community property.txt

Card Set Information

community property.txt
2013-07-09 00:50:16
ca bar community property

ca bar community property
Show Answers:

  1. CP statutory definitions apply unless:
    • the character of an asset has been altered by:
    • 1. the parties’ agreement (premaritial or during marriage);
    • 2. parties’ conduct; or
    • 3. how title was taken.
  2. Separate Property (SP):
    • 1. Property owned by either spouse before marriage; or
    • 2. Property acquired during marriage by gift, will, or inheritance; or
    • 3. Property acquired during marriage with the expenditure of separate funds (source rule, tracing)
    • 4. The rents, issue, and profits derived from separate property.
  3. Community Property (CP):
    • Property, other than separate property, acquired by either spouse during marriage. The most common examples are
    • 1. salary or wages earned by either spouse, [labor of either spouse during the marriage is CP] and
    • 2. the income from community assets.
  4. community presumption:
    • All assets acquired during the marriage are presumptively community property.
    • Absent a showing of the parties’ agreement or that title was taken in a form that overcomes the community presumption, the burden of proof that a particular asset is separate property is on the party so contending.
  5. Start your CP essay answer:
    • 1. California is a CP state.
    • 2. There is a community presumption (where all assets acquired during the marriage are presumptively CP)
    • 3. There are areas of SP (property owned by either spouse before the marriage, property acuqired by gift, will, inheritance, property acquired dring the marriage with expenditure of separate funds, and rents, issues, and profits derived from SP)
  6. Domestic Partnerships?
    • CA has extended its CP system. As of 2004, the community property system applies to registered domestic partners upon filing a Declaration of Domestic
    • Partnership with the Secretary of State, retroactive to January 1, 2000.
    • It is available only to
    • 1. same sex couples, and
    • 2. elderly opposite-sex couples receiving Social Security benefits.
    • Therefore, same-sex couples lawfully married after In re Marriage Cases but before the effective date of Proposition 8 may claim community property rights as *spouses*, not as domestic partners.
  7. When does the economic community end?
    • 1. Permanent physical separation, AND
    • 2. Intent not to resume the marital relation (only need intent by 1 party)
    • After economic community ends, we no longer have the CP presumptions. Each party's earnings are SP.
  8. Maintained the facade of marriage?
    • If the parties maintain the facade of marriage, there is no intent not to resume the marital relation.
    • Which means until the divorce is filed, each party's earnings are CP
  9. CP not decided upon divorce?
    • For community property not divided on divorce, the court retains continuing jurisdiction to award CP that was not previously adjudicated, and on motion the omitted or unadjudicated CP will be divided 50-50 unless the court finds that “the interests of justice require an unequal division.”
    • Wife writes a book BEFORE marriage, then all royalties from it are SP, even if received during marriage
    • Wife writs a book DURING marriage, then receives all royalties after divorce. Still CP!
  10. Division of CP upon divorce
    Absent a property settlement agreement, all community property must divided equally. 50-50.
  11. Non-pro rata division?
    • General rule: Not proper!
    • Each and every community asset and liability must be divided 50-50.
    • Exceptions? Economic circumstances exception, statutory exceptions
  12. Economic Circumstances exception:
    • Can have non-pro rata division, giving particular asset wholly to one spouse and “cash out” other spouse with other assets (with each spouse getting 50% of total value).
    • Ex: Family residence – (very common) Family residence and loss of family home would uproot couple’s minor children.
    • Ex: Closely held corporation - All 100 shares of closely held corporation are CP; W is CEO of corporation (ugly tension in board mtgs, give her shares, give him cash)
    • Ex: Pension - Awarding all of H’s pension to H, other assets to W, so they can go their separate ways.
  13. Statutory Exceptions to “equal 50/50 division on divorce” rule, with one spouse ending up with more than 50% of total value:
    • One spouse misappropriates CP, whether before or during pendency of divorce.
    • One spouse has incurred educational debts; treated separately as separately incurred debt (take law school loans with you!)
    • One spouse incurred tort liability not based on activity for benefit of the community.
    • Personal injury award is CP but on divorce is awarded to injured spouse (unless interests of justice require otherwise).
    • “Negative community” – community liabilities exceed assets; relative ability of spouses to pay debt is considered (concern is protect creditors).
  14. When can disparity in earning power be considered?
    Only for spousal support (alimony) and child support.
