COMMUNITY PROPERTY' 1. Does Califomia Community Property law apply to this item of property? II. What is the source of the item? III. Have any actions by the parties altered the character of the property? IV. Do any statutory presumptions apply? V. Are any issues raised as to management and control of C/P during marriage? VI. Based on the above, how should the item be divided? 1. THRESHOLD ISSUES: Does California C/P law apply to this item? A. Marital Status? 1. Is there a LEGAL MARRIAGE? Both parties must have legal capacity & undergo a witnessed ceremony of marriage. In some states common law marriages are invalid. 2. If marriage is INVALID: (due to bigamy, non- compliance with law; prior invalid dissolution/divorce): a. PUTATIVE SPOUSE: An innocent spouse with a good faith belief in a valid marriage has the same property rights as a lawful spouse upon dissolution of marriage or death of spouse, except that private K benefits requiring a legal marriage may be limited to lawfully married spouses. Property received by putative spouse is called liquasi-marital" property. b. MERETRICIOUS SPOUSE: Courts are split as,to whether spouse who knows marriage is invalid is entitled receive quasi-marital property. Policy: unclean hands of a knowing bigamist vs. honoring the reasonable expectations of the parties. c. WHERE BOTH LEGAL SPOUSE AND PUTATIVE SPOUSF claim decedents C/P and Q/CP, both share equally; if LEGAL SPOUSE is dead, then putative spouse treated as decedents surviving spouse. 3. If parties are unmarried but LIVING TOGETHER, K law applies, and express and implied agreements are valid unless based on illegal sexual services. Ct may employ equitable remedies of constructive trust, resulting trust &/or quantum meruit. B. Does C/P Law apply? 1. What law applies to property acquired when parties, now living in C/P state, were domiciled in S/P state? If property was acquired before spouses were domiciled in C/P state, that prop" is deemed "quasi-community property" (Q/CP) if the property would have been C/P had the parties been domiciled in C/P state when property acquired. During marriage, O/CP treated as SP. Upon DIVORCE, Q/CP treated same as C/P. Upon DEATH, only the surviving spouse receives 1/2 share in decedents Q/CP and the decedent has no interest in survivors Q/CP. ow If one spouse transferred Q/CP to another for inadequate consideration w/o other spouse's consent, at spouse's death, surviving spouse can compel transferee to restore 1/2 of such property or its value to decedents estate. 2 - Property acquired in a C/P jurisdiction while parties living in C/P state is treated as C/P upon death. 3. Upon divorce OUT OF STATE really acquired by parties DOMICILED IN C/P state is C/P. Upon death, rules of state where realty is located apply. 11. CLASSIFICATION: IS THE ITEM H'S OR WS S/P, Q-C/P OR C/P? SOURCES ACTIONS PRESUMPTIONS A. SOURCE: Property takes on the character of the item used to acquire it or which produced it. Follow the source of the item and find it's roots! 1. Earnings - a. EARNINGS during marriage are C/P. Earnings before & after marriage (or while living separate & apart) are S/P. Bw Earnings include income, goodwill of a professional practice, wages & other K benefits flowing from employment relationships. b. Vested & nonvested PENSION RIGHTS are subject to division, and are C/P if right to such benefits earned during marriage. (1) Ct. may value the pension right, award it to the employee & award community assets of equal value OR retain jurisdiction & order 1/2 (C/P portion oD pension, to spouse of employee if & when employee begins to receive pension. (2) Where benefits are presently payable but employee does not retire, ct will award other spouse actuarial value of benefits. c. DISABILITY & workees compensation pay is characterized depending on what the pay was intended to replace -- S/P or marital earnings? If divorced spouse takes disability pay in lieu of retirement pension to defeat spouse's C/P claim, disability pay is treated as C/P. d. EMPLOYEE STOCK OPTIONS may be apportioned, where option exercised after divorce, but employee is married at the time of employment begins. (Marriacie of Htial e. Unclear whether SEVERANCE PAY is S/P or C/P upon divorce. f. GOODVvlLL is C/P if earned during marriage and is awarded based on market value or an amount, if invested, that would produce similar income as goodwill earned during marriage. g. Federal preemption and Supremacy Clause forbid set-off awards of US Savings Bonds, National Service Life Insurance (NSLI); Social Security benefits, railroad retirement benefits. 