Community Property Outline - Santa Clara Law
CP Outline
Important Dates:
• January 1, 1975: Married Woman’s Special Presumption; Equal Management and control for spouses
• January 1, 1984: Family Code §2640:Anti-Lucas legislation (reimbursement scheme)
• January 1, 1984: Reimbursement to the community who contributes to SP education
• January 1, 1985: need express written declaration by spouse whose interests are adversely affected to transmute property from CP to SP
• January 1, 1986: Premarital Agreement Act(prenups must be in writing and signed by both parties
• Prior to January 1, 2000: unmarried same-sex couples=unmarried cohabitants
• January 1, 2000-July 1, 2003: could register as domestic partners
• January 1, 2001 or 2002: Anti-Bonds legislation(Family Code §11615(c)
• January 1, 2005: CA Domestic Partner Rights and Responsibilities Act of 2003 is passed(CP laws now apply to Domestic Partners
(Into to CP) Chapter 1—Development of the CA CP system
A. Intro
1. Unless the couple makes an agreement to the contrary, all property acquired during marriage by the labor, skills, or efforts (LSE) of either spouse is CP that is owned equally by both spouses.
2. Characterization (CP or SP) is the heart of the CP question. (No property can be both.)
3. 8 statutory CP scheme states (CA is different though); rest are CL states who often use equitable distribution schemes to rectify some of the harsh results of a non-CP scheme.
a) CP: Louisiana, Texas, New Mexico, Arizona, CA, Washington, Idaho, and Nevada
b) CL: each spouse owns whatever he/she earns.
c) Wisconsin has a modified system that amounts to a CP scheme.
4. CP is specified in the CA Family Code and has origins in the CA constitution (1849), art. 11, §14
B. CP Defined
1. Property held in common by an H and W, each having an undivided one-half interest in this property by virtue of their marital status. (Applies only to H/Ws or domestic partners who are legally married and only to income and assets acquired during the marriage.)
C. The Meaning of Marriage
1. Maynard v. Hill [USSC; 1888]
a) Facts: H left W in Ohio and didn’t support her and the kids financially. Claim by the W’s heirs as to a parcel of real property acquired by the H. If her challenge to the ex parte divorce was found valid, she’d be entitled to a significant amount of property under the land grant to her former H’s name.
b) Rule: Marriage is a social institution rather than a private K allowing the parties to set their own terms and thus is subject to legal constraints beyond the terms of the marriage K.
1) CP law automatically applies to CA marriages, regardless of what the parties intend or understand.
D. Development of the Tracing Principle
1. Tracing Principle: SP produces SP and CP produces CP
2. CP includes all the property acquired by a married person through the use of his or her Labor, Skills, or Efforts (LSE)
a) When CP is used to buy other acquisitions, the new asset is CP. Similarly, when property classified as CP produces rents, profits, income, and increases in value, these products are CP.
3. George v. Ransom [CA SC; 1860] (intro to tracing)
a) Facts: A creditor of H, sought W’s separate funds in payment for her H’s debt.
b) Rule: The creditor of the H cannot subject the proceeds or dividends of the SP estate of his W to his claim. (Rents/profits from W’s SP remains SP.)
c) Held: Court held that the H’s creditors could reach CP for his debts, but they could not reach the W’s SP or the proceeds or dividends of that property.
E. Development of the Equality Principle
1. Equality Principle: spouses have equal ownership interests in the CP
2. Stewart v. Stewart [CA SC; 1926] (no longer good law; discusses the equality principle but elects against applying it)
a) Rule: The W does not have a present vested interest in the CP during the continuance of the marriage relation. She merely has a protected expectancy in the Stewart’s CP.
b) *Note: a year or so later, the Legislature did enact legislation stating that the interests of both spouses in the CP are present, existing, and equal.
F. The Principles of Contractual Modification
1. Parties may entirely or partially avoid the CA CP system by agreement. [CA Family Code §1500] (premarital or antenuptial agreements)
a) Premarital agreements made on or before January 1, 1986 are regulated by CA’s modified version of the Uniform Premarital Agreement Act. [CA Family Code §§1600-1617]
1) Good faith required
2) No consideration required
3) Statute of Frauds requirement: there must be a writing signed by both parties. [CA Family Code §1611]
a) BUT, an oral premarital agreement may be enforced when :
(i) the executory promise was fully executed by the promisor (an executory promise is one that not yet been performed, when it is performed , the promise is executed)
(ii) the promisor is estopped to assert the SOF because the other party relied to his/her detriment on the oral premarital agreement (getting married or staying married is not grounds for estoppel though), or
(iii) adoption or ratification during the marriage (pre 1985)
4) Agreement is unenforceable if:
a) Agreement limits support duties
b) Agreement promotes divorce (In re Marriage of Noghrey)
c) Unconscionable and non-disclosure
i) If the party against whom enforcement is sought proves that: (i) it was unconscionable when executed; and (ii) the party did not and could not have had adequate knowledge of the wealth of the other party, and did not waive her right to disclosure of such wealth [CA Family Code §1615(a)(2)]
d) Involuntarily executed
e) *See new requirements in Family Code §1615 (c), subsection (c) which were added in 2001 in response to Marriage of Bonds (*very important)
i) This § provides that an agreement was not executed voluntarily unless the court finds all of the following:
a) The party against whom enforcement is sought was represented by independent counsel when she signed the agreement or, after being advised to seek independent counsel, expressly waived such representation in a separate writing;
b) At least seven days before it was signed, the agreement was presented to the party against whom enforcement is sought and that party was advised to seek independent legal counsel;
c) If unrepresented by legal counsel, the party against whom enforcement is sought was fully informed, in writing prior to the signing of the agreement, of the terms of the agreement and the rights she was giving up by signing the agreement, and was proficient in the language of the explanation and the agreement;
d) The agreement and the other required writings were not executed under duress, fraud, or undue influence; and
e) Any other factors the court deems relevant.
2. Policy Considerations (prenups)
a) In re Marriage of Noghrey [1985]
1) Facts: There was an agreement that said if divorce, H gives ½ of his assets and $500,000 or whichever is greater to the W.
2) Rule: An antenuptial agreement, the terms of which encourage or promote divorce, is against PP and is unenforceable.
a) *A promise to give a substantial amount of $ or property only in the event of divorce, facilitates such an event and would be in violation of PP; whereas agreements that define the legal rights of the spouses with respect to property acquired before or after doesn’t violate the PP.
3) *Consideration is not required for a prenup and there cannot be illusory consideration in the form of a K for preexisting marital duty.
b) Marriage of Bonds [CA SC; 2000]
1) Issue: Did Sun enter the agreement voluntarily?
2) Rule according to the Bonds Court: In premarital agreement situations, the parties are not in a confidential or fiduciary relationships and the burden is on the party challenging the agreement to show a lack of voluntariness in entering the agreement.
3) Sun had the burden of showing that she didn’t enter the agreement voluntarily and the Court found she didn’t meet that burden.
4) *Legislature went ballistic and added (c) to §1615 added the requirements stated above in 2001. This § is not retroactive.
3. Formalities(Transmutation
a) Pre-1985, Oral and implied agreements are enforceable
b) After January 1, 1985, a signed writing is required which expressly declares that a change in ownership of the property is being made [Family Code §852: signed by person who is adversely affected] (Estate of MacDonald)
1) Exception: A writing is not required of personal gifts (like jewelry, clothes, stocks) between spouses which are relatively insubstantial in value in light of their circumstances. (Marriage of Steinberger) [Family Code §852(c)]
2) A declaration of character of property in a will is not admissible evidence of a transmutation before the death of the testator (compare with a characterization of property in an inter vivos trust which is admissible to show transmutation)
c) Estate of Bibb [2001]
1) Facts: The son, Dozier, from the first marriage, filed a petition to establish the estate’s ownership of the property lot, apartment building, and Rolls Royce. He contended that the property had not been validly transmuted from his dad’s SP to CP because the DMV records and grant deed didn’t clearly state the change.
2) Rule: Need a writing that satisfies the SOF, clear and unambiguously states the change of status of the property independent of extrinsic evidence, and is consented to by the party who rights are adversely affected. [Family Code §852(a)]
3) Held: Yes, the grant deed signed by the H transferring his SP interest in real property to himself and his W as joint tenants satisfies the express declaration requirement of the Family Code. BUT, no, an unsigned computer printout of DMV registration, indicating that the Rolls Royce was reregistered in the names of the H or the W (needs to be more specific than A or B) does not satisfy the requirements for a valid transmutation under the Family Code.
a) *Extrinsic evidence is not allowed here
d) Marriage of Steinberger [2001] *Important exception to the §852 (a) writing requirement
1) Facts: James gave Buff a diamond ring in celebration of their fifth wedding anniversary. When the couple filed for divorce, Buff claimed that it was her SP.
2) Rule: Under Family Code §852, gifts of personal property that are substantial in value, taking into account the circumstances of the marriage, will not be considered converted to SP without the writing required by §852.
3) *cards accompanying the gift doesn’t count as the writing
4) *must know the financial worth of the couple to determine this issue
Chap. 2—Classification of property as CP or SP
A. General Presumption of CP (Presumption that Acquisition During Marriage is CP)
1. Basic presumption is that all earnings during marriage are CP, but a competing presumption is that if anything can be traced to SP prior to the marriage, it will remain SP.
2. Family Code §760: CP Defined
a) All property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is CP.
3. Family Code §770: SP of a Married Person
a) SP of a married person includes all of the following:
1) All property owned by the person before marriage
2) All property acquired by the person after marriage by gift, bequest, devise, or descent.
3) The rents, issues, and profits of the property described in this section. [This is different than the original Spanish-Mexican system where these were CP.]
4) A married person may, without consent of the person’s spouse, convey the person’s SP.
4. How to determine the present character of property:
a) Determine the character of the source property
b) Exchange Rule: A change in form doesn’t the change the character of the asset
c) Tracing
5. Raising the General Presumption of CP
a) The general presumption comes into play when the fact of acquisition during marriage is established.
b) Wilson v. Wilson [1946]
1) Facts: H and W’s house was purchased in 1938 (7 years into the marriage), title was taken and remains in the H’s name. H paid for the house in cash and used funds that were accumulations of dividends from property owned by him before marriage. H argued that because the community funds were exhausted in paying for the living expenses, the house must have been purchased with his separate funds. (This is rebuttal evidence to the CP presumption.)
2) Court held that because the house was purchased during the marriage, the CP presumption is strongly invoked. [Here, just by looking at the date of acquisition, the burden shifted to the party asserting the SP nature.]
3) To overcome the CP presumption, H would have needed to trace clearly back to his SP funds (like a trust fund, etc); using process of elimination like he did doesn’t cut it.
c) Estate of Jolly [CA SC; 1925]
1) Facts: The probate judge ordered that distribution of the whole estate of W (who died 10 years after H) to be made to her heirs to the exclusion of H‘s heirs. They argue just because H died, doesn’t make the property SP, it remains CP. They supported their argument by showing that she never did anything to enhance her estate by labor, skills, and efforts.
2) Rule: All property acquired after marriage by either H or W or both is presumed to be CP and this presumption can be overcome only by clear and satisfactory proof that the property in question is SP—even in cases where only possession (as opposed to acquisition) of such property after marriage can be established.