  15. One spouse makes an undisclosed gift out of CP
    • Spouse can set the gift aside in its entirety because neither spouse can make a gift of CP without the other spouse's written consent.
    • Power to manage CP is not equal the power to give it away.
    • Alternatively, on divorce, WInkie can take equal offsetting CP assets to recover her ½ CP.
    • What if Winkie only learns about the gift after Hobie’s death? She can set the gift aside as to her half of the CP. Her recovery will be from either the donee or husband's estate, whichever is easiest.
  16. H, insured under CP life insurance, names a third party as (an undisclosed) beneficiary. What can wife do?
    • The same result would apply if Hobie, the insured under a $100,000 CP life insurance policy, names a third party as a beneficiary (e.g., girlfriend).
    • Winkie can recover her ½ CP, from either the beneficiary OR Hobie’s estate.
  17. H gives CP away (undisclosed) is when US government savings bonds are involved?
    • Only exception to party not being able to give CP away is when US government savings bonds are involved
    • In this case, federal law trumps, and there is federal preemption.
    • So even if Hobie uses $20,000 CP to buy United States Series EE Savings Bonds in the name of “Hobie, payable on death to Buddy,” Winkie cannot recover her ½ community interest in bonds
  18. Testamentary disposition
    Each spouse has the power of testamentary disposition over all of his SP, but only over ½ of the CP
  19. Widow's Election Will
    • Special situation, doesn't come up much.
    • Harry’s will purports to bequeath the entire interest in a community asset to a 3rd party.
    • W has an election: cannot read the will selectively (“I’ll take the residuary estate under ¶2, but I protest the gift in ¶1”)
    • Rather, she has to read all of the will. If Wanda elects to take under the will and receive her residuary estate, she will take ½ of Harry’s CP ($200,000), but she has to allow the will to operate to devise Blackacre to Sally.
    • Alternatively, Wanda can elect to take against the will, by claiming her ½ CP in Blackacre. But she then must relinquish all testamentary gifts in her favor.
  20. Acquisitions on credit during the marriage (Downpayment w/CP funds)
    • % of the DP of the asset is definitely CP, purchased with CP funds.
    • Community Credit Presumption: Funds borrowed during marriage, and goods purchased during marriage, are presumptively community credit
    • Primary Intent of the Lender: However, borrowed funds (and credit purchases) are classified according to the primary intent of the lender.
    • We look to where the lender is looking for satisfaction of the debt.
    • During the marriage, reputation = community asset. Ex: lender is relying on H's personal credit worthiness or reputation? Note = CP obligation.
    • Lender secures the loan with a SP asset? Then the note is a SP obligation, and the loan is CP to the DP %, and SP as to the rest.
    • But remember, the controlling test is primary intent of the lender. Thus, it still could be shown that (e.g.,) Bank was primarily looking to Hal’s credit standing, in which case the note and asset would be CP.
  21. Confidential relationship raises fiduciary duty; presumption of undue influence?
    • Spouses are subject to fiduciary duties that arise from their confidential relationship, imposing a duty of the highest good faith and fair dealing with each other.
    • If one spouse gains an advantage from a transaction, a presumption of undue influence arises.
    • That spouse has the burden of proof to show she did not breach her fiduciary duty.
  22. Breach of spouse's fiduciary Duty?
    • A grossly negligent and reckless investment of community funds is a breach of a spouse’s fiduciary duty.
    • More than just a dumb purchase.
    • Example – if H invests community funds in Alchemy, Inc., a start-up company with a “sure-fire formula to turn lead into gold,” it would be a presumptive breach of the H’s fiduciary duty.
  23. Altering the character of assets?
    • Absent any contrary agreement, the statutory definitions of SP and CP control. But California has always allowed the parties to opt out of the CP and SP characterizations by agreement, either as to particular assets or as to all acquisitions.
    • These agreements can be made before marriage (and thus governed by the Uniform Premarital Agreement Act)
    • Or be made during the marriage.
    • Unlike most contracts, no consideration is required for either a premarital agreement or for a transmutation during marriage
  24. Transmutation?
    • When, by agreement during the marriage the character of an asset is changed (from SP to CP, from CP to SP, or from one spouse’s SP to the
    • other spouses SP), this results in a transmutation.
    • Transmutation can be by gift (e.g., H gives jewelry inherited from his mother to W on her birthday; jewelry is W’s SP),
    • or by agreement.
