I) CHARACTERIZATION OF PROPERTY A) SEPARATE PROPERTY 1) Family Code 770, 771, 772 (a) Property owned before marriage or acquired

d after permanent separation is separate property (i) unless one or both the spouses have transformed it into community property (Family Code 1500, see infra) (b) Property received by gift, bequest, devise, or descent (Family Code 770); a. A gift received for services rendered is consideration given for labor, therefore it would be CP. a. When a gift is given between two persons with a purely business relationship, a court may consider the transfer was given in response to past labor performed by the grantee. (c) The rents, issues, and profits of separate property (Family Code 770); and (d) Property acquired in exchange for separate property. B) COMMUNITY PROPERTY 2) SOURCE OF ACQUISITION: (a) All property acquired during marriage (by labor or other valuable consideration, i.e. onerous title) is community property (Family Code 760), except (that which is obtained by an individual via lucrative title): (i) Property received by gift, bequest, devise, or descent (Family Code 770); (ii) The rents, issues, and profits of separate property (Family Code 770); and (iii) Property acquired in exchange for separate property. (b) Anything acquired during the course of the marriage as a result of the efforts of either or both of the parties. (c) GENERAL COMMUNITY PROPERTY PRESUMPTION: (i) The courts have established a presumption that property acquired during marriage is community property a. Some cases say that possession during marriage gives rise to a presumption of acquisition during marriage. Lynam v. Vorwerk otherwise proponent must prove a. the possession formulation (possession suggests acquisition during marriage) is likely to be applied in a long marriage whereas the acquisition formulation (acquisition during marriage makes property CP) is likely to be applied in a short marriage. 1. Possession of property during a short marriage does not give rise to the inference that the property was acquired during marriage. a. Tracing can overcome general CP presumption (D) SP PROPONENT OVERCOMING THE GENERAL COMMUNITY PROPERTY PRESUMPTION: (i) showing that the property was acquired by gift, etc. under 770, or is the fruit of separate property under 770 (ii) showing the parties took written title to the asset in a manner that shows the parties agreed to hold it other than as CP (see infra) a. Title Presumption: CEC 662: the owner of legal title to property is presumed to be the owner of the property, rebuttable by clear and convincing evidence. 1. can be overcome by Married Womans Special Presumption pre-1975 (see infra) (iii) showing the parties, by agreement before or during marriage, agreed that this property would not become CP (see infra) (iv) One spouse took title in a manner that evidences a gift of his/her community property interest to the other spouse (v) Tracing. If the asset is untitled or titled in the purchasing spouses name alone the SP proponent can trace the funds in whole or in part to a separate property source. In such a case, the separate estate is a proportional owner to the extent of its contribution to the purchase price a. Title Presumption Generally Controls: When the title status suggests the parties have agreed to the characterization, tracing is inapplicable. Thus, title presumption can trump a SPs tracing. Unless purchasing spouse take title in their name alone (e) TIME OF ACQUISITION: The marital economic community begins at marriage and ends at: (i) one spouses death or (ii) when a living husband and wife effect a permanent physical separation. 771

a. To terminate the marital economic community by permanent physical separation, there must be
both a complete and final break (objective) and an intent (subjective) not to resume the marital relationship. (Hardin). 1. Effect of reconciliation uncertain. There is not a complete and final break if the parties reconcile. B) TYPES OF ASSETS THAT ARE HARD TO CHARACTERIZE AS CP OR SP (i) Personal Injury Recovery Against Third Party Tortfeasor a. Recovery is classified according to when cause of action arose 1. A cause of action arises when the injury is inflicted. And is characterized as such 2. A personal injury cause of action that arises after permanent separation is the injured spouses separate property, but the injured spouse must reimburse the community or the other spouses separate estate for any expenses paid on account of the injury. (Family Code 781). a. At Divorce only, according to Family Code 2603, community estate personal injury damages (CEPID) shall be awarded entirely to the injured spouse unless the interests of justice (including economic need) require otherwise. In any event, the injured spouse must receive at least one-half. 1. Exception for when CEPID are commingled. once community estate personal injury damages have been commingled with other community property, the damages lose their special character and should be treated as CP i. But, in Marriage of Devlin, tracing was allowed to identify the land and mobile home were purchased using CEPID. (ii) Personal injury recovery against the other spouse is always the injured spouses separate property ( 781(c)). (iii) Recovery for Damages to Property a. Same as damaged property, usually ignore character of insurance premium payments (iv) Retirement Pensions a. Retirement pensions are treated as CP to the extent that the right to the benefits was earned during marriage. 1. Vested and Unvested Pensions: a. Since 1976, CA has treated unvested and vested pensions as CP so long as the right to benefits was earned during marriage. Marriage of Brown. The speculative nature of an employees unvested interest is simply one factor that the court takes into account in distributing the pension. i. Rights to Reinstate Pension: If the economic community has terminated before the employee reinstates his pension, the nonemployee spouse must pay her share of the reinstatement fee (50%) to receive her share of the community portion of the pension. (Marriage of Lucero). ii. A working spouses election of retirement benefits that diminishes both his and his wifes community interests, that election is allowed. Marriage of Foster. a. Valuation of Pension Earned Both During and After Marriage/ Time Rule: 1. Unless doing so would produce a grossly inequitable result, courts usually apply a simple time rule a. CP interest: (present pension value in an immediate distribution case or monthly benefits in a wait and see distribution) x (# of pension contribution years during marriage/# of total pension contribution years). b. SP interest: (present pension value in an immediate distribution case or monthly benefits in a wait and see distribution) x (# of pension contribution years not during marriage/# of total pension contribution years). a. Terminable Interest Rule Abolished By Statute: 1. This rule was abolished by 2610, which provides each party shall receive the partys full community property share in any retirement plan. 2. the courts of appeal have held that the legislation applies equally when a marriage survives until the death of one of the spouses. However, the U.S. Supreme Court, interpreting ERISA, held as a matter of federal preemption that ERISA anti-assignment provisions prohibit the testamentary transfer by a nondivorced deceased spouse of her state law community property interest in her surviving spouses ERISA-regulated private sector pension. (Boggs v. Boggs). a. When Pensionable Spouse is Eligible to retire but does not

