Community Property Outline Fall 2003 Professor Goodman I.

DEVELOPMENT OF CA COMMUNITY PROPERTY SYSTEM

a. Introduction: i. Community property problems arise in: 1. Dissolution of marriage- divorce 2. Probate 3. Creditor actions ii. Fundamental difference b/t C/L and Community property system is a way of viewing property in the family 1. Common Law: all property is owned individually unless specified otherwise W is seen as being consumed into the H a. No equal ownership and is divided following equity distribution. i. Equitable Distribution: refers to the authority of the courts to award property legally owned by one spouse to the other spouse in the context of divorce or dissolution proceedings. 1. Permits a spouse who has made material contributions toward the acquisition of property to claim an equitable interest in such property even though title is in the name of the other spouse (Court has discretion) 2. Equal division is not the norm 3. legislative statements as to what property should be eligible for apportionment. 2. Community Property: a. Marriage is a partnership Each spouse is a co-owner of property acquired during marriage regardless of value of their contribution b. Property is seen as

i. Community OR
760:All property acquired during marriage while domiciled in this state is community property, except as otherwise provided

ii. Separate (or some version of that quasi community or quasi martial)
770 -Separate property includes: a. All property owned b/f marriage b. All property acquired after marriage by gift, bequest, devise, or descent (GBDD) c. The rents, issues, and profits of the property described in this section 2. A married person may without the consent of the other spouse convey their separate property 3. CA Community Property System:

a. Based on the idea that a portion of the property held by a married person is
dedicated to the economic security of the family which must be distinguished from separate property b. 3 basic principals of the CA Community System i. Tracing whereby property acquisitions are traced back to their original source ii. Equality of interest that community property is family property in which both spouses have an equal interest 1. historically H had practical ownership and W had a mere expectancy interest iii. Modification Married persons may modify operation of the community property system by inter-spousal agreements. c. Each spouse owns an = interest in community property by statute must be divided equally i. Title Theory does not apply . Title is not determinative of ownership d. In CA all property acquired during the marriage by the efforts of either the H or W or together belong to both of them during the continuance of the martial relationship 4. There are 8 states that are community property states Family Law Act: 1. CA no fault divorce prior to the Act fault had to be shown to get a divorce. a. For a long time the court promoted saving marriage rather than divorce b. Under the OLD law there needed to be fault grounds (willful intoxication, adultery, failure to provide) this fault ground effected alimony if it was Extreme cruelty or adultery then the court had no power to award alimony to the guilty spouse (if the spouse was guilty of either they would not get any money in alimony) 2. So, family code was enacted which is separate from civil code 3. Two grounds for divorce a. Irreconcilable differences b. Incurable insanity If spouse is cheating on another and spends money on the person they are cheating with this = breach of fiduciary duty (ex. dinner buy them a car or pay their rent) 1. Other conduct is not relevant in community property In case of death, community property goes to spouse automatically b/c they own it. A spouse can only will away of the total community property. If no will, all the community property goes to surviving spouse. Separate property goes by statutory disposition. 1. Creditor Rights: A Creditor can execute community property and separate property liability but a Creditor cannot execute on my separate property to satisfy the other spouses separate debt. Always first determine what the property is (law practice/copyright/termination from employment packages/ retirement plans/stock options) 1. Retirement plans if acquired during marriage are community property regardless if vested or not. It must then be valued and then divided. a. Figure out all of the community property before dividing it 2

iii.

iv.

v.

vi.

2. Is it community 3. What are the tax consequences

vii. Dissolution action there is no right to a jury trial viii. Prior to 1970s husband had management and control of property b. Earnings and accumulations during period of separation 771 (a)The earnings and accumulations of a spouse and the minor children living with, or in the custody of, the spouse, while living separate and apart from the other spouse, are the separate property of the spouse c.

Tracing Principle:

Fruits of separate property are traced to the source and classified accordingly; thus, SP produces SP, CP produces CP. i. This rule encompasses changes in form AND rents, profits, or other forms of income derived from separate property. ii. George v. Ransom: Separate property begets separate property 1. Wifes property in this case cannot be taken by Creditor to be used to pay husbands separate debt. a. Fruits of separate property remain separate the separate property of either spouse may not be taken to satisfy the debt of the other spouse b. Trace to the source if the underlying property is separate property then the rents, issues, and profits remain separate property. It does not necessarily matter when you acquire separate property i. Change in form does not result in a change in character

II.

Transmutation
d. Change in the character of property during marriage i. Can occur with either separate or community property. Prior to January 1, 1985 oral transmutations were valid. ii. transmutation: a change in the status of property from separate to community or community to separate or separate to separate during the marriage. e. 850 Transmutation by agreement or transfer i. Married persons may by agreement or transfer, with or without consideration, do any of the following: 1. Transmute CP to SP of either spouse. 2. Transmute SP of either spouse to CP. 3. Transmute SP of one spouse to SP of the other spouse. (All that is needed is mutual consent) f. 851- Transmutation subject to fraudulent transfer subject to the laws governing fraudulent transfers g. 852 Validity of transmutation i. (a) A transmutation of real/personal prop. is NOT valid unless 1. in writing 2. by an express declaration that is 3. joined in, consented to, OR accepted by 4. The spouse whose interest in the property is adversely affected. 5. EX: It has to be in writing; but if husband orally says it to wife, and wife sends him a thank you note, then its sufficient. 3

ii. (b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded. iii. Exception: (c) This does NOT apply to a gift b/t spouses of clothing, wearing apparel, jewelry, or other tangible personal articles used solely by the spouse who got the gift AND not substantial in value taking into account the circumstances of the marriage. 1. EX: giant diamond ring in a marriage that has no money, collection of something iv. (d) Nothing in this section affects the characterization of property in which separate property and community property are commingled v. A married person may, without the consent of the persons spouse, convey the persons separate property vi. (e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply. h. Estate of MacDonald (case used to define express declaration for purposes of Section 852) i. S.C. held: Section 852(a) was intended to create a writing requirement which enables courts to validate transmutations without resort to extrinsic evidence and thus without encouraging perjury and the proliferation of litigation 1. Extrinsic evidence is not admissible to show proof of transmutations. 2. The words must indicate intent to transfer such interest ii. McDonald Rule (for a valid transmutation): 1. Writing that satisfies the statute of frauds 2. Expression of intent to transfer a property interest iii. Family Code 1100(b): Management and control of CP: 1. A spouse may not make a gift of CP, or dispose of CP for less than fair/reasonable value, w/out written consent of the other spouse 2. This subdivision does not apply to gifts mutually given by both spouses to third parties and to gifts given by one spouse to the other i. Bibbs: Transmutation at issue: i. Real Property (purchased by H prior to marriage) 1. Originally separate property; during the marriage H conveyed a grant deed to himself and W as joint tenants so he would qualify for a loan 2. Joint tenancy: automatic passage of the property to the other party no matter what the will says 3. Section 852: a transmutation is not valid unless made in writing by an express declaration and accepted by the spouse whose interest in the property is adversely affected (need to demonstrate intent to transfer) 4. Appellate Court found an express declaration of intent to change status Based on: the word grant (was considered an express declaration) ii. Rolls Royce (purchased as separate property prior to marriage) 1. DMV printout showed car reregistered as H or W names. 2. Not a transmutation b/c this is not an express declaration (nothing on the face of the document evidencing that the change in the form of title was made, joined in, consented to or accepted by H, whose interest in the property was affected) 3. Remains separate property and goes to probate.

j. In Re Steinberger: H & W purchased loose diamond as community property; H later put stone in a ring and gave it to W as a gift; upon dissolution H wants the diamond ring back from W and claims that its substantial in value and therefore falls under 852 and needs an express writing. i. Holding: the diamond was substantial in value and therefore needed express writing; therefore no transmutation had occurred ii. 852 (c): this section does NOT apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that issued solely or principally by the spouse to whom the gift is made and IS NOT substantial in value taking into account the circumstances of the marriage. k. Transmutation at death iii. Fam. Code 853 Characterization of property in will; admissibility in proceedings commenced before death of testator. 1. Statement in a will is not admissible as E of a transmutation BEFORE the person dies 2. A waiver of a right to a joint and survivor annuity or survivors benefits under the federal Retirement Equity Act of 1984 is NOT a transmutation of the CP rights of the person executing the waiver.

IV.

Ante-Nuptial Agreements Contractual Modifications:

l. 1500 Effect of premarital agreements and other marital property agreements: The P rights of H and W may be altered by a premarital or other martial property agreement i. Requirements for a pre-nup went into effect on 1/1/86, prior oral or express or implied in fact would have sufficed. ii. Facts in the prenup are extremely important m. 1611 Form and Execution of Agreement - A premarital agreement shall be in writing AND signed by both parties. Enforceable without consideration. n. 1612 parties to a premarital agreement may K with respect to anything BUT i. CHILD SUPPORT may not be adversely affected by agreement ii. Any provision in a premarital agreement regarding SS is NOT enforceable if the enforcement against party: 1. Did not have an independent lawyer at signing 2. OR if agreement is unconscionable when enforced 3. just b/c there was counsel does not mean an otherwise unenforceable provision will be enforceable o. Policy Consideration i. In re Noghrey case: Prenup presented immediately b/f wedding was NOT coercion 1. agreement was contrary to public and is unenforceable a. RULE agreements that encourage or promote divorce or separation are against public policy and are unenforceable. Ks that facilitate divorce or separation by providing for a settlement only in the event of such an occurrence are void as against public policy. 2. Public policy does not render property agreements unenforceable; such agreements simplify the division of marital property; it is only when the agreement encourages or promotes dissolution that it offends the public policy to foster and protect marriage. 5

a. prenup promotes divorce on its face void for public policy. i. Ex: in the event of divorce, the wife gets $500K and house b. If agreement did not say in the event of divorce then it is presumptively
valid 3. It seems court is saying that b/c agreement wasnt defining the status of S or CP, but saying that husband will give away his money to wife, it facilitates divorce so unenforceable. 4. Section 1616: if a marriage is determined to be void, an agreement that would otherwise have been a premarital agreement is enforceable only to the extent necessary to avoid an inequitable result ii. Dajani: Jordanian marriage where wife agreed to provide 3000 denars ($990 U.S dollars) on termination of the marriage 1. Court cited Nohgery wife would only get this money if she got divorced; therefore the agreement was unenforceable iii. Pendleton case: 1. Overturned the prior notion that that spousal support cannot be waived in prenuptial agreement in CA. can be waived but will be scrutinized a. According to Uniform Premarital Agreement Act, court has discretion to determine whether its a violation of public policy. Uniform Premarital Agreement Act waiver of SS only enforceable when both parties are represented by independent counsel at signing AND the waiver must NOT be found to have been unconscionable at the time of enforcement the right of a child to support may NOT be adversely affected iv. Borelli v. Brusseau: 1. A spouse is not entitled to compensation for support, apart from rights to community property and the like that arise from the marital relation itself. v. Weiss: a premarital agreement to raise a child in a specific religious faith has been deemed unenforceable b/c free exercise of religion under 1st A vi. Diosdado: K b/t H & W that provided for liquidated damages in the event one of them was sexually unfaithful to the other was unenforceable b/c it was contrary to public policy underlying CAs no-fault divorce vii. In Re Bonds: 1. Prenup where parties were to keep their property separate, signed the same day it was presented; no outside counsel; wife had no family present; married the next day a. W had virtually nothing, English 2nd language b. H was Berry Bonds baseball player 2. A premarital agreement in which one party is not represented by independent counsel should not be subjected to strict scrutiny to determine voluntary agreement 3. 1615: Premarital agreements are enforceable UNLESS party resisting enforcement of the agreement can show either a. Did NOT enter into the K voluntarily OR b. The K was unconscionable when entered into AND i. before entering into the agreement he or she did not or could not have actual or constructive knowledge of the assets and obligations of the other party and did not voluntarily waive knowledge of such assets and obligations 6