  25. Premarital Agreements re: CP?
    • General Rule: Premarital agreements must be in writing, signed by both parties. Oral agreements are invalid.
    • Evidence of an oral agreement is barred by the writing requirement for premarital agreements.
    • Exception #1: where the oral agreement is executed (meaning, fully performed. But marriage alone is not sufficient performance to satisfy this exception to the writing requirement, because that would eliminate the writing requirement in every case!
    • Evidence of Hobie’s actions is still admissible to prove the existence of a premarital agreement as to the insurance. By naming her as beneficiary, Hobie did what he promised and acted consistent with the existence of a contract. This conduct substitutes for requirement of writing.
    • Exception #2: Estoppel based on detrimental reliance.
    • Howie agrees that if Wanda marries him, he will make no claim against Wanda’s estate at the time of Wanda’s death.
    • In probate court, evidence of Howie’s oral promise is offered by independent witnesses. Howie argues that the evidence is inadmissible because of the premarital agreement writing requirement. Is the evidence admissible? Yes. W relied on H's promise, and he is now estopped from asserting the writing requirement.
  26. In a premarital agreement, what can parties agree to?
    • Just about anything.
    • Parties can agree that after marriage, each party’s salary and wages will be that parties SP;
    • that neither will claim a family allowance in other’s estate;
    • that an agreement will govern disposition of property on separation, divorce, or death.
    • Exception: Parties cannot agree to limit either party’s contribution to furnish child support (prohibited by statute).
  27. Two defenses to enforcement of a premarital agreement?
    • Defense 1: Not signed voluntarily
    • Defense 2: Unconscionability
    • By statute, unconscionability is a matter of law to be decided by the court, not a question for the jury.
  28. Premarital agreement not signed voluntarily is enforceable, when?
    • Statute: A premarital agreement shall be deemed not voluntary (and thus unenforceable) unless court finds that party challenging agreement:
    • 1. was represented by independent legal counsel (at the time the agreement was signed, or waived in separate writing), AND
    • 2. was given 7 days to sign, AND
    • 3. if not represented by independent counsel, was fully informed in writing (in language in which party proficient) of terms and basic effect of agreement. Party must execute document declaring that they got information and identifying who provided it
  29. Premarital Agreement Unconscionability - Spousal support - when is it unenforceable?
    • Statute: Provision in premarital agreement regarding spousal support is unenforceable on one of two grounds:
    • 1. Party challenging the agreement is not represented by independent legal counsel at the time the agreement is signed; OR
    • 2. Provision is unconscionable at the time of enforcement (even if the party was represented by independent legal counsel at the time signed; changed circumstances).
  30. Premarital Agreement Unconscionability - anything else, besides spousal support - when is it unenforceable?
    • Agreement unenforceable if unconscionable when made AND
    • 1. no full and fair disclosure of other party’s property or financial obligations;
    • 2. right to disclosure not waived in writing; and
    • 3. party challenging had no adequate knowledge of other party’s property or financial circumstances.
  31. Oral Transmutations
    • Before 1985, oral transmutations were permitted, whether by express agreement or agreement-in-fact. [spouses cannot be expected to act formally]
    • Problem, in divorce proceedings, it becomes messy – no written record
    • After 1985, must be
    • (1) in writing;
    • (2) signed by spouse whose interested is adversely affected; and
    • (3) must explicitly state that a change in ownership is being made.
    • Applies to all transmutations: SP into CP; CP into SP; one spouse’s SP into other spouse’s SP.
    • Usual exceptions to the writing requirement (statute of frauds) (e.g., estoppel, partial performance) do NOT apply!
    • Only exception: gifts of tangible property of personal nature (e.g., inherited jewelry) which “are not substantial in value taking into account the circumstances of the marriage.”
    • Ex: 2/10 - $15K painting paid for with SP funds, given as gift to other spouse; still SP – no transmutation
  32. Is H’s will admissible in divorce proceeding as evidence of a written transmutation agreement?
    • By statute, in any proceeding commenced before the death of the person who made the will or created a revocable trust, a statement in a will or
    • revocable trust as to the character of the property is NOT admissible.
  33. Married woman’s special presumption
    • Where CP was used to take written title in a married woman’s name before 1975, and the title did not indicate CP or joint tenancy was intended, the property is presumptively wife’s SP. Still need to know even though more than 30 years old.
