise payments when the retirement benefits are vested and mature.

• Holder of the account will issue a separate check to each spouse upon court order.


2) Cash-Out Option

• An expert performs a present valuation of the retirement fund. • Employee-spouse then buys out ex-spouse's interest in the fund.

2. Employee Retirement Income Security Act (ERISA) Funds

o Federal pre-emption upon death of spouse-employee

The predeceased spouse cannot "will away" an interest in _________________ ERISA funds because he does not have a _______________ interest, but

The predeceased spouse has a present, devisable, interest in funds that have already been distributed.

3. Early Retirement Enhanced Benefits

o A company may encourage employees to retire early by offering to enhance their retirement benefits.

o The enhanced benefit becomes a part of the retirement fund and, therefore, CP.

Example 14: Husband and Wife divorce after twenty years of marriage. After the divorce, Company offers Husband an early retirement package. Wife is waiting for her in-kind distribution of Husband's retirement fund until after Husband retires. If Husband accepts the early retirement package, it becomes part of the _____ estate, and added to Wife's in-kind distribution.

4. Refusal to Retire

o An ex-spouse's right to an in-kind distribution of a former spouse's retirement fund begins when the former spouse is _______________ to retire, not when the former spouse retires.

Example 15: Husband reaches retirement age and Ex-wife is ready to receive her share of his retirement fund, but Husband wants to continue working. Because Husband is not retired, Company will not distribute any proceeds of the retirement plan to either Husband or Ex-wife.

Because Husband cannot unilaterally delay Ex-wife's receipt of her community property interest in the retirement fund, Husband must pay Ex-wife the share she would have received if Husband had retired.

B. Stock Options

1. Definition

o An option to buy stocks at a future time at a favorable rate o Often cannot be exercised immediately but must be exercised over time, including after the

parties are divorced


2. Allocation

o Courts use Replacement Analysis: What do the stock options ______________?

Reward for ____________________________ (while married): community property

Example 16: Wife accepts stock options to leave lucrative job to work at Start-Up. Wife's stock options are exercised over a period of time. After she accepts new job, but before exercising any options, Wife and Husband divorce. The stock options were a replacement for salary and are characterized as CP.

Replace future earnings (earned after divorce): ________________________

Example 17: Start-Up offers stock options to Wife at the end of the year to promote good will in the year to come. Wife is divorced at the time she begins the new year; the stock options are classified as future earnings and are characterized as SP.

C. Disability and Severance Pay

1. Allocation

o Courts use Replacement Analysis: What do these funds replace?

Replace salary (earned during marriage): ________________________ Replace lost future salary: ________________________ Disability pay that replaces a retirement benefit: community property.

Example 18: Football Player is guaranteed "severance pay" if he completes five consecutive seasons. The severance pay is a bonus of $100,000. Football Player completes five consecutive seasons, at which time he was married. Before he is paid the severance pay, he divorces. The severance pay is CP and ex-wife is entitled to 50%.

D. Life Insurance

1. Types of Policies

a. Whole Life Insurance

Purchased as an investment asset Regular premium payments buy a piece of the whole policy. After all premium payments are paid, you own the whole policy.

b. Term Life Insurance

Premium payments are not investments. To keep coverage, premium payments must continue for every year or ___________.

Exam Tip 1: California bar questions will likely not say whether a life insurance policy is whole life or term, so you must answer both possibilities on the exam.


2. Classification of Policies upon Death or Divorce

a. Whole Life—Death of the Insured

Pro Rata Apportionment Insurance proceeds are classified in direct _________________ to the classification of

the ________________ payments.

Example 19: Husband is insured with a $1 million whole life insurance policy. Husband dies. Half of the premiums on this policy were paid from CP funds and half from SP funds. __________________________________________________________.

In California, the insured spouse has testamentary ________________ and control only over his or her half of the CP interest.

Example 20: Husband purchases a whole life insurance policy with CP and SP funds, in equal parts. Husband names Mother as beneficiary of the policy. Mother can only take what Husband owns (and controls), which is half of the proceeds purchased with CP funds (25% of the whole, in this case) and all of the proceeds purchased with SP funds (50% of the whole). The remaining 25% of the proceeds is owned by ______________________________,who has control of its disposition.

b. Whole Life—Divorce

Pro Rata Apportionment Apportion the present ____________ value of the policy, not the proceeds Insurance present cash value is classified in direct proportion to the classification of the

premium payments made thus far.

c. Term Life—Death of the Insured

Apportionment is based on the classification of the ________________ payment, because each term is like a new ___________________.