3) *Note: Court relied on the basic presumption that all property acquired after marriage starts is CP (acquisition approach). There is nothing here to show that anything has changed that CP status; her heirs could have rebutted by showing it was hers via gift, etc. or her LSE, but they just didn’t have any evidence to do that.
4) *Note: CA Probate Code §640.5 which preserves CP says when the second spouse dies, a determination is required that shows what CP is traceable to CP and then CP rule will apply. The court will split the property between the relatives. (Peculiarity to CA law.)
6. Rebuttal of the General CP Presumption by Tracing
a) The usual method of rebutting the general CP presumption is to trace the asset back to a SP source. Difficult to do with bank records that are not clearly earmarked describing their source (Freese highlights this).
b) Freese v. Hibernia Savings and Loan [CA SC; 1903]
1) Facts: W owned two parcels of land and sold them both. She had opened a bank account in the name of “Frank or Ellen Denigan.” The account was closed 3 months after her death and $1K of it was paid to a third party. Her heirs argue that it was SP and so H can’t give it away. But, he argues that she transmuted the property by the title.
2) Rule: The “clear and satisfactory” evidence standard for overcoming the general CP presumption requires only a preponderance of the testimony under all the facts and circumstances. If property can be traced back to SP, the presumption is overcome.
a) Clear and satisfactory standard: little higher than a preponderance of the evidence, but is a little lower than clear and convincing evidence.
3) Held: established beyond doubt that the two properties were Ellen’s SP and the profits therefore should have remained her SP.
B. Common Statutory Presumptions Regarding SP
1. Assets falling within one of these statutory categories are presumed to be SP:
a) Family Code §770: SP of a married person
b) Family Code §771: Earnings and accumulations during period of separation
c) Family Code §772: Earnings or accumulations after entry of judgment of legal separation
2. Estate of Clark [1928]
a) Issue: Is the $150K his SP because the right to get that $ was his right prior to the marriage and therefore his SP or should the receipt of the $150K be treated like income? (inception of right doctrine)
b) Rule: Property acquired by compromise is SP if the right compromised is SP.
3. Downer v. Bramet [1984]
a) Facts: H was given the W-4 ranch in Oregon along with two other employees by his boss. He didn’t mention this during the settlement talks. W argues this isn’t post-separation income, but deferred payment for LSE of the H during the marriage
b) Held: Even though the transfer of the ranch interest was legally a gift, there is substantial evidence the gift was made by former H’s employer in recognition of H’s devoted and skillful services during his lifelong employment.
c) *Note: Property acquired after the date of separation is SP, but the court makes an exception here because the H had been working all these years during the marriage and can’t just postpone his receipt and keep as SP.
4. In re Marriage of Hardin [1995]
a) Facts: H and W were married in 1961 and in 1969, H walked out of the apt. But, H and W continued their economic relationship and saw each other often. In 1991, they asked the court to judicially find when the date of their separation was. W argues it was in 1982 when Victor wanted to remarry, but H says it was in 1969 when he moved out.
b) Rule: The date of separation occurs when either of the parties does not intend to resume the marriage and his/ her actions bespeak the finality of the marital relationship.
c) *Note: there is both an objective and subjective component to this rule(the court will look, when there’s no agreement on the date of separation, at the subjective perception of one or both parties
1) Objective( look at objective factors like the date when there was no present intention of continuing the marriage combined with a complete and final break
d) *Note: date of separation requires more than just living separate and apart, factors relevant but not determinative are:
1) the date the spouse moves out;
2) the fact that the spouse never moves back;
3) whether the move follows a heated argument;
4) whether there are frequent arguments between the spouses;
5) whether the spouse ever spent the night again; whether the spouse dated other people;
6) whether the spouses cease to attend business, social, and family events together;
7) whether the spouse has filed previous divorce papers
e) Factors indicating they haven’t legally separated:
1) Continuing close personal relationship
2) Economic togetherness (purchasing property, keeping a joint bank account)
C. Special Presumptions within the CP System
1. Special presumptions based on form of title
a) Married Woman’s Special Presumption:
1) Despite the general presumption that property acquired by a married person is CP, when written title to property was placed in a married woman’s name alone before 1975, that property is presumptively the married woman’s SP. [Family Code §803]
a) However, under Horsman, the court must allow rebuttal evidence by the other spouse
b) Tracing is usually not enough to rebut, need to show intent to keep it CP too
c) Underlying rationale for the presumption was that when a married man executed a conveyance of property to his W, he must have intended to change the property rights of himself and his W.
2) In 1975, the equality amendments were added
a) The married woman’s presumption wasn’t needed because woman took over equal management and control of CP
3) Horsman v. Maden [1941]
a) (when presumptions are based on title, it is important to remember that title is not determinative but it is evidence of how the property is held)
b) Rule: While there is a presumption that any property acquired by the W by an instrument in writing became her SP, such presumption is not conclusive between the parties but is disputable. (Rebuttal evidence must be allowed to dispute this presumption and show the intent of the H)
4) In re Marriage of Ashodian [1979]
a) Facts: H was a bus driver and W was a licensed real estate broker. She had bought and sold property (some with his knowledge, but then he decided he didn’t want to be a part of it). At divorce, in 1975, he claimed this was CP because she earned it with her LSE during the marriage, but she claimed it was SP based on Family Code §803 and the married woman’s presumption (she had title in writing and got it before 1975, so §803 did apply)
b) Rule: A SP presumption applies to property acquired by a married woman prior to 1975 by an instrument in writing, but it is rebuttable by clear and convincing evidence. (The H didn’t meet this burden since he “abandoned” his interest in the management and control of the property and as such gave her a gift, so it is her SP.)
2. Concurrent Estates
a) Most married couples hold their property as joint tenants. One perceived advantage is the survivorship feature of joint tenancy; the property passes by operation of law to the survivor, without the necessity of probate administration.
b) Joint tenancy is a form of title in which H and W each own an undivided one-half interest that is SP, and the surviving spouse automatically becomes the owner of the decedent’s interest as well as his own.
1) A joint tenancy can only be created by explicit language: “G to John Smith and Mary Smith as joint tenants” or “G to John Smith and Mary Smith as joint tenants with a right of survivorship.”
c) Estate of Levine [1981]
1) Facts: H made a will and in it said that the joint tenancy of the home was only for convenience and really it was CP, but the W never knew of the will.
2) Rule: There is a rebuttable presumption that the character of the property is as set forth in the deed. (Only agreement between spouses can rebut the presumption; secret intentions of one spouse won’t suffice!)
d) In re Marriage of Lucas [CA SC; 1980] (key case in CP law)
1) Facts: During their marriage H and W purchased a home; W used SP funds for the down payment ($6K) and for some maintenance and improvements.
2) Rule: SP contribution to CP is presumed to be a gift, without a writing.
3) Held: The act of taking title in a joint and equal form is inconsistent with the preservation of a separate interest. (Effectively, the SP contributor is presumed to have made a gift, and she can overcome the presumption of gift only by proving an understanding or agreement between the parties that she would maintain a SP interest. Her subjective intent alone is immaterial. She must prove an understanding by both parties which can be both oral or written.)
e) *Aftermath of Lucas (this applies only to divorce and legal separation, not to death cases….Lucas should still apply in death cases)
1) The CA Family Code now provides that all property held by the spouses in joint form is presumptively CP for purposes of distribution at divorce or legal separation.
2) But, under Family Code §2640(c), at divorce the SP “contributions to the acquisition of the property,” shall be reimbursed to the SP contributor without interest or appreciation.
a) Family Code §2640 provides the same reimbursement formula when a separate contribution improves CP or reduces the principal of a loan used to finance the purchase or improvement of the property, but does not allow any reimbursement for payments made for interest on the loan or payments made for maintenance, insurance, or taxation of the property.
3) Aufmuth: “if there is an agreement or understanding (doesn’t say it has to be in writing) that the party contributing the SP down payment (on a house), the party making the SP down payment, retains a pro rata SP status that increases with the equity in the house”
a) Basically: get what you put in, plus the increase in equity, off the top at divorce and then split the rest 50/50 with spouse
3. 3 ways the courts can look at these problems:
a) SP contribution to CP asset is a gift; no reimbursement (Lucas);
b) reimbursement for SP contribution to CP asset, but no increase in value (anti-Lucas legislation…this is current law on this specific topic);
c) pro rata, pro tanto, proportionate analysis which says that with an agreement, the SP contribution builds a proportionate share (Aufmuth…which is also current law)
Classification of Non-Tangible Property: Chapter 3: Limitations on the Classification Process
A. Value of Education and Professional Practice
1. Effectively, education and training acquired during marriage are not treated as CP. Instead, at divorce, unless the parties sign an agreement to the contrary, Family Code §2641 creates an equitable right of reimbursement with interest to the community when community funds are:
a) Used either to pay for education or training or are used to repay a loan incurred for education or training, and
b) The education or training substantially enhances the earning capacity of the educated party (and therefore enhances the value of the community).
1) When such loans are still outstanding at divorce, they are assigned solely to the educated spouse.
2. Todd v. Todd [1969]
a) Facts: At the time of the division of assets H’s law practice was valued at almost $10K and W got nothing. Goodwill was valued at $1K. W contended that H’s education, partially paid for by community funds, is a community asset and that it has substantial worth and should be taken into account when evaluating the community estate for divorce purposes.
b) Rule: (1) A license or degree is personal and can’t be monetarily valued and therefore it is not CP. (2) The practice, however, at the time of dissolution can be valued and is CP.
B. Contribution to Spouse’s Education
1. In 1984, the legislature enacted Family Code §2641 which is a reimbursement scheme in order not to discourage spouses from supporting each other during their educational endeavors.
a) In a divorce (must be divorce, not death), the community (not the non-student spouse herself) will be reimbursed for community contributions for education or training that substantially increases the earnings of one party.
1) Watch out on exams for when the license or degree doesn’t actually improve substantially the earning capacity or they just sit on the couch after they earn it…reimbursement would not happen then.
b) Reimbursement can be for expenses directly related to education, such as tuition, books, supplies, and transportation (anything that would have been done even without the education are normal living expenses and the community can’t be reimbursed).
c) Equitable Defenses to Reimbursement Duty
1) The community has already substantially benefited from the education or training. There is a rebuttable presumption affecting the burden of proof that if fewer than 10 years have elapsed between the contributions and the initiation of the divorce, the community has not substantially benefited. If more than 10 years have passed, a presumption arises that the community has substantially benefited and therefore been constructively “reimbursed.”
2) If under 10 years, the courts will do a proportionate reimbursement instead of an entire reimbursement: If within 9 years, then already have 9/10 of the benefit, so only get reimbursed 1/10th.
2. In re Marriage of Watt [1989]
a) Facts: For the entire 9.5 years of their marriage, H was a full-time student while W worked fulltime for Kaiser, using all of her income for family expenses. H received his MD right after their separation. The court gave her a double-whammy(no spousal support (because she had been working) and the community doesn’t get reimbursed for H’s education.
b) Rule: When awarding spousal support, a court must consider the totality of one spouse’s contributions to the other spouse’s attainment of a degree, including contributions for ordinary living expenses.