c. the agreement is VOLUNTARY only if the court finds all of the following
on the record or in writing i. party against whom enforcement is being sought was represented by independent counsel or EXPRESSLY waived counsel in a separate writing ii. had 7 days b/t presentation and signing of the agreement iii. if unrepresented, the party against whom enforcement is being sought was 1. fully informed of everything in the agreement and was given a writing of the explanation 2. was proficient in the language of the agreement and the instructions 3. have a document that states they got the explanation and states who gave them the explanation iv. Were not executed as a result of fraud, duress or undue influence and there is no lack of capacity v. Any other factors the court thinks are relevant 4. Commercial v. Prenup: a. Commercial K: parties want the object to be completed; private regulatory agreement (can agree to just about anything) b. Preunup: do not except to actually invoke the agreement c. Remedies differ as well: i. With marriage: do not put the parties back in same position as before the agreement 5. Voluntarily: a. Look to the language i. Ordinary use of the language ii. If it can be interpreted in more than one way consult extrinsic evidence (i.e. dictionary) b. Burden on the challenger claiming involuntary signature to show undue influence (need substantial evidence) c. Factors: i. Temporal proximity b/t signing the agreement and the wedding ii. Embarrassment if wedding was canceled iii. Presentation of agreement surprise (length of time to review document) iv. Given a reasonable opportunity to obtain counsel 6. Premarital agreements v. Marital Settlement a. Burden of proof: i. Martial Agreement: advantaged party bears burden of demonstrating no undue influence (this is because parties owe a fiduciary duty to one another full duty of disclosure) ii. Premarital Agreement: challenging party bears burden of demonstrating agreement entered into voluntarily 7

V.

1610 Definitions viii. Premarital agreement agreement between prospective spouses made in contemplation of marriage and to be effective upon marriage. ix. Property interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings.

II.

Classification of Property As Community or Separate

760 CP except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property 770 SP of a Married Person (a) SP of a married person includes (1) All property owned by the person before marriage (2) All property acquired by the person after marriage by gift, bequest, devise or decent (3) The rents issues and profits of the property in this section (b) A married person may without the consent of the other spouse convey their SP a. General Presumption: Acquisition during marriage is community property. i. Presumption that property acquired during the marriage is CP and that property acquired B/F marriage is SP ii. Family expense presumption: when there is SP and CP in one account (commingled) 1. If you withdraw for the purpose of making living expenses, it is presumed to be CP that was withdrawn (the community has to support the family) 2. The party claiming it to be separate can rebut the presumption of community property with clear and convincing evidence. (look at facts) a. The most common way to rebut the presumption is by tracing the asset back to a separate property source. b. Classification of property as separate or community cannot be made simply by reference to title documents iii. Fidelity & Casualty Co. of NY v. Mahoney- Wilson based on this case 1. Where the marriage relation has existed for only a short period of time, the presumption that property acquired after marriage is CP is weaker than in the case of a long-continued marriage relation where the presumption would be stronger a. There is no presumption as to when property is acquired the party claiming it to be CP must show (evidence) that it was acquired after marriage and cannot just state, acquired after marriage = CP iv. Wilson v. Wilson 1. Facts: H argues that he took SP funds to purchase a house and therefore it is SP; W claims it is CP because it was purchased during the marriage

2. Family Expense Presumption: it is presumed that family expenses are

paid with CP funds a. Party who wants it to be CP only has to show it was purchased after marriage then Burden of rebutting assumption is on the party asserting the separate character of the property. v. Estate of Jolly 8

1. Facts: H dies and left no will; W survives H by 10 years and dies without leaving
a will; H & W had no children; W thereafter buys property from the earnings during the marriage 2. Holding: the property is considered community property based on presumption under Civil Code 164 (now Family Code 760) a. The property in the possession of one of the spouses at the close of a long marital relation must be presumed to be community, unless a better right can be established by the spouse claiming it to be his/her separate property i. Traced property back to the funds, which were acquired during the marriage (through process of elimination: she had no property before she was married; she never worked after Hs death) b. There was no evidence proving separate property, therefore the presumption of community property prevails (assume it was acquired during coverture) c. community property is the rule separate property is the exception 3. The fact that CP is sold and other property is bought with the proceeds or that such property is exchanged for other property does not change the original nature of the property the character to of the property is determined by the nature of the funds that were used to procure it b. Common Statutory Presumptions Respecting Separate Property i. Property acquired by the spouses during marriage through the direct or indirect exploitation of the primary community property asset, that is, the time, energy and skill of husband and wife, was said to be acquired by onerous title. ii. Property acquired gratuitously, such as by a gift or inheritance, was deemed acquired by lucrative title. iii.

Exchange rule:

property acquired in an exchange, has the same status (CP/SP) as the consideration given up in the exchange if the thing given up is CP then the new is CP, if it is SP then the new is SP 1. Estate of Clark a. Facts: Son died leaving a will which cuts out father; Father (H) would have been sole heir if will was invalid; at the moment of sons death, Hs right to contest the will becomes vested; H thereafter marries; during proceeding to contest the will, H enters into a settlement agreement for of sons estate; H thereafter passes away; W claims the settlement money to be CP. b. Holding: general presumption of CP was rebutted by the exchange rule (separate property begets separate property) i. Property was acquired by H during marriage to W, but it was acquired by way of the compromise of a statutory right which was acquired PRIOR to his marriage (when his son died). 1. Expectancy in property becomes vested interest at the moment of death 2. Property acquired by compromise is SP if the right compromised is separate. c. Changing facts: if H married before the son died the property is still SP i. Property acquired by inheritance is SP 9

ii. Only heirs can contest a will, so it would be equivalent to an

inheritance. 2. Survivors election: surviving spouse can elect to take under the will or against the will; a. Against the will: I dont care what will says, just give me 50% of CP b. Under the will: follow the terms/plain language of the will 3. Downer v. Bramet a. Facts: After separation, H acquires 1/3 interest of a ranch from his employer; W claims that the 1/3 of the ranch is CP and therefore W is entitled to 50% of the 1/3 interest in the ranch i. Holding: property was CP because it was given to H in return for skills and efforts at work during marriage 1. There was no social relationship between H and employer that would explain the conveyance as a gift b. Issue because 1/3 interest was a gift i. General rule: gift is not CP ii. Exception: although legally a gift, a remuneratory gift (something given in exchange for good work/disguised compensation) can be considered CP Ex. bonus, tip Fam. Code 771- Earnings and Accumulations during Separation (a) the earnings and accumulations of a spouse and the minor children living with or in the custody of the spouse while living separate and apart from the other spouse are the SP of the spouse 4. In re Marriage Hardin a. Facts: marital problems caused H & W to stop living together, but they still had an economic relationship for 14 years after H moved out; W claimed date of separation was the legal date of separation; H claimed date of separation was the move out date b. Separation Whether parties determined the rift to be final /would society deem the couple to be separated based upon the facts? i. Determined by a preponderance of evidence ii. Ultimate test parties subjective intent and all evidence relating to it is to be objectively considered by the court iii. Separation must occur as a result of a marital rift as opposed to social or economic reasons and there must be NO apparent possibility of reconciliation COURT MADE RULE 1. Filing of a dissolution petition do not in and of themselves indicate a complete and final break in the marital relationship 2. Parties are separated but continue to have sex and social contact OR couple holds out to the community that they are happily married NOT separated b/c NO complete and final break in the marital relationship. 3. If spouse runs away b/c schizophrenic and running away from authorities, the separation does not begin until W refuses to take him back

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4. Separated and still living in the same house Norville:

separated = different houses (different rooms in same house is not enough) a. this may favor wealthy b/c what if people do not have the money to live apart therefore court finds that financial issues will be a factor in the decision 5. If there is a possibility of reconciliation then there is no separation; puts lawyers in a difficult position because they want to suggest reconciliation, but will loose any possibility of Separate property

c.Special Presumptions Based on the Form of Title

i. Acquisitions by a Married Women 1. 803: Any real or personal property, or any interest therein or encumbrance thereon, acquired before January 1, 1975 by a married woman by an instrument in writing is conclusively presumed to be the married womans separate property. a. This presumption is conclusive in favor of any person dealing in good faith and for a valuable KSN with the married woman or her legal representatives or successors in interest presumed that if the woman sold to a BFP that the property was actually her separate property b/c generally the H had the control of the property and if the wife was doing this obviously she had some control b. The presumption is rebutable between H and W c. 803(c): If the property is acquired by H and W by an instrument describing them as H and W, then the property is presumed to be CP, unless the instrument indicates a different intention. d. Public policy: to protect a married womans title to property in her own name when H had exclusive management and control of the spouses CP prior 1975. e. NOW no conclusive presumption -1102(c)(1) i. since there is no language of a conclusive presumption this means there is a rebutable presumption ii. Horseman v. Maden (case was decided while the womans presumption was still in effect) 1. Facts: H endorsed and permitted W to retain the securities in Ws name after separation BUT H willed everything (incl. the securities) as CP; executors of Hs will argued that there was no written agreement about the SP therefore the property was still CP 2. Intent becomes the key issue where the character of property changes a. The presumption that property acquired by an instrument in writing becomes separate property is not conclusive b. T.C. erred by not allowing Hs declarations into evidence i. If it is simply a deed from H to W then extrinsic evidence of intent is admissible. ii. But, it if says from H to W as her separate property then extrinsic evidence is not admissible. 11

c. There was no written agreement between the parties thus the husbands
intent in executing the instrument is controlling. d. All the evidence needed was an intention to change status of property i. Parole evidence is allowed in to show intent ii. Look to declaration made either before or after the transfer, are admissible and such declarations need not have been in the presence of the adverse party iii. Spouses owe each other a fiduciary duty from the day of marriage to the day property is divided. iv. In re marriage of Ashodian 1. Facts: H and W separated after 31 years of marriage; W bought and sold property with CP funds prior to 1975; H wanted nothing to do with Ws business and signed grant deeds on 2 of the properties 2. Holding the Property is the SP of the W H intended a gift by abandoning W to practice real estate - all property at issue was SP because it was purchased prior to 1975; therefore the womans presumption applies (exception to general presumption- that property is community) a. Standard of proof toward womans presumption: clear and convincing b. Presumption is rebutable if facts demonstrate an intent to characterize property as CP v. Joint Tenancy Compared to Community Property 1. CP and JT cannot co-exist in the same item of property 2. Difference between Joint Tenancy and CP a. Joint Tenancy: i. At death of one of the joint tenants: all the property goes to the surviving spouse 1. Property does not go through probate ii. On dissolution of marriage: the property goes to each spouse as his or her SP. b. CP (only different when dealing with death) i. At death: one spouse can leave their of CP in a will ii. At dissolution of marriage: property to each party. 3. 750: A husband and wife may hold property as joint tenants or tenants in common, or as community property with a right of survivorship 4. 2581: For the purposes of division of property on DIVORCE or legal separation, property acquired during marriage in joint form, including property held as T in C, JT, or T by entirety, or as CP, is presumed to be CP. a. Presumption applies to all DIVORCE proceedings commenced on or AFTER January 1, 1984, regardless of when the property was acquired i. In proceedings brought before January 1, 1984 only property held in joint tenancy is subject to the presumption of CP ii. property settlement agreements or proceedings in which judgments were rendered before January 1, 1987 are not subject to the presumption, regardless of whether those judgment have become final b. Presumption does not apply to a couple who take the property in joint form before marriage and then later marry 12