Example 21: Husband has term life insurance policy. For nine years, CP funds are used to pay the premiums. For year ten, Husband used only SP funds to pay the premiums. In year ten, Husband dies, and the policy proceeds are classified as __________.

d. Term Life—Divorce

Majority Rule: There is _____ present cash value at divorce. Exception may apply: If the insured spouse becomes uninsurable, and CP funds were

used to pay the premiums on an existing term insurance policy, the renewal value of the policy becomes a ______ asset.


• Value, in theory, is cost of insured spouse obtaining similar insurance

3. Property Liability Insurance

o Courts follow either:

replacement analysis

• follows the classification of the property covered by the insurance policy

tracing analysis

• follows the classification of the premium payments on the insurance policy

Example 22: Husband and Wife purchase a sailboat with CP funds and obtain property liability insurance with Wife's SP funds. The sailboat is destroyed in a storm and the insurance pays to replace the boat. Under replacement analysis, the insurance proceeds pay to replace the community property boat, so the proceeds are community property. Under a tracing analysis, the insurance proceeds were procured with separate property, so the proceeds are also separate property.

4. Health Insurance

o The right to renew health insurance ___________ considered a CP asset.


CHAPTER 6: CHARACTERIZATION OF PROPERTY, PART III

A. Comingled Business

Example 23: Before marriage, Husband starts a business. After marriage, Husband continues to work at the business. This business is classified as a ________________ business or asset.

1. Allocation

o Courts have discretion to apply one of two formulas when allocating CP and SP portions of comingled businesses, to maximize equity, ______________, and _____________.

The Pereira Formula

• Tends to maximize the ______ estate • Used when the increased value of the business is due to personal time, labor, effort,

and skills

The ___________________ Formula

• Tends to maximize the ________ estate • Used when the increased value of the business is due to outside, economic factors

a. Pereira Formula

Editor's Note 1: The professor misspeaks. Use Pereira Formula as set out below.

Reimbursement back to the community plus a percentage of the value of the business

• SP = Value of the SP Business at Time of Marriage + (Value of the SP Business at Time of Marriage x Fair Rate of Return × Years of Marriage)

o Use 10% as rate of return.

• CP = FMV at time of divorce – SP (as calculated above)

o CP is then divided equally between spouses.

b. Van Camp Formula

Reimbursement back to the community for the fair market value of the labor contributed to the business

• CP = Reasonable value of community labor during marriage – salary already paid • SP = FMV of business at time of divorce – CP (as calculated above)

If employee-spouse has already received a salary, there might not be anything to contribute to the community estate


c. Reverse Formulas

Used when CP business continues while the parties live separate and apart

1) Reverse Pereira Formula

Editor's Note 2: The professor misspeaks. Use Reverse Pereira Formula as set out below.

• CP = Value of CP Business at Time of Separation + (Value of Business at Time of Separation × Fair Rate of Return × Years of Separation)

• SP = FMV of business at divorce – CP (as calculated above)

2) Reverse Van Camp Formula

• SP = Reasonable value of labor during separation – salary already paid • CP = FMV of business at divorce – SP (as calculated above)

Exam Tip 2: If there is a question involving a comingled business, you must use BOTH formulas to show your knowledge that courts have the discretion to use either formula.

2. Formulas vs. Reverse Formulas vs. No Formulas

o Use "regular" formulas for an SP business that continues to operate during _____________. o Use reverse formulas for a CP business that continues after parties live separate and _____. o Use no formula for a CP business (not commingled). (If parties divorce, the business value is

divided 50-50.)

B. CP Funds Used to Satisfy SP Debt

• CP estate is not directly reimbursed; instead the CP estate owns a __________ share of that asset

C. Credit Acquisitions

• Assets Purchased on Credit during Marriage

o CP presumption applies o Rebut using Principle of Tracing

Party seeking to rebut presumption has the burden of proof to show by a ____________________ of the evidence that the source of funds used for the acquisition came from an _______ source.

• Gudelj Test: Did the lender rely primarily on SP assets as collateral?

o If yes, tracing can show that the loan came from an _________, and the general CP presumption can be rebutted. Gudelj v. Gudelj (Cal. Sup. Ct. (1953))

• Grinius Test: Did the lender rely solely on SP assets as collateral?


o If yes, the general CP presumption can be rebutted. In re Marriage of Grinius (Cal. Ct. App. (1985)).

o If lender relied on credit report in any way, no rebuttal

Note 1: Credit Worthiness is considered a CP asset during marriage.