C. Professional Goodwill
1. Goodwill is essentially the difference between the total value of a business or professional practice and the value of its assembled physical assets. Goodwill is an intangible value that develops during the life of a business and includes, among other things, the reputation and habitual clientele of a business or practice.
2. To the extent that goodwill is earned during a marriage, CA treats it as CP.
3. Valuation is tricky: courts use one of two methods(market sales valuation or capitalization of past excess earnings.
4. In re Marriage of Lopez [1974]
a) Facts: H is an atty; he formed a law partnership with two of his associates. Each paid for 25% of the partnership. This 25% interest in the law practice was valued at $52, 275.68 each.
b) Issue: Is professional goodwill a CP asset?
c) Rule: Yes, it may be deemed a CP asset.
D. Royalties: If one spouse writes a book or a screenplay during the marriage, the money brought in after the separation will be considered CP and some will be given to the non-creative spouse after the divorce.
E. Life insurance
1. Whole Life Insurance Policies
a) Traditionally Proceeds are apportioned according to who paid the premiums:
1) The premiums paid with SP produce SP proceeds (Example: If SP paid ¼, ¼ of the Proceeds will be SP and ¾ CP); the premiums paid with CP produce CP proceeds
2. Term Life Insurance Policies
a) Law is not settled—If spouse became uninsurable during the community funded premium period, probably use apportionment (as in whole life policy).
b) Otherwise, the rule is even less settled. Argue both positions—The last annual term policy is the only policy which paid proceeds. Therefore, pay all the proceeds to the party who paid the last year’s premium. This is an unfair windfall to the estate which made the last annual premium payment. Therefore, apportion proceeds as in a whole life policy.
3. If a deceased spouse named a beneficiary (not the surviving spouse) in a CP policy, the beneficiary will receive ½ of the CP interest and the spouse will receive her ½ CP interest.
4. Military Life Insurance or any other federal life insurance:
a) Entirely preempted by federal law (anyone may be designated beneficiary; CP has no right to reimbursement for premiums paid with CP)
5. Policy at Divorce:
a) Whole Life (With Cash Value)
1) Take out the policy when young and healthy, pay into during one’s life, and when one dies, the main beneficiary gets the proceeds.
2) To the extent a policy has a current cash value, that cash value is CP in proportion as the community paid the premiums. Cash value is just another form of savings and exists apart from the pure insurance component of the policy.
3) *On an exam look to see when it was purchased. Any payments made during the marriage give the community an interest.
b) Term (Pure) Insurance
1) These are benefits of employment and one has the option to renew after each term expires (some are renewable every 2 years).
2) The insurance becomes a new insurance policy upon renewal, so if one is carrying a term life insurance policy and he splits from his W and the policy concludes. Then, he renews the policy….the policy is now SP.
a) EXCEPTION: If the insured becomes disabled and therefore uninsurable (couldn’t go out and buy a new policy), some courts say the inception of right is critical and the community has an interest in the policy (because the policy was acquired during the marriage, that’s when the right began). The community is not necessarily the beneficiary, but is entitled to receive some proportionate interest value.
3) Term insurance has no cash value. The premium covers no more than the risk of death. When the premium period expires, there is nothing left except the right to insure for another premium period, usually annual periods until age 65.
4) Look to see, on an exam, when the term was renewed. If renewed after the separation, then SP and the community has no interest in the term insurance. Ends when the last term during the marriage ends.
c) In re Marriage of Spengler [1992]
1) Facts: H had a group term life insurance plan. H and W separated in 1986. The insurance coverage continued until 1989. At the same time, he married another woman and named her his beneficiary. When the H died and $100K went to the 2nd W, the first W claimed ½ because she claimed it was a CP asset.
2) Rule: Because the right to renew came up after the marriage ended, the term life insurance is not property that is subject to division under CP.
Limitations on Classification of Property under the CP System (Chapter 3 Continued)
A. The Valid Marriage Requirement (CP applies only when a valid marriage)
1. Valid marriage requires:
a) Legal capacity
1) Age (determined by each state)
2) Ability to understand the consequences of agreeing to a marriage
b) Legal Formalities
1) Appropriate solemnization (ceremony)
2) License issued and recorded by the State
3) In the presence of witnesses (no private marriage)
2. No CL marriage in CA, but CA will recognize CL marriages that are valid in other jurisdictions
a) CL marriage= man and woman live together and hold themselves out as H and W and by virtue of their conduct, the society deems them to be married
3. Putative Spouses v. Unmarried Cohabitants
a) Putative: one or both in the relationship believe in good faith that they are married, but it turns out to be an invalid marriage
b) Unmarried Cohabitants: Deliberately unmarried couple (don’t get the same rights afforded to them as a Putative spouse because of the lack of good faith belief that they were married)
4. Same Sex Unions
a) CA=domestic partnerships in January 1, 2005; applies to same-sex couples of any age and to male-female couples where at least one of the partners is over age 62.
b) CA Domestic Partner Rights and Responsibilities Act is a model for property division that is based on a CP model and extends those rights to same sex partners
5. Putative Marriages
a) Once the court finds that a putative spouse exists, the rule is that property acquired by the parties during the relationship that would have been CP or quasi-CP if the marriage had been legal, then it is now quasi-marital property and it is divided according CP principles.
b) There must be a good faith that is subjective, but within reasonable bounds. (subjective/objective test)
c) An innocent putative spouse (could be one or both) can make a claim to ½ of the quasi-marital property. But, the open question is whether the guilty party (if there is one) can claim 1/2 the quasi-marital property because he/she defrauded the other person.
d) When a relationship is putative because one or both of the parties have a prior legal marriage that was never terminated, many problems arise.
1) The legal spouse has rights to the property too. But, usually the couple is separated so the earnings, etc. are not CP under Family Code §771. But, assets (stocks, property, etc.) acquired during the 1st marriage and are CP.
a) When a party to a putative marriage (guilty or innocent), permanently separated from the prior legal spouse before beginning the putative marriage, all earnings and accumulations by that spouse are post-separation and are considered SP for the 1st marriage, and are quasi-marital property in the relation to marriage #2.
2) After the putative (innocent) spouse finds out that she’s not a legal spouse, she can no longer claim any property acquired as quasi-marital property
e) When the party to the putative marriage is not separated from the legal spouse, property acquired in both relationships could be CP of the legal marriage and quasi-marital property of the putative marriage. (bigamous relationship)
1) Possible solutions:
a) Divide all of the property in both relationships in 3 ways
b) Divide all property between the putative spouse and the legal spouse, leaving the “guilty” spouse (the one in both relationships) with nothing.
f) Upon death: The probate code makes no specific provision for testate and intestate succession involving putative spouses. When there is also a legal spouse in the picture, classification and succession can be complex.
1) If the previous legal spouse is dead at the time the spouse in the putative marriage dies, most courts treat the surviving putative spouse as the “surviving spouse” for purposes of intestate succession.
2) If the previous legal spouse is alive, and the common partner leaves a will, the common partner may only bequeath his/ her half of any quasi-marital property or CP.
3) If the common partner dies intestate, modern courts usually pass the quasi-marital property by intestate succession to the putative spouse and only CP of the previous marriage to the prior legal spouse. When there is no permanent separation (bigamy, concurrent relationship), courts divide the estate of the decedent equally between the two “surviving spouses.” (Vargas).
4) As for SP, in Estate of Leslie , the California Supreme Court expressly left open the question of distribution of the deceased's SP when there was both a legal spouse and a putative spouse who survived the intestate deceased. However, in Hafner, the California court of appeal was confronted with conflicting statutes and divided all of the decedent's intestate property between the putative spouse (she received half) and the legal spouse and the decedent's four children -- the five of them received the other half of the property. There were three children from the legal marriage and one from the putative marriage; thus, the legal spouse received one third of the second half and the children received two thirds of the second half.
g) Coats v. Coats [CA SC; 1911]
1) Facts: H and W were married in 1887; sought annulment (marriage void from the beginning) due to physical incapacity of W. She was awarded $10K based on principles on equity.
2) Rule: Annulment erase doesn’t erase all of the quasi-marital property interest here (what would have been CP). Although there wasn’t a valid marriage, and therefore no CP, the courts can by way of analogy apply CP principles to quasi-marital property.
3) Held: The court must focus on the expectation of the “putative” spouse. She believed and had every reason to believe they were building the community, and so the act of annulment at the end of the relationship shouldn’t just erase all the property they gained together.
h) Estate of Leslie [CA SC; 1984]
1) Facts: They were married in Mexico, but it was never recorded. Both people believed they were married and lived in a house together. But, the previous kids made a claim at her death. W died intestate.
2) Held: A surviving putative spouse does have a right to share in the SP of the estate, and the court has extended equity principles to SP in order to honor what it perceived to be the expectations of both spouses. Lots of emphasis on the fact that they believed in good faith that they were actually married.
i) Estate of Vegas: common spouse dies intestate, the two spouses (legal and putative) can split equally
j) Estate of Hafner [1986]
1) Facts: H marries Joan and had 3 kids, abandoned them, left for CA. He met Helen, told her he was divorced even though he hadn’t bothered to get one; they marry in Mexico and again in Vegas. Helen thought in good faith that they were married. H gets hurts and gets a substantial PI settlement; and then dies. Helen claims that money and Joan does too.
2) Held: Equity requires that the court divide the property between the original legal spouse and the putative spouse. Two innocent wives, any resolution is going to impair somebody’s legal rights, but this is the best resolution. Helen gets half, the other half split by the rest of the kids and Joan.
3) *The putative spouse didn’t get any of his SP.
4) *Only ½ of the quasi-marital property goes to the putative spouse, and thus the other ½ of the decedent’s quasi-marital property was awarded to the legal W. (can look at this critically)
5) Court can’t take away the ½ of the quasi-marital property that belongs to Helen, but other than that, they can play with H’s ½ of the quasi-marital property.
k) Vallera v. Vallera [CA SC; 1943]
1) Facts: No putative good faith belief because she knew that he was married.
2) Rule: When there is no belief that a valid marriage exists, the cohabitant does not gain the rights of a co-tenant in the earnings and accumulations of the other party during the course of the relationship. (This has been superseded by some domestic partners laws, but only apply to same-sex relationships or heterosexual couples who are older than 62).
a) At this time, if no legal option to get married, out of luck.
l) Marvin v. Marvin [CA SC; 1976]
1) Facts: couple enters an agreement to cohabit and they don’t get married. Live together for 6 years, and then he kicks her out. He supports her for one year, and then stops. She claims that they entered an oral agreement to share equally in the property accumulated during the course of their relationship. Also claims that she gave up her acting career to work as a companion.
2) Court says:
a) If there’s an express agreement between non-marital partners, the courts will enforce it, unless such a contract is explicitly founded on meretricious sexual relationships.
b) In the absence of an express contract, the court should inquire into the conduct of the parties to determine whether such conduct demonstrates an implied in fact contract or some other agreement (taking title or loan in a certain way that indicates they intend to be like people living in CP system.)
3) 4 principles that Marvin illustrates:
a) Distribution of property acquired during a non-marital or meretricious relationship is governed by judicial decision, not CP statutes. (they do apply by analogy to putative spouses)
b) Express contracts between non-marital partners will be enforced unless they’re based on meretricious sexual services.
c) If there is no express agreement, the court will examine the course of conduct of the parties to see if there is an implied contract, agreement of partnership or joint venture, or some other tacit understanding (raising kids together).
d) Quantum meriut: restitution for services rendered and other equitable remedies may be available for non-marital partners.