1. the nonemployee spouse may insist that she receive her one-half community property interest as soon as the worker is first entitled to retire. a. Under 1984 Retirement Equity Act Amendments to ERISA, the CA divorce court may order a private employer to pay the nonemployee spouse her share of the benefits as though the worker had in fact retired. But ERISA does not cover public pensions (v) Disability Pay and Workers Compensation a. disability pay includes workers compensation as well. a. To the extent that disability pay is intended to replace marital earnings, the disability pay is community property. To the extent that disability pay is intended to replace separate postdivorce earnings, it is separate property (Marriage of Jones, Marriage of Saslow) (vi) When Worker is Eligible for Retirement Pension but Elects Disability Pay a. In such cases, CA requires that the disability pay be treated as community property to the extent that it replaces a community interest in an old-age retirement pensions the retired worker would have received had he not elected to received disability pay instead. (Marriage of Stenquist). 1. federal law preempts this rule with respect to military disability benefits 2. Although the community-funded right to renew disability policy may be valuable to a currently uninsurable divorcing spouse and the policy may later generate retirement benefits, those benefits are nevertheless entirely the insured spouses SP. (vii) Severance Pay a. Courts are split 1. Marriage of Wright (1983): A permanently separated husbands severance pay was his separate property because (i) the couple was permanently separated, and (ii) the severance pay replaced lost earnings that would have been the workers SP. It observed the employer was not contractually obligated to grant severance pay. (Employers intent was not for compensation for past services). 2. Marriage of Horn (1986): Post separation NFL severance pay was community property because the right to lump sum severance pay arose from a collective bargaining agreement and because the right was earned by employment during marriage. (viii) Business and Professional Goodwill a. To the extent that goodwill is earned during marriage, CA treats it as CP even when some professional goodwill cannot, by law, be sold or transferred, and even though much professional goodwill inheres in the individual practitioner and would not survive a sale 1. Market sales valuation is the price the goodwill would command in a sale of the business or profession. 2. Capitalization of past excess earnings ascertains the present value of the future stream of income that the goodwill developed during marriage will generate in the business or professional practice. (Usu. much higher figure). 3. Date of Valuation is the date of separation of the parties (ix) Education and Training a. Majority: An educational degree is not considered marital property, subject to equitable division upon divorce. (Marriage of Graham, CO) a. Minority: Because of NY statutory language, direct or indirect contributions by the non-title holding spouse to a profession, including efforts to gain a professional license, is marital property subject to equitable distribution. (OBrien, NY) a. CA: Education and training acquired during marriage are not treated as CP. Family Code 2641 creates and equitable right of reimbursement with interest to the community (not to the nonstudent spouse) when community funds are: a. used either to pay for education or training or are used to repay a loan incurred for education or training, AND b. the education or training substantially enhances the earning capacity of the educated party. 2. 2641 defines reimbursable community contributions as payments made with CP for education = ambiguous. a. This suggests payments only for direct education expenses, such cost of tuition, books and supplies, and transportation (Marriage of Watt).

b. Yet, reimbursement for loans paid with CP suggests that living expenses may be contemplated as well. c. 4320 says the divorce court should consider the extent to which the supported party contributed to the attainment of an education, training, a career position, or a license by the supporting party. Thus, Watt held lower courts determining spousal support obligations should consider the indirect educational costs contributed by the nonstudent spouses labor, including contributions for ordinary living expenses. 3. Reimbursement may be reduced or modified by any of the following: a. The community has already substantially benefited from the education or training. i. Rebuttable presumption that the community has not substantially benefited if it has been less than 10 years since acquiring license or degree. 2641. b. The education or training is offset by a community funded education received by the other spouse. c. The education or training enables its recipient to engage in gainful employment that substantially reduces the need the recipient would otherwise have for spousal support. (x) Life Insurance Proceeds a. Proceeds at Death: CA has traditionally treated life insurance proceeds as community property in proportion to the percentage of premiums paid by the community. a. Proceeds at Divorce: 1. Whole Life (With Cash Value): To the extent a policy has current cash value, that cash value is community property in the proportion as the community paid the premiums. 2. Term (Pure) Insruance: Term insurance has no cash value. The premium covers no more than the risk of death. When the premium period expires, there is nothing left except the right to insure for another premium period, usually annual period until age 65. a. Only if he becomes uninsurable during the community funded premium period does the community have a claim to a portion of the proceeds. C) Agreements That Alter The Character of Property 2) Family Code 1500: Parties may entirely or partially avoid the CA community property system by agreement. 3) PREMARITAL AGREEMENTS: 1610-1615 (a) Typically, parties make a premarital (antenuptial) contract specifying that after marriage each partys earnings shall remain his SP and that neither shall make any intestate or other statutory death claims against the others estate (Marriage of Dawley) (b) Persons entering premarital agreements do not have a fiduciary relationship that is associated with married persons. Instead, they bargain at arms length. Marriage of Bonds. (c) Statute of Frauds Requirement: There must be a writing signed by both parties (Family Code 1611). However, an oral premarital agreement may be enforced when (i) the executory promise was fully executed by the promisor, or (2) the promisor is estopped to assert the SOF. (i) An oral executory promise that has been executed (performed) by the promisor may be enforced even though there is no writing because performance tends to prove the existence of the promise. (ii) A promisor is estopped to assert the SOF when the promisee has relied to her detriment on the oral premarital agreement. (d) Circumstances that Render Premarital Agreements Unenforceable (i) Premarital Agreement Promoting Dissolution will not be enforced. a. This case law requirement has been read narrowly to invalidate only those terms of the agreement that create a positive incentive for one party to seek a divorce (ii) Premarital spousal support waiver is unenforceable if the party resisting enforcement was not represented by legal counsel or the provision is unconscionable. Allows for second look at dissolution proceedings of the spousal support. Family Code 1612(c). (iii) Agreement Executed Involuntarily is not enforceable under Family Code 1615(a)(1) against the party whom enforcement is sought. As amended in 2001, 1615(c) provides that an agreement was not executed voluntarily unless the court finds all of the following: a. the party against whom enforcement is sought was represented by independent counsel or, after being advised to seek independent counsel, expressly waived such representation in a separate writing;

a. At least seven days before it was signed, the agreement was presented to the party against whom enforcement was sought and that party was advised to seek independent legal counsel; a. If unrepresented by legal counsel, the party against whom enforcement is sought was fully informed in writing prior to the signing of the agreement of the terms of the agreement and the rights she was giving up by signing the agreement, and was proficient in the language of the explanation and the agreement; a. The agreement and the other required writings were not executed under duress, fraud, or undue influence; AND a. Any other factors the court deems relevant. (iv) A premarital agreement is not enforceable under Family Code 1615(a)(2) if the party against whom enforcement is sought proves that: a. it was unconscionable when executed AND a. the party did not and could not have had adequate knowledge of the wealth of the other party, and did not waive her right to disclosure of such wealth. 4) TRANSMUTATION DURING MARRIAGE 850-853 (a) This section examines all agreements made by the spouses during marriage OTHER THAN those agreements evidenced solely by the form of title in which the asset is held (see titled-inferred agreements, infra). (b) Agreements Made Before January 1, 1985 (Liberal Approach allowed oral agreements): (i) Courts noted that informality characterizes the property relations of married persons and developed a doctrine that responded to this informality. In addition to recognizing explicit oral agreements, courts recognized agreements or donative acts inferred from one or both parties behavior. (c) Agreements Made On or After January 1, 1985 (Express Writing Required or accepted by adversely affected spouse): (i) A transmutation made on or after Jan. 1, 1985 must be evidenced by an express declaration in writing that is signed or accepted by the spouse whose interest is adversely affected (See Family Code 852(a)). a. The express declaration must contain language that expressly states that a change in the characterization or ownership of the property is being made. (Estate of MacDonald). a. Prof. says 852 does not require the use of language such as transmutation, separate, or community, rather just objective express declaration stating a change has been made in the legal ownership rights of property. 1. In MacDonald, a widower claimed that his deceased wife had relinquished her CP interest in his IRA when she signed a required bank form that gave her consent to his designation of a different trust beneficiary of the IRA. The Supreme Court held that she retained her CP interest in the IRA funds because it was not possible to tell from the face of the document whether decedent wife was aware that the legal effect of her signature might be to alter the character or ownership of her interest in the pension funds. This fails the express declaration requirement of 852. a. The court additionally held the parol evidence rule applies to transmutation documents. a. Effect of MacDonald: 1. The reach of MacDonald is uncertain because its requirement that a post-1984 transmutation contain language that expressly states that a change in the characterization or ownership of the property is being made. Taken literally, this language may be understood to cast doubt on the effectiveness of explicit and unambiguous written title, because written title often states the ultimate character of ownership, but does not express any change in the character of ownership. a. Ex. W uses her SP funds to purchase a new car for H. W has the deal make the title out to H, as his SP. Before MacDonald, this would have been sufficient to transmute Ws SP to Hs SP. Ws intent is clear and unequivocal. Yet the language of MacDonald has not been satisfied. 2. MacDonald may be limited to its facts. It merely involved a consent to the other spouses nonprobate beneficiary designation, as opposed to an explicit transfer of property. a. Legislative Response to MacDonald: The rule of MacDonald was left intact with respect to disputes between living spouses. Instead, the Legislature sought to relieve nonprobate beneficiary designations - and spousal consent to such designations - from the express declaration