D. Capital Improvements

1. SP Used to Improve the Other Spouse’s SP

o 2005 Amendment: There is a ___________ right to reimbursement; it is no longer presumed a gift.

2. SP Used to Improve CP

o As of 1984: There is a statutory right to _________________.

Prior to 1984, this was a presumptive ______________.

3. CP Used to Improve Own SP

o CP estate is entitled to reimbursement for greater of:

The funds spent OR The _________________ value of the SP

o Prior to 1975: If wife used CP to improve her own SP, there was a gift presumption.

4. CP Used to Improve the Other Spouse’s SP

o CP estate is entitled to reimbursement for greater of

The funds spent OR The _________________ value of the SP

Exam Tip 3: Remember that maintenance is not capital improvement.

E. Personal Injury Recovery

• If the cause of action arose during marriage,

o During marriage, the personal injury proceeds are classified as _____. o At divorce, the personal injury proceeds are assigned to the _____________ spouse,

unless the interests of ____________ require otherwise, or unless the moneys are not irretrievably lost or commingled

The injured spouse will always receive _____________________ of the recovery moneys.

o California statutes are ____________ regarding the classification of personal injury moneys upon the death of a spouse, so the default rule applies: Upon death, personal injury moneys are classified as ______.


• For inter-spousal torts: Personal injury moneys are classified as ________________________.


CHAPTER 7: LIABILITY OF MARITAL PROPERTY; MANAGEMENT AND CONTROL OF CP

A. Liability of the Marital Property

1. Definition

o Debt, tort, contract, or other ______________________, such as child or spousal support obligations from a ______________ marriage

2. Timing

o A debt is incurred at the time the obligation arises, the __________________ is made, or when the cause of action for the ___________ arises.

2. Basic Principles

a. Rights of Community Estate

The right of __________________________ for payments made toward debts

Example 24: Wife incurs educational loans before marriage. After marriage, the community makes payments on the loans. Upon divorce, the community has a right of reimbursement for those payments.

b. Liability of Community Estate

Liable for ______ debts incurred by both spouses _______________ the marriage, AND for debts incurred by either spouse before marriage.

c. Liability of Spouse’s SP

A spouse’s SP is liable for any debts incurred by ______________________________. A spouse’s SP is NOT liable for _________________ debts of the __________ spouse. Exception: A spouse’s SP is liable for the “necessaries of life" (i.e., living expenses)

incurred during marriage and while the spouses are living separate and apart.

• If the other spouse incurs debt for "_________________ of life," the non-debtor spouse's SP is responsible for those debts.

3. Child and Spousal Support

o CP is liable to for pay child and spousal support obligations of a spouse that stem from a _____________________.

Example 25: Husband owes child and spousal support to Ex-wife and children from previous marriage. Husband is unemployed but Wife is employed--her salary is classified as CP. Ex-wife, as a creditor, can seek payment from Wife's income to pay for Husband's child and spousal support obligations?

o The community estate has a right of reimbursement for payment of support obligations.


Exception: The community estate does NOT have a right of reimbursement unless the debtor-spouse had ________ funds available at the time payment was made.

4. Tort Obligations

o Applies to a _________________________ o Priority of Satisfaction

Was the tort committed for the _________________ of the community?

• If yes, the creditor must first go after _____ assets, then _____ of the tortfeasor-spouse.

• If no, the creditor must first go after _____ of the tortfeasor-spouse, then the _____ assets.

o “For the benefit of the community” focuses on __________________ benefit to community

B. Management and Control of CP

1. Equal Management and Control Rule

o Prior to 1/1/1975: Only the _________________ had management and control over CP. o After 1/1/1975: Both the husband and wife have _____________ rights to manage and

control CP.

2. Exceptions to the Equal Management and Control Rule

a. Bank Accounts in One Spouse’s Name

Because of banking laws, only the spouse whose name is on the account has management and control over that account.

b. Gifts to Third Parties

1) General Rule:

• A gift of CP to a third party must be made with the consent of _________________.

o Technically, written consent is required to gift CP to a third party.

2) Equitable Defenses

• Laches • Ratification • Estoppel • Waiver

3) Revocation

• If consent was not obtained, the non-donor spouse can revoke or void the gift.


• If revocation occurs during marriage, all of the CP funds that were gifted without consent are returned to the CP estate.

• If revocation occurs at divorce or death, the non-donor spouse can only recapture _____% of the CP funds that were gifted without consent.