    • Exception to the general principle that an asset titled in one spouse’s name does not overcome the community presumption.
    • Rationale: paternalism - before 1975, except for W’s earnings H had sole management of CP. So if title taken in W’s name, H must have intended it to be a gift for the wife of SP.
    • Is the presumption rebuttable as against a third-party bona fide purchaser who buys asset from W in reliance on fact that is titled in W’s name, and therefore must be W’s SP? No.
    • Presumption rebuttable between H and W? Yes.
    • Ex: H could rebut presumption by showing he did not intend to make a gift to W; but had some other reason for taking title in her name (H concerned about creditors’ claims, or W took title in her name w/out H’s knowledge or consent).
    • Ex: If title is taken in the name of “Hobie Gates and Winkie Gates, as joint tenants with right of survivorship?” No presumption, H and W hold it as JT.
    • Ex: If title is taken in the name of “Hobie Gates and Winkie Gates” (with no reference to their marital status)? Presumption, they hold it as TiC. H's half is held as CP, W's half held as SP. At divorce, W ends up with 75%, H ends up with 25%.
  34. married woman’s special presumption applies in one of three situations:
    • 1. Title is taken in W’s name alone before 1975 (property is W’s SP).
    • 2. Title in name of W & H before 1975, but title is not taken in joint tenancy form, and not as “husband and wife” or “Mr. & Mrs.” (property is ½ W SP, ½ CP).
    • 3. Title in name of W and some third party before before 1975 (W would be tenant in common with third party).
  35. Taking title in “joint and equal form”
    “Joint and equal form” means the title lists both spouses names – “Harry and Wanda Smith,” “Harry and Wanda Smith, husband and wife,” “Mr. and Mrs. Harry Smith,” or “Harry and Wanda Smith as joint tenants.”
  36. Taking title as joint tenants?
    • In 1978, H & W purchase a home for $60,000, using $15,000 of W’s SP and $45,000 of CP. Title is taken as “Harry and Wanda Smith.” W later contributes $10,000 of her SP for improvements.
    • Marriage of Lucas (Cal. S. Ct. 1980), on similar facts, held that by taking title as joint tenants (which by statute made house CP), property was presumptively CP.
    • Taking title in a form that raised a CP presumption was inconsistent with idea that W intended to reserve a SP interest.
    • W’s subjective intent (that she wanted to keep SP) was irrelevant.
    • Absent proof of an agreement that W was to have a SP interest, by taking title in CP form W must have intended gift to community.
    • Unless such an agreement is established, W has no separate ownership interest and has no claim for reimbursement.
    • In case involving death of one party, Lucas is still law.
  37. Ownership/Reimbursement when the issue arises on Divorce or separation
    • In divorce action, W seeks to “trace,” and show that the house is ¼ W’s SP because of down payment, and W seeks reimbursement for improvements made with her SP.
    • The California legislature has passed two anti-Lucas statutes on the ownership and reimbursement issue when the issue arises on divorce or separation.
    • Ownership: For purposes of division of property on divorce or separation, property acquired during marriage in joint and equal form
    • is presumptively CP, and is subject to equal division on divorce. CP presumption can be rebutted by
    • 1. Express statement in the deed or other instrument of title that the property (or portion thereof) is SP;
    • 2. Written agreement by the parties that the property (or portion thereof) is SP.
    • Reimbursement (DIP): For purposes of division on divorce or legal separation, spouse who made contributions of SP to the acquisition or improvement of CP is entitled to reimbursement without interest for contributions to Down payment, Improvements, or Principal payments on the mortgage. But no reimbursement for SP used to pay interest on mortgage, taxes, insurance, or maintenance.
    • So if no express statement in the deed or other writing indicating any SP interest, W would not be able to claim 1/4 of the house as SP, but would receive reimbursement (without interest) for her contributions to DIP.
  38. Anti-Lucas Statute w/o title document?
    • The anti-Lucas statutes do not apply because no title document or deed is involved. A receipt is not enough.
    • So, just normal tracing rules apply - part attributable to CP, part attributable to SP.
  39. Installment purchase pre-marriage; debt paid down (in full) with CP postmarriage
    • Pro-Ration Rule: installment purchase before marriage, payment with CP funds after marriage (or during marriage W inherits land subject to mortgage and pays
    • off note with CP funds), the community estate takes a pro rata portion of the property, measured by the amount (percentage) of principal debt reduction attributable to the expenditure of community funds.