requirement of 852(a). Probate Code 5002-5032 provide that nonprobate beneficiary designation that fails to satisfy 852(a) and hence fails to work a present transmutation may nevertheless be effective as consent to a beneficiary designation. Such consent remains revocable while both spouses are living. At the death of either spouse, such spousal consent becomes irrevocable. a. Express writing requirement for transmutation during marriage bars ordinary exceptions to the Statute of Frauds (estoppel and part-performance). 852(a) requirement of an express written declaration bars a promisee from offering extrinsic evidence to show a transmutation agreement. 1. This is on appeal to the Sup. Ct. of CA. Prof wants us to answer this open question: a. 852(c): Exception for Personal Gifts of Relatively Insubstantial Value (d) Transmutation agreements are subject to fraudulent transfer law. 851. (e) 852 does not apply to transactions between H & W and a third party. Only applies to transactions between H & W themselves. (f) Statements in a will are not admissible as evidence of a transmutation of the property in any proceeding commenced before the death of the testator. 853. (g) Unenforceable Agreements Between Married Persons. (i) Family Code 1620 provides that, except for property rights, a husband and wife may not alter their statutory legal relations by contract. (ii) Family Code 720 provides that a husband and wife are obligated to support each other. (h) Confidential Relationship and Presumption of Undue Influence. In transactions between themselves, husband and wife are subject to the fiduciary rules that govern confidential relationships. Family Code 721. The confidential relationship of spouses imposes a duty of the highest good faith and fair dealing on each spouse. 721. A rebuttable presumption of undue influence arises when one spouse gains an advantage over the other in a property transaction, including transmutations during marriage. The spouse who obtained the advantage bears the burden of rebutting the presumption. (i) The disadvantaged spouse must first show evidence of lack of consideration for the advantaged gained by the other. This gives rise to the presumption of undue influence. The advantaged spouse then bears the burden to overcome that presumption. Prof takes us through different cases to show how advantaged spouse can overcome the presumption of undue influence. a. Rebutting Presumption under Rules from Haines and Delaney: 1. Transaction was freely and voluntarily made 2. Transaction was made with full knowledge of all the facts 3. Transaction was made with a complete understanding of the effect of a transfer 4. Transaction was fair and just 5. Adequate consideration was given by the spouse obtaining the advantage 5) AGREEMENTS TO CHANGE CHARACTER OF PROPERTY INFERRED FROM TITLE (a) CA community property law infers an intent to change the character of the property to the form evidenced by the written title. (i) Community Property law is influenced by CEC 662: The owner of legal title to property is presumed to be the owner of the property... 6) Joint Tenancy. Each spouse owns undivided one-half interest (each one-half interest is SP). The surviving spouse automatically becomes the owner of the decedents interest as well has his own under right of surivorship. A joint tenancy can only be created by explicit language. Civ. Code 683. (i) Evidence of an Agreement Can overcome title presumption created by joint tenancy a. Pre-1970: Divorce only for Fault. If title to property was in CP, court could give innocent spouse more than half the CP. If joint-tenancy title, then court could only give each their separate interest. 1. The parol evidence of unilateral, uncommunicated intent of W to maintain property as CP, rather than joint-tenancy was insufficient to rebut title presumption. 2. Bowman v. Bowman: Property held in joint-T = title presumption. W met her burden of proof by introducing parol evidence of mutual intent to hold property as CP a. Upon death, the distinction between joint tenancy and CP is important for tax purposes. (b) Tenancy in Common. Tenants in common possess equal proportional ownership interests in the asset. There is no right of survivorship. Default form of title for non married or married pe 1975

Title Taken by Married Persons as John Smith and Mary Smith after 1974. Family Code 803 post-1974 title taken by married persons simply as John Smith and Mary Smith should probably be characterized as community property title. (c) Community Property. Title is explicitly taken in CP when the parties are identified as husband and wife or when CP title is specified. Family Code 803. (d) Community Property with Right of Survivorship. Must be expressly stated (i) Avoid probate like joint tenancy (ii) (Theoretically) only one-half of basis is stepped up for tax purposes, like joint tenancy (iii) Inability to transfer property w/out consent (iv) creditors can attach property (v) Married Womans Special Presumption. when written title to property was placed in a married womans name before 1975, that property was presumptively (by statute) the married womans separate property. Family Code 803. a. When applicable: 1. The Married Womans Special Presumption applies to pre-1975 written title when: a. A married woman acquires property (holds written title) in her name alone (presumption arises that it is her SP). b. A married woman holds written title in some joint form with someone other than her husband (presumption is that married woman takes as a tenant-in-common, unless instrument evidences otherwise). c. If otherwise unqualified title was taken by a married woman and her husband (Grantor to John Smith and Mary Smith), the married couple takes title as tenants in common. Moreover, the wife holds her one-half interest as her SP and the husband holds his one-half interest as CP. Thus the wife ends up with a 75% interest and the husband with a 25% interest. Dunn v. Mullan. 2. When Not Applicable a. The MWSP is not applicable to joint tenancy or community property held by husband and wife, because it only applies when property does not indicate otherwise. 3. Overcoming Presumption a. Between Spouses - Presumption is Rebuttable. the husbands rebuttal evidence must additionally counter the title implication that he made a gift to his wife. For example: i. He could show that he did not place or accept title in his wifes name. Louknitsky v. Louknitsky C) WHEN SPOUSES TAKE TITLE IN JOINT AND EQUAL FORM (JT OR CP) BUT ONE CONTRIBUTES DISPROPORTIONATELY TO PURCHASE PRICE FROM OWN SP - PRESUMPTION OF GIFT. 1) In 1965, Legislature passed 5110, upon divorce the presumption is that the home is CP instead of joint tenancy. Did not establish BOP to rebut 1) Marriage of Lucas: the act of taking title in a joint and equal form is inconsistent with the preservation of a separate interest. The SP contributor (W) is presumed to have made a gift, and SP proponent (W) can overcome the presumption of gift by proving an understanding or agreement between the parties that a separate property interest would be maintained. She must prove an understanding by both parties W proves such an understanding or agreement, a pro rata accounting is used = her separate estate will be a 30% proportional owner in the home, and 70% will be community property. 2) Aftermath of Lucas. (a) Lucas was changed by the legislature and subsequent case law as it applies to divorce and legal separation cases. But, the legislature made no attempt to repeal Lucas insofar as it applies to death cases. So, the Lucas gift presumption (SP contributor gifted SP) remains entirely operative when marriage ends in death ( 2581 does not apply to termination by death). (i) Legislative Response effective 1984-1986: a. Civ. Code 4800.1/evolved into Family Code 2581: Only joint tenancies are treated as CP at divorce. And, to rebut this presumption, a writing that clearly states the SP contributed remains as SP was necessary to avoid being treated as CP.