4) Implied in fact relationships will probably happen more often in a long-term relationships where the people hold themselves out to be H and W.
m) Upon injury or death as well as dissolution, co-habitants are treated as individuals and can’t get loss of consortium, etc.
6. The Domicile Requirement
a) Rozan v. Rozan [CA SC; 1957]
1) Facts: Couple is domiciled in CA and H goes to work in another state, using his earnings (attributable to LSE) the couple purchases property in ND. H argued that the real property was his SP, not community.
2) When there is a choice of law issue, the choice of law doctrine favors the law of the domicile rather than the law where the land is situated.
a) Usually in a situation such as this, the court will allow title to stay in tact in the other state, and will simply adjust the other assets to compensate.
3) Rule: Property acquired while domiciled in CA as the result of a spouse’s work, efforts, ability, and skills is CP.
b) Grappo v. Coventry Financial Corporation [1991]
1) Facts: After H and W separated, she moved to her SP on the Nevada side of Lake Tahoe, for which H had lent her the funds to construct a house, and H brought this action, claiming an interest in the real property.
2) Need to go through the CP analysis even though the property is located in NV
a) The property is presumed to be CP because it was acquired during the marriage
b) Rebuttal of the general presumption: oral agreement to keep property separate, title to the property was in the W’s name alone
c) After going through this analysis, the next step would be to see if NV would honor the CA court’s decree and say that she’s required to give him ½ of the property value.
3) Rule: The laws of the domicile of the parties at the time property was acquired govern in determining the characterization of the property as separate or community.
4) Held: It is apparent that CA has the most significant relationship to the parties and issues in this case. Therefore, the characterization of the parties’ respective marital interests in the NV property must be determined under the CP law of CA.
Constitutional considerations with respect to CA CP (*retroactivity is difficult to test)
A. Definition of quasi-CP:
1. Family Code §125: Quasi-CP
a) Quasi-CP means all real or personal property, wherever situated, acquired before or after the operative date of this code in any of the following ways:
1) By either spouse while domiciled elsewhere which would have CP if the spouse who acquired the property had been domiciled in this state at the time of its acquisition.
2) In exchange of real or personal property, wherever situated, which would have been CP if the spouse who acquired the property so exchanged had been domiciled in this state at the time of its acquisition.
2. Necessity of Change in Domicile. The new statutory rules apply only where both parties change their domicile to CA. (In re Marriage of Roesch; 1978).
3. During marriage, quasi-CP is treated as the SP of the acquiring spouse. EXCEPTION: During marriage, quasi-CP is treated as CP with respect to creditors who may reach the non-debtor spouse’s quasi-CP (unlike SP)
4. At divorce, quasi-CP is treated exactly like CP, but both parties must be domiciled in CA and divorce must occur in CA.
5. At death, survivor spouse had a one-half interest in decedent’s quasi-CP. However, decedent has no interest in the survivor’s quasi-CP (decedent cannot bequeath his spouse’s quasi-CP in his will).
B. The Due Process and Privileges and Immunities Clauses
1. Addison v. Addison [CA SC; 1965]
a) During marriage, quasi-CP is treated as the SP of the acquiring spouse because at the acquisition it was considered his SP and it would be an unconstitutional taking if as soon as he crossed the border it’s no longer his.
1) So, the acquiring spouse can sell it, give it away etc during the marriage, just like normal SP, but creditors can reach it unlike normal SP
b) At divorce, the property is CP. Why? Because there’s a compelling interest in protecting the welfare of the non-acquiring spouse at divorce. It is a taking, but one justified by a compelling interest.
c) At death, survivor spouse has a one-half interest in decedent’s quasi-CP. However, the decedent has no interest in the survivor’s quasi-CP. Why? Because the decedent doesn’t need the taking to protect his/her welfare because he/she is dead.
2. In re Marriage of Roesch [1978]
a) Necessity of Change in Domicile. The new statutory rules apply only where both parties change their domicile to CA.
b) Facts: The parties lived in Pennsylvania for virtually their entire married life which was 27 years long. After separation, the H came to live in CA while the W remained in Pennsylvania with their minor son.
c) Held: CA’s interest in the Pennsylvania marital property was minimal, Pennsylvania’s interest was substantial, thus, CA’s quasi-CP statue could not be applied.
d) Domicile Acquisition Rule:
1) Personal property acquired by a spouse during marriage, while domiciled in a common-law state doesn’t loose its character as SP of acquiring spouse upon change of domicile to a CP state. (Tracing rule applies to exchange of common-law SP.)
2) Because the H had moved, W was still protected by the laws of PA.
3) Court has the authority to characterize the property as quasi-CP if H here, but first it will look at the extent the W is protected by the laws of the home state.
C. Retroactivity Problems
1. An ongoing theme in CP law, is whether a rule is prospective or retroactive. The general thinking is that if the problem that the legislature seeks to correct is a substantial violation of constitutional principles, the new rule should be applied retroactively. Otherwise, the legislation is prospectively applied so there is proper notice for all interested parties.
2. In re Marriage of Bouquet [CA SC; 1976]
a) Facts: There was an old statute that allowed the W to retain her earnings and accumulations while living separate and apart as her SP. But, the H’s earnings and accumulations during this same period were deemed CP. After the filing for divorce, but before granting it, a new law was passed that provided that earnings and accumulations of both spouses were deemed SP. The W argued that the law was prospective.
b) Held: The law was passed to eliminate the probable prior unconstitutional aspects of the former law (it was a sexually discriminatory law). As such, it seems that, even though it’s rare to do, this new law should be retroactive.
3. In re Marriage of Heikes [CASC.; 1995]
a) Facts: H sought a petition for review of the proper classification of two parcels of land which he reconveyed to himself and his W as joint tenants during the marriage.
b) Issue: Does the Constitution permit the statutorily authorized reimbursement of a H for SP contributions he made in 1976 to the property divided as CP in 1992?
c) Rule: Due Process demands that the change of the law be prospective in application unless there is a “compelling state interest” in retroactive application.
1) The only state interest considered compelling is to prevent a “rank, patent injustice.”
d) Held: The CA SC was reluctant to apply “an about face in the law” retroactively to acquisitions prior to the effective date of the statute. So, laws changing the characterization of joint title property and the right to reimbursement were not applied retroactively. (No rank, patent injustice when dealing with the anti-Lucas reimbursements, like there was in Bouquet.)
D. The Supremacy Clause
1. Wissner v. Wissner [USSC; 1950]
a) Facts: H named his mother as the beneficiary to a Life Insurance policy that he got through the Army rather than his estranged W. Because this policy was purchased as a result of LSE, the W tries to claim it is CP.
b) Held: The Supremacy Clause prevails here. The W doesn’t have an interest because the federal laws preempt the state’s CP laws.
1) *The right to choose the beneficiary of a federal military policy is the policy’s holder’s right, up to ½ of the proceeds. The W here was actually entitled to ½ of the proceeds, but not all of them.
c) Rationale: It would be too difficult to determine the insurance policy distributions for each veteran based on 50 different states’ laws. One federal law for every state to abide by, makes it easier to administer.
d) *Military personnel, RR workers, and ERISA (Employee Retirement Income Security Act) situations: federal law preempts.
1) ERISA is the statute that governs all private pension plans. It was created to cure the inadequate funding, etc. within private pension plans. It requires that vesting occurs within 5 years of employment and provides that pension benefits can’t be attacked by creditors.
2) While preemption involving ERISA can be challenged on the fact that private money is involved and should therefore be subject to state law, the rationale behind ERISA has proven so important that it still preempts.
2. Boggs v. Boggs [USSC; 1997] (*This would probably have lead to a different outcome if this had been a divorce situation, but instead this dealt with a predeceased spouse)
a) Facts: This was an appeal from a summary judgment stating that ERISA preempted Louisiana CP laws. H and his first W were married when H began working for a company and they remained married until her death. They had three sons. Within a year of W1’s death, H married W2, and they remained married until his death in 1989. The dispute over ownership of the benefits was between W2 based on H’s will and the sons of the first marriage based on W1’s will.
1) W2 argued that the sons’ competing claim, since it was based on W1’s purported testamentary transfer of her CP interest in undistributed pension plan benefits, was pre-empted by ERISA.
b) Held: The sons don’t have a claim to share in their deceased father’s retirement plan under their deceased mother’s will, due to the purpose of ERISA. That purpose is to protect the surviving spouse. That surviving spouse is now W2.
Selected Problems in Classification
A. Commingled Funds
1. “Commingling” refers to the combining or intermixing of community and separate funds into a common mass or pool (usually a bank account).
2. 3 Tracing Methods (**Funds not proven to be SP by tracing are CP)
a) No Withdrawals: If no withdrawal has been made, uncommingling is easy. The funds retain their original character.
b) Drawer’s Intent: If the proponent of SP can show she intended to use SP funds to purchase the asset and that sufficient SP funds were in fact available at the time of the purchase of the asset, the asset is SP and the CP presumption is rebutted. (DIRECT TRACING)
c) Exhaustion of CP funds: If the proponent of SP can show that CP was exhausted when the asset was purchased, then the asset must be SP and CP presumption is rebutted. (EXHAUSTION METHOD)
3. Transmutation of funds:
a) Commingling is different than transmutation because when funds are commingled they are in one account, side by side, but with transmutation the spouses during marriage are changing the character of the property from CP to SP.
b) See details above for requirements and rules involving transmutations during marriage and prior to marriage
4. See v. See [CA SC; 1966]
a) Facts: This is the Sees Candy family. H is very involved in the family controlled corporation and deposits his salary in a corporate account and uses this account to pay for family expenses.
b) The court required a day-by-day approach, rather than an aggregate approach (that the H and the trial court used(H wanted to be able to show that an excess of community expenses over community income over the entire length of the marriage was sufficient to show that all property acquired during the marriage was his SP) and said that the H would need to show there were no community assets in the account on the day the asset that the H is claiming is SP was purchased. (Exhaustion Method(the SP proponent can rebut the CP presumption, if at the time of acquisition, all community income was exhausted by family expenses. Then clearly the property must have been purchased with SP funds.)
c) This case presents the judicially created Family Expense Presumption that assumes that family expenses are first paid by CP funds.
1) Expenses expended for food, rent, vacations, and medical and dental care are for family expenses. They are “consumed” and do not result in acquisition of property that would ultimately be divided at divorce or death.
2) The rules concerning family expenses are:
a) Available CP funds are presumed to be used to pay for family expenses. SP funds are deemed to be used for family expenses only when CP funds are exhausted.
b) When SP funds are to pay for family expenses, the separate estate has no right to reimbursement unless the parties have agreed to reimbursement. (it is presumed to be a gift)
d) Rule: Use the Exhaustion Method and if a spouse chooses to commingle, he/she must keep perfect records.
e) If there are NO records in a commingled account, then the court will assume that whatever money is being used are CP funds and any SP has been a gift to the community.