    • Numerator: principal debt reduction attributable to CP [how much debt have we paid down with CP]
    • Denominator: purchase price
    • Note – CP component measured by amount of principal debt reduction attributable to community funds, not mortgage interest, property taxes, or insurance.
  40. Installment purchase pre-marriage; debt paid down (NOT in full) with CP postmarriage
    • The principal balance has been reduced by $20,000 with community funds, and then they get divorced.
    • Same pro-ration rule: community estate takes a pro rata portion of the property, measured by the amount (percentage) of principal debt reduction attributable to the expenditure of community funds.
    • Numerator: principal debt reduction attributable to CP [how much debt have we paid down with CP]
    • Denominator: purchase price
  41. Whole life insurance policies, paid w/CP and SP
    • Pro-Ration Rule applies
    • Numerator: how many payments made with CP
    • Denominator: how many payments made, total
  42. Term life insurance policies, paid w/CP and SP
    • Term life insurance policy: (pure insurance with no cash surrender value (car insurance)); the annual premiums were paid by H’s employer (or could be H paid first premium with SP).
    • Rule: Last premium determines the entire character.
  43. Community funds used to improve SP
    • Goverened by the real property doctrine of fixtures. Improvements become part of the property.
    • Expenditure of CP does not change ownership character of house.
    • Community's rights? Reimbursements. W can bring a claim for reimbursement for the community.
    • Community gets the GREATER of the 1) CP expenditure, or 2) increase in value.
    • W owns the house, H expends CP funds to improve W's house?
    • Split of authority! Need to acknowledge both
    • 1. No reimbursement. Presumption of gift to W’s separate estate, which can only be overcome by an agreement to reimburse the community estate.
    • 2. Reimbursement. Other cases have rejected the presumption of a gift and granted reimbursement.
  44. SP spent to improve CP asset?
    • Reimbursement.
    • This situation governed by anti-lucas statutes. SP used to improve CP.
    • When an asset is held in joint and equal form, and SP used to improve CP, upon divorce, the party who expended the SP would get reimbursement without interest, for their contributions to DIP!
    • If the issue arises on the death of one of the spouses, situation governed by Lucas. There would be NO claim for reimbursement, unless there was proof of an agreement to reimburse.
  45. Reimbursement rules triggered by improvements
    • 1. If H expends CP to improve own SP (feathering his nest), community has reimbursement claim for the greater of the cost of improvements or the enhanced value.
    • 2. If H expends CP to improve other spouse’s SP, there is a split of authority on whether there is reimbursement or not.
    • 3. If H expends SP to improve community property, we are governed by anti-Lucas statutes (if divorce) or Lucas (if death).
  46. Comingled Bank Accounts
    • The mere fact that SP funds are commingled with CP funds does not transform or transmute the SP into CP.
    • But the burden of proof is on H to show that each asset was purchased with SP funds.
    • Recapitualation theory: Herb seeks to prove that all assets purchased from the account are his SP by recapitulation accounting: he totals all family living expenses over 15 years of marriage, and shows that family living expenses exceeded 15 years of community income by a substantial margin. Therefore, Herb argues that all CP must have been exhausted, and he “must have” used SP to purchase assets.
    • Problem with recapitulation theory is that it does not show that CP funds were unavailable when each asset was purchased.
    • There is a family expense presumption – It is presumed that expenditures for family expenses (food, housing, clothing, recreation, etc.) were made with
    • community funds (to the extent they were available), even though separate funds were available.
    • But because of commingling and inadequate records, some family expenses may have been paid with SP funds, in which case the presumption is of a GIFT to the community with no reimbursement intended!
    • To defeat this presumption, H would need an agreement to reimburse.
  47. To satisfy his burden of proof, Herb can use one of two accounting methods:
    • 1. Exhaustion Method: literally no CP funds left to make the purchase
    • E.g., Herb’s records show that on 9/20/95 the account balance dropped to $3,000; that H deposited $20,000 of his separate funds on that date; on 9/22 Herb wrote a $5,000 check to pay his daughter’s tuition bill at private school (exhausting CP), and that on 9/24 Herb withdrew $10,000
    • to buy 200 shares of stock.
    • 2. Direct Tracing Method: quick in, quick out
    • E.g., At a time when $15,000 was in account, Herb deposited $12,000 of SP funds; two days later he wrote a $12,000 check to buy 200 shares of stock.