c. Presumption is no longer limited to single family residences and not JT

property (was in the past, but this statute changed that) d. The presumption may be rebutted by: i. A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is SP and not CP ii. Proof that the parties have made a written agreement that the property is SP vi. In re marriage of Lucas 1. Facts: At the time of H & Ws marriage, W was beneficiary of trust which was agreed to be the SP of W; H & W thereafter purchased a home with both CP (16K loan) and SP (W used 6K of SP funds for down payment and 2K of SP for improvements on the house); title was taken as JT 2. Ct of App: property purchased during marriage is presumed to be CP 3. Determining titled of property: a. There is no evidence of an agreement or understanding that W was to retain a SP interest in the house so the presumption that when a single family residence is purchased it is CP stands - - must have a great showing that there was an intention to retain a separate interest in the property b. Burden of Proof to Rebut Presumption i. Untitled Property - Where there is no written indication of ownership interests as between the spouses, the general presumption of community property may be overcome simply by tracing the source of funds used to acquire the property to separate property (lesser burden) ii. Titled Property The affirmative act of specifying a form of ownership in the conveyance of title removes such property from the general presumption of CP (greater burden of proof to rebut presumption) 1. An understanding or agreement is needed to rebut the presumption of what is stated in title such as it is CP c. Reimbursement well settled rule i. A party who uses his SP for community purposes is entitled to reimbursement from the community or separate property of the other ONLY if there is an AGREEMENT between the parties. 1. Otherwise, the contribution will be considered a GIFT to community 2. A party will get separate property payment back, but it is not calculated at present value, but rather value on date of purchase AUFMUTH formula when a spouse make a SP down payment they have a SP interest in the house in the proportion that payment applies to the purchase price vii. Anti-Lucas Legislation 1. 2580 only applicable to division of property on dissolution of marriage or legal separation of the parties. a. EX: So if record title is taken as joint tenancy, upon death of one spouse, Retroactivity the surviving spouse takes it all. Whereas if theres a divorce, then it cannot be applied becomes community property retroactively if 2. 2581 CP presumption for property held in joint form. going to deprive 13 party of a vested property right

a. For the purpose of DIVORCE or SEPARATION - Property acquired by

the parties in joint form during marriage is presumed to be CP - may be rebutted by either i. Clear statement in the doc that was used to acquire the property that the property is SP and not CP. ii. proof that the parties have made a written agreement that the property if separate property **NOT APPLY TO DEATH 3. 2640 Separate Property Contributions to Property Acquisition a. Unless there is a written waiver of the right to reimbursement or a signed writing that has the effect of a waiver - SP contributions shall be reimbursed to the extent the party traces the contributions to a separate property source b. shall be reimbursed W/OUT interest and cannot get more money than current equity in property EX:if you put in 25K and now worth 15K only get 15K **estate of Levine is good law for probate; Lucas is dissolution NOT APPLY to DEATH

VI.

Limitations on the Classification Process

d.

Valuation of a professional education acquired by a spouse during marriage

has been held not to be property within the system. e. Right to practice a particular profession is a valuable property right but is not CP. i. By contrast, the professional practice itself, including the goodwill element of the practice, is property within the system. f. Todd v. Todd Education and right to practice a profession are not CP. i. Facts: H and W married, a few years later H became a lawyer and established practice. W worked while H was in school and after he graduated. ii. Value of the practice at the time of dissolution of the community is CP. 1. Its valuation depends on the goodwill of the business as well as accounts receivable and business then in the office but not yet charged 2. Valuation of the business can be done by either the cash or accrual method of accounting: a. Cash method when you are paid it is income and when you pay out it is liability and everything else is profit. b. Accrual method whether you pay out or not you still owe it and it is charged as an expense. iii. The value of an education is an intangible property right with no monetary value for purposes of division b/t spouses. so NOT CP iv. To determine the value of a law practice, the following should be considered: 1. Fixed assets (cash, furniture, equipment, supplies and law library) 2. Other assets including properly aged accounts receivable, costs advanced with due regard for their collectibility; work in progress partially completed but not billed as a receivable, and work completed but not billed; favorable lease. 3. Goodwill of the practitioner in his law business as a going concern 4. Liabilities of the practitioner related to his business (mist have a business) 2627: Educational Loans; Liabilities for Death or Injuries; Assignment 14

Educational loans shall be assigned to the spouse whose act or omission provided the basis of liability, w/o offset.- whoever took them out pays them 2641: Community Contributions to Education or Training (operative January 1, 1994) (a) Community contributions to education or training mean payments or repayments made with community or quasi-community property for education or training (b) Upon dissolution of marriage or separation (1) Comm. shall be reimbursed for contributions to education of one party that increased their earning capacity (W/ INTEREST) (2) Education loan shall not be included in the liabilities of the Community (c) Reimbursement/ assignment shall be modified/reduced as the court sees fit- they will look at: (1) Whether the comm. has benefited from education, loan etc that was paid for by the community rebutable presumption that there is a substantial benefit when it has been more than 10 years from the education (more than 10 years the comm. should not be reimbursed b/c they have gotten use out of the education. (2) Education by one party about = to education of the other party (3) Edu of one party enables them to work therefore they do not need as much support (4) Subject to a writing to the contrary NOTE: A division of post dissolution earnings to the extent that they are attributable to higher education ( if education was received during marriage) would be inconsistent with the right to assign post separation assets to the spouse earning them g. In re marriage of Watt situation where one spouse works to put the other spouse through school different outcome for support award and reimbursement award: i. H was a full-time student for the entire marriage. H received his medical degree five months after separation. W worked full time during marriage, using her income for family expenses 1. Court says no reimbursement for living expense b/c expenses would have been paid anyway 2. No evidence that she paid for any education related expense or expenses paid directly related to the education. Not necessarily have to be books and tuition, it can be if you had to have a second apartment, or child care, or travel farther and use more gas to go to school. a. Need direct evidence show receipts ii. Reimbursement (Section 2641) non-student spouse can only be reimbursed for the direct costs of education. 1. This does not include reimbursement for living expenses because would have to live whether or not got to school 2. There is an exception: Educational loan is not considered CP 3. Purpose of reimbursement of C expenditures for educational benefits that have benefited primarily one spouse such as tuition, books, supplies, transportation 4. Exclusive remedy for professional education or training received during marriage 5. Repayment is based on the amount paid + interest from the date of payment. Interest rate is based on the legal interest 10% iii. Spousal Support when there is a situation like this broad discretion in awarding SS 4801 there is a requirement for the TC to consider all the expenses paid by one spouse when determining the award of SS

15

GOODWILL Business Valuation

iv. Support (Section 4320) court must consider the totality of the non-student spouses efforts toward the attainment of the degree, including contributions for ordinary living expenses. 1. SS is discretionary according to ct and appellate ct will not reverse unless it is so unreasonable no reasonable judicial officer could have done that

h. In re marriage of Lopez the goodwill of a business is CP to the extent it was built up during the marriage. i. There are 3 potential types of goodwill 1. Professional goodwill a. Goodwill of a business 2. Celebrity goodwill a. No CA cases dealing with this, but there are out of state cases that recognize it 3. Executive goodwill a. No CA cases dealing with this, but there are out of state cases that recognize it 4. Goodwill can attach to: a. A trade name (e.g. Zenith or Buick) b. Firm name not attached a product (e.g. Nordstrom or Nieman Marcus) c. Location (e.g. a place where there is lot of walk-in business) d. A persons name (e.g. Johnny Cochran) 5. Definition of Goodwill a. CA Bus and Prof Code the expectation of future patronage. i. But some courts do not use this definition because it is not in the context of CP 6. Good WillValued presently based on factors of the past. a. Look at: age, health, past demonstrated earning power; professional reputation in the community as to judgment, skill, knowledge, his comparative professional success, and the nature and duration of his business as a sole practitioner, or as member of partnership or professional corporation to which his professional efforts have made a proprietary contribution (see the continuity of the business) b. Value: Gross Income expenses and compare that to average practice in the same area. Excess is goodwill i. Any method that show substantial justice is acceptable 7. Marriage of Green: Valued at the Date of separation instead of date of trial b/c H was a sole practitioner. He could control what the value is by manipulating it down. 8. If you have a partnership agreement. What you will receive if you leave the firm is not determinative of how much you are worth. Analogous to the silent partner agreement from TOD

INSURANCE

when divorced spouse will get the insurance $ after death of the insured 16

i. In re marriage of Spengler RULE: term insurance covering a spouse who remains insurable is CP only for the period beyond the date of separation for which community funds were used to pay the premium i. Term insurance policy = buying insurance for a period of time; option to renew without medical examination; dont have to prove insurability; automatically renewable without exam; no cash value; premium is higher because you are closer to death; because no saving aspect to it, its much cheaper 1. No cash value only CP to the extent it was paid by the community ii. Ordinary/whole life insurance = its a level premium and goes on forever until you die; has cash value; can cash in policy 1. A whole life policy has an investment component in addition to death benefits. 2. If paid for by CP it is CP

VII. Persons within the System the valid marriage requirement same

sex unions
297: Domestic partners and partnership; establishment - applies to same sex partners

VIII.

The Valid Marriage Requirement:

Punitive Marriages
j. 2251: Status of Putative Spouse: division of CP or Q-CP i. If a determination is made that a marriage is void or voidable and the court finds that either party or both parties believed in good faith that the marriage was valid, the court shall: 1. Declare the party or parties to have the status of a putative spouse a. Meretricious spouse is the opposite having a guilty knowledge of the fact that the marriage is void or voidable. 2. If the division of property is in issue, divide that property acquired during the union which would have been community property or quasi-community property if the union had not been void or voidable a. This property is known as quasi-marital property b. Nothing in this section says that only the putative spouse can get division so theoretically, if W has good faith belief that the marriage is valid but H knows it is not, in an annulment proceeding, if H puts division of property into issue, then he could get division 3. Where the putative relationship is brought to an end by death rather than by annulment or other dissolution proceedings, it is presumed that the judicially created system will continue to apply. ii. If the court expressly reserves jurisdiction, it may make the property division at a time after the judgment k. Coats v. Coats Ct developed Equitable Community Doctrine to apply to putative marriage. (Section 2251 was a codification of this case) i. Effect of annulment: Put H and W back In the same position they were before the marriage (as if marriage never existed) and cannot have CP 1. Ct not said it was QMP. W entered into the marriage and kept a good faith belief so equitable principals should apply even though the marriage was declared void. 17