5. In re Marriage of Mix [CA SC; 1975] (DIRECT TRACING)
a) Facts: W is an attorney and she commingles her CP earnings and SP in a bank account. She withdraws funds to purchase rental property and is able to produce a schedule from her records chronologically itemizing the source of SP funds that went into the SP rentals and the balance left after each transaction.
b) The court requires more than just her accounting records because the records are not quite itemized enough and because she is the record keeper and the proponent there could be a conflict of interest.
c) Held: The records coupled with her testimony and the affidavits of her friends were adequate evidence of tracing to her SP.
d) Rule: Keep careful records and if the spouse who claims it is his/her SP is keeping the records, they will probably have to bring in extra evidence above just the records to prove no bad faith in the recordkeeping.
6. In re Marriage of Frick [1986]
a) Facts: H relied on the Direct Tracing Method to argue that he used SP funds to pay off an encumbrance on property he owned before marriage. The problem was that he had commingled his salary with his SP income. He argued that he met his burden of rebutting the CP presumption by showing that he received a specific amount of SP each month that he deposited into his commingled account, and he paid a specific amount every month to make payments on the encumbrance.
b) Rule: When payments are made out of a commingled account, the presumption is that the funds are CP and that presumption must be rebutted by the SP proponent.
c) Held: Because the H only produced selective evidence of how he managed the account, the court found this was CP. It seemed to the court that the H was actually withholding relevant information.
7. Bottom line: Tough to commingle and satisfy the strict evidentiary requirements of the Direct Tracing method. The Exhaustion Method is also tougher for SP proponents to meet.
8. Other ways to divide commingled accounts:
a) Stock account purchased with commingled funds:
1) Some courts will say take stocks that have increased in value and call them CP and the stocks that have decreased in value are SP
2) Other courts will say look at the stocks in the account and see what day they were each purchased and what % of the purchase funds were CP and what % were SP in the commingled account on the day of the purchase.
3) If there are no records, the courts will assume a gift of SP to the Community. (But, if no donative intent apparent on the part of the spouse who had SP, he/she can ask for reimbursement)
b) After the account is done immediately prior to the withdraw, either the SP proponent can ask for reimbursement or a pro rata share of the funds.
B. SP Businesses
1. Pereira v. Pereira/ Van Camp Distinction
a) (Used where marital labor contributes to the growth in value of a SP business. Some of the increase in value will be awarded to the estate which provided the capital and some to the estate which provided the labor.)
b) VAN CAMP:
1) More likely to be used if the capital or nature of the business is the primary cause of the increase in value (used when something other than community effort causes the increase)
2) VAN CAMP RULE: Pay the community a fair wage. That’s all it gets. Give the remainder of the value of the business to the estate which provided the capital (usually SP.)
3) Came from 1921 case and determines the “reasonable value” of the spouse’s service sand allocates that as CP and the remainder is SP.
4) Fair wages are generally the market rate for comparable services.
5) Family Expenses paid by the business should be treated like wages paid to the family. Thus, deduct family expenses from the wages. What’s left of the wages goes to the estate which provided the labor (usually the community). If wages to CP were overpaid, it was a gift to CP.
6) Example: W owned a dry cleaning business before marriage. During the 10 year marriage, the business appreciated in value. Because the appreciation is more likely due to the nature of the business than to her labor, Van Camp applies. The Community will receive a fair salary (minus family expenses paid from the business). The remainder is WSP.
c) PEREIRA:
1) More likely to be used if the managing spouse’s labor is the primary cause of the increases in value of a business (Example: A landscaping business)
2) PEREIRA RULE: Pay the original capital plus interest per year (use 10%) to the estate which provided the capital (usually SP). That’s all it gets. Give the remainder of the value of the business to the estate which provided the labor (usually the community).
3) Comes from early case (1909) and apportions the profits of a SP business by allocating a “fair return” on the SP investment and allocating any “excess to the CP.”
4) Facts: H has a saloon that he brought to the marriage as his SP, but was investing LSE during the marriage.
d) The court has discretion to choose the method which produces the most just results.
e) Pereira usually favors the community and Van Camp usually favors the SP owner.
f) Note that with either approach, before a final distribution can be made, a deduction for family living expenses must be made from the aggregate amount of CP acquired during marriage. Only the balance remaining after such deduction is CP.
2. Marriage of Koester [1999]
a) Facts: H argued that a business he owned prior to his marriage, but incorporated after his marriage, should be dispersed as separate and not CP in the dissolution proceedings.
b) Rule: The Pereira analysis, which awards the value of SP at the time of marriage plus a reasonable return to represent the appreciation of separate capital with the balance going to the community, applies when business property is at issue in a dissolution proceeding because the reimbursement statute was never designed to apply to SP businesses, and is inherently not applicable to businesses when the requirements for transmutation have not been met, and because the mere incorporation of a business is not a change in its character.
3. Tassi v. Tassi [1958]
a) Facts: H, now deceased, made certain transfers of property, without W’s consent, to other relatives.
b) Rule: Two approaches are available to a court for the allocation of earnings from a SP business between separate and CP and the court is free to choose whichever formula “will achieve substantial justice between the parties.”
1) Still though, the court should properly exercise its discretion to determine whether or not the community services to the SP involved has been the key to the income generated.
4. In re Marriage of Imperato [1975]
a) If a community business increases in value after the date of separation, the courts are instructed to use what is called reverse Pereira/Van Camp. If the effort is considered separate effort, and the increase in value would be considered SP. If the increase in value can be attribute do other factors, such as economic circumstances, then the increase in value is considered CP.
C. Installment transactions:
1. Vieux v. Vieux [1926]
a) Facts: Prior to his marriage, H executed an installment contract to purchase real property and, after his marriage, he used some CP funds to pay installments on his contract.
b) Rule: When one spouse before marriage executes an installment contract to purchase property and then uses community funds after marriage to pay some of the installments, the CP is entitled to an interest in such property in the proportion that community funds were used for installments.
D. Borrowed Funds and Credit Acquisitions:
1. Start with the basic CP presumption. Then rebut with SP tracing. However, when property is acquired on credit during marriage, the SP proponent must trace by using the intent of the lender.
a) Characterization of property acquired on credit is determined by whether the lender’s intent was to rely upon the purchaser’s SP or CP for repayment of the loan.
b) When the lender relied on community assets for repayment of the loan, the CP presumption is not rebutted, and the property will be characterized as CP.
2. Gudelj v. Gudelj [CA SC; 1953]/ In re Marriage of Grinius [1985]
a) These two cases used different variations of the intent of the lender test.
b) Gudelj: Held if there is no evidence showing that the lender or seller “primarily” relied on the purchaser’s SP in extending the credit, the CP presumption stands.
1) Involved H’s interest in a cleaning business that was purchased during marriage. H paid for part of the business with cash and part with a note. The cash was determined to be HSP; the question was whether the note was also his SP.
2) In Gudelj there was no testimony as to the intent of the seller. However, there was some evidence regarding the purchase of the interest in the cleaning business. (H had received some cash that was his SP and he argued that it could be inferred that the seller must have relied on his SP in selling him the interest on credit.) However, the court decided that without evidence that the seller had actually known of HSP, H’s rebuttal failed.
3) Factors to determine the primary intent of the lender:
a) Source from which the lender expects repayment (salary, income)
b) Signature on the loan
c) Identity of the person who’s providing security for the loan
d) Purpose for the loan
e) Relative wealth of the parties
f) Lender’s intent in prior loans
c) Grinius: Held the CP presumption may be rebutted by showing the lender intended to rely “solely” upon a spouse’s SP. (Makes it almost impossible to characterize the loan as SP.)
1) The couple started a restaurant business with funds borrowed from a bank and the Small Business Administration. Even though the business was considered CP, there was a question about the restaurant real property that was in H’s name and that he claimed to be his SP.
2) In Grinius, the restaurant real property was purchased with loan funds. H argued that those funds were SP, and thus the CP presumption was rebutted. But, the Court of Appeal said there was no showing that the lender had relied solely on HSP and so it was still CP.
d) Both cases started by saying the interest in the cleaning business and the restaurant real property, even though acquired through credit, were presumed to be CP. That presumption is rebuttable by tracing to the intent of the lender.
3. Contribution of SP to CP Real Property: purchase and improvements
a) Marriage of Smith [1978]
1) Spouse used other spouse’s SP for community purposes (down payment on real property, payment on cost of swimming pool, and purchase of equipment for family business). She was presumed to be making a gift and entitled to reimbursement from CP or SP of the other spouse only when there was an agreement to that effect. Such contribution was presumed to be a gift.
b) In re Marriage of Lucas [1980]
1) When a spouse contributes SP to down payment on CP real estate (or other joint forms of ownership), the SP contribution is presumed to be a gift and the spouse had no right to reimbursement.
2) The gift presumption could be overcome only if there was an agreement that the contribution would remain SP. If such an agreement existed, the contributing spouse would have a proportional SP interest in the property.
3) NOTE: Anti-Lucas legislation effective 1/1/84 CA Family Code §§2580-2581 and §2640 which reversed the gift presumption and offered straight reimbursement applies to divorce and legal separation only. In the case of death, the Lucas gift presumption remains intact.
c) Marriage of Walrath [1998]
1) Rule: Spouse’s statutory right to reimbursement under Family Code §2640(b) is not limited to reimbursement from the specific asset to which the SP contribution was originally made. When that original property is refinanced and proceeds used in part to purchase or reduce indebtedness on original and other assets, contributing spouse is allowed to trace the contribution to SP and be reimbursed from these assets.
4. Contributions of CP (via loan repayment) to SP Real Property:
a) In this scenario, the spouse who owned the property before marriage would argue that the community does not acquire any interest in the property by providing funds to reduce the loan. The other spouse would argue that the community has acquired part of the property by providing funds to reduce the loan. The answer is that the community gains an interest in the property.
b) A secondary issue arises in this scenario, because payments on a loan, particularly a mortgage loan, include both principal and interest, and in some cases, also taxes and insurance. The spouse who purchased the property before marriage would argue that only principal payments should be considered. The other spouse would argue that both principal and interest payments should be considered.
c) In re Marriage of Moore [1980]
1) Facts: W had bought a house about 8 months before she married H. She took the title in her name alone. She purchased the house for approximately $57,000 and made a down payment of approximately $17,000. She secured a mortgage loan to purchase the house. Prior to marriage, W made payments on the loan, and the principal had been reduced by approximately $250.00
a) While the couple was married, the loan principal was reduced by almost $6,000. And, the house had appreciated in value and was now worth $160,000.
2) The court determined that the community was entitled to a pro rata share of the increased value of the SP asset, holding that when CP funds are used to make mortgage payments on SP, the community develops an interest in the property to the extent that it reduces the principal debt. However, CP payments of interest, tax, and insurance do not buy into ownership. The actual value of the CP interest in the property depends on the FMV of the property.
3) Moore Formula:
a) Divide amount by which the CP payments have reduced the principal by the purchase price;
b) Multiply that community percentage by the equity value of the house to find the capital appreciation due to CP funds;
c) Add to that the amount of equity paid by CP funds.
4) Important points:
a) Community funds paid to reduce the principal on a separate loan will result in the community obtaining a proportionate interest in the property according to the formula established by the Court in the Moore case. (The community builds a pro-rata share in the SP.)
b) Community funds paid for interest on the separate loan and for taxes and insurance will not be included in the calculation of the community interest in the property.
d) Marriage of Marsden [1982]
1) Adds a twist to Moore by allowing a credit to the SP owner for any appreciation prior to the time the first CP contribution is made.