(i)

a. Civ. Code 4800.2/ now Family Code 2640: In the division of CP ... the party shall be
reimbursed for his contributions that can be traced to a SP source, but the amount for reimbursement is without interest. Overrules Lucass gift presumption, and SP contributor does not realize appreciation. a. Lucas continued to control an co-ownership property not held in joint tenancy. a. Supreme Courts Response to Legislatures 1984 laws: a. Marriage of Buol: 4800.1 & 4800.2 cannot be applied retroactively, as Legislature wants, when the retroactive application impairs a vested property interest. (ii) 1987-Present: a. Civ. Code 4800.1(a)(3)(b)/ Now Family Code 2581: All Joint Property Presumed Community Property. This includes property held in joint tenancy, tenancy in common, comm. property, and tenancy by the entirety The presumption that such property is CP at divorce can be overcome only by collateral written agreement or a statement in the deed that the property is separate property and not community property. 1. Remember, joint tenancy and other co-ownership forms remain intact at death. 2581 only changes the treatment to CP status for the purposes of divorce. a. Family Code 2640: Remains intact. An asset is CP only when a party cannot otherwise show it to be SP under 2581. When it is CP, SP contributor only has a right to reimbursement without interest. (iii) Reimbursement. If the joint titled property is community property at divorce the SP contributions to the contrary, acquisition of the property shall be reimbursed to the SP contributor without interest or appreciation. a. Applies to Improvement of CP & Reducing Principal. 1. but does not allow any reimbursement for payments made for interest on the loan or payments made for maintenance, insurance, or taxation of the property. a. Spouse Deeds SP into Joint Title. 1. When a spouse deeds SP into jointly titled 2581 property, the 2640 SP contribution to the acquisition of the property is the fair market value of the property at the time it was deeded into join title. (iv) Effect of Statutory Change. 2581 and 2640 were intended to reverse Lucas gift presumption at divorce, but they effectively maintain the presumption by treating the SP contributor as a gratuitous (without interest) lender rather than as an owner (who realizes the appreciation). (v) Limited Retroactivity of Statutory Changes. Cal. Sup. Ct. held that, consistent with due process clause of the 14th amendment, 2581 and 2640 may not constitutionally be applied to transactions (date when title was taken or, if later, when the parties made a Lucas agreement or understanding) that occurred before the effective dates of the statutes when such retroactive application would deprive a party of vested property rights. Marriage of Heikes. a. Section 2581 Retroactivity. 2581 may be retroactively applied to property acquired before its effective date when the only result of its application would be (i) the destruction of an unvested right of survivorship, in consequence of treating property titled in joint tenancy as community property, or (ii) the treatment of one form of equal ownership, such as tenancy in common, as community property. 1. Effective Dates for Nonretroactivity Rule a. The initial enactment of 2581 was January 1, 1984, but applied only to joint tenancies. b. Effective January 1, 1987, 2581 was amended to apply additionally to all other forms of joint and equal ownership. c. Prior case law controls when 2581 cannot be constitutionally applied retroactively. Prior case law allows oral proof as well as written spousal understandings and agreements to hold property in a form other than as indicated in the joint title. Marriage of Lucas. (vi) Death of Ex-Spouse After Divorce but Before Property Distribution. Divorce proceedings are often bifurcated. The divorce decree is entered before the proceeding to divide the community property. When an ex-spouse dies in the interim applies at the property division, and thus property held in joint tenancy title is distributed equally to the surviving and deceased spouses as community property.

D) TRACING PROPERTY PURCHASED FROM COMMINGLED FUND 3) The account is not jointly-titled, rather it is titled in the name of one spouse. At divorce or death, the owner of separate funds may attempt to trace these funds to claim a separate property interest in the funds or in an asset that was purchased with the funds. 4) Two Important Presumptions for Tracing Funds in A Commingled Account. (a) Family Expenses Paid by Community Funds (b) Gift Presumed When Separate Funds Used to Pay Family Expenses 5) Twin Permissible Tracing Methods (a) Exhaustion Method. The SP proponent may show that at the time he purchased the asset whose character is contested, the community funds in the account had already been exhausted by payment of family expenses. (b) Direct Tracing. Alternatively, the SP proponent may show that at the time the asset was purchased: (i) there were sufficient separate (as well as community) funds available AND (ii) he intended to use those separate funds to purchase a SP asset. Marriage of Mix. a. When a spouse has not kept adequate records to satisfy exhaustion method, use the direct tracing method. 6) Effect of Failure to Trace - Entire Account Treated As CP. 7) Recapitulative Accounting (a) Recapitulative accounting = simply showing that total family expenses during marriage exceeded total community income during marriage and conclude, therefore, that all remaining funds and assets purchased from the commingled account are his SP. (b) NOT ALLOWED ANY MORE 8) When Commingled Account is Jointly Titled. It makes no gift presumption but rather it allows full tracing of separate funds, subject to the tracing rules above, unless the parties have clearly agreed otherwise. E) WHEN COMMUNITY FUNDS OR LABOR ENHANCE VALUE OF SP 9) APPORTIONMENT OF BUSINESS PROFITS FROM SP BUSINESS THAT CONTINUES TO OPERATE DURING MARRIAGE, USING COMMUNITY LABOR. (a) Two Different Apportionment Methods the Court Chooses From (i) Van Camp Accounting (Use when Business itself is mostly responsible for business growth. Gilmore) a. Value the Manger/Spouses services at the going market salary for such services. Then subtract the amount of family expenses that were paid from the business earnings. The remainder, if any, represents the community portion of the business. The rest of the business is separate. 1. CP = Aggregate value of services at going market salary aggregate family expenses paid from business/investment earnings 2. SP = Value of business/investment at divorce or death CP (ii) Pereira Accounting (Use when Good Management caused business growth. Gilmore) a. Begin with the FMV of the business at marriage and impute a fair rate of return. This is the SP value of the business. Subtract this amount from the FMV at divorce, and you get the profit above the reasonable value, which is considered CP. 1. SP = Original value of separate property business/investment + aggregate fair return, e.g. simple interest rate 2. CP = Value of business/investment at divorce or death SP 10) COMMUNITY PAYMENTS THAT PAY OFF PURCHASE PRICE OF SP (i) The community establishes a proportional ownership interest to the extent that mortgage or installment payments reduce the principal debt. (The interest, insurance and tax components of the mortgage payments are not included b/c they do not increase the value of the property). Marriage of Moore. a. Vieux: used Installment K instead of mortgage. Moores rule applies just the same to mortgages and installment Ks. 1. Inception of right doctrine is rejected in CA, Instead, Time of Vesting doctrine is followed a. Ex. from Moore: 1. SP =

