Texas Bar Exam Essays - Community Property
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Community Property Flash Cards
What is separate property?
- (1) Property owned by either spouse before marriage or acquired during marriage by gift, devise, or descent
- (2) Separate property produced by a written partition or exchange of community property
- (3) Property purchased with separate funds and property that can be properly traced back to separate property
- (4) Tort recovery for personal injury (disfigurement, pain, suffering, loss of future earnings after the parties divorce; NOT lost wages, medical expenses, etc.)
- (5) Bonus earned by spouse before marriage even if not paid until after marriage
What is community property?
- (1) Property, other than separate property, acquired by either spouse during marriage
- (2) Income from separate property unless (i) spouses agree in writing that such income shall be that spouse’s separate property, or (ii) gift from one spouse to other spouse; income from the donated property is presumptively the donee spouse’s separate property.
What is the community presumption?
- (1) All assets acquired during marriage presumptively belong to the community.
- (2) All assets acquired on credit during the marriage are presumptively acquired on community credit
- (3) All assets on hand whenever the issue is raised are presumptively community property
What burden of proof is needed to overcome the community presumption, and who bears that burden?
Clear and convincing evidence.
The BOP is on the party contending that an asset is separate property.
What is the Inception of Title Rule?
Character of an asset, as separate property or community property, is determined AT THE TIME THE ASSET IS ACUIRED and any subsequent events never affect the asset’s characterization, but go only to the creation of a claim for economic contribution.
Are there any exceptions to the Inception of Title Rule?
Exception: Employee retirement benefits and stock options.
What is economic contribution?
(1) community funds are expended to reduce secured debt or make capital improvements on one spouse’s separate property, the community has a claim for economic contribution that matures at the termination of the marriage, OR
(2) where spouse uses separate funds to pay down secured debt on or improve (i) community property or (ii) the other spouse’s separate property.
What is the equation to figure out how much a spouse is owed for making an economic contribution?
[(Equity in the property at time of divorce/spouse’s death)]
[(reduction of principal debt attributable to economic contribution of community property) ÷ (debt reduction attributable to community property ÷ equity on date of 1st contribution ÷ debt reduction attributable to separate property)]
Note: If community funds were expended to make improvements, then dollar cost of the improvements is added in as an economic contribution of community property, and is added to both sides of the fraction.
What is the “twist” to the equation when community funds are used to make capital improvements (instead of reduce debt) on one spouses separate property?
When community funds are used to make capital improvements on one spouse’s separate property and the case does not involve paying secured debt, numerator of the fraction is the cost of the improvements.
Is there a claim for economic contribution for community funds used to pay mortgage interest, property taxes, or casualty insurance premiums?
What is the model answer on the bar exam concerning economic contribution?
Note: Don’t do math on the bar exam!!! You don’t have time!!!
Model Answer #1 – As community funds were spend to reduce secured debt on ___’s separate property, the community has a claim for economic contribution measured by the amount by which the principal debt was reduced by the expenditure of community funds.
Model Answer #2 – As community funds were spent to make capital improvements on ____’s separate property, the community has a claim for economic contribution measured by the amount of community funds used to make the improvements.
Is a claim for economic contribution a community property or separate property.
A claim for economic contribution is a community asset, if it matures by reason of divorce. It is subject to a just and right division along with all other community assets; if it matures at death of one spouse, surviving spouse or deceased spouse’s successors takes ½ of the claim.
What is “reimbursement”?
This concerns reimbursement for community funds expended on one spouses separate property.
New Rule After 9/1/2009 – Where community funds are expended to reduce secured debt or make capital improvements on one spouse’s separate property, the community DOES NOT have an ownership interest (e.g. community funds used to pay premiums on life insurance that is separate property).
Rather, the community has an equitable claim for reimbursement if the divorce was filed or the death occurred AFTER 9/1/2009 → If filed or occurs BEFORE 9/1/2009, then it is an economic contribution.
How is Reimbursement Measured?
By the enhancement in value to the benefited marital estate.
For outstanding debt:
- (1) Death: decedents ½ community property – outstanding debt
- (2) Divorce: enhancement value – outstanding debt (any $$ left over will be subject to just and right division determined by trial courts discretion).
What is the “Fixtures Doctrine”
When a house built on separate property, the fixtures doctrine of real property applies, the house follows the character of the land = separate property.
What type of remedy is “reimbursement”?
It is an equitable principle.
Claims of reimbursement may be offset against one another if the court determines appropriate.
What are “Offsets”?