5. In re Marriage of Frick [1986]
a) The H in Frick attempted unsuccessfully to persuade the court to use the fair market value of the property at the time of the marriage instead of the original purchase price to calculate the relative SP and CP percentages of interest. This would have reduced the community interest. The court did not agree and continued to use the purchase price, but it did allow the H a credit for the increase in value prior to any community contribution.
b) Alternative Frick formula for calculating respective interests: CP and SP respective interests should be based on ratio of capital contribution to purchase price of SP property acquired before (or during) marriage. Note that court uses purchase price of property rather than FMV of property at time of marriage for allocation of shares. Since purchase price is smaller, this approach is likely to give community a larger percentage.
6. Basic Formula from Moore, Marsden, and Frick:
a) Divide the contribution of the CP estate by the purchase price of the SP asset to find the percentage of the community interest;
b) Multiply the percentage by the net value of the house to determine how much money the community will receive;
c) If the asset has increased in value prior to any CP contribution, the SP owner is entitled to a credit for the appreciation before you run the calculations in (b).
7. Marriage of Wolfe [2001]
a) Facts: CP funds used to install drip irrigation system on HSP land.
b) Rule: When the other spouse contributes CP funds to improvements on spouse’s SP land, contribution spouse is entitled to reimbursement. SP character is unaffected, and CP contributed is no longer presumed a gift.
E. Contribution of SP of One Spouse to SP Real Property of the Other Spouse:
1. No published case has decided the effect of this situation. Two approaches appear possible:
a) Presumption of Gift. Analogy to Marriage of Lucas .
b) Reimbursement. Based on Family Code §2640 as evidence that the legislature no longer believes that the paying spouse intends to make a gift when SP funds are expended on real property not owned as SP.
F. Personal Injury Awards:
1. Before Marriage:
a) If the c/a arises before marriage and receipt of damages occurs before marriage, award is SP of injured person.
b) If c/a arises before marriage and receipt of damages occurs during marriage, inception of right doctrine suggests that award is SP of injured spouse. However, to extent that award compensates spouse for lost wages, award may be characterized as CP.
2. During the Marriage:
a) If c/a arises during marriage and receipt of damages occurs during marriage, award is CP.
b) If c/a arises during marriage and receipt of damages occurs after separation or divorce, award is CP.
3. After Marriage:
a) If c/a arises after marriage and receipt of damages occurs after marriage, award is SP of injured spouse. Court may order reimbursement to other spouse or community if either contributed to expenses related to injury. Family Code §781(b).
4. Allocation of CP PI damages upon divorce:
a) Family Code §2603(b) provides that PI award received as CP during marriage is assigned to injured spouse at divorce even though this results in unequal division of CP UNLESS (1) non-injured spouse is entitled by interests of justice to some of the CP PI award, not to exceed ½, or (2) CP PI damages are commingled with other CP and lose their special character, in which case they are treated like any other CP.
b) There may be inter-spousal tort if one spouse injuries the other. In this situation, there is usually insurance involved, and any damages are the SP of the injured spouse upon divorce. Family Code §781(c).
5. In re Marriage of Devlin [1982]
a) Facts: W appeals from judgment awarded bulk of couple’s property to H because it was acquired with proceeds from H’s PI damage award.
b) Family Code §2603(a) provides that PI damages received from c/a arising during marriage are held as CP during the marriage. Upon dissolution, however, Family Code §2603(c) provides for the assignment of CP PI damages to the injured spouse.
1) Courts may take into account economic needs and condition of each party, time elapsed since award of damages, and other conditions that may warrant a different distribution in the interests of justice.
2) In any event the spouse is to receive no less than one half of award.
c) CP PI damages are not transmuted to regular CP by purchasing other CP with the funds unless commingling occurs and tracing to PI award is successful.
d) Held: The award goes to the H because the trial court properly exercised its broad discretion in basing the decision on the fact that H was a paraplegic, and W had both the education and ability with which to secure gainful employment and be self-supporting.
G. Employment Related Benefits
1. Retirement Benefits:
a) Retirement is a red flag for CP interest.
b) Benefits are apportioned according to the years of SP and CP contribution to retirement:
1) Time Rule—(Number of Years Worked During Marriage/Total Number of Years Worked) x Value of the Pension
c) Social Security Benefits are Preempted by Federal Law
d) Military Retirement Benefits are not Preempted by Federal Law, Apply CP Rules
e) In re Marriage of Brown [CA SC; 1976]
1) Facts: By the time H and W separated, H had accumulated only 72 of the 78 points necessary for the vesting of his pension. Thus, his pension was an “unvested” pension. (He had no absolute rights to the pension.)
2) The Brown Court redefined an unvested pension from a “mere expectancy” to one that was a “contingent interest in property.” The Court distinguished the two definitions by saying that an expectancy does not rise to the level of any “interest,” but a contingent interest is still a “right,” even if it is a contingent one.
a) Court defined the term “vested” as “a pension right which survives the discharge or voluntary termination of the employee.”
3) Rule: To the extent an interest builds during the marriage in a pension plan even when it is not vested, that interest is considered CP and is subject to division at divorce.
4) The Court thought the “mere expectancy” definition would have been unfair to the community and to the W. So, the Court overruled prior precedent and declared that pension rights, “whether vested or not vested, comprise a property interest of the community and that [spouse] may properly share in it.”
f) Family Code §2610: Retirement Plans; Orders to Ensure Benefits
1) Except as provided in subdivision (b), the court shall make whatever orders are necessary or appropriate to ensure that each party receives the party’s full CP share in any retirement plan, whether public or private, including all survivor and death benefits, including, but not limited to, any of the following:
a) Order the disposition of any retirement benefits payable upon or after the death of either party.
b) Order a party to elect a survivor benefit annuity or other similar election for the benefit of the other party and if that election is already included in the retirement plan, no court shall order a retirement plan to provide increased benefits determined on the basis of actuarial value.
c) Order a retirement plan to make payments directly to a nonmember party of his or her CP interest in retirement benefits.
2) A court shall not make any order that requires a retirement plan to do either of the following:
a) Make payments in any manner that will result in an increase in the amount of benefits provided by the plan.
b) Make the payment of benefits to any part at any time before the member retires, except as provided in paragraph (3) of subdivision (a), unless the plan so provides.
3) This section is not retroactive to payments made by a retirement plan to any person who retired or died prior to January 1, 1987 or to payments made to any person who retired or died prior to June 1, 1988, for plans subject to paragraph (3) of subdivision (a).
g) Example: Works 5 years prior to the marriage, then 15 years during the marriage, and then 5 years after marriage at which point H retires and starts taking his pension payments.
1) 15/25=60%. Therefore, the community is entitled to 60% of the retirement benefits. And, the employed spouse gets the other 40% outright and then half of the 60% and therefore ends up with 70% of the pension benefits. The unemployed spouse gets 30%.
2. Disability Benefits:
a) Disability pay (including workers’ compensation income) is treated as wage replacement money
1) What income is being replaced? If CP income is being replaced, the disability income is CP. If SP income is being replaced, the disability pay is SP income.
2) If the disabled party could retire and receive retirement pay, but elects to receive disability pay instead, then the disability pay is replacing retirement income. Therefore, it is treated as retirement income and is CP to the extent that it replaces a CP interest in a pension.
b) Disability benefits serve two purposes: (1) to compensate for the personal suffering caused by the disability and (2) to compensate for the loss of earnings resulting from the disability and the compelled early retirement.
c) But, usually, these are like PI awards and stay with the disabled ex-spouse.
d) Marriage of Elmont[CA, SC; 1995]
1) Facts: H was a physician who had purchased disability insurance during marriage with community funds. H began receiving disability payments about 2.5 years after the couple’s dissolution proceedings commenced. Therefore, the payments after the couple separated were made with his earnings, which were SP.
2) The determining factor, according to the Supreme Court majority opinion, was that the H renewed the disability policies after separation with SP funds and that at that time H did not intend to provide the community with retirement income.
a) The timing and the funds are paramount: acquisitions after separation with SP funds are characterized as SP.
3) The Court did agree with the decision in In re Marriage of Stenquist and found that when a spouse has a choice in which benefits to take (disability-SP or regular retirement benefits-CP), it’s CP because the power to elect “disability” pay over “retirement” pay has the potential to defeat the community interest in the pension.
3. Termination and Other Employment-related Benefits:
a) Marriage of Gram [1994]
1) Facts: The former H exercised his early retirement option and virtually doubled his retirement payments. W wanted these enhanced benefits for early retirement to be treated as CP.
2) Held: The enhanced portion was CP and was characterized as deferred compensation for services rendered by the H during marriage.
3) Court did acknowledge that if the enhanced early retirement compensation was viewed as present compensation for loss of income (replacement for post-separation salary), then it might qualify as HSP. But, here the court rejects that approach and favors the community because retirement benefits earned during the marriage are CP and enhancement of those must also be considered CP.
b) Not all termination benefits are CP. They tend to be classified as such when benefits are derived from a contract (can be implied). CP presumption is strengthened when it is based on the employed spouse working for a specified number of seasons before coming into the retirement benefits.
1) SP when the termination benefits are substitute for lost earnings, lay off benefit, the termination package is designed for maintenance of income, and payments are reduced by any earnings if the person goes to work elsewhere.
4. Bottom Line: Retirement benefits earned during the marriage are CP, enhancements of existing retirement plans would be included in the CP, and supplemental retirement benefits are SP.
Spousal Management of CP and Creditor’s Rights
A. Spousal Management:
1. Early statutes gave management and control of CP and WSP to H and so H had all management and control.
2. 1872: W received sole control over her SP
3. 1927: W was given, via Family Code §751, a present existing and equal interest in the community, but it was more of a trust-like situation. (Interest, but no management rights.)
4. 1951: W controls her earnings and PI recoveries as long as she kept them separate from CP
5. 1975: Legislature adopted Family Code §1100 which gave the concept of equal management between spouses. This section is retroactive to CP prior to January 1, 1975.
6. SP: Managed by SP owner
7. Quasi-CP: Treated as SP during marriage for purposes of management and control (but treated as CP with respect to creditor access)
8. CP: Both spouses have equal management and control during their lifetime. That is, each spouse has the power to buy, encumber, sell all CP without the other spouse. (See Family Code §751)
9. Exceptions to the rule of equal management for CP:
a) Real Property: Both spouses must join in executing any instrument by which community real property is sold, encumbered, conveyed, or leased for more than one year
1) Non-consenting spouse can void the transfer if he brings an action within one year of the filing of the transfer
2) Non-consenting spouse can void a transfer to a good faith purchaser with no knowledge of the marriage only if he shows that he didn’t consent to or partake in the transfer. He must then refund the purchase price to avoid unjust enrichment.
b) Personal property: A spouse cannot convey CP household furnishings or clothing of other spouse or children without written consent of the other spouse.
c) Business: The manager-spouse of a CP business has primary management and control of the business. Primary management means that the managing spouse may act alone in all transactions, but must give prior written notice to the other spouse of any sale, conveyance, or encumbrance of substantially all assets of the business.
d) Bank account: Only the party named on the account has management and control rights to the account
e) Gifts: Gifts of community personal property require written consent of the other spouse. The non-consenting spouse may revoke an unauthorized gift during the donor’s lifetime. After the donor’s death, the non-consenting spouse may only receive her half of the CP gift. The deceased’s one half CP interest is treated as a testamentary gift.