a. The $17K SP down payment + The $40K SP loan (was intended by lender for individual spouse) Community payments reduced the principal ($6K) = $51K. $51K/purchase price of $57K = 89%. $17K paid from separate to reduce principal + 89% of the $103K appreciation = $110K. 2. CP = a. no down payment + no loan + $6K CP payments reducing principal = $6K. $6K/$57K purchase price = 11%. $6K + 11% of $103K appreciation = $17K. 3. In the end, we have SP at $110K + CP at $17K + $33K debt owed to bank = $160K FMV of property. a. Moore specifically leaves open the possibility that, under certain circumstances, the community might be making a gift to the separate property house. 1. Ex. Husband writes CP checks to pay off Wifes SP property. 2. Ex. H actively consents to Ws use of her CP salary to pay off her SP mortgage. (b) Prof says Moore Accounting Principles are used today in three situations: (1) to separately titled property acquired before marriage when community funds have paid down the remaining purchase debt Bono extended Moore to improvements made on separate property (2) When an asset acquired with mixed funds during marriage is either untitled or titled in the purchasers name alone (3) To jointly titled property when there is legally adequate proof of an agreement of the parties to preserve proportional interests based upon contributions to the purchase price. (c) Marsden Accounting: used if community property is contributed to the acquisition of a separate property asset of one spouse (like Moore) AND the asset appreciated substantially before marriage. (i) Separate property: direct SP contrib + premarital appreciation + (direct SP contrib + outstanding loan)/original cost) x post-marital appreciation. (ii) Community property: direct CP contrib + (direct CP contrib/original cost) x post-marital appreciation. 11) IMPROVEMENTS (a) Traditional improvement cases presumed a gift when a spouse uses their own SP or CP to improve the other spouses SP. This presumption has come under attack recently. (b) Two Pre-1974 (Pre-Equal Management) Situations: (i) Community Funds Used to Improve Own SP - No Gift. (ii) Community Funds Used to Improve Wifes SP - Gift (c) Modern Courts express dissatisfaction the traditional gift presumption. (i) Today, Marriage of Frick is used to extend the Jafeman rule to govern any spouse under equal management principles who uses CP funds to improve their own SP, without the consent of the other. (ii) Most Recent Precedent: Bono v. Clark (Cal. App. 2002) (extending Moore/Marsden to improvements) allowed a surviving widow recovery for expenditure of community funds used to improve decedent Hs SP. The community is entitled to either, 1. reimbursement, or 2. pro tanto interest under Moore/Marsden accounting based upon CP funds used to improve SP property.

D) CREDIT ACQUISITIONS.
1) PURCHASES MADE WITH BORROWED FUNDS TREATED AS CASH PURCHASES. (a) If a couple purchases an untitled asset with both the Hs SP (20%) and the proceeds of a CP bank loan (80%), the asset is 20% Hs SP and 80% CP. (i) The community interest can be reduced if separate funds are used to pay of subsequent mortgage or installment payments. 2) DETERMINING CHARACTER OF CREDIT OR PURCHASE MONEY LOAN - INTENT OF LENDER (a) In determining the character of credit or a purchase money loan, the usual presumptions apply. To overcome this presumption, the borrowing spouse must demonstrate that the lender solely relied upon the borrowers SP as security in granting the loan. Marriage of Grinius (Cal. 1985). (i) See also primarily relied used in Gudelj v. Gudelj (Cal. 1953).

II) DISTRIBUTION OF PROPERTY AT DIVORCE E) Jurisdiction of Divorce Court 1) The divorce court has power to divide all community property. Family Code 2550. Aside from the jurisdiction over jointly titled separate property conferred by Family Code 2581 & 2650, the divorce court has no power to distribute the parties separate property, unless by request of the parties. Robinson. (a) 2650: at the request of either party, the court has jurisdiction over SP held in joint tenancy or tenancy in common. F) Equal Division Requirement 1) Community Property must be divided equally, except upon contrary written agreement or oral stipulation in court. Family Code 2550. The norm is in-kind division (a) Exceptions to In-kind division (b) Where economic circumstances warrant, the court may award an asset of the community estate to one party on such conditions as the court deems proper to effect a substantially equal division of the community estate. Family Code 2601. (i) Marriage of Rossie: Breach of fiduciary by malice, oppression or fraud = court can award 100% of community asset to the spouse that was defrauded. (ii) Out of State Realty, see infra. (c) Deviation from Equal Division Requirement at Divorce (i) One Spouse Deliberately Misappropriates Community Property a. The divorce court may take into account one spouses deliberate misappropriation of the other spouses interest in community or quasi-community property by making an award or offset against the wrongdoers one-half share of the remaining property. Family Code 2602. a. If substantial funds disappear in the interval between separation and divorce, the spouse who exercised control over those funds will be required to account for them. If he fails to do so, 2602 unequal division is appropriate. If unequal division remains insufficient to grant the injured spouse full recovery, she is entitled to a personal judgment against the misappropriating spouse for the remainder. Williams v. Williams. (ii) When one spouse has incurred a tort liability that was not based on an activity for the benefit of the community, at divorce the outstanding liability is assigned, without offset, to the tortfeasor spouse. 2627. See also 1000(b)(2). (iii) Separate Debts incurred by a individual spouse are assigned to them at divorce. 2620-2626 (iv) One spouse receives community estate personal injury damages. At divorce, a community estate personal injury recover is awarded entirely to the injured spouse unless the interests of justice require otherwise. In no even shall the injured spouse receive less than one-half. Family Code 2603. G) Time of Valuation 1) The court values the assets and liabilities as near to the time of trial as practicable unless the circumstances warrant choosing some other date after separation and prior to trial. Family Code 2552. H) Setting Aside Property Settlement or Decree 2120-2128 1) Circumstances may exist where setting aside a property settlement or decree become appropriate. 2120. (a) Extrinsic (Actual) Fraud, Perjury, Duress, Mental Incapacity, Mistake ( 2122) (i) A decree may be set aside when there has been extrinsic fraud or mistake. Marriage of Varner. a. Extrinsic fraud: party is denied a fair adversary hearing because he has been fraudulently prevented from presenting his claim or defense a. Extrinsic mistake: excusable neglect of the claimant that deprives claimant of an adversary hearing (ii) Relief is generally denied for intrinsic fraud (where claimant could have prevented it) a. But, Claimant is not responsible for attorney negligence, unless the client knew or should have known of the attorneys negligence and the client failed to protect herself. Family Code 2124. (iii) Mutual or Unilateral Mistake a. Stipulated or uncontested judgments may be set aside within one year on the ground of mutual or unilateral mistake of either law or fact. Family Code 2122(e). (b) Breach of Fiduciary Duty (i) A spouse who has control of community property acts as a fiduciary with respect to the other spouses interest in the CP. This duty does not end at separation because it arises out of the control one person exercises over property belonging to another. Family Code 1100(e).