“Offsets”: Benefits for the use and enjoyment of property may be offset against a claim for reimbursement for expenditures to benefit the marital estate, EXCEPT: that a spouse’s separate property may not claim an offset for the use and enjoyment of a primary or secondary residence owned wholly/partly by the separate property against contributions made by community to separate property.
Upon dissolution of marriage/death, how can the court secure a claim for reimbursement?
On dissolution of marriage/death, court may impose an equitable lien on property of benefitted marital estate to secure claim for reimbursement.
Upon death, ½ of the existing community property must be ascribed to the decedent.
When can a claim for reimbursement for separate funds expended on one spouse’s separate property not be made?
No reimbursement for:
- (1) payment of child support, alimony, spousal maintenance;
- (2) living expenses of a spouse or child; or
- (3) payment of a student loaned owned by a spouse.
Is there a claim for reimbursement or economic contribution when community property is expended on community property?
No, no claim for reimbursement when community property and expended on community property, only between marital estates.
What is the difference between “reimbursement” and “economic contribution”?
- Reimbursement = divorce filed (or death occurred) AFTER 9/1/09
- Economic Contribution = divorce filed (or death occurred) BEFORE 9/1/09
What is the rule on how property brought to Texas from another state is treated?
Property acquired while a couple is domiciled in a common law state is that spouse’s property in that state; and when the couple thereafter moves to Texas, it is the acquiring spouse’s separate property based on 3 conflicts in common law:
- (1) A Husband’s salary is his separate property; and the Wife’s salary is her separate property
- (2) How title is held determines ownership
- (3) Conflicts of laws separate property → If it was Husband’s separate property in other state; it is his separate property in Texas.
When can mixed ownership (i.e. one asset is part separate property and part community property) result?
If during marriage H makes a $25K down-payment with separate property and signs a note for the $75K balance of the purchase price, then it would be ¼ separate property and ¾ community property.
The same thing arises when separate property from other state is used to pay off part of an asset acquired in Texas after move, with the rest being acquired on credit. The community presumption would arise and it would be split pro rata.
What is the Community Credit Presumption?
To overcome presumption, you must show that creditor agreed to look solely to the separate credit of the borrowing spouse.
How do you determined whether a life insurance policy is separate property or community property?
Use the Inception of Title rule; thus, the first premium payment determines separate property or community property character of the life insurance policy.
The state law that applies will be the law of the state the couple was domiciled in when they acquired the policy.
What is a just and right division of employee retirement benefits?
Employee retirement benefits accumulated during marriage are community property (whether or not vested at the time of divorce).
Court takes the benefit multiplier in the plan and makes a just and right division (ex: 2% x [years of service] x [average of 3 years’ highest salary]).
What are the two forms a divorce decree can take with respect to a spouse’s employee retirement benefits?
- (1) “If, as, and when received” – W is entitled to the just and right division she was awarded at divorce and the value is frozen, thus any future interests resulting from higher multipliers and salary increases will represent post-divorce earnings and husband’s separate property and Wife receives benefit when Husband retires; OR
- (2) Cash W out right now – leaving entire pension plan to Husband
What is a QDRO?
If the nonparticipant spouse (NPS) in a qualified pension or retirement plan DIVORCES the participant spouse, her community property interest is recognized; under federal law, the NPS can get a QDRO and receive payments from the plan; BUT, if instead of divorce, the NPS’s rights end due to federal preemption.
How are military retirement plans and disability retirement pay treated upon dissolution of marriage?
Under the USFSPA, spouses of military personnel DO have community property rights in a military retirement plan; HOWEVER, military disability retirement pay is NOT community property under federal preemption and USFSPA doesn’t apply.
Can a Husband “elect” to defeat his Wife’s community property interest in his military retirement pay by voluntarily choosing to receive disability pay over regular retirement benefits?
No. A case came out where H could elect to take, at his option, either a regular military retirement benefit @ $1,200/mo or disability retirement @$900/mo and H elected to take $900/mo; court held that W had a community property interest.
How are worker’s compensation benefits treated upon dissolution of marriage?
Benefits are treated as community property; but use inception of title and look at when loss of earning capacity occurred to determine whether the worker’s comp benefits are community property or separate property.
How are stock options benefits treated and divided upon dissolution of marriage?
If the option is awarded during marriage but does not vest until after the marital community has ended, a proration formula is used in determining what portion of the option is community property and what portion is separate property and the fraction is:
[Period of years from date options awarded to divorce] ÷ [Period of years from date option awarded to vesting]
How are business interests treated and divided upon dissolution of marriage?