3. Community Real Property

o The equal management and control rule applies to community real property. o Pursuant to the Statute of Frauds, ______________________ must consent and execute a

_____________ to transfer an interest in community real property. o When the community real property is held in the name of only one spouse, a bona fide

purchaser (BFP) can rely on the form of title and deal with that one spouse. o If a BFP for value acted in __________________ and without ________________ of the

marriage,

The transaction remains intact and the BFP retains the property, AND The non-consenting spouse cannot void the transaction and return the real property to

the CP estate, BUT The non-consenting spouse can request a remedy against the transferor spouse

regarding half of the assets.

4. Encumbrances on Community Real Property

o Both spouses must ______________ to a lien, encumbrance, or hypothecation on community real property.

o Exception for Family Lawyers: One spouse may encumber community real property if it is in connection with ______________________________ for annulment, divorce, or separation.

5. Fiduciary Duty

a. Application

Spouses are deemed to be __________________ with respect to each other and are considered to be in a ______________________ relationship.

b. Specific Fiduciary Duties

Duty to make full ____________________ of assets and obligations Duty to account for ____________________ Duty to obtain ________________ of other spouse when transferring or encumbering

CP

c. Restraint during Divorce Proceedings

Non-breaching spouse can obtain a temporary restraining order (TRO) to prevent breaching spouse from transferring, encumbering, or hypothecating CP (except upon written consent)


d. Remedies for Breach of Fiduciary Duties

Addition of name to property title:

• If breaching spouse has purchased property in own name only, non-breaching spouse can have his or her name added to the title.

An ___________________ A _______________ share of CP

• Breaching spouse forfeits some of his or her CP interest

Payment of _______________________ and costs

Example 26: Wife won the lottery. The very day she won, she filed for divorce. During divorce proceedings, Wife never disclosed the lottery winnings to Husband or the court. Subsequently, Husband learned of Wife's winnings. Husband argued that the winnings were CP because they were acquired during marriage. The court agreed and ordered Wife to forfeit all of the lottery winnings to Husband because of her breach of her fiduciary duty to disclose her assets.


CHAPTER 8: AGREEMENTS AND TRANSMUTATIONS

A. Premarital (Prenuptial) Agreements

1. Basics

o Applies to agreements made between _______________ spouses in _________________ of marriage

o California has a policy ________________ of premarital agreements. o May deal with a wide variety of issues including division of assets, _________________ or

classification of property, or _____________ of law

_____________________ provisions are NOT ____________________ because child support payments are owed to the child, not the parent.

2. Public Policy Considerations

o California has a policy in favor of __________________.

Agreements that ________________ or encourage ____________, or provide a ________________ incentive to obtain a divorce will be ______ as against public policy.

3. Uniform Premarital Agreement Act

o Premarital agreements must be:

In _______________ (Statute of Frauds) Signed by _________________

o _____________________ is not required.

4. Defenses to Enforcement

a. Unconscionability

The party challenging the agreement must prove ALL of the following:

• Lack of _____________________ of assets and obligations • Absence of _______________ of such disclosure • No reasonable _____________________ to discover the information

b. Not Voluntary

The party challenging the agreement must show ONE of the following:

• Not represented by _________________________________ counsel at the time of the signing of the agreement, and there was no ________________ of such right

• Not given at least _____________ calendar days in which to review the agreement before signing it

• Not represented by counsel AND


o Did not receive full disclosure regarding the basic terms and ________________ of the agreement, OR

o Had no knowledge of the rights that were changed and ________________ by the agreement, OR

o Lacked proficiency in the _______________ in which the agreement was written

• Executed agreement because of fraud, ___________, or undue influence • Lacked _______________ to enter the agreement • Any other factor the court deems relevant

B. Transmutations

1. Definition

o A ______________ in the classification of the property or asset

2. As of 1/1/85:

o All transmutations must be in ________________, except for personal ___________ between spouses that are not substantial in value. ("Anti-pillow talk" legislation)

"Personal Gift"

• Item used by other spouse for personal reasons, such as clothing or jewelry

"Not Substantial in Value"

• Calculated in light of couple's lifestyle, income, and gift-giving history

3. Statements in a Will

o Not sufficient evidence to transmute property

4. Statements in an _________________ Trust

o Simply adding an asset to the trust does not change the classification of that property; there must be a clear statement showing intent to change the classification of the transferred property.

C. Unenforceable Agreements

• Agreements that promote or encourage divorce, or provide a financial incentive to obtain a divorce will be void as against public policy.