10. Fiduciary duty: Each spouse has a fiduciary duty of good faith and fair dealing management and control of CP and neither spouse may take advantage of the other.
a) Family Code §1100(e) provides that “each spouse shall act…in accordance with the general rules governing fiduciary relationships.” Therefore, this section and the general description of spousal duties in Family Code §721, provides that a spouse owes the other spouse a “fiduciary duty.”
b) Bad judgment is not bad faith
c) Upon request, the managing spouse must provide full disclosure to the other spouse of all information regarding the CP and the other spouse needs full access to information about assets and debts of the community when requested.
d) Fiduciary duty is violated if spouse conveys CP without the other spouses consent in the particular situations discussed above (gifts, home furnishings, etc.)
11. Rights of the non-managing spouse; governed by Family Code §§1100, 1101
a) Has a right to know
b) Has a right to sound management by the managing spouse
c) Has a right to participate
d) Has a right to be made whole in the event that the managing spouse has done something to dissipate his/her share of the community or the SP
e) Has a right to full disclosure if asks for it
f) Has a right to petition the court for access to the records in order to mitigate the damages during the marriage
12. Under Family Code §721: spouses can make contracts together and with third parties but there must be full disclosure and an accounting.
13. Family Code §1100
a) Each spouse has absolute power of disposition during life
b) At death, though, each spouse has only power to dispose of their half of the CP
c) §1100(b)
1) Managing spouse may not make a gift of CP or sell it for less than a fair or reasonable value without the written consent of the other spouse.
d) §1100(c)
1) Managing spouse can’t sell clothes, etc. without the consent of the non-managing spouse (usually done to avoid creditors)
2) Community has the most interest in the property
e) §1100(d)
1) If a spouse manages a business that is CP, the one with primary control can act alone, but would need the written consent of the other spouse for a significant transactions
14. Remedies
a) Court ordered accounting of the property
b) Reformation of title (court may add spouse’s name to title)
c) Claim against manager for breach of fiduciary duty if there is substantial impairment of the non-manager’s CP interest
d) Family Code §1101—Remedies
1) §1101(a): The breach of fiduciary duty must involve impairment of the claimant’s interest in the community estate.
2) §1101(b), (c): A court-ordered accounting or a court order to add a name to the CP held in one spouse’s name.
3) §1101(f): These remedies are available during marriage or at divorce or upon death of a spouse.
4) §1101(g), (h): These sections allow a court to award more than half of the asset. A claim for breach of fiduciary duty means that there are potential damages that can eclipse equal division of CP.
a) For instance, under §1101(g), a remedy for breach of fiduciary duty “shall include, but not be limited to” an award to 50% of an undisclosed or transferred asset plus attorney’s fees and costs.
b) Under §1101(h), the remedy for breach of fiduciary duty, which amounts to oppression, fraud, or malice, “shall include, but not be limited to” an award of 100% of an undisclosed or transferred asset.
c) These provisions in actuality provide for “tort” damages resulting from the breach of fiduciary duty.
5) Another remedy statute is §2602 and has long been available if a spouse has “deliberately misappropriated” CP.
15. Family Code §1102: Deals with real property rather than personal property
a) “Either spouse has the management and control of the community real property.” However, “both spouses must join in executing any instrument by which that community real property or any interest therein…is sold, conveyed, or encumbered.” Joinder is also required for leases of community real property for “longer than a period of one year.”
16. Tyre v. Aetna Life Ins. Co. [CA SC; 1960]
a) Facts: H attempted to reach from the grave and continue to control the CP in his will. He changed the insurance policy payouts and didn’t get the W’s approval. When W found out, she disavowed the will provisions. The insurance company argued that he had the management and control and therefore could change the payouts.
b) Held: After death, less management and control rights exist, even for the H. He only had right to management and control of ½ of the CP that was his, not her half. (During life, he had 100% control, after death, 50%.)
17. Marriage of Stitt [1983]
a) Facts: W settled a fraud and misappropriation of funds action her ex-employer filed against her. She was also tried and convicted of embezzlement. H made partial payments out of a joint account towards the attorney fees incurred by his W. After the couple separated, W executed a second trust deed on community real property in favor of the law firms which represented her for the remaining $she owed them.
b) Held: W was outside the “for the benefit of the family rule” and was mishandling the CP without providing any benefit to the family whatsoever. In order to protect his community interest in the house, free of the W’s debt, the court divided the house’s value in half, gave the H half, and then whatever was left after she paid her debt was hers.
18. Marriage of Duffy [2001]
a) *seems to be a case of “gross mishandling” or “gross negligence or reckless conduct.”
b) Facts: H took his entire IRA brokerage account, almost $500,000, and invested it in five tech stocks in 1995. The stocks were very volatile and declined in value to $261,483 by May 1998.
c) Held: After surveying the history of the fiduciary duty statues, the court concluded that “a spouse generally is not bound by the Prudent Investor Rule and does not owe to the other spouse the duty of care one business partner owes to another.” Thus, because H owed no duty of care, no duty of care was violated.
1) Plus, the court finds that the W didn’t ask any questions about the stocks and so really she had equal management and control and didn’t use it.
2) Spousal mismanagement would happen under this ruling when it is objectively futile for the non-managing spouse to ask questions.
d) In response to the Duffy decision, the Legislature in 2002, inserted that language—not limited to—into Family Code §721 and stated its intent “to abrogate the ruling” in Duffy. Therefore, under the present statute, H’s decision to invest the couples’ entire IRA brokerage account in highly volatile tech stocks would be considered a violation of a spouse’s fiduciary duty under Family Code §721 because it was “gross mishandling” or “grossly negligent or reckless conduct.”
19. Wilcox v. Wilcox [1971] (prior to 1975 equal management and control statute)
a) Facts: W had $30K of CP and hid it. The H asked the court to force his W to release to him that $30K of CP.
b) Issue: What can a spouse do if the other spouse interferes with his or her right to manage and control the CP?
c) Held: The c/a alleged in H’s compliant was not premised upon W’s mismanagement of community funds, as stated in her demurrer, but upon her violation of H’s right to manage, control and dispose of community funds. As such, she needs to release that money.
1) Writing in 1971, “ The right of the H thus conferred to manage, control and dispose of community personal property is invaded by his W when she deprives him thereof by taking, secreting and exercising exclusive control over community funds. A H has a c/a against his W for such an invasion and violation of his right in the premises with attendant appropriate remedies.”
2) After 1975, the rule here can be applied equally to H or W, since each has equal right to manage and control the community assets and earnings.
B. Recapture and Reimbursement:
1. Spreckels v. Spreckels [CA SC; 1916]
a) Facts: H made gratuitous transfers of CP without his W’s consent. The other kids object and say that their share of the W’s CP has been depleted without mother’s consent. However, she indirectly ratifies in it in her will by leaving the kids who got the gifts out of her will.
b) If H had gotten a fair return for the community assets given, then he wouldn’t have been depleting the CP and because the gifts here weren’t given for valuable consideration then the gift is voidable (not void). But, if the spouse (like here) does anything that looks like ratification of the bequest, then the court will find ratification in order not to undo transactions.
2. If the non-consenting spouse wants to challenge the exercise of management rights, the courts will allow recapture during the marriage OR at divorce. (i.e. the court will correct the situation and will give the community some $ back)
C. Creditors’ Rights:
1. Quasi-CP is treated as CP with respect to creditor’s rights
2. For debts incurred before marriage, the debtor’s SP and all CP are liable, non-debtor spouse’s SP is not liable
a) Exception: If non-debtor’s earnings are deposited in a separate account to which the debtor does not have access and the funds are not commingled with other CP, these CP earnings are not liable.
3. For debts incurred by one spouse during marriage, the debtor’s SP and all CP are liable. Non-debtor’s SP is not liable.
a) Exception: The non-debtor may be personally liable for debts for “necessaries of life” (defined as living costs consistent with the spouses’ station in life.)
4. Tort Liability
a) Satisfied by CP first, if tort occurred during an activity for the benefit of the community
b) Satisfied by SP first, if activity was not for the benefit of the community
5. There is a right to reimbursement for
a) Child Support: If CP funds were used to pay child (or spousal) support and SP funds were available( Family Code §915)
b) Necessaries: If the non-debtor’s SP was used to pay the other spouse’s debts for necessaries and CP or the debtor’s SP was available
c) Tort Judgment Family Code §1000: if the order of satisfaction was not followed
d) Recall, the right to reimbursement also exists for:
1) Educational expenses
2) Unauthorized gifts
3) SP contributions to CP purchases or improvements (Anti-Lucas)
4) If CP is used to improve spouse’s own SP, CP is entitle to reimbursement (for the cost of the improvement or the increase in value—whichever is greater). If CP is used by one spouse to improve the other’s spouse’s SP, a gift is presumed.
6. Most of the law in this area ensures that creditors can reach as much property, usually the CP, as is available to ensure they are paid.
7. Rather than characterizing debts as CP or SP, the CA system allocates responsibility or “liability” for debts between the CP and each spouse’s SP.
8. Family Code §910(a): protects creditors in that “the community estate is liable for a debt incurred by either spouse before or during marriage.”
9. Community can obtain reimbursement when CP is used to satisfy a SP debt in three circumstances:
a) When SP of the souse making the expenditure has been benefited by the CP expenditure
b) When CP is used for a child or spousal support obligation that predates the marriage, then community may be entitled to reimbursement if there was SP from the debtor spouse that he/she could have used to satisfy the obligation.
c) When an expenditure is made within a short time of the dissolution.
10. Golemund v. Cafferata [CA, SC; 1941]
a) Facts: H had been in a car accident and owed damages in a judgment against him. Victim of the car accident asked the court to enjoin the sale of CP to satisfy the debt that the H owes.
b) Court declines to do this.
c) GR: CA CP acquired prior to 1927 is always liable for the debts of the H because a rule otherwise would say that the H didn’t have total management and control of the CP property as he did before 1927, but the non-tortfeasor’s SP is not available.
d) Post-1975: all CP is liable for satisfaction of the tortfeasor’s debt, as is his SP.
e) There is a 7 year SOL for reimbursement after a spouse has knowledge of property that was improperly applied to a debt.
11. In re Marriage of Braendle [1996]
a) Facts: American Overseas sought to enforce a judgment against CP (that the H should pay the W money) held by the non-debtor spouse following the property division in a divorce proceeding. (W and AO are both creditors of H)
b) Simple Rule: At divorce, W is the first in line as a creditor. The creditor’s rights are given second priority and the W’s preferred interest in the asset protects her from any encumbrance.
c) Property received by the non-debtor spouse is not liable unless the court expressly assigns the debt.
Division of CP at Dissolution of Marriage
A. Property Settlement Agreements:
1. Divorce court has jurisdiction over all CP, not over SP unless the parties consent to that or request jointly held SP to be divided.
2. Family Code §2550: “the court shall …divide the community estate of the parties equally.” Thus, each spouse is entitled to a one-half interest in each community asset. (This creates an elaborate game of offset.)
a) Courts can vary equal division when the property is in kind. (Whether a sale can be forced on stocks is debatable.)