- Where one spouse devotes the majority of his time to a business (H’s earning power is a community asset) and where the value of the business increases substantially from H’s personal efforts, W has an equitable claim for reimbursement for value of time, toil, and talent:
- (i) value of time, toil, and talent (TTT) expended – (ii) value of TTT reasonably necessary to preserve H’s separate property – (iii) compensation received by H in salary, bonus, dividends, fringe benefits.
What is the Community Out First rule and the Lowest Intermediate Balance rule?
Lowest Intermediate Balance rule – when separate property and community property funds are commingled in a bank account; it is presumed that the community funds are withdrawn first; separate property will only be entitled to the lowest intermediate balance of the account during its existence because that is the only definite amount you can trace to separate property.
How is community property to be split upon divorce?
Courts in Texas make a just and right division and can only make such division of community property and quasi-community property.
- Factors to consider in J&R division:
- (1) age
- (2) relative physical condition of the parties
- (3) abilities
- (4) earning power and business opportunities
- (5) education
- (6) need for future support
- (7) size of community property
- (8) size of each party’s separate property
- (9) length of marriage
- (10) children of marriage
- (11) child care responsibilities
- (12) benefit (innocent) spouse would have receive from continuation of marriage
- (13) fault in breakup of marriage
- (14) Note: a court may also consider fault in a no-fault divorce
What is the standard of review for an appeal on an erroneous just and right division?
A J&R division decision will only be reversed only if division is so disproportionate as to be MANIFESTLY UNJUST and an ABUSE OF DISCRETION and the court of appeals can reverse and remand (CANNOT RENDER).
What happens if more community property is found AFTER divorce final?
Later-discovered community property not partitioned at divorce is subject to J&R division in separate action brought for that purpose, which is lenient (hiding assets used to result in an automatic 50% loss).
How does a spouse qualify for spousal maintenance?
- To be eligible → only if spouse seeking will lack sufficient property (including separate property) on dissolution to provide for his/her minimum reasonable needs AND:
- (1) Spouse from who is requested from = convicted of or received deferred adjudication for criminal offense or act of family violence against spouse or child:
- a. Within 2 years before date dissolution filed; or
- b. While suit is pending; or
- (2) The spouse seeking maintenance:
- a. Unable to earn sufficient income because of incapacitating physical/mental disability;
- b. Married to spouse for 10 years or longer and lack ability to earn sufficient income;
- c. Is the custodian of a child or the marriage of ANY age who requires substantial care and personal supervision because of physical/mental disability that prevents spouse from earning enough to meet minimum reasonable needs.
What is the maximum award for spousal maintenance?
Max award is the lesser of (i) $5K/mo or (ii) 20% of spouse’s average monthly gross income, paid until spouse can obtain appropriate employment or develop an employable skill (limited to shortest period of time UNLESS disability or compelling impediment).
What is duration of spousal maintenance?
- Duration for spousal maintenance is as follows:
- (1) short marriage/family violence = 5 years
- (2) marriage 10-20 years = 5 years
- (3) Marriage 20-30 years = 7 years
- (4) Marriage 30+ years = 10 years
- (5) Exception = disabled or caring for disabled children, can be court ordered to continue so long as eligibility is met
Can an award for spousal maintenance be modified?
Yes, can be modified BUT only downward (not upward).
When does an award for spousal maintenance end before the duration set by the court?
- (1) At death of either spouse, or
- (2) When one spouse remairries or co-habits with another in a relationship
Is there alimony in Texas? Are there any exceptions to this rule?
No – there is no alimony in Texas!
- (1) temporary support until a final decree entered;
- (2) contractual alimony; or
- (3) in rem periodic payments IF referable to property not easily divided
Does divorce terminate a former spouse’s rights as a beneficiary?
- Yes, UNLESS:
- (1) renamed as beneficiary post-divorce;
- (2) divorce decree names W as a beneficiary
- (3) policy part of a qualified pension plan governed by ERISA
How is a life insurance policy that is community property treated if the divorce decree fails to mention the policy?
H & W becomes TIC, each having a ½ interest.
Can good will be divided upon divorce?
Good will: not separate and apart from a person is not a property interest that can be divided upon divorce.
Can a professional education degree be divided upon divorce?
Professional education degree is not property that can be divided and there is no claim for economic contribution or reimbursement because expenditures were not on property.
Are newly born animals community property?