(ii) So long as the managing spouse did not actually conceal the existence of community assets, he was
unlikely to be found in breach of his fiduciary duty (iii) Recent Legislation Upgrades Managing Spouses Duty at Divorce a. The Legislature amended 1100(e) to now require: 1. each spouse shall act with respect to the other spouse ... in accordance with the general rules governing fiduciary relationships ... until [property division]. 2. this duty includes obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable 3. this duty includes obligation to provide equal access to all information, records, and books that pertain to the value and character of those assets, UPON REQUEST a. Spouse impaired by breach of fiduciary duty can bring cause of action under 1100(e) and can seek punitive damages when the managing spouse has been guilty of oppression, fraud, or malice (see 1100(a), (h). (iv) The Legislature has also added provisions requiring disclosure of all material facts relating to community assets and liabilities, and providing more liberal relief from judgment. See 2100-2129. II) DISTRIBUTION OF COMMUNITY AND SEPARATE PROPERTY AT DEATH A) Disposition by Testamentary Transfer. A married person may transfer one-half of the community property and all his separate property by will. The surviving spouse owns the other half of the community property. Cal. Prob. Code 100. 1) One spouse may not make an inter vivos gift of community property without the written consent of the other spouse. Family Code 1100(b). 2) During the lifetime of the donor spouse, the nonconsenting spouse may void the gift in its entirety because she has a one-half interest in every community asset. 3) If the nonconsenting spouse does not void the gift during the donor spouses lifetime, at death of the donor spouse, the unauthorized inter vivos gift is treated as a valid testamentary transfer of his one-half interest in the CP. 1) The surviving spouse is entitled to one-half of each and every item of community property. Unless she consents, her community property claims are not satisfied by one-half the aggregate of community property. Dargie v. Patterson. 2) Survivors Duty to Elect (a) By Explicit Clause in Will (b) When Will Does Not Contain Explicit Election Provision (i) Decedent attempts to pass only his own one-half interest (all my property to X) - election not required a. When there is no explicit election clause, a surviving spouse may assert both her CP rights and her rights under decedent spouses will as long as this behavior would not upset the decedents testamentary plan. 1. Rules of Will Interpretation a. In the absence of anything in the will that shows a contrary intent or understanding, the testator is presumed b. (i) to have made his will with knowledge of the limits of his power of testamentary disposition (over only one-half of the CP), and c. (ii) to have intended to exercise control only over that which he had power to control (his one0half of the CP). Estate of Prager. (ii) Decedent Attempts to Pass Survivors One-Half Interest - Election Required 1. An election is required when the decedents will attempts to pass the survivors one-half interest in CP B) Community and Separate Property Passed at Intestacy 1) All property that is not transferred by will or testamentary substitute passes by intestacy. The intestate property of married persons passes differently according to whether it is CP (or quasi-CP) or SP. (a) CP and quasi-CP passing to surviving spouse (b) Decedents SP (i) See Cal. Prob. Code 6401(c).

III) Choice of Law at Death or Divorce C) PROPERTY ACQUIRED BY MARRIED PERSONS BEFORE THEY BECAME DOMICILED IN CALIFORNIA - QUASI-COMMUNITY PROPERTY 1) Quasi-Community Property is property acquired by either spouse that would have been community property had the acquiring spouse been domiciled in CA at the time of acquisition. Quasi-CP also includes all property that has been acquired in exchange for the above-defined property. Family Code 125; Prov. Code 66. (a) Divorce - Quasi-CP Treated Same as CP. At divorce, quasi-CP is treated exactly as though it were CP. Family Code 63, 125, 2550 (i) They reason this upholds the legislative intent to protect the welfare interests of CA domiciliaries at divorce or death. Nevertheless, this may violate the nondomiciliary-spouses due process rights. (b) Death - Survivor Has One-Half Interest In Decedents Quasi-Community Property (i) Quasi-CP creates rights in the survivor only. (ii) Survivor May Restore Certain Illusory Transfers. See Prob. Code 102. (iii) Property Acquired in Another CP Jurisdiction = Community Property. For purposes of death only, property acquired in another CP jurisdiction (AZ, ID, LA, NV, NM, TX, WA, WI) is treated as CA community property, and not just as quasi-CP. Prob. Code 28(b). (c) During Marriage - SP Except for Debt Collection (i) the legislature enacted provisions enabling a creditor to reach one spouses quasi-CP to satisfy a debt incurred by the other spouse. Family Code 910, 912. This provision is of questionable constitutionality. D) OUT OF STATE COMMUNITY AND QUASI-COMMUNITY REALTY 1) A judgment purporting to alter title to out-of-state realty may not be entitled to full faith and credit in any other jurisdiction. (a) Divorce - Court May Divide this Property (i) A CA divorce court has jurisdiction to distribute all CP and quasi-CP out-of-state realty. This realty is CP. Family Code 760. (ii) A divorce court may divide out-of-state community and quasi-community realty. Family Code 2660. This statute makes suggests for how to divide the realty to avoid full faith and credit problems, etc. a. Divide all the CP and quasi-CP in such a way that it is not necessary to alter the nature of the interests held in out-of-state realty; a. If this is not possible, the court shall either: 1. Require the parties to execute whatever conveyances are necessary to divide the out-of-state realty, or 2. Award to the party who would have benefited from the conveyance the money value of his interest. (b) Death - Realty Probated in State Where Located (i) The CA Probate Code provisions defining CP and quasi-CP include all personal property wherever situated and all real property situated in this state. Prob. code 28,68. The lack of personal jurisdiction over the decedent has denied probate courts effective control over out-of-state realty. Outof-state realty is normally probated in ancillary administration in the state in which the realty is located. III) PROPERTY RELATIONS OF PERSONS WHO LIVE TOGETHER IN MARRIAGE-LIKE RELATIONSHIPS BUT ARE NOT LEGALLY MARRIED A) TWO REQUIREMENTS FOR LAWFUL MARRIAGE 1) Legal Capacity 2) Performance of Formal Legal Procedures (a) The essential element of a formal marriage is the witnessed ceremony (solemnized), where parties unequivocally declare their marriage. Ceremonial marriages are also required to be licensed and registered. Family Code 300, 360. (b) Common law marriage is abolished in CA. (c) California Courts generally uphold marriages contracted for in other states. (i) Generally, common law marriages validly contracted for elsewhere are recognized. (ii) But, public policy objection may be used to refuse to honor immoral marriages in other jurisdictions (polygamy). B) PUTATIVE SPOUSE