a. Subjective belief objectively measured based on facts and circumstances b. Although assets are NOT called CP they are treated as such Called
l. quasi-martial P in statute 2251 Estate of Leslie Putative spouse is entitled to the same rights as a valid spouse. i. H and W married in Mexico. Not valid because it was never recorded as required by Mexican Law. However, H believed that he and W were validly married ii. Putative marriage: union in which at least one partner believes in good faith that a valid marriage exists conduct themselves as H and W during marriage that when there is a good faith belief in the marriage there is an entitlement to half of the property acquired during the marriage iii. Surviving putative spouse is entitled to Q-CP share of decedents separate property under the Probate code. Estate of Hafner Court applied the putative spouse statute to a death situation, even though the statute does not state that it is applicable in the death situation i. Court awarded half of the estate to the legal wife and half to the putative spouse. 1. As to the legal wife the property at issue was SP, but as to the putative spouse the property was quasi-marital property 2. So putative wife got as quasi-marital property and the court awarded the other half to the legal and her children + Helens child ii. Court stated a family allowance could NOT be awarded in a putative spouse situation only awarded a family allowance to the legal spouse. Vallera v. Vallera (Cohabitation) If there is no good faith belief that the marriage is valid then the non-legal spouse cannot recover. NO allowance that by cohabitation alone there is a sharing of the earnings accumulated during the union i. Such a spouse can only recover if there is an express agreement 1. However, this principle is modified by Marvin v. Marvin ii. Implied agreement spouse can only recover to the extent that her funds contributed to the acquisition of the property. iii. However, the courts were inconsistent after the Vallera decision 1. Even when there was an agreement, some courts refused to enforce those agreements as against the public policy. a. Held that public policy favors marriage and courts punish them for not getting married by not honoring the agreements Marvin v. Marvin (Cohabitation) To the extent that the agreement does not rest on meretricious sexual services, the parties may enter into express agreements regarding the division of property. i. Facts: Lived together w/o marrying; all property acquired in Ds name and he got it all according to trial ct 1. P said they held themselves out as H and W; W gave up career to be homemaker; oral agreement to share =ly in earnings and H said he would provide for rest of her life; D kicked P out 2. Here as in Vallera, if you cohabitate with no good faith belief of marriage, what rights do u have. ii. The Family Law Act does not govern the distribution of property acquired during a non-marital relationship the only body of law that governs such situations is general contract law. iii. The Marvin court states that contracts between such people with respect to property should be enforced 18

m.

n.

o.

1. This includes both express contracts as well as implied in fact contracts a. Implied agreements spouse can recover more than just the contributions
iv. made to acquisition of property as stated in Vallera. 2. The agreement does not have to be in writing However, such Ks are not enforceable to the extent the contract is for sexual services 1. The agreement regarding sexual services must be expressed for the contract to be unenforceable. Rights: 1. Enforce an agreement of any kind 2. Quantum Mertuit reasonable value of services rendered 3. May apply equitable remedies such as constructive or resulting trust based on the facts of the case. 4. Must file a civil action and not petition for dissolution It has been held that this rule applies to homosexual relationships as well as heterosexual relationships Other states (NY and Illinois) have rejected Marvin

v.

vi. vii.

IX.

Domicile Requirement:
p. Domicile residence with no present intent to leave intent to remain i. marital property rights are to be controlled by the law of the domicile of the married persons at the time of the acquisition of wealth ii. A person is never without a domicile and does not lose a domicile until a new one is acquired q. Quasi-Community Concept: Property which would have been community property had it been acquired in CA would be categorized as quasi-community property and treated in a fashion similar to community property on termination of the marriage by death or dissolution. r. Rozan v. Rozan A determination of the domicile is essential, for marital interests in movables acquired during coverture, they are governed by the law of the domicile at the time of their acquisition. i. Facts: Action for division of assets ii. Domiciled: Physical presence (objective) with intent (subjective) to remain permanently. 1. When you visit a place and have an intent to move to that place, you are then domiciled there. Domicile will be the new place until the intent changes. iii. Movables are governed by the law of the domiciliary state at the time of the acquisition of the property iv. However, it may be that the domiciliary state has no power to tell the other state how to divide its property s. Grappo v. Coventry Financial Corp. According to the Restatement of the Conflict of Laws the law of the state which has the most significant relationship to the parties and issues in the case is the law that applies to that case. i. General rule: Marital interests in money and property acquired during a marriage are governed by the law of the domicile at the time of their acquisition, even when such money and property is used to purchase real property in another state. ii. Property rights are not lost b/c property is transported into another state and exchanged there for other property 19

X.

Quasi Community Property:

Constitutional Limitations on the Classification of Property Q-CP t. Due Process and Privileges and Immunities Clauses: Constitutional application of Quasi-CP Q-CP is designed to alleviate the problems that arise when a married couple moves from a common law jurisdiction to CA (CP jur) i. 125: Quasi-CP means all real or personal property, wherever situated, acquired: 1. By either spouse while domiciled elsewhere which would have been CP if the spouse who acquired the property had been domiciled in this state at the time of its acquisition 2. In exchange for 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 u. Q-CP under the Probate code upon the death of a spouse who had acquired property while domiciled elsewhere such property may be deemed Q-CP and accorded the treatment of CP i. Quasi-CP under the Probate Code ( 66): Quasi-CP means: 1. All personal property wherever situated, and all real property situated in this state acquired by a decedent while domiciled elsewhere that would have been the CP of the decedent and the surviving spouse of the decedent had been domiciled in this state at the time of its acquisition 2. All personal property wherever situated, and all real property situated in this state acquired in exchange for real or personal property, wherever situated, that would have been the CP of the decedent and the surviving spouse if the decedent had been domiciled in this state at the time the property so exchanged was acquired. ii. 101 of the Probate Code: Upon the death of a married person domiciled in this state, of the decedents QCP belongs to the surviving spouse, the other belongs to the decedent iii. Family Code vs. Probate Code 1. Probate code applies only to property acquired by the decedent, but Family code applies to property acquired by either spouse iv. Addison v. Addison H and W moved to CA from a common law state, and brought with them property. Upon divorce, court said it was QCP 1. Two requirements to be met for Q-CP laws to apply: a. (1) BOTH Spouses must move and be domiciled in CA AND

i. consent to jurisdiction will satisfy this prong b. (2) While domiciled in CA must seek divorce or separate
maintenance action subsequently modified by Roesch

i. Certain acts or events that occur in CA that give rise to the

action for divorce either spouse initiates the action to alter the marital status in CA

ii.

2. CA is constitutionally prohibited from taking away a partys SP interests in a

divorce case BUT it is allowed to do so through QCP to out of staters a. where the innocent party would otherwise be left unprotected the state has a very substantial interest and one sufficient to provide for a fair and equitable distribution of the marital property without running afoul of the due process clause of the 14th A 20

b. Police power: the legislature can provide for the general welfare of its
citizens and although a partys SP is taken away, the state can do this in order to provide for the innocent spouse 3. Retroactivity of the QCP statute: General rule is that statutes cannot be applied retroactively a. However, here the statute was not applied retroactively because the divorce was sought after the statute took effect i. Judgment of divorce determines the effective date of legislation. v. In re Marriage of Roesch Here, the parties lived in PA for virtually their entire married life. After their separation, husband transferred this domicile to CA. wife and the parties minor son remained in PA. 1. CA had a minimal interest in this dissolution b/c h had been there 6 months and they lived in PA for 25 years. Improper to apply QCP 2. Alters the 1st part test in Addison by stating that a. Both parties must have changed their domicile to CA, AND 3. In a later case, Fransen v. Fransen, it modifies the 2nd prong of Roesch case, stating that a. After the change in domicile either spouse initiates a legal proceeding to alter the martial status in CA 4. Consent to jurisdiction satisfies the 1st Roesch criterion as an alternative to change of domicile. a. When W responded to complaint she consents to jurisdiction and is thus equivalent to her being domiciled in CA

v.Retroactivity Problems
i. When application of Retroactivity is demanded it will only be applied where there is a sufficiently important state interest ii. In re Marriage of Bouquet 1. Facts: After filing divorce petition but before judgment 771 was amended 2. 771: the earnings and accumulations of both spouses while they live apart is SP a. Prior to amendment- only the earnings and accumulations of the wife were SP while H and W were separated b. Ct wanted to right the wrong of the previous 771 3. H here is saying that 771 should apply retroactively so that his accumulated earnings while separated are SP 4. A statute can be applied retroactive when the legislature intended consider: a. the significance of the state interest served b. the importance of the retroactive application of the law to the effectuation of that interest c. extent and legitimacy of the reliance on the former statute d. extent of the actions taken in reliance e. extent to which retroactive application would disrupt those actions 5. Whether an impairment of vested interest is permissible? (2 tests) a. Court will uphold a retroactive intent when:

21

i. It is necessary to serve a sufficiently important

state interest b/c there is a taking of property without due process, OR 1. Here, the states paramount interest in the equitable distribution of marital property upon dissolution of the marriage, justified the impairment of the Hs vested property rights ii. To cure a rank injustice in the former law iii. In re Marriage of Heikes - the law in effect at the time of the transaction (acquisition of property) is the controlling law NOT when case was filed, tried, or adjudicated. 1. At the time of marriage, H had 2 parcels of land as his SP. During marriage, conveyed both parcels to W and himself as JT. No oral or written agreement. During dissolution, lower Ct classified both parcels as CP. While he was on appeal, legislation changed. New legislation dealt with right to reimbursement. 2. ISSUE: Whether the Constitution permits the statutorily authorized reimbursement of a H for SP contributions made in 1976 to property divided as CP in 1992. 3. 2640: when CP is divided upon dissolution of the marriage, either spouse shall be reimbursed for his or her contribution of SP to the acquisition of any property being divided as CP unless the contributing spouse has waived the right of reimbursement in writing which was created in 1/1/84. (NO INTEREST) 4. Look to a violation of due process and a need to make something fair 5. HOLDING: Hs transfer of his SP to the joint ownership of his wife and himself gave the W a vested property interest (oral agreement that W was to get specific interest in the property) that cannot constitutionally be impaired through the retroactive application of the reimbursement provisions of sec 2640. 6. Property acquired in 1980: 2581 will apply retroactively, but 2640 will not be applied retroactively when there is a vested property interest a. It was not realistic for the wife to get H to sign that property held as JT was CP once they filed for dissolution b. In order to apply it retroactively must have a vested property interest

XI.

Problems In Classification:
w.

Commingled Funds:
i. Commingling the mixing of together of SP funds and CP funds ii. General Rule: Funds in a commingled account are presumed to be CP 1. Rebutable by direct tracing if the person who deposited the funds can trace or identify them back to a SP source (i.e. kept adequate records), then they will be recognized as SP funds 2. Rebutable by indirect tracing family expense presumption that family expenses are paid from community funds a. The withdrawer must establish that at the time of the disputed acquisition, the CP funds in the account had been exhausted by family expenses so 22

balance in the account at the time the property was acquired necessarily was separate. The withdrawer must keep records i. Dinhs short version: If a spouse proves that at the time of acquisition of the property, that all community income was exhausted by community expenses, then the balance at that time is necessarily separate. Any item purchased with remaining funds would then be deem separate property. b. Exception: when through no fault of the person asserting the SP character it is not possible to ascertain the balance of income and expenditures at the time the property was acquired i. This is the exception that allows such a person to use the recap theory (aggregate all expenses and income over the entire period of the marriage and if the expenses exceed CP funds, then assume there was only SP funds to purchase the property in question) ii. A spouse who commingles but fails to keep adequate records cannot invoke the burden of record keeping as a justification for the recap theory 3. See v. See the party who uses his SP for C purposes DURING Marriage is entitled to reimbursement from the CP or SP of the other ONLY if there is an agreement between the parties to that effect. (decided before Lucas) a. During marriage, H commingled C and SP assets and claimed on divorce that the fact that aggregate C expenses exceeded aggregate C income during marriage justified a finding that no CP remained. b. Ct held that in order to be able to implicitly trace any such item to SP, such spouse must prove that C expenses exceeded the C income at the time of acquisition of that particular item. c. Epstein See rule does not apply to sums paid after the parties are separated AFTER SEPARATION the spouse paying with SP is entitled to reimbursement, unless: i. There is an agreement NOT to be reimbursed consideration is not generally required between H and W ii. Unilateral gift is intended there could be reasons (e.g. reconciliation) for a spouse to make a gift iii. Payment is on account of an encumbrance of an asset and the payments made are equivalent to the rental value and the party making the payment has had exclusive use of that asset, then that party is not entitled to reimbursement (car payment) iv. The money paid was to fulfill a support obligation of that spouse, then not entitled to reimbursement 4. In re Marriage of Mix 2 methods of tracing:

a. Direct tracing requires the withdrawer to intend to withdraw SP

b. Indirect tracing the See method

23

funds i. But there is no requirement that this intent be communicated to the other spouse ii. This enables the withdrawer to be less than forthright say that it was SP if the value goes up and CP is the value goes down

c. In this case, W applied the direct tracing method to prove her case.
Although her tangible evidence alone would not have been sufficient to satisfy the burden of proof, her own oral testimony was sufficient. 5. In re Marriage of Frick where funds are paid from a commingled account the presumption is that the funds are community funds in order to overcome this presumption a party must trace the funds expended to a separate property source 6. Exceptions: a. Where both CP funds and SP funds, if the CP portion is insignificant, it will be disregarded and the asset will be SP i. If the commingling is of a trifling sum with a large portion of SP funds, then the asset is deemed SP x.