    • Direct tracing requires that
    • (a) sufficient separate funds were available, and
    • (b) that H intended to use SP funds to buy the asset.
  48. Business owned before marriage greatly increases in value during the marriage
    • 1. Pereira Test: (P)ersonal skills and effort
    • Use where spouse’s time, skill, and effort are major factors in growth of business. Look for instances where spouse contributed creative ideas or develops new techniques, and/or worked long hours and only drew modest salary.
    • Pereira Formula: (P)ay interest on SP, rest is CP.
    • Pay interest (legal rate of 10% annum) on value of business at time of the marriage.
    • 2. Van Camp Test: (V)aluable (C)ompany or asset
    • Use where capital investment was the major factor in the business’s growth, and spouse’s skills and efforts were less of a factor. Look for instances where spouse was paid substantial salary and large bonuses (meaning the community was compensated along the way).
    • Ex, H owns Ford dealership at time of marriage in 1947, business grows dramatically due to increased demand for cars after WWII (not bc of anything H did).
    • Van Camp Formula: (V)alue (C)ommunity labor, the rest is SP.
    • Start with value of spouse’s services at market rates (how much would executives in similar positions be compensated on the market?) MINUS family expenses paid from community funds EQUALS community component. The balance is SP.
    • California Supreme Court has said that court is not bound either to adopt Pereira or Van Camp. May select whichever formula will achieve substantial justice between the parties. DISCUSS BOTH!
  49. Pension Benefits
    • Employee retirement benefits accumulated during marriage, whether or not vested at the time of divorce, are community property. Use a pro-ration rule
    • Numerator: years service while married
    • Denominator: total years employed to retirement
    • Form of payment: two options
    • 1. "If and when" received decree (she'll get her share if and when it's paid)
    • 2. "Cash her out" by awarding other assets of equal value
    • If H could have retired at the time of the divorce, his retirement benefit had matured.
    • H's election not to retire cannot defeat W's present right. So W can seek her payment of her community share.
    • If a nonparticipant spouse (“NPS”) in a qualified pension plan divorces a participant spouse, her community property interest is recognized; under federal law she can get a qualified domestic relations order (“QDRO”) and receive payments from the plan.
    • What if the marriage ended by death rather than divorce. Does the NPS have a devisable interest in a qualified plan if she predeceases the participant? NO. Federal preemption under the Employment Retirement Income Security Act (“ERISA”), which trumps CP laws. Her interest is terminated when she predeceased the participant.
  50. Disability retirement benefits & workers compensation benefits?
    • Not the same as pension benefits.
    • Treated as wage replacement.
    • Thus, disability retirement and workers compensation are classified when they are received, not when they are earned!
    • Therefore, after the divorce, these payments are SP, not CP.
    • What if H could elect to take, at his option, either a regular retirement benefit at $1,200/month or disability retirement at $900/month; H chooses disability because he gets to keep more money from his wife? Then W has a CP interest in H's retirement benefit.
    • H cannot elect to defeat W's community interest.
  51. Severance pay?
    • No clear rule (Courts of Appeal are split) – argue both ways!
    • 1. H’s severance pay is SP because it replaced lost earnings which after a divorce or permanent separation would be H’s SP; OR
    • 2. H’s severance pay is CP because it arose from a collective bargaining agreement and was thus earned by employment during marriage.
  52. Stock options
    • If the option is awarded during marriage but does not vest until after the economic community has ended, the proration formula that is used in determining what portion of the option is CP and what portion is SP depends on the primary intent of the employer in granting the option.
    • 1. Marriage of Hug proration formula: intent of the employer is to reward for H's past services, a form of deferred compensation
    • starting point for both the numerator and denominator of the fraction is the date of employment. The fraction is then multiplied by the number of shares of stock that can be purchased under the options.
    • Numerator: years from the date of employment to date economic community ends
    • Denominator: years from date of employment to date options become exercisable
    • 2. Marriage of Nelson proration formula: intent is to primarily encourage H to remain with the company
    • Starting point for both the numerator and denominator of the fraction is the date the options are granted. The fraction is multiplied by the number of shares of stock that can be purchased under the options
    • Numerator: years from date options are granted to date economic community ends
    • Denominator: years from date options granted to date options become exercisable
  53. Goodwill of a professional practice
    • Goodwill of a professional practice (to the extent acquired during the marriage) is CP subject to division on divorce.