• Spouses cannot alter their __________________ legal relationship (e.g., declare themselves divorced); this requires court _________________________.

D. Separation Agreements

• Include marital settlement agreements and property settlement agreements • Can be set aside for:


o _____________________ o mistake o breach of fiduciary duty

• Favored by the courts because they:

o Promote judicial ________________ and economy o Avoid litigation (and the added expenses) o Avoid ________________ between spouses o Are better for children


CHAPTER 9: DEEDS AND TITLES

A. Special Presumptions

1. Married Woman’s Special Presumption

o Applies to property titled to a ___________________________ before 1975 (without the husband's name)

Gives rise to the presumption that property is the wife's _____ To rebut, the husband must show lack of donative intent by

_________________________________________ evidence.

o As of 1/1/75: The Married Woman's Special Presumption is no longer needed because women can have equal management and control over community property.

2. Special Presumption of Title

o Applies only at ________________. o The form of title at death is the presumptive form of ownership.

Example 27: Husband and Wife own real property as joint tenants. Husband dies. Wife, as the sole surviving joint tenant, owns all of the property.

o Can be rebutted by _____________________________ evidence of contrary bilateral intent

3. Special Presumption of Community Property

o Applies only at ___________________. o Brings all jointly-held property into the CP system upon divorce

Example 28: From the above example, if Husband and Wife divorce, the property is presumptively classified as CP under this presumption.

o Can be rebutted by clear and convincing evidence of contrary ____________ intent o As of 1/1/84—Anti-Lucas Legislation:

Spouse has right of reimbursement for SP ___________________ for payments on the principal amount of a loan, improvements, and down payments.

• Excludes payments for interest, taxes, insurance, maintenance

Rebuttal of this presumption requires a ______________ that expressly states that property was intended to be held as SP.

o Prior to 1/1/84

________________________ is admissible to rebut this presumption. SP contributions are presumed to be ______________.

o Result of rebuttal of the Special CP Presumption


Use Aufmuth Formula:

• Provides for reimbursement of the SP contributions plus a percentage of the capital appreciation of the property (SP contribution + (capital appreciation x percentage))

o Capital appreciation = FMV - original purchase price o Percentage = SP contribution / original purchase price

• Total reimbursement = SP contribution + ((FMV - original purchase price) (SP contribution / original purchase price))

Example 29: Husband and Wife purchase real property for $100,000. Wife contributes $20,000 of SP funds to down payment, but they hold property as joint tenants. Husband and Wife divorce and the property is worth $300,000. Wife rebuts the Special CP Presumption by proving that they did not want to hold it as CP at divorce. Using the Aufmuth Formula, Wife will be reimbursed $60,000.

$20,000 + (($300,000-$100,000)($20,000/$1000,000)) = $60,000

B. Property Ownership

1. CP with Right of Survivorship

1) Joint Tenancy (survivorship right) + CP benefits

• Avoids _____________ (because property passes automatically to surviving spouse) • Favorable ________ benefit of holding property as CP

2. Tenancy in Common

1) At Divorce

• Under the Special CP Presumption, property held as tenants in common becomes _____.

2) At Death

• Under the Special Presumption of __________, property is held as tenants in common.

3. CP Property Purchased with SP Contribution

1) After 1984

If SP contribution pays for down payments, principal payments, or _________________, the SP estate has a right of reimbursement.

2) Before 1984

An SP contribution is presumptively a _________.


4. CP Contribution to SP Asset (Moore or Marsden Scenario)

o Spouses contribute CP funds to one spouse's SP property.

Example 30: While still single, Husband buys property. After marriage, he makes mortgage payments using his salary (CP).

o Use the Aufmuth Formula to determine each spouse's share upon divorce.


CHAPTER 10: DIVISION AT DIVORCE AND DEATH

A. Division at Divorce

1. General Rules

o California has a ___________________ equal division of CP at divorce.

Exceptions: Economic fraud or breach of _______________ duty

o CP includes quasi-community property.

The property would have been CP if parties had been married and ______________ in __________________ at the time of acquisition.

o Family law courts do not have jurisdiction over spouses' respective _____.

Cannot equalize division of CP by using SP.

2. Living Separate and Apart

o Property acquired after parties live separate and apart is each spouse's respective _____. o Separate and Apart

There is a ___________ separation of the two parties. At least one spouse has the _______________________ not to resume marital relations.