Business Profits

i. Issues arise when one spouse owns and operates a business before marriage, then s/he marries and gets divorced 1. rents, issues and profits of SP are SP 2. profits that are the result of that spouses efforts are CP 3. Courts have said a certain amount is attributable to the fact that the business was an on going concern when entered the marriage, and a certain amount is also attributable to the efforts of the spouse running the business ii. Formula- determining the amount of money that is attributable to the SP and to the CP when the business had an increase in value DURING marriage iii. I= increase in the value of the business iv. SP = separate property v. CP = community property vi. I= SP + CP vii. Pereira v. Pereira oldest method of apportioning the business profits as CP and SP: allows a reasonable rate of return as of date of the marriage 1. If there is no other evidence as to what the reasonable rate of return is, then the business gets the legal rate of interest (currently 7%) a. Reasonable rate of return is per annum 2. Business profits attributable to the efforts of the spouse are CP 3. Formula: Value at time of divorce [SP + (SP x reasonable rate of return [7%])] = CP I-SP=CP viii. Marriage of Keoster: 1. H had a business prior to marriage which is SP and continues business during marriage (use a formula to see how much of an increase goes to SP and CP), and the business was incorporated into a corp from a sole proprietorship during the marriage a. TC said this changed the character b/c it was an acquisition as if this was a new business and no formula was applied to determine which was SP or CP (2640 SP contribution to Community is entitled to reimbursement) i. If there is a change in character of the property by incorporation, the SP value would be as of the date of incorporation, and H would be entitled to reimbursement without interest for the value up to this date. 24

b. H changes his SP business from a sole proprietorship to a corporation was

done for a reason that had nothing to do with the marriage. c. Using 2640 Reimbursement was not appropriate in this case, b/c this is not a case of reimbursement i. 2640 reimbursement applies to real property d. the change in form does not in itself change the character of the property, mere incorporation is not acquisition ix. Tassi/Van Camp Apportioning Business Profits: determine the reasonable value of the working spouses services in the business, and allocate that as CP 1. The balance is SP 2. Formula: Increased value Reasonable value of services (CP) = SP 3. Formula: Value at time of divorce (SP investment + reasonable value of services [CP]) = SP I CP = SP

Pereira and Van Camp methods of apportioning the portion of the business that each spouse owns o TWO APPROACHES HAVE BEEN MADE WHEN ALLOCATING EARNINGS o 1) to allow interest on capital investment of the business allocate such interest as separate property and treat the balance as community earnings attributable to the normal earnings of the business - PEREIRA determine the value of the separate property what was originally put into the business (reasonable value of the services) I- SP = CP o 2) to determine the reasonable value of the Hs services in the business allocate that amount as community property and treat the balance as separate property attributable to the normal earnings of the business - - VanCamp (Huber) services to the business = community property - - this is done first I CP = SP x. Pereira or Van Camp Which approach should the trial court use 1. Whatever approach will achieve substantial justice for the parties 2. Clearer evidence as to rate of return or the value of the spouses services, that might have some bearing as to the courts choice of approach 3. It has been suggested that the court should figure out whether the increase was primarily due to the efforts of the spouse or due to the SP capital a. If primarily due to spouses efforts the court should choose the method which will yield the greatest community gain 4. Business lossesdo not use these formulas only for business profits xi. In re Marriage of Imperato Reverse Pereira/Van Camp applies where the business is CP, but one spouse continues to work for the business after separation and an increase in value results after separation part of the increase is due to that spouses efforts during separation which would be that spouses SP 1. Co started while married, no SP contribution, presumed to then be CP 2. 771- assets valued and liabilities should be determines as near to the date of trial as reasonably practicable with the reservation that any portion of the assets including goodwill which are attributable to the earnings and 25

accumulations of a spouse while living separate and apart are the SP of the spouse earning them

a. BUT, when you have a sole practice have to value as close to

separation b/c of the ability of the spouse to devalue it. (Green case) i. Today, if you can show the business profits decreased b/c of a bad economy this will not be held against you 3. Reverse Pereira formula give a fair return on the CP investment and the remainder is the working spouses SP 4. Reverse Van Camp formula value the spouses efforts (energy, skill, and time) and allocate that as SP and the balance is CP from date of separation to date of trial 5. 2552: Division of community assets upon dissolution the court shall value the assets as near as practicable to the time of trial a. Upon 30 days notice by the moving party (in the form of notice motion) to the other party, the court for good cause shown may value all or any portion of the assets and liabilities at a date after separation and before trial to accomplish an equal division of the community estate of the parties in an equitable manner. i. Sending a letter or phone call is not enough y.

Installment and Credit Transactions:

i. Acquisitions in Installment Transactions 1. Installment K;s must be Characterized as either SP or CP a. when an asset is acquired over time it should be apportioned in the amount of S and C that was used to acquire the asset b. Ex: land sale K, insurance policy, pensions and contingency fees. 2. Vieux v. Vieux property acquired by a spouse before marriage is that spouses SP BUT there is a CP interest in the amount of CP that was used to pay for the asset in proportion to the purchase price a. Also applicable to life insurance policy that is paid with SP and CP ii. Borrowed Funds and Credit Acquisitions 1. Credit transactions (loan or credit) after marriage are presumed to be CP a. Personal integrity of the borrower has reference to the individuals earning ability and reputation for paying back debt may be CP asset b. Rebut through tracing showing SP was used for the transaction, or a K controls, it was a gift. c. General presumption may not apply if statutory presumption applies or if the spouses were living separate and apart. 2. General credit of a buyer is CP even though it may have been built up before the marriage 3. Gudelj v. Gudelj with unsecured credit transactions, whether they are CP or SP depends PRIMARILY on the intention of the lender (no longer true) 4. In re Marriage of Grinius Loan proceeds acquired during marriage are presumptively CP; however, can only rebut the presumption that credit transactions are CP by showing that the seller SOLELY relied (no longer 26

primarily relied) on SP in making the loan AND did so rely. W/out satisfactory evidence of the lenders intent, the general presumption prevails. a. Determine the character of the loan i. Very rarely is a loan made solely on SP only way to prove it is to subpoena the loan officer to testify that he relied solely on SP b. Property, loan and repayment are 3 different things. Underlying property can still be SP if you refinance during marriage, the loan is CP unless prove it was solely relied on by lender to give loan then SP Intent of the lender- what induced the lender to allow the loan, or what induced the lender to believe that the people would be able to repay the loan, what is put up as collateral - signature alone = CP 5. In re Marriage of Moore SP acquired before marriage and then used CP funds to pay the mortgage there is an appreciation it the property during the marriage a. When you refinance the character of the loan changes, not the character of the property b. Apportionment theory: CP gets that percentage of the appreciation that it contributed to the purchase price c. CP percentage interest = (CP payments to the principal) / purchase price i. CP percentage interest is Dividing the amount by which CP payments reduced the principal by the purchase price d. SP percentage interest = (SP down payment + SP loan CP payments) / Cost of Purchase Price i. SP percentage interest is crediting the SP with the down payment and the full amount of the loan less the amount by which the CP payments reduced the principal balance of the loan. e. Appreciation of the property-each spouse gets the percentage of the appreciation that the CP paid for the house f. Ignore interest payments interest and taxes NOT included in price of the reimbursement of the SP b/c they dont increase the equity value of the property g. EXAMPLE: $100,000 asset (purchase price); $20,000 contributed by H SP; $80,000 is financed; the asset has appreciated to $150,000 i. Payments made during marriage were CP and reduced the principal on the loan to $78,000 ii. For purposes of the SP interest in the appreciation, the $78,000 is considered a contribution, as well as his $20,000 in cash 1. SP = (20,000 + 80,000 2,000) / 100,000 = 98% 2. So SP entitled to 98% of the appreciation iii. CP interest = 2,000 / 100,000 = 2% iv. So CP entitled 2 % of the appreciation 6. In re Marriage of Frick a. Fairness dictates that the S and CP respective interest should be based on the ratio of capital contribution to the purchase price it is this ratio that best reflects the parties respective interest in the property at the time the appreciation accrues the community should share in the appreciation 27

z.

The Classification of Improvements:

during the marriage in the same proportion that its capital contribution bears to the total capital contribution required to own the property outright 7. Marriage of Walrath : H owns an asset as SP and then deeded it to the community as JT (presumed CP), so entitled to reimbursement but they refinance the asset a. Rebut presumption with written agreement or title stating otherwise b. Property refinanced during marriage. After refinance the loan = CP, had they not refinanced the loan would be SP even the though the house was CP. c. Some of the money from the refinance was used to pay down the loan of the property, to buy another property, the loan was used to pay down debt on other property. d. Equity was SP until H transferred title. After refinance the equity was $1K. Cannot get interest in the CP then there is equity. Even though W put in 20K she cannot get it back b/c there is not enough equity e. When both parties contribute SP do apportionment if there is insufficient equity in the property. Apportionment used to divide remaining equity. f. To get reimbursement in any situation, you MUST be able to trace the funds. i. Dollar for dollar reimbursement for SP contribution. NO interest or appreciation. Most you can ever get reimbursed is the amount you put in which may be money or equity in property at the time title was changed form SP to JT ii. Pre 1/1/1984 in Lucus, no rights to SP unless there is an agreement or understanding to be reimbursed. 1. Use SP for down-payment for acquisition of CP, under marriage of Lucus NO right reimbursement of SP unless there is an agreement or understanding (express or implied) 2. Absent agreement presumed gift iii. Post 1984 presumed CP unless an agreement otherwise use 2640 g. H is not limited to reimbursement from the equity in the first asset to which his contribution was made H can trace his original contribution to the new asset and be reimbursed from that new asset

i. Improvements to Separate Property 1. CP contributions to other spouses SP a. Courts are not willing to presume it as a gift b. There is a right of reimbursement 2. Bono v. Clark the use of community property funds to improve a separate property asset a. Use of CP gives the community an interest in the separate property b. Remedies i. Reimbursement (dollar for dollar) this will be used when the value of the property has not increased OR 28

ii. Percentage interest in the property this will be used when there is
an increase in the equity value of the property 1. Applicable principlea. separate property is settled AND then b. community property is settled 3. NOTE: If either spouse appropriates community funds for his or her own benefit, without the consent of the other spouse, the community should be reimbursed. if one spouse acts in self-interest to the detriment of the community, the community should be entitled to restitution. ii. Acquisition of Separate Property 1. CP contributions to acquisition of other spouses SP a. Remedy is apportionment Moore 2. CP contributions to acquisition of same spouses SP a. Remedy is apportionment Moore iii. SP contributions to improvement or acquisition of CP 1. 2640 for cases brought after January 1, 1984 2. Cases involving the use of SP to improve CP are similar in some ways to cases involving the use of separate property to pay a community obligation or expense, in which the owner of the separate property is presumed to have made a gift to the community.