1) The putative spouse is not lawfully married, but has a good faith belief that she is lawfully married. If there
is an objectively reasonable basis for her belief in the legal adequacy of her marriage she need only have a subjective good faith belief in the validity of her ostensibly lawful marriage. Estate of Vargas. (a) Knowledge of Invalid Marriage Revokes Putative Spouse Status. (i) Rights of Putative Spouse a. All property that would be community or quasi-community property if her marriage were lawful is labeled quasi-marital property. 1. At annulment the putative spouse has a one-half interest in all the quasi-marital property accumulated by her partner. Family Code 225. 2. Upon Death of Spouse. In intestacy, the putative spouse has the same intestate rights to the quasi-marital property as she would to the community property. Estate of Vargas. a. When Only One Partner Has Good Faith Belief. 1. When one partner is a good-faith putative spouse but the other knows of the defect in the attempted marriage, it is not clear whether the non-good-faith spouse may make any claim to the quasi-marital property accumulated by the good-faith spouse. a. When Both Lawful and Putative Spouses Claim. 1. When a decedent has left both a lawful and a putative spouse, the courts have equitably divided the decedents estate between the two claimants. Estate of Vargas. C) SAME SEX COUPLES 1) Generally governed by contract principles, see next section 2) Issue: Will CA recognize same sex marriages validly conducted under another states laws under Full Faith and Credit? 308 suggested CA courts would have to. Thus, Prop. 22 was enacted as 308.5 to define marriage as between heterosexuals. 3) Starting Jan 1, 2005, CA domestic partner rights and responsibilities ACT (AB205) becomes effective to extend to registered domestic partnerships all the rights and obligations of the CA Fam. Code = virtually identical to the rights of spouses in CA. (a) Everything we have learned in this class, on Jan 1, 2005, will apply to registered domestic partners. (b) Creation of a Domestic Partnership in CA. Both persons must: (i) file a Declaration of Domestic Partnership with the Secretary of State, (ii) have a common residence, (iii) no existing marriage or other domestic partnership, (iv) no blood relation, (v) 18 or older, or (vi) members of the opposite sex at least one of which is over 62 and eligible for social security (allowing opposite sex couples to be domestic partners), (vii) capable of consent A) UNMARRIED COHABITANTS 4) Contract Principles Apply Between Cohabitants (a) According to Marvin, the courts should enforce express contracts between nonmarital partners except to the extent that such contracts are explicitly founded on consideration of sexual services. If there is no express contract, a party may prove a contract implied by the behavior of the parties, or an agreement of partnership or joint venture. 5) Marvin only regulates the parties claims against each other. 6) Cohabitants who later marry and experience subsequent divorce: only property acquired during marriage is distributed according to CP rules. Contract rules continue to govern property acquired during cohabitation. IV) MANAGEMENT AND CONTROL OF SEPARATE AND COMMUNITY PROPERTY A) SEPARATE PROPERTY 1) each spouse has the exclusive management and control of his or her SP. 2) Quasi-CP is treated as SP for Management and Control Purposes During Marriage. B) COMMUNITY PROPERTY 1) Subject to the exceptions enumerated below, each spouse has equal management and control of CP (whenever acquired), The exceptions are as follows: (a) Both Spouses Must Execute Instrument Involving Realty. Family Code 1102. (i) Nonconsenting Spouses Power to Void Transfer

a. One-Year SOL a. Transfer to Good Faith Purchaser Without Knowledge of Marital Relationship is Presumed Valid 1. The nonconsenting spouse may overcome this presumption by demonstrating that she did not in any way consent to or participate in the transfer. . (ii) Nonconsenting Spouses Power to Void Encumbrance a. CA Supreme Court held that a nonconsenting spouse may entirely void a security interest in a community realty granted to a creditor by the other spouse. 1. A spouse may now unilaterally encumber her interest in community real property in order to pay a reasonable attorneys fees in a family law proceeding. Family Code 1102(e), 2033. 2. The nonconsenting spouses power to avoid an encumbrance of community property realty is not a power to avoid the underlying debt secured by the encumbrance. 2) Personal Belongings Exception. A spouse may not sell, convey or encumber community personal property used as the family dwelling, or community property household furnishings, or clothing of the spouse or minor children without the written consent of the other spouse. Family Code 1100(c). The nonconsenting spouse may void such a transfer in its entirety at any time during or after marriage and need not return the transferees consideration. 3) Business Exception. A spouse who is operating a business or an interest in a business that is all or substantially all community personal property has the primary management and control of the business or interest. Family Code 1100(d). (a) must give prior written notice to the other spouse of any sale, lease, exchange, encumbrance or other disposition of all or substantially all of the personal property used in the operation of the business. Family Code 1100(d). (i) When the primary manager fails to give the required notice, the nonmanaging spouse seems to have a remedy only if the managing spouses behavior has substantially impaired the nonmanaging spouses one-half interest in the community estate. Family Code 1101(a). 4) Bank Accounts. A bank account in the name of a married person is held for the exclusive benefit of that person and is free from the control or any lien of any other person except a creditor (a) General Limitations on Managerial Power of a Spouse to Buy, Sell, Encumber, etc. Community Property Under 1100(a). (i) A spouse may not make a gift of CP without the written consent of the other spouse. Family Code 1100(b). a. Non-donor may ratify unconsented to gift (ii) During Donors Lifetime - Nonconsenting Spouse May Revoke the Gift in its Entirety (iii) After Donors Death - Nonconsenting Spouse May Recover One-Half Interest (iv) Federal Rule for Veterans Insurance a. U.S. Sup. Ct. held in Wissner, that a community property claim under state law cannot be made which is contrary to the insureds express direction. 1. Estate of Bray: The Wissner rule cannot be used to protect fraudulent transfers. Husband gifted CP in violation of 1100(b)s requirement to obtain wifes consent prior to transfer. (v) Fiduciary Duty and Mismanagement of Community Property a. There is no fiduciary duty between persons prior to marriage. Marriage of Bonds. a. In the management and control of the CP: 1. each spouse must act with respect to the other spouse in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence. Family Code 1100(e). a. In transactions between spouses: 1. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. Family Code 721. a. The fiduciary duty provisions were extensively rewritten in 1991 to make managing spouses more responsible and accountable for their management and control of CP. a. Beginning in 2003, Gross Negligence and Reckless Conduct Breach the Fiduciary Duty. Note that neither a business partner nor a spouse is held to the prudent investor standard