3. Allocation of Debts

a. General Rule

Debts are ________________ allocated to each party.

b. Property Located Out-of-State

When the court has ________________ jurisdiction over the parties, the court has jurisdiction to adjudicate property rights regardless of where it is located.

c. Timing of Debts

Pre-marital debts are assigned to the spouse who __________________________. Debts incurred during marriage and before living separate and apart can be

characterized as _____ if not incurred for the _____________ of the community.

d. Education Loans

Assigned to the __________________________

e. Tort Liability

Assigned to the spouse whose conduct gave rise to the tort liability


f. Debts Greater than Assets

Excess debt is divided equitably between the parties, taking into account each party’s ______________________________.

g. Debts Incurred after Separation

Generally assigned to the incurring spouse Exception: Debts for ____________________________________ are assigned based on

the parties’ relative abilities to repay the debt.

4. Property Valuation

o Property is valued as close to the date of __________ as possible. o Property transfers between spouses as a consequence of divorce are not _____________

events.

B. Division at Death

1. General Rules

o Each spouse only has ___________________________ of what he or she owns.

At death, a spouse owns and may devise all SP and one-half of CP.

o Remember that "spouses" includes registered domestic partners.

2. Quasi-Community Property (QCP)

o QCP is treated the same as _____. o Exception: Upon the death of the non-titled spouse

Example 31: Husband and Wife acquire property while married and domiciled in New York. The property is titled in Husband’s name only. They move to California and file for divorce. The New York property is classified as __________________________ property because it would be CP if it had been acquired while the couple was married and domiciled in CA.

If, instead of divorce, Wife dies, Wife cannot devise her half of the New York property. The QCP classification only triggers upon ___________, or _________________________________________. Until either of those events occur, the non-titled spouse's QCP interest is viewed as an expectancy only and not a vested property right.

3. Life Insurance

a. Whole Life Policy Proceeds

Follows a pro rata approach


• Proceeds are classified according to classification of the _______________________ made on the policy.

Example 32: For a whole life insurance policy, the premium payments were made with one-half CP funds and one-half SP funds. Upon the death of the insured spouse, policy proceeds are classified as _____% CP and ______% SP.

Husband, the insured spouse, designated Mom as beneficiary of the policy. Mom can take only 75%. The remaining 25% is owned by the surviving spouse.

b. Term Life Policy Proceeds

Follows the classification of the premium payment for the ________________

4. Intestate Succession

a. Community Property

When a spouse dies without a will, the _________________________ inherits the deceased spouse's half of the CP.

b. Separate Property

1) No Heirs, Surviving Spouse

• When a spouse dies without a will and has no heirs, all of the decedent's SP goes to the surviving spouse.

• When a spouse dies without a will and has no children or issue, but has surviving parents, siblings, or issue of siblings _____ of the decedent's SP goes to that group of relatives, and _____ goes to the surviving spouse.

2) One Child, Surviving Spouse

• When a spouse dies without a will and has only one surviving child (or issue of that child), _____ of the decedent's SP goes to the child, and _____ goes to the surviving spouse.

3) Two or More Children, Surviving Spouse

• When a spouse dies without a will and has 2 or more surviving children or issue of those children, _____ of the decedent's SP goes to the children or their issue, and _____ goes to the surviving spouse.

5. Tenancies

a. Joint Tenancy Property

Under the Special Title Presumption, joint tenancy property presumptively passes to the surviving _______________________.


b. Tenancy in Common

Under the Special Title Presumption, tenancy in common property is presumptively held as a tenancy in common.

c. Community Property with the Right of Survivorship

Under the Special Title Presumption, property is held as CP with the right of survivorship, and passes to the surviving spouse.

6. Surviving Spouse’s Election

o Decedent-spouse forces the surviving spouses to make a choice between:

Taking what was given by will, or Relying on his or her ______________ succession rights (CP rights) under California law.

o This is not favored by the courts and will only be recognized if the will expressly states the testator's clear intention to create such an election.

7. Debts

o Debts are allocated by ___________________; e.g., CP debts are paid with CP assets and SP debts are paid with SP assets.

o When the decedent’s estate does not pass through probate, the surviving spouse is _________________ liable to pay the decedent’s debts up to the value of amount inherited.

Good luck!

[END OF HANDOUT]


Documents

CALIFORNIA COMMUNITY PROPERTY - Amazon S3s3.amazonaws.com/mythm-vids-prod/CA.Chang... · CALIFORNIA COMMUNITY PROPERTY . ... Trace the steps back to show that the source of funds