XII.

Personal Injury Damage Awards Money or other

property received by a married person in satisfaction of a judgment for damages for personal injuries is: aa. 780: CP if the cause of action for the damages arose during the marriage. bb. 781: Separate Property if the cause of action for the damages arose: i. After judgment of dissolution or legal separation ii. While either spouse is living separate from the other spouse iii. If the cause of action was before marriage and recovery was after marriage, majority would say that it is SP exchange rule cc. If the damages are deemed to be SP only, then the CP or the SP of the other spouse gets reimbursed for the expenses it paid for the injury i. If the damages are CP then there is no right to reimbursement dd. 782: If one spouse injured the other spouse during the marriage, money or property received from that injury are the SP of the injured spouse i. Tortfeasor spouse must use SP to pay judgment or settlement until that SP is exhausted, then he can use the CP ii. Cannot join a personal injury claim with a dissolution proceeding ee. 783- Injuries to married person by third party w/ partial liability to the spouse If a married person is injured by a third party, the fact that the negligent act of the spouse of the injured person was a concurring cause of the injury is not a defense to an action brought for damages against the 3rd party unless the defense would exist if the marriage did not exist. ff. 2603(b): In the division of CP, the recovery must be assigned to the injured spouse contrary to general statue that says CP is divided equally. i. Also community estate PI damages if the money has been commingled with other assets of the community estate 29

1. Funds are only commingled if they cannot be traced ii. Community estate personal injury damages get assigned to the party who suffered the injuries (exception to equal division) UNLESS: 1. The court after looking at all the facts of the case, determines that the interests of justice require another disposition (ct discretion) 2. But, at least half the damages have to be assigned to the party who suffered the injuries (limitation on the exception) iii. The cause of action has to have arisen during the marriage gg. How long are PI damage awards recognized as such before they become just regular CP and subject to equal division i. If the money has become commingled, then it has lost its identification as PI recovery and become regular CP ii. In re Marriage of Devlin They only time proceeds from a personal injury award lose their character as CP personal injury damages is, in the absence of an express agreement, when such proceeds have been commingled with other CP and it is impossible to trace the source of the property or funds. 1. Just b/c funds are in a joint account does not make it commingled 2. Look at the equity of the injury. Was the money used to help the injured with medical expenses or was it used as an investment. IF investment probably divide in if used for injury, injured probably gets more 3. Having traced all of the parties CP to the CPPI damages the TC was required to award this property to the H unless it determined that the interests of justice mandated a different disposition XIII.

Employment Related Benefits:

XIV. Classification as CP or SP depends on the underlying nature of the benefit

xv. Benefit that represents deferred compensation for services rendered during the marriage benefit will be CP. xvi. Benefit is designed to replace lost wages that would otherwise have arisen during marriage generally CP. xvii. BUT where benefits represent compensation for post separation or post dissolution services it should be SP XVIII. Retirement Benefits as deferred compensation to the extent that the retirement benefit represents deferred compensation for services rendered by the employee during marriage they are CP iii. Contributory v. Non-Contributory whether employee makes a contribution or not iv. Defined benefit plan states a specific percentage of wages the employee will get after a certain # of yrs of service or reaching a certain age v. Defined contribution specific account in the name of the employee that they pay into will get the money at the time of retirement vi. Vesting- not terminable when employment is terminated will get the money that you earned when the pension is mature 1. For divorce proceedings pension right that is NOT subject to a condition of forfeiture Once the pension vests, Employee may leave and still get the pension 2. For other than divorce cases pension right that the employer cannot unilaterally repudiate without terminating the employment relationship 30

vii. Matured v. Vested; 1. Matured unconditional right to immediate payment or that right to immediate payment is solely within the employees control 2. Vested a pension right may vest after a term of service but not mature until he reaches retirement age and elects to retire viii. Determining the community Interest in a pension

1. VESTED PLAN - Formula (generally) number of years in the community

number of years it took to become vested 2. Community interest in an UNVESTED PLAN a. have to see that it may never vest b. CP = #of yrs married / # of yrs at the company c. SP = # of yrs not married / # of yrs at the company d. If unvested may have to pay against the employer will be reimbursed when the plan actually vests i. Can cash out or can wait (waiting may = more money) ix. Retirement v. Disability 1. Retirement based on time is taxable- deferred compensation 2. Disability not taxed so more people if they have a choice will take this a. they are considered a substitute for salary so they are CP to the extent that they are gathered while the parties are living together b. once there is separation = SP x.

?????? In re Marriage of Brown there is a CP interest in a non-

vested pension plan 1. EX: Pension vests in 10 years. H works for 5 years, and then gets a divorce. W still has a CP interest in that non-vested pension plan of the time they were married 2. Do not care about vesting, b/c the years during marriage contribute to the ultimate benefit as much as the years after marriage. 3. Brown Time Formula: a. Before marriage: anything before is SP and remains SP b. During Marriage: marriage when employed/total time pension i. Date of employment or marriage (which ever is later) to Date of separation/length of employment = time rule 4. In non-vested pension plan, if its a contributory plan, the employee may take out however much he or she had put into it, but doesnt get what the employer had put it. Whereas in a non-contributory plan, the employee loses everything. xi. In re Marriage of Gillmore: 1. Ee spouse decided not to retire even though he was entitled to. Pension benefits are vested and matured. Ex-wife wants her interest in the retirement benefit and wants to be paid immediately. 2. Rule: One spouse cannot by invoking a condition wholly within his control, defeat the community interest of the other spouse. 3. Ee spouse could not use this election not to retire to deprive his wife of her interest in his retirement benefits. 31

a. nonEe spouse is the one who has the choice as to when his or her share of
the pension shall begin 4. The Ee spouse retains the right to determine what retirement benefits he will receive. However if Ee spouse opts for an alternative to accepting the benefits, he must compensate nonEe spouse for non Ee spouses interest. If the non Ee spouse wants immediate payment, non Ee spouse is entitled to it. 5. Ee spouse could compensate non-Ee spouse for non Ees right to share in benefits by a. Buy out nonEes share of the retirement b. Paying her the present value of her share of the pension plan (if it goes up in value later will not get more to compensate for in value) c. Pay non Ee spouse on a monthly basis ***Assets most common in marriage: house, retirement benefits, cars 6. Reserved Jurisdiction: If at the time of dissolution, pension benefits of Ee spouse has not yet matured, and the court reserves jurisdiction to divide the benefits when the Ee spouse becomes eligible for retirement rather than attempting a present valuation and division of the CP portion of the benefits. 7. If the nonEe spouse dies, their rights terminate at death 8. The court delineated 4 possibilities for the triggering the benefit entitlement: a. Date of eligibility to retire b. The date of demand by the spouse c. Date of issuance of an order passing on such a motion d. Date of filing of a motion by the non Ee spouse xii.

Valuation of the pension plan for division purposes:

1. Cash out method determine the present value of the plan and give an
offsetting award of other CP to the other spouse a. This method probably unfair because need expert testimony to determine the present value of a future pension plan and the experts are inevitably going to be wrong because it involves too much guess work

2. In kind method if and when there are payments then 50% of the CP
portion of those would be paid to former spouse and balance to employee a. Earnings after divorce are SP, so not 50% of retirement, it is 50% of the CP portion of the retirement b. Time-Rule Formula for determining CP share: (# of months of employment between marriage and separation) / (# of months of service) i. Probably the better method, because will always be right ii. Does not matter if calculated in days, months, years. 1. Ex: 5/20 = . Non employee spouse gets of 1.4 = 1/8. 3. Under Erisa which allows Quadro, the plan can be divided Quadro: if u withdraw money before age 591/2, u pay taxes and a 10% penalty. a. Quadro allows plan to be divided without tax consequences until there is an actual withdraw and keeping the money (putting the divided of non employee spouse does not incur penalty) xiii. Hug this not retirement benefit, but uses time rule 32

1. H changes jobs and left behind retirement benefits. At new job got stock options
as part of compensation. Stock options had conditions attached 2. Issue: whether stock options granted to H during marriage are CP or SP b/c they were not exercisable until after the parties separated a. H wanted time rule to start day the stock option was granted instead of date of employment b. (DOE DOS)/(DOE - years to exercise option ) 3. DOE was starting point b/c these options were granted for present service and not future service 4. Characterization of the option is case by case bias. a. Look at the purpose i. Is it a form of compensation 1. Now vs deferred (CP) OR 2. Future earnings (SP) 5. Any method that results in substantial justice is fine, not have to be time rule 6. Recent cases use the day of grant of an option instead of DOE 7. Stock options cannot be given to the nonEe. The nonEe spouse holds them as TE. The nonEe spouse controls as to whether to exercise them once they are exercisable. Until exercisable they are in the control of the Ee spouse even though non Ee is entitled to a certain amount hh. YEAR END BONUS only an expectancy interest: i. If you receive after separation a bonus that is clear in either employment K or formula, then bonus would be CP ii. if same bonus is for time effort after separation then it would be SP ii. DISABILITY i. Elfmont 1. Disability insurance benefits 2. Reason for disability benefits is to compensate for loss of future earnings - SP 3. Stanquest: Military man injured, received disability benefits, and no question that the benefits were used for loss of future earnings. But he remained in the service for a period of time and eventually left the service. When he left he had to choose either retirement or disability. He chose disability b/c higher 4. Retirement benefits are deferred compensation. Deferred compensation is earned during marriage, then spouse is entitled to b/c it is CP. 5. Amount H would have gotten for retirement treated as CP, and disability above and beyond SP ii. Disability benefits: 1. Paid for during marriage, disability occurs after marriage, renew payments were made after marriage = SP Community gets nothing iii. If disability benefits are paid during marriage, and then the parties separate do a purpose analysis. 1. What was the purpose of the benefits If purpose was for future loss of earnings the SP