    • Goodwill are those qualities that generate income beyond that derived from
    • 1. the professional’s labor; and
    • 2. reasonable return on capital and physical assets.
    • (Goodwill is primarily established by expert witness testimony as to its value)
    • Winkie is a partner in a small firm. The partners have a buy-sell agreement which provides that any partner who dies or leaves the firm will receive $5,000 for his or her interest in the partnership. Winkie contends that the buy-sell agreement puts a $5,000 cap on the value of her goodwill in the partnership for purposes of division on divorce. Is she right? NO! It's a factor, but not conclusive.
  54. Educational Expenses
    • Professional degree is NOT “property” that is subject to division on divorce.
    • The community is entitled to reimbursement for costs of education if the education enhanced his earning capacity.
    • Reimbursement is also available if the educational expenses were incurred before marriage and the loans were paid with community funds after the marriage.
    • Defenses to reimbursement of community estate for educational expenses:
    • 1. Community has already substantially benefited from the earnings of the educated spouse. If more than 10 years have elapsed since the degree was awarded, the presumption is that the community has substantially benefited, meaning that unless presumption is rebutted, no reimbursement
    • 2. OR if other spouse also received a CP-funded education.
  55. Graduate Student Loans used to finance one spouse's education?
    Assigned solely to party who incurred the educational debt
  56. If the other spouse was a tortfeasor, the tort recovery is?
    SP. Otherwise, tortfeasor benefits from the harmful act.
  57. If W injured by a 3rd party, collects settlement?
    • Where damages are recovered from a third party, the tort recovery is CP
    • However, in a property division on divorce or legal separation, the $100,000 will awarded entirely to the injured spouse, so long as the $100k can be traced, and was not already spent.
    • This will be the result unless the interests of justice, including economic need, require otherwise.
    • But on either spouse’s death, the $100,000 will be treated as CP.
  58. Spouse was tortfeasor against a 3rd party? In recovering the judgment, what assets can the judgment creditor reach, and in what order?
    • Rule: CP is subject to the tort liability of either spouse.
    • But we also need to look at what money creditors are able to recover first.
    • 1. If W was performing an act for the benefit of the community (e.g., driving to work, or driving the kids in a car pool), liability is first satisfied from CP, and then from her SP.
    • 2. If W was not performing an act on behalf of the community (e.g., driving to SP vineyard to talk to foreman, or driving to liaison with her boyfriend), then liability first satisfied from her SP, and then from CP.
    • Judgment creditor cannot reach H’s SP.
  59. Management Rules
    • General Rule – equal management powers – Each spouse has equal management and control over all community property, and thus has full power to buy or sell CP and contract debts without the other spouse’s joinder or consent.
    • Personal Belongings Exception: One spouse cannot sell or encumber personal property used in family dwelling (furniture, clothing, etc.) without written consent of other spouse. Transaction voidable by other spouse at any time.
    • Business exception – Applies when a spouse operates a business interest that is all or substantially all community personal property and has primary management and control of all the business. While this spouse can act alone in all transactions, if the spouse sells, leases, or otherwise encumbers substantially all of the personal property used in the business, must give written notice to other spouse.
  60. Conveying entire CP real property w/o permission?
    • For conveyances of CP real property, joinder of both spouses is required. W can void the transfer and demand bonafide purchaser reconvey the property to H & W.
    • 1 year statute of limitations.
    • If 3rd party purchaser knew or should have known seller was married, then no statute of limitations.
  61. Conveying 1/2 CP interest in real property?
    • General rule: Neither spouse can transfer or encumber their ½ interest in real CP (house). Only entire interest can be transferred or encumbered.
    • Exception – A spouse can unilaterally encumber her ½ interest in real CP to pay the family attorney representing her in a divorce action. Family law attorney's real property lien.
  62. Spouse enter into K and incur debt?
    • CP can be reached in satisfaction of such K's.
    • Spouses have equal management powers and either spouse can enter into contracts and/or incur debt.
  63. Can CP be reached if debt was incurred by H before marriage to W?
    • Yes, with one exception.
    • Exception: The earnings of a nondebtor spouse cannot be reached for premarital debts if held in a separate account (in which the other spouse has no right of withdrawal) and not commingled with other CP funds.