i. 721s fiduciary duties are incorporated into 2102, which governs fiduciary relationships continuing even after separation, ending only when the assets are divided by the court. b. Duty to Account (No duty to keep detailed records). Upon Request of the nonmanaging spouse, the manager of CP must make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records and books that pertain to the value and character of those assets and debts. Family Code 1100(e) c. Duty to Secure Consent or to Consult with Nonmanager. The managing spouse has a duty to secure the consent of, or consult with, the nonmanaging spouse before committing the following acts (which if consent is not sought, are actionable breaches of the fiduciary duty): i. making a gift of CP without the written consent of the other spouse; ii. conveying or encumbering community personal property used as family dwelling or the furnishings of the home or the clothing of the other spouse or minor children without the written consent of the other spouse; iii. Being the primary manager of a business that is community personal property and neglecting to give prior written notice of any sale, lease, etc. of all or substantially all of the personal property used in the business; and iv. Making a real property conveyance, encumbrance, or lease for more than one year without the consent of the other spouse. See Family Code 110,1101, 1102. d. Remedies for Breach of Fiduciary Duty i. Section 1101 provides remedies for a nonmanaging spouse when the managing spouse has breached his fiduciary duty or monopolized the management of the CP. These include (a) claim against manager for impairment of interest; (b) accounting; (c) reformation of title (add-a-name), (e) dispose of consent requirement, (g) an award of 50% of any undisclosed transfer plus costs, (h) malice, oppression or fraud can lead to 100% award. ii. Section 1101 is ambiguously drafted, but the legislative history makes it clear that the accounting and add-a-name remedies are available even when the managing spouse is doing a good job of managing the CP. iii. Three Year SOL (runs on the date she had actual knowledge of the act or transaction complained of). Family Code 1101(d)(1). Nevertheless, without regard to the 3-year SOL, an action may be brought at the death of a spouse or in conjunction with an action for divorce. 1101(d)(2). V) CREDITORS RIGHTS AGAINST SEPARATE PROPERTY, QUASI-CP, AND COMMUNITY PROPERTY. A) CREDITORS RIGHTS FOLLOW MANAGEMENT RIGHTS 1) In CA, a creditor may reach any property over which the debtor has the legal right of management and control (essentially all CP and debtors own SP). Grolemund v. Cafferata. Moreover, if a creditor may generally reach the parties CP, he may also reach particular CP over which the debtor spouse does not have legal control (a) Liability for Quasi-Community Property. For purposes of creditors rights, quasi-CP is treated as though it were CP. Family Code 912. This rule may be unconstitutional, see supra. B) WHEN A DEBT IS INCURRED 1) Creditors rights are determined by the time at which the debt is incurred. (a) A contract debt is incurred at the time the contract is made. 903. (b) A tort debt is incurred at the time the tort occurs. 903. (c) A spouses child support and spousal support obligations from prior relationships are treated as debts incurred before marriage. 915. (i) See 911, infra (that debts incurred before marriage are satisfied by CP and debtors SP, unless the other spouse uses a uncommingled account for their CP earnings). (d) In all other cases, a debt is incurred at the time the obligation arises. 903. C) PROPERTY LIABLE FOR DEBTS

1) Debts Incurred by One Spouse Before Marriage. All CP and the debtors SP are liable for a debt she
incurred before marriage. The other spouses SP is not liable. 910, 913. (a) Exception: The CP earnings of the nondebtor spouse are not liable for the debtors premarital obligations as long as those earnings are held in a deposit account in which the debtor spouse has no right of withdrawal and those earnings are not commingled with other CP, except property insignificant in amount. Earnings means compensation for personal services. Family Code 911 (connect this with 915, supra). 2) Debts Incurred by One Spouse During Marriage. All CP plus and the debtors SP are liable for a debt incurred during marriage. SP of other spouse is not (a) Exception: Other Spouse May Be Personally Liable for Necessaries. (b) Necessaries are living expenses that are appropriate to the persons station in life and the resources of the parties. Winsom v. McCarthy. (c) Liability Remains for common necessaries After Separation, unless the parties have made a separation agreement. 914(a)(2). See 914(b) for reimbursement rights, infra. D) SPECIAL RULE FOR ENCUMBRANCES OF COMMUNITY PROPERTY 1) 913(b)(2) E) TORT LIABILITY 1) No person is liable for her spouses tort except in cases where she would be liable for them if the marriage did not exist. 1000(a). F) CREDITORS RIGHTS AT DIVORCE 916 1) Each spouse is personally liable for own debts 2) Each spouse personally liable for debts assigned by divorce court 3) No liability for debts neither incurred by spouse nor assigned by court 4) Spouses Property Applied to Satisfy debt assigned to other spouse gives rise to reimbursement claim for the amount applied, with interest, from the other spouse. Legal fees recoverable as well in enforcing this right. 916(b). G) CREDITORS RIGHTS AT DEATH OF SPOUSE 1) Cal. Prob. code 11444(b) 2) When property does not pass through probate, see Cal. Prob. Code 13550, 13551. B) Income Tax Consequences of Division 1) Transfer between H & W is not taxable. C) Marriage of Fonstein: TC improperly took into account tax consequences of husband leaving law firm, if tax consequences are speculative do not consider them in division ------Eppstein: If tax consequences are certain, ie sale is order by court, consider them in division ------Henn court retains J over assets not listed in the pleadings VIII) RIGHT OF REIMBURSEMENT FOR PAYMENT OF CERTAIN DEBTS H) STATUTORY REIMBURSEMENT CLAIMS 1) One spouse may seek reimbursement against the other in the following situations. Family Code 9101000. (a) When CP was applied to satisfy Child Support or Spousal Support Claims Arising Out of Prior Relationship AND at the time the CP was applied, SP of the debtor was available but was not applied to satisfy the obligation. Community is reimbursed to the extent of the SP that was then available. 915(b). (b) When one spouses SP was used to pay for debts incurred by the other spouse for necessaries, and when at the time the nondebtor spouses SP was applied, CP or the debtors SP was available. Nondebtor spouse is reimbursed to the extent such property was then available. 914(b). I) OTHER CASE LAW AND STATUTORY REIMBURSEMENT RIGHTS 1) The right to reimbursement for unauthorized gifts, see supra. 2) 2640 right to reimbursement when one spouse has contributed SP to the purchase or improvement of CP, see supra. 3) Case law right to reimbursement when one spouse has used CP to improve his own SP, see supra. 4) Right to reimbursement for educational expenses and loans, see 2641 supra. XI) FEDERAL PREEMPTION A) When state community property law is inconsistent with federal law, the Supremacy Clause of the U.S. Constitution dictates that federal law prevails. Ask (i) does the property right recognized under state law conflict

with the express terms of the federal law, and; (ii) If so, does the state law cause sufficient injury to the federal objectives to require preemption? B) ERISA PREEMPTION OF STATE COMMUNITY PROPERTY LAW IN SOME CIRCUMSTANCES 1) ERISA, the federal law regulating private sector pensions, specifically allows state law community property divorce distribution of ERISA-regulated pensions earned during marriage. Nevertheless, the U.S. Supreme Court has held as a matter of federal preemption that ERISA anti-assignment provisions prohibit testamentary transfer by a nondivorced deceased spouse of her state law community property interest in her surviving spouses ERISA-regulated private sector pension. Boggs v. Boggs. Boggs, reasoned that any transfer away from intended ERISA beneficiaries to third parties would defeat the purpose of ERISA to provide retirement support to plan participants and their spouses. This rule could be extended to limit the testamentary power of a pensioner to will away his state law community property interest in any ERISA benefit payable to his surviving spouse.