33

XIX. Spousal Management XX. Management and control:

and Creditors Rights:

xxi. Prior to 1/1/75 H had management and control and Ws only cause of Action was for fraud iv. Since 1/1/75 H & W have = management and control jj. HYPO: H drafts a will: I give house, car, and account with 50K to my mistress. W does not know. All these assets are CP. What does the W get since H gave away her interest in these assets. W was to get everything else. i. Remedy: 1. accept the will and get only what is in it OR 2. Challenge the will and get CP. kk. HYPO: H is a salaried Ee and takes $ regularly from his co. (cooks the books) and takes extra $ and he and W buy a house. W does not know H is cooking books. Money H gets uses to help life style( buy more expensive things for C). H is caught. Is this the stitt case i. Benefits Community, pay with Community funds. ii. If the IRS wanted there take, years later, H would argue money used for benefit of C, and W would say not know about criminal acts and why should I be penalized. 1. not clear who has the liability ll. Stitt: i. W embezzles money and is caught. H knows about lawsuits against W. H does not want to be responsible for Ws att fees. ii. Att payment toward end of marriage and money not for benefit of C 1. Does that matter Prof not sure iii. 1000: P. 518: Debt based on the benefit to C, C pays and then attaches to SP, if debt not for C, SP first then CP 1. Used for PI recover or accident 2. Hypo: On way to work and hit another car, and injury someone, and both cars totaled. no insurance. a. Liability is satisfied first from CP. b. If H on way to see mistress satisfy with SP first mm. 1100: Community Personal Property; management and control; restrictions on disposition i. Both spouse have equal control of CP and can dispose of it at their leisure 1. Exception spouse cannot dispose of CP in will ii. Spouse may not make a gift of the CP or dispose of CP for less than fair and reasonable value without written consent of the other spouse 1. NOT applicable to gifts by both spouses to 3rd parties and 2. gifts given by one spouse to the other spouse iii. CP used as the family dwelling, furniture, furnishings, or fittings of the home, or the clothing or wearing apparel of the other spouse or minor children which is community personal property cannot be sold, conveyed or encumbered without the written consent of the other spouse iv. A spouse who is managing or operating a business or interest in a business that is all or substantially all community personal property has the primary management and control of the business or interest 1. This means that the managing spouse may act alone in all transactions but shall give prior written notice to the other spouse if there is a sale not in the ordinary 34

course of the business (e.g. selling the whole business or encumber the whole business) 2. If the notice is not given, it does not adversely affect the validity of the transaction the spouse has a remedy against the other spouse, but no remedy against the buyer 3. In order for one spouse to get the primary control of the business there must have been some relinquishment of that control to that spouse from the other spouse v. Spouses owe each other a fiduciary duty, special relationship 1. Fiduciary duty between spouses extends until the assets are divided by the parties or by the court 2. Duty includes the obligation to make full disclosure of all material facts regarding existence, characterization and valuation of all assets which may be CP duty to volunteer this information 3. This section appears to be retroactive 4. Careful because there may be a Pereira / Van Camp situation 5. If one spouse is an insider, then the laws regarding insider trading may prevent the spouse from disclosing to the other spouse nn. 1101- Claim for breach of a fiduciary duty i. spouse has a claim for breach of a fiduciary duty for any breach that results in impairment of their half of the CP ii. court may order an accounting iii. court may order a title change to reflect its CP nature iv. action has to be brought w/in 3 yrs of the breach 1. can be commenced at death or w/ a divorce or separation action or nullity 2. latches defense may be raised bars relief in equity to those who neglect their right to the detriment of others v. any action may be brought under this section w/out filing an action for dissolution of marriage, legal separation or nullity or may be brought in conjunction with the action or upon the death of a spouse vi. remedies for breach 1. Award to other spouse of 50%, or an amount equal to 50%, of any asset undisclosed or transferred in breach of the fiduciary duty 2. Plus attorneys fees and court costs 3. Interest will never be assessed against the managing spouse vii. If oppression, fraud or malice is involved then can get punitive damages 1. Can get 100% of the asset as exemplary damages 2. Theoretically can get more than 100%, but there has never been a case to award it 3. 50% unless show oppression, fraud or malice, then get 100%, plus attorneys fees and costs viii. Fiduciary duty to spouse until final disposition of assets 1. within 60 days of filing for dissolution, parties must file schedule of assets and liabilities, must be at least a preliminary showing, parties may waive final disposition of assets oo. 720: Mutual Obligations: H and W contract toward each other obligations of mutual respect, fidelity and support pp. 721: Contracts Between Each Other and Third Parties; Fiduciary Relationship 35

i. H and W have fiduciary relationships when entering into transactions with each other duty of highest good faith and fair dealing and neither spouse shall take any unfair advantage of the other the duty includes: 1. Providing each spouse access at all times to all books kept regarding a transaction for the purposes of inspection and copying 2. Rendering upon request, true and full information of all things affecting any transaction which concerns the CP a. But neither spouse is required to keep detailed books and records of CP transactions 3. Accounting to the spouse, and holding as a trustee any benefit or profit derived from any transaction by one spouse without the consent of the spouse with concerns CP ii. Continues to apply through separation until property is divided at divorce qq. 1103 Management and Control of CP; one or both spouses having conservator of estate or lacking legal capacity; law governing rr. 1102: Community Real Property i. Both spouses have management and control over community real property 1. Both spouses must sign any instrument by which the community real property is leased for longer than a year, or is sold, conveyed or encumbered ii. Does not apply to transactions between H and W iii. A transaction executed PRIOR to 1975 solely by Husband w/ a 3rd party shall be presumed valid if the 3rd party had good faith lack of knowledge of the marital relation (BFP) iv. A transaction executed AFTER 1975 solely by either spouse w/ a 3rd party shall be presumed valid if the 3rd party had good faith lack of knowledge of the marital relation v. One year statute of limitations to file action to void the transaction, beginning from the time of recording vi. Either spouse can encumber his or her interest in the property to retain or maintain legal counsel for divorce proceeding ss. 2033: Family Law Attorneys Real Property Lien i. Either party may encumber his or her interest in community real property to pay reasonable attorneys fees in order to retain or maintain legal counsel in a proceeding for dissolution, nullity or legal separation 1. This lien attaches only to the encumbering partys interest 2. Applies only to family law attorneys tt. Need consent of both spouses: i. To make a gift of the community property 1. Unauthorized Transfers a. Remedies i. Sue the Spouse ii. Sue the person who got the transfer (gift) 1. if community still in tack can get 100% back BUT 2. if death or divirce can only get 50% back b/c the other spouse could have willed it away or kept it to themselves ii. Affirmation of a Transfer 1. Series of Gifts can keep the gift to her and complain about the other gifts 36

2. Concurrent Gift- if the gifts are given in one transaction her acceptance = the
acceptance of the gifts to the third parties uu.

Debt Liability: spouse v. creditor

i. Is it pre-marital or post-marital debt? 1. 903: Debt is incurred when: a. K: at the time K is made b. Tort: at the time the tort occurs c. Or when the obligation arises

2. Pre-martial debt a. 910: Community is liable for debts incurred by either spouse before or
during marriage (does not include when the spouses are living separate and apart) i. Ex: Before marriage, W owed BB $500, C can come against CP or SP of debtor spouse. The spouse whose debt it is not is has a right of reimbursement. b. 911: (Exception): Earnings (CP) of a married person are not liable for the debts incurred by that persons spouse before marriage i. After the earnings are paid, they are still not liable so long as they are kept in a deposit account (of the married person) in which the persons spouse has no right of withdrawal and are un-commingled with other community property, except property insignificant in amount ii. Deposit account demand, time, savings, passbook account or the like (no brokerage firm) iii. With ex above cannot garnish wages of non debtor spouse to pay debtor spouses debt 1. Only applies for pre-martial debt If non debtor spouse, deposits only his money in a S account in the non debtor spouses name that debtor spouse does not have access to, then Creditor cannot go after what is in that account a. Once non debtor withdraws money and puts it in C account, then the Creditor may go after it b. If commingled, then C can go after any commingled property 2. Ex: While H and W domincled in NJ, money in there account is QCP. Under 912, QCP is treated the same as CP and a creditor may execute on this property

3. Post-marital debt: a. Post-marital means during marriage while married and living together
because does not include when living separate b. 910: CP is liable for debts incurred by spouse either before or during marriage c. 913: SP of person incurring debt is liable DURING marriage, but SP of persons spouse is not liable unless the spouse also incurred the debt 37

i. if the spouse signed the note then they have incurred the debt willing
to sing the mortgage BUT will not sign the note then there is no assumption of liability of her SP for the debt d. 914 (Exceptions): i. Married persons SP is liable for certain debts incurred by spouse during marriage: 1. Necessaries of life of persons spouse while living together a. Necessaries of life = rent, food, clothes, medical 2. Common necessaries of life of persons spouse while living separately (does living separately mean being separated?) a. Common necessaries of life = deemed to be necessary to sustain life bare necessities to sustain life b. Look at how much is spent filet v. cold cuts ii. married person is entitled to reimbursement of their SP when their SP is used Voluntary use of SP of persons spouse does not waive right to reimbursement ii. 915: Child or Spousal Support Obligation not arising out of marriage (e.g. H gets his mistress pregnant, or H divorces W1 and must pay spousal support even after marrying W2) 1. Treated as a debt incurred before marriage regardless of whether the court order to pay support occurred before or during marriage a. Thus, CP is liable except earnings of other spouse 2. If CP is applied to satisfaction of such an obligation at a time when non-exempt separate income is available, then the community is entitled to reimbursement iii. 920 - Right to Reimbursement: Right to reimbursement is subject to express written waiver 1. Right to reimbursement must be exercised within three years of the application of the funds to the debt 2. Concerned with liability to the creditor, not to the other spouse 3. Three kinds of property involved in debt liability issues a. CP of both spouses b. SP of the person incurring the debt c. SP of the spouse of the person incurring the debt iv. 912- Quasi-CP is treated as CP for all purposes and is liable to same extent as CP v. 902: Debt means an obligation incurred by a married person before or during marriage, whether based on contract, tort or otherwise 1. Does not have to be through contract or tort, could be through taxes, import or export tariffs or duties, or sanctions awarded against litigants 2. Debt includes any kind of obligation vi. 916 Division of property, subsequent liability, right of reimbursement; interest and attorneys fees 38

vii. 1000 liability for injury or damage caused by spouse; property subject to satisfaction of liability; satisfaction out of insurance proceeds; limitation on exercise of reimbursement 1. the liability of a married person for death or injury to person or property shall be satisfied as follows: a. if liability is based upon as act or omission which occurred while the married person was performing an activity for the benefit of the community the liability shall first be satisfied FIRST from the community estate and SECOND from the SP of the married person b. if the liability of he married person is based upon an act or omission which occurred while the married person was performing an activity for the benefit of the community the liability shall first be satisfied from the separate property of the married person and second from the community estate 2. does not apply to the extent the liability if satisfied out of the proceeds of insurance for the liability ****there are no cases on when there is an activity for the benefit of the community or not for the benefit of the community*****

XXII. Division of Community Property At Dissolution

vv. 2501: Community Estate i. Community estate includes both the community and quasi-community assets and liabilities of the parties. ww. 2550: Manner of division of community estate i. Requires equal division of CP except on written agreement or oral stipulation in open court ii. Community estate includes CP and quasi-CP assets and liabilities iii. Permits bifurcation of the dissolution proceeding and the division proceeding if the court reserves jurisdiction to divide the property at a later date 1. Permits judge to rule on divorce and reserve jurisdiction for a later date to divide the property xx. 2552: Valuation to occur as near as practicable to the time of trial i. the court should determine the value of the assets and liabilities as near as practicable to the time of trial ii. Upon 30 days notice (notice of motion), the court for good cause may value the assets and liabilities at a time between separation and trial in order to accomplish equal division in a equitable manner yy. Imperator- reverse Pereira - - watch out for this i. Pereira / Van Camp deals with the situation where have CP contributions to SP business allocates between return on investments and efforts of the spouse applied to the business 1. Reverse Pereira / Van Camp deals with the situation where have SP contributions to CP business zz. Bifurcation can only have one judgment in a dissolution aaa. Three Basic Methods of Distribution on Dissolution of Marriage i. Sell all the property- Court orders the property to be sold and divide the proceeds between the parties 39

1. Advantage Court doesnt have to spend time listening to experts as to the value
of the property b/c the market will value the property (not used very must except when value is very difficult to determine or when it is very easy to value but neither want the asset) 2. Problem with business that constitutes the livelihood of one of the parties not likely to be sold ii. Division in Kind: 50% of the asset is awarded to each spouse as SP 1. Advantage is that the court does not have to value the asset 2. Parties dont like this method because it keeps them as partners disfavored by the court and by the parties 3. This is typically done with investments and tax shelters a. In situations where you dont know how much you will get until you get out of the investment 4. EX: If there are 500 shares of ATT stock, may award 250 to each party 5. IMPAIRMENT OF A PRINCIPLE ASSET if there is a possibility where there could be one spouse buying out the others ownership of the business a. EX: H and W have 60% interest in the business and partner had 40% interest and W wants half of the Business BUT this would be unfair b/c she could get together with the other partner iii.