  64. Can W’s SP be reached in satisfaction of H's $40,000 business debt?
    No, W is not personally liable.
  65. Can W’s SP be reached in satisfaction of H’s $30,000 medical bills?
    • Yes. The Family Code provides that each spouse has the duty to support the other spouse and minor children. This means that each spouse is personally
    • liable for the other spouse’s contracts for necessities.
    • If CP funds are available to pay medical bills, W can be reimbursed from the community estate.
  66. Can W’s SP be reached in satisfaction of $30,000 in H’s medical bills if (when debt incurred), W & H had separated and economic community had ended?
    Yes. For purposes of family code, still H and W until divorce.
  67. After divorce, when can creditor reach a spouse's CP award?
    • After divorce, creditor cannot reach the CP awarded to a spouse, unless:
    • 1. that spouse incurred the debt, OR
    • 2. was assigned the debt by the court
  68. Property acquired in non-CP state, then brought into CA?
    • Property acquired while the couple was domiciled in a non-community property state, which would have been classified as community property had it
    • been acquired under the same circumstances in California, is quasi community property.
    • Quasi-CP treated the same as true CP.
    • On these facts, with respect to the IBM stock, Henry is the acquiring spouse, and Wynn is the non-acquiring spouse. On divorce, quasi community property is treated the same as true community property, and divided 50-50.
    • But if Harry inherited property in Kansas, it is not quasi-CP because it would be SP if acquired in California.
    • For purposes of division on divorce, “foreign” real property is quasi-CP, subject to 50-50 division.
  69. What about the fact that California has no jurisdiction over Kansas land?
    • No problem. In making 50-50 division, a California court could award the Kansas land to Henry and other assets of equal value to Wynn, OR require
    • Henry to execute any conveyances that are necessary (court does have personal jurisdiction over Henry).
  70. Property acquired in non-CP state, then brought into CA. H dies, leaves "all my property to daughter?"
    • H was "acquiring spouse," and treated same as true CP. meaning, H can only devise his half to D.
    • As to the farm in Kansas (“foreign real property”), for purposes of division on death, Kansas law controls, all goes to D.
  71. Does the non-acquiring spouse have any power of disposition over quasi-CP if she dies before the acquiring spouse?
    • No: The quasi-CP system gives protection only if the non-acquiring spouse survives the acquiring spouse!
    • Rationale: if Henry and Wynn had continued to live in Kansas, on Henry’s death Wynn would be protected from disinheritance by Kansas’s elective share statute. The quasi-CP statute is designed to replace that protection.
  72. Couple moved from one CP state to another CP state. Are the IBM stock and Texas ranch quasi CP, meaning that Wynn, as the non-acquiring spouse, has no ownership interest to pass by will?
    No. Both are true CP, treated as such. She owns 1/2 through the CP system.
  73. Does CA recognize CL marriage?
    • CA does not recognize common-law marriage, where people live together and hold themselves out as being married.
    • Exception: where CL marriage is validly contracted in another state [e.g., Texas]
    • Only spouses and RDP can have CP. Couple living together, taking title in the name of "H and W" own it as tenants in common, owning 1/2 each.
  74. CL Marriage by contract?
    • The property relationships between Marvin and Michelle are governed by contract law, either expressed or implied by conduct. Need to do K analysis to see whether a K existed on these terms.
    • As long as the contract is not based solely on sexual services.
    • E.g.: Marvin and Michelle have gone out for five years. When Michelle asks about marriage, Marvin replies, “Out of the question. I’ll tell you what, though. If you will move in with me, cook and clean for me and … provide other services, we can have all of the benefits of marriage anyway.” Michelle does so, even though it means forsaking a promising acting career. Ten years later, they split. In the meantime, Marvin has accumulated assets worth $400,000
    • from selling tax shelters. What are Michelle’s rights?
  75. Putative Spouse
    • Test is whether she had an objectively reasonable, and good faith belief, that they were lawfully married.
    • If so, assets acquired by H and W are called quasi-marital property. When they split, assets are split 50-50.
    • One California Court of Appeal case has held that if Luther was “bad faith partner,” he is not entitled to ½ property earned by her labor (which would otherwise be CP, subject to 50/50 split).
    • If Daphne was aware they were not lawfully married, their relationship is characterized as unmarried cohabitants. Absent a contract (express or implied), Luther keeps what he acquired, and Daphne keeps what she acquired.