3. Deviation from the equal division requirement is possible when:
a) One spouse has deliberately misappropriated CP.
b) Liabilities exceed assets.
1) Courts can make unequal distribution of debts depending on relative ability of spouses to pay.
2) Rationale: courts don’t want to cripple people financially when they come out of a marriage.
c) One spouse has incurred educational debt (goes with the student spouse)
d) One spouse has incurred tort liability (goes with the debtor spouse)
e) One spouse has incurred a separate debt
f) One spouse is entitled to community estate PI damages.
4. Assets and liabilities are valued as near to time of trial as possible
a) However, a spouse-managed business or professional practice in which the primary asset is accounts receivable should be valued at time of permanent separation rather than trial.
5. Income tax consequences of division
a) Transfers between H and W pursuant to divorce are not taxable.
b) Spouses assume an equal share of tax liability for sale of community assets to third parties.
6. Community assets not listed in the divorce pleadings or that are not distributed by the decree are subject to future litigation unless the property settlement decree states it is a final settlement of all claims.
7. Setting aside property settlement or decree: (can ask the court to set aside)
a) Grounds: breach of fiduciary duty by managing spouse or extrinsic fraud or mistake
1) Intrinsic fraud: involves error that the claimant, through due diligence, could have guarded against.
2) Extrinsic fraud: fraud that the person who is adversely affected couldn’t have guarded against.
b) Recent legislation provides that uncontested judgments may be set aside within one year on the ground of mutual or unilateral mistake.
8. Enforcement and modification:
a) In re Marriage of Hufford [1984]
1) Facts: H appeals from a denial of request for modification of Spousal Support.
2) Issue: Whether the support orders can be modified depending on the changing ability of the spouse to make payments and the changing status of the receiving spouse?
3) Rule: Although an agreement making spousal support non-modifiable by the court is not contrary to public policy, the public interest is best served when support awards reflect changes in need or ability to pay and there does need to be some specific unequivocal language directly on the question of modification, but no magical words.
4) Held: Yes, modification can happen with OSCs for modification.
5) Remember: The decree of divorce, the property division, and the support orders are all three separate things. Practically though, most courts look at them all holistically and use the SS and CS orders to compensate for the property division.
B. Judicial Jurisdiction to Divide Property:
1. Gionis v. Superior Court [1988]
a) Facts: The grant of divorce was allowed prior to the division of property. The H sought a writ of mandate vacating the order denying bifurcation of his martial status from the other decisions like property and support.
b) Rule: Bifurcation is a positive thing and the court needs little evidence in order to grant that motion.
c) But, remember can’t divide property before granting divorce.
2. Robinson v. Robinson [1944]
a) Facts: H appeals judgment awarding ex-W a life interest in HSP real property (family home). Court of Appeal did reverse this judgment.
b) Rule: Power of court to dispose of property in marital dissolution is limited to CP. There is no power to dispose of SP of spouse or to carve out life estate in such.
c) *Illustrates limitations of court’s authority to achieve equitable result when family home (or other major asset) is SP. Traditionally, some courts considered property held in JT to be SP of each not subject to division and therefore requiring a separate partition action. Today, the presumption is that anything held in JT is CP for purposes of dissolution. Family Code §2650 gives court jurisdiction to divide JT property at request of either party.
C. Equal Division Requirement:
1. In re Marriage of Stallworth [1987]
a) Facts: One child who had psychological issues and was in special education. He was 10 years old. The court ordered a deferred sale of the home. But, the higher court reversed and said that there were possible negative economic consequences to the H.
b) Family Code §3800(b) allows for deferred division of the home if there are minor children.
c) Rule: Custodial parent is entitled to the temporary use of the home until the youngest child reaches majority and at that point, the house will be sold and the proceeds will be divided equally. However, in order to do this, it must be shown that it would be better for the child’s health and welfare to remain in the house in order to authorize a deferred sale of family home (aka a Duke award)
1) The Duke rule works well when the house is paid off, but when there’s still a liability in the house, there needs to be some offset for that and only one spouse would pay down the debt.
2. In re Marriage of Tammen [1976]
a) Facts: H is appealing from a division of property in which W received a CP award of approximately 79%. The court ordered her to pay $19,820 secured by a trust on the family residence. 10 year agreement.
b) Family Code §2601 provides that a court may award any asset to a party in a dissolution proceeding on any conditions deemed proper to effect an equal division of CP. (This section gives the court enormous amount of discretion.)
c) The Court of Appeal felt this promissory note didn’t accurately reflect an equal division due to factors such as discounting due to a long deferment, the inferiority of the security, and possible effects of inflation. (The TC didn’t justify enough why it made the division it did.)
3. In re Marriage of Eastis [1975]
a) Facts: W filed for a divorce after 3 years. Here liabilities outnumbered the assets by $1200. W was awarded net assets worth $2500 and ordered to pay $1000 in community liabilities. H was given assets worth $1750 and ordered to pay $5400 of the community’s obligations.
b) The court found that the assignment of the debt threw the equal division of assets out of whack because W received $750 more in community assets than H. (Thus, this part of the decision was reversed.)
c) The court must look at the division of debt and this is done in the court’s discretion—doesn’t have to be equal.
4. Statutes involving the principle of Eastis(court assigns, not divides outstanding debts.
a) Family Code §2500 series
b) Family Code §2620
1) Debts for which the community estate is liable have to be confirmed or divided by the court.
c) Family Code §2621: a debt incurred before marriage “shall be confirmed without offset to the spouse who incurred the debt.”
d) Family Code §§2622, 2623, 2623, 2625, 2626, 2627
1) Family code §2623(a): Debts incurred by either spouse for the common necessaries of life of for the necessaries of life of the children of the marriage for whom support has been ordered are confirmed to either spouse depending on the spouses’ respective needs.
Division of CP at Death of a Spouse
A. Rights of Surviving Spouse and Heirs or Devisees of Deceased Spouse
1. Testate Succession
a) Laws governing testamentary disposition are different for CP and SP. Decedent spouse has power over half of the CP and all of her SP at death. Surviving spouse is guaranteed only his half of the CP. (Probate Code §100)
b) If the decedent spouse attempts to dispose of all the CP, the surviving spouse may be forced to make an election between her share of the CP or taking pursuant to and under the conditions in the will (election is heavily influenced by tax implications):
1) Either accept a testamentary gift and forgo her statutory interest in half the CP
2) OR asset her interest in half the CP and thereby void the testamentary gift.
c) The surviving spouse has no ownership interest in the SP of the decedent spouse but the decedent spouse’s testamentary power over SP is still limited regarding:
1) Quasi-CP: Quasi-CP is treated identically to CP upon the death of the owner spouse—decedent spouse can dispose of only half and survivor spouse has an ownership interest in the other half.
a) Exception: real property acquired by the decedent spouse located outside of CA which would be subject to the laws of the state where it existed.
i) The statutory definition of quasi-CP applies to both dissolution and death, and includes real property and personal property. However, under California Probate Code section 66, out-of-state land (not a house or other dwelling) is excluded from the definition of QCP when the community is dissolved by the death of a spouse. California courts will not assert jurisdiction over out-of-state land or, if they do, they apply the law of the situs (state) of the property.
b) If owner spouse transfers Quasi-CP to a third party during his life, the surviving spouse may be able to compel the transferor to reconvey half of it to the decedent’s estate (which was her half because he can only give away ½) IF:
i) Decedent spouse made inter vivos transfer while domiciled in CA during his life;
ii) Transfer was made to someone other than surviving spouse without written joinder or consent of surviving spouse AND
a) Transfer was a suspect conveyance (i.e. no consideration and decedent spouse retained possession or enjoyment of property at time of death or decedent spouse retained at the time of his death power to revoke, consume, invade or dispose of property, or decedent spouse at time of his death had right of survivorship)
2) Forgotten or omitted spouses (SP can sometimes be touched to cure an this situation); and
3) Forgotten or omitted children (same as above)
2. Intestate Succession
a) Laws governing intestacy are different for CP and SP. Where one spouse dies without a valid will or where a valid will doesn’t dispose of all the CP, the decent spouse’s half o the CP passes through intestate succession to the surviving spouse.
b) That portion of the deceased spouse’s SP passing through intestacy to the surviving spouse depends on the number of children, parents, or issue of parents of the decedent who survive.
1) Dead H has SP but no will:
a) Surviving spouse and one child : usually divide SP in half
b) Surviving spouse and two +children: surviving spouse receives one third;
c) Surviving spouse, but no surviving children, but others surviving such ad decedent’s parents, nieces, nephews, siblings, then surviving spouse receives one-half and blood relatives receive the other half.
d) If no blood relatives surviving, surviving spouse receives all SP.
3. Dawes v. Rich [1997]
a) Facts: Claim had been made by tenants in a trailer park and the probate court find that since the H (debtor) died, the trailer park tenants couldn’t get paid. The tenants appealed.
b) Rule: Upon the death of the spouse, the marital community remains liable for debts incurred by that spouse, but the SOL for anyone trying to assert a claim against the estate is 1 year.
c) At death of the debtor spouse, the non-debtor spouse does incurs the debts of the CP.
4. Collection Bureau of San Jose v. Ramsey [CA SC; 2000]
a) Facts: Action by the hospital for bills of sick (and now deceased) W.
b) Lower court saw this as part of the necessaries of life and said that a 4 year SOL applied.
c) The CA SC said, though, that 1 year SOL is applicable from the probate code.
5. Estate of Prager [CA SC; 1913]
a) Facts: There was a testamentary bequest to the W that was inconsistent with an independent claim to property under traditional CP law.
b) Rule of laws of wills: one who is given a benefit under a will can choose between that benefit or any other claim that is inconsistent with that benefit.
c) The intent of the testator matters: Here, the H wasn’t trying to give her SP in lieu of her CP interest, instead he was attempting to give her SP in addition to her CP.
d) This wasn’t forced election because he didn’t indicate in his will that he needed to choose.
6. Election of Benefits under Terms of a Will
a) Surviving spouse’s right to elect is commonly called the “widow’s” election, although it is equally applicable to either spouse. The election allows a surviving spouse to choose between the testamentary disposition in a valid will and the statutory share (pursuant to the CP schemed in the Family Code).
b) The right to elect arises only if the decedent’s will is valid and discloses his intention to dispose of the survivor’s share of the CP. Thus, an election is required where the testator expressly requires it, or where the testator declares all of the CP as his SP and provides for its disposition.
c) Where the testator’s intention is unclear, the courts disfavor forcing the survivor to elect. Thus, the use of general terms without identifying the community or separate character of the devised property will create an inference that the testator intended to dispose only of his property interest, i.e., his one-half interest in the CP and his SP. (In re Prager’s Estate)
d) A survivor’s election to take under the will or assert community or quasi-community rights is accomplished by filing a petition under PC §§13501, 13550.
e) The surviving spouse is not required to elect between his or her CP rights and his or her rights in intestacy.
f) A decedent’s SP may be devised to the surviving spouse conditioned on giving up certain rights in CP.
g) The surviving spouse’s election does not transmute CP into the survivor’s SP. It remains CP, subject to the decedent’s liabilities.
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