Asset Distribution Method court values the assets and then awards
certain assets to the W and the H 1. This method is used most often most favored 2. Seldom will be exactly equal so have to use an equalizer 3. EQUALIZER Excess that one spouse gets over the other spouse is divided in The spouse that got more has to give the one who got less the excess amount in cash a. EX: H awarded business worth $75,000 and W awarded residence worth $50,000 the excess is $25,000 so the H would have to pay $12,500 to W in cash b. If cannot say pay the excess amount due right away, can have delayed payments but interest must be paid on the unpaid balance i. legal or going rate of interest or a court appointed interest 4. FAMILY HOME Exclusive Occupancy- whoever has the minor children a. When there are H and W with minor children, typically the court will award the H and W undivided, equal interest in the house, but will give parent with the kids exclusive occupancy until youngest child turns 18 i. H cannot file for partition until youngest child = 18 1. once the spouse is no longer the custodial parent then the house is sold 2. if the spouse remarries- there is a rebutable presumption that further deferral of the sale is no longer equitable ii. Type of deferred sale that is seen as additional child support b. This method can only be done when there are minor children involved i. Children cannot be too young, because the court will not tie up the property too long 40

c. The impact of minor children in losing a home must be weighed against the
economic detriment of the out-spouse (usually the H) d. 3801: First the court has to determine the economic feasibility of a deferred sale i. if it is feasible then there is a balancing test 1. if the court determined that the order is necessary to minimize the impact on the children a. to see if there will be a deferred sale: Weigh i. adverse effect on the H ii. adverse effect on the child e. 3805 deferred sale may constitute additional child support f. 3806: Court has to determine who will be responsible for routine maintenance and capital improvements bbb.

Exceptions to Mandatory Equal Division i. Parties otherwise agree 2550 manner of division of the property 1. Especially if both are represented by counsel 2. Must be voluntary with no overreaching 3. 2550: Manner of division of community estate a. Requires equal division of CP except on written agreement or oral stipulation in open court b. Community estate includes CP and quasi-CP assets and liabilities c. Permits bifurcation of the dissolution proceeding and the division proceeding if the court reserves jurisdiction to divide the property at a later date i. Permits judge to rule on divorce and reserve jurisdiction for a later date to divide the property ii. Community debts exceed total community assets 1. Excess of the debts shall be assigned as the court deems just and equitable 2. Takes into account factors such as the parties relative ability to pay iii. Debts incurred after entry of dissolution judgment, but before termination of marital status shall be confirmed without offset to the spouse who incurred the debt iv. Court has jurisdiction to order reimbursement in cases it deems appropriate and for debts paid after separation but before trial v. Court has jurisdiction, at the request of either party, to divide the separate property interest of the parties in real and personal property, held by the parties as joint tenants and tenants in common vi. 2602: Deliberate misappropriation as an additional award the court can award the amount the court determines to have been deliberately misappropriated by the party 1. forgot to change the address not deliberate has to be a DELIBERATE misappropriation vii. 2604: Community estates of less than $5,000 modest CP exception 1. NET value of community estate less than $5,000 (keep debt in mind) 2. One party cannot be located through reasonable diligence a. If you can find him to serve him, then this prong not met i. Being in jail is not enough
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b. When can they not be located? At any time they need to be available, this
has not been 3. Then the court can award the whole estate to the other party on conditions the court deems proper 2641: Education loans assigned to the person who got the education 1. (b)(2) shall not be included among the liabilities of the community and shall be assigned to the person who incurred the loan 1000: Personal injury liability 1. married person not liable for injury caused by the other spouse EXCEPT where they would be liable but for the marriage 2603 - Community property personal injury damages 1. that the damages may be divided among the spouses even though the general rule is that the injured party gets it all BUT the injured party has to have at least 50% of the proceeds a. general rule, limitation and the exceptions on the limitations Undistributed Property that used to CP overlooked assets 1. If property is left undistributed after a divorce, the CP is owned by the parties as tenants in common 2. The property should be distributed equally but doesnt have to be 3. Court can distribute those assets as it deems appropriate 4. 2556: Court has continuing jurisdiction to award CP assets or liabilities that have not yet been adjudicated a. Does not have to be equal division but will be presumed equal division unless the court finds good cause 2625 all separate debt including those during marriage and not for the benefit to the community shall be given to the party that incurred them Overlooked assets oops cases 1. general rule CP that is not distributed is owned by the parties as tenants in common

viii.

ix.

x.

xi.

xii. xiii.

XXIII. Distribution of Community Property at Death

ccc. Testacy died with a will i. Probate Code 100 1. belongs to surviving spouse; belongs to decedent ii. Probate Code 101: Quasi-CP (matters which spouse acquires the property) 1. of decedents quasi-CP goes to surviving spouse; other belongs to decedent 2. This is the only place where have distinction between QCP and CP 3. Quasi-CP, decedent can only dispose of the quasi-CP acquired by decedent cannot dispose of quasi-CP acquired by spouse 4. Exchange rule is made applicable iii. Probate Code 6101: What can be disposed of by will 1. Testators SP 2. The of the CP that belongs to testator 3. The of the testators QCP that belongs to the testator iv. Testator disposes of more than the CP to someone not the spouse in

a will
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1. Code is silent 2. Spouse has an option to take under the will or against the will 3. If take against the will, forfeit all gifts made to you under the will and only get
50% of the CP a. But the will is not invalidated the property is otherwise dispersed according to the will b. Will is executed as if the surviving spouse died first 4. If the gifts made to the spouse under the will amount to more than would take from the CP, then the surviving souse will elect to take under the will 5. If the the CP amounts to more than what was awarded in the will, the surviving spouse will take against the will a. Who gets the gifts made to the spouse when taken against the will stock goes to decedents heirs 6. Will can say that the surviving spouse gets gifts in will no matter what a. Such a provision would allow the surviving spouse to take both under and against the will ddd.

Intestacy dies without a will

i. Probate Code 6401

1. If die with no will, surviving spouse gets all the CP 2. Quasi-CP has same result
ii. Separate Property 1. If surviving spouse has one child, then the spouse and the child share equally 2. If the surviving spouse has more than one child, then the spouse gets 1/3 and the children share 2/3 iii. NOTE- CP passing to a surviving spouse is not subject to a CA death/Inheritance taxseparate property is subject to an inheritance tax 1. OLD LAW: many times in the will the spouse will state everything is community property therefore when there is a divorce theyll use the will to prove that all the assets are CP (good for the spouse contesting the separate property) 2. NOW the statute is changed to show that the will is NOT admissible to show that all the property is CP (can no longer look to the will to see if there is a clause that transmutes everything to CP)

RANDOM STUFF eee. Supremacy Clause: When there is a conflict with state and federal law, the federal law is supreme. i. Absent a congressional mandate to preempt state law, the court will look to whether the application of state law will substantially impair federal interests. 43

ii. Exceptions: 1. Fraud a federal law cannot be used to perpetuate a fraud, if it is, the party seeking to use state law will be able to recover. fff. Federal benefits that area subject to the supremacy clause: i. GI insurance ii. U.S. Savings Bonds iii. Retirement benefits for people in military service iv. National Service Life Insurance Act 1. Wissner v. Wissner Federal law granted the insured the right to designate a beneficiary which was not his W; state law granted right of spouse to proceeds of insurance policies federal law is supreme preempting LA law and W cannot collect against Hs governmental insurance plan b/c to hold otherwise would frustrate the deliberate purpose of Congress and nullify the soldiers choice a. W still has state right to proceeds of non-governmental insurance policies of H. b. This case doesnt require CP states to classify the proceeds of NSLI policies as SP, but only to refrain from administering those incidents of CP law which would frustrate the congressional plan even though the policy was paid for by CP money c. Preemption does apply v. Government Bonds (U.S. Savings Bonds) if the bonds are taken in the name of the purchaser or someone, then the federal statute says that the or someone only takes title upon the death of the purchaser 1. Even if the bonds are bought with CP, the spouse, not named on bond, cannot take title after the purchasers death, unless the federal statute was used to perpetuate a fraud vi. Social Security it is the SP of person holding it vii. Employment Retirement Benefits 1. Employee retirement benefits have long been classifiable as CP under CA CP law a. The problem arises when the retirement benefits are created by federal law 2. Hisquierdo v. Hisquierdo CA CP laws cannot be applied to pensions created under the Railroad Retirement Act 3. McCarty v. McCarty held that federal law would preclude a state court from dividing Military retirement benefits according to state CP laws (old law) a. Supreme Court said that once the money was paid, the state courts still could not dispose of the money as CP because it would evade the supremacy clause but this was overruled by FUSFSPA viii. Federal Uniformed Services Former Spouses Protection Act (FUSFSPA)

1. Once the money is paid the state courts are free to dispose of
it by CP laws a. This is the law today 2. Limitation that no more than 50% of the disposable retirement payment can be subject to the CP laws 3. The Act also allows the court to send payment straight to the spouse

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a. However, this power is limited to situations where the parties have been
married for at least 10 years and the military spouse has 10 years of service credits during marriage. b. This doesnt mean that if the parties are married less than 10 years, or there is less than 10 years of service during marriage, it is not CP, just means that the payment cannot be sent directly to the spouse 4. Act allows any McCarty based cases to be vacated, if done so within 2 years, and re-heard 5. Domicile Requirement a. Pensioner must be domiciled either within the courts territorial jurisdiction or else a resident in that jurisdiction other than because of military assignment 6. Separation of Powers Problem a. Supreme Court has held that Congress can always determine what its own intent was b. SC has never reached the separation of powers issue, but the argument has been unsuccessful at the circuit level ix. Federal Copyrights 1. Copyrights are CP because the owner can transfer all (assignment) or a portion (license) of the interest in compliance with the federal statute. ESSAY At death half of CP goes to the spouse and half to the dead person Quasi Community property page 647 102 only property acquired by a decedent December 10 1:30 -Exam room ???? for typing Answering the Exam DO NOT DO IRAC do not list the issueuse a tile of what is going go to be spoken about EX: the house do not only repeat the facts be sparing with the facts - -work the facts into the analysis Breaks down into three section 1. Determining the status of the items The car The house The bank account etc Dont be very specific about what is first second, third etc Use the sequence that was given in the exam Do not separate the items at the end of each section do that at the end of the whole section - -all the possible ways 45

2 What are the debts 3 how the property is divided may only have to determine the community property and not the separate property may only have to look at all the property what is the disposition of the property - -- look to the call of the question dont add more than what is asked if told that it is in writing then dont talk about what happens when there is no writing Also discuss claims of spouse v. spouse reimbursement dont need to know the code section #s can be if absolutely certain but that is all do not give the names of cases

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