Increase from animals: newly born animals are community property.
How is income from separate property characterized upon divorce? Are there any exceptions to this rule?
Income from separate property is community property unless spouses agree in writing that income from each party’s separate property shall be separate property.
- (1) Gift from one spouse to another; income from interspousal gifted property is presumptively separate property.
- (2) Mineral interests (O & G lease):
- a. Bonus payments = separate property
- b. Delay rentals = community property
- c. Royalty payments – separate proeprty
How are corporate distributions characterized?
Community Property = cash dividends
Separate Property = stock dividends, stock splits, capital gain dividend and capital gain from sale
What are the requirements for a valid Premarital agreement? What can premarital agreements do, and what can they NOT do?
- (1) In writing
- (2) Signed by both parties
- (3) No consideration needed
- Agreement can:
- (1) make income from separate property remain separate property
- (2) govern disposition of property on separation, divorce, or death including making of a will or trust and the disposition of life insurance policies
- (3) make salary and wages separate property
- (4) waive spousal maintenance or support at divorce
- Agreement CANNOT:
- (1) limit either party’s obligation to furnish child support
- (2) make separate property into community property (although this can be done after they actually get married)
How can a premarital agreement be set aside?
- Show that the agreement
- (1) was not signed voluntarily
- a. Note: neither pregnancy not planning of a big wedding is a valid basis for “involuntary”
- (2) unconscionable when made (as a matter of law) and
- a. no fair disclosure of H’s property or financial obligations
- b. thr right to disclosure was not waived in writing and
- c. W had no adequate knowledge of H’s property or financial obligations
What are the requirements for a valid Post-marital agreement? What can premarital agreements do, and what are the disadvantages of creating a post-marital agreement?
- (1) In writing
- (2) Signed by both parties
- (3) No consideration needed
- Agreement CAN:
- (1) convert separate property into community property
- (2) make an unequal partition of community property (unless made with intent to defraud creditors
- a. Note: Partition agreement is not valid against subsequent purchasers or BFPs without actual notice of the agreement (bottom line: record the agreement so it doesn’t appear as HSCP)
- (1) will now = community property and be on the table for just and right division upon dissolution of marriage
- (2) lose power of disposition over half of the property
What are the requirements for a valid Community Property Survivorship Agreement and how can it be revoked?
Must be in writing and signed by both spouses.
Either spouse may revoke by written notice to other spouse.
Statute also authorizes (but doesn’t require) a court proceeding in which, upon proof of a valid agreement and that the agreement was not revoked, the court enters an order adjuding the agreement valid.
Is there a power to challenge gifts of community property?
Generally, one spouse can make “reasonable gifts” of community property to a 3rd party, as long as such gifts are not so disproportionate as to equal fraud of spouse’s community rights or equal constructive fraud.
- If a gift is not reasonable, there is a power to challenge the gift on the basis of Fraud on the Community: The factors include –
- (1) relationship of donee to donor spouse (unlreated party GF = presumptively fraud)
- (2) amount of gift in relation to community estate
- (3) whether spouse is adequately provided for out of remaining community estate
- (4) This same test is used for life insurance policies.
What are the remedies for a fraudulent gift of the community property?
Court shall (1) calculate value of fraud on the community and amount of the reconstituted estate and (2) divide value of reconstituted estate between spouses in a just and right manner.
Court may also grant legal or equitable relief necessary to accomplish just and right division: (1) wronged spouse = appropriate share, (2) money judgment, or (3) combination of both.
How does divorce affect creditors?
Divorce does not affect the rights of preexisting creditors, BUT creditor cannot sue spouse who does not sign (note) as personally liable, unless can prove other spouse was acting as agent.
Judgment lien is only valid against the judgment debtor (not jointly managed CP) → creditor remedy = bring in rem action seeking constructive trust be imposed on the property.
How is property titled in one spouse’s name characterized?
Property titled in one spouse’s name (or one spouse’s possession, if asset is not subject to documentary evidence of title) is presumptively subject to that sposue’s sole management and control (which protects BFPs).
What property is subject to tort liability of either spouse?
All community property (JCP, HSCP, WSCP) is subject to tort liability of either spouse (only property is spouse’s separate property).
If tort was committed before marriage and judgment creditors are coming after W now, they can reach only assets over which W had management power, those being WSP, WSCP, JCP.
Are spouses personally liable for the other spouse’s contracts for necessaries?
Yes, but if it is not a contract for necessaries, then the debt creditor can only reach assets over which the spouse has management power.
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