2. Personal Injury Damages - a. If injury & damage received prior to marriage, then damages are S/P; b. If injury received during marriage and then divorce occurs, damages go to injured spouse as S/P unless interests of justice require otherwise; but in all cases at least 1/2 to injured spouse. However, C/P or S/P of non-injured spouse is entitled to reimbursement for any expenses incurred by the injury. c. If injury after separation/divorce, then S/P. d. Imputed negligence of other spouse is no longer a defense. e. Damages recovered during marriage for injurytwrongful death of minor child are C/P. f. Personal injury damages recovered by one spouse for a loss inflicted by his/her spouse are always S/P. 3. Gifts - a. Gifts, bequests, devises, inheritances & the like are the S/P of the recipient regardless of when acquired. If gift is given jointly to both spouses both take 1/2 in S/P. 4. Real Property - a. Property acquired before or after marriage is the S/P of recipient; property is deemed acquired when the right to it is perfected. (1) Adverse possession: property acquired by adverse possession is deemed acquired at time of original entry, but modem trend gives community an interest if TES (Time, Energy & Services) involved. (2) Doctrine of relation back applies to land purchases, but property Ked for prior to marriage by one spouse where escrow closes after marriage is presumed C/P if property is single family residence and held in joint tenancy. 5. Rents, Issues & Profits - a. If the source is C/P, then they are C/P, but if the source is S/P, they are S/P, even if received during marriage. 6. Property purchased with borrowed $ - a. Generally C/P if property purchased during marriage, but look to: (1) Where the creditor primarily intends to look for repayment; (2) Source of the loan repayment; (3) Signatures on loan do not control. 7. Life insurance - a. Character of life insurance proceeds depends on the character of the premiums; if C/P used to pay premiums, the proceeds are C/P regardless of who the beneficiary is; if S/P and C/P are used to pay the premiums, apportionment is proper. If policy has present cash value, that value is C/P if premiums paid w/ C/P funds. 8. Education and training are not C/P, but upon divorce, in absence of contrary agreement, reimbursement is required if C/P funds used & education/training "substantially enhances" earning capacity of party. B. ACTIONS 1 . Agreements Between Spouses - a. Agreements may be oral & unsupported by consideration so long as the parties INTEND transmutation (to change S/P or C/P nature of property) & agreement is fair & based on full disclosure. b. Post-marriage agreements must generally be in WRITING (unless insubstantial in value) and signed by party adversely affected. c. Antenuptial agreements must generally be in writing & signed by both parties, but oral agreements are enforced if fully executed or if detrimental reliance. Antenuptial agreements are invalid as to support during marriage, if assets are not disclosed and it contains unconscionable terms, OR if K promotes divorce. d. Property held jointly by spouses presumed to be C/P at divorce/dissolution unless written K provides that property is S/P and not C/P. But contributing spouse's S/P is entitled to reimbursement. 2. Gifts Between Spouses - a. No formalities required; either spouse can make a gift of his/her S/P to the other or to community. b. Transfers must generally be in WRITING (unless insubstantial in value). c. Proof of gift required: (1) Donative intent & delivery of property; (2) Implied where spouse uses S/P to purchase property in the name of other spouse or to pay community debt; but if S/P used to make a down payment on a community. 3. Commingling of S/P & C/P a. Rule: if S/P & C/P are commingled in such a manner that each source cannot be ascertained & identified, the commingled whole will be presumed to be C/P. But before all the commingled whole is deemed community, community funds cannot be de minimums. Two methods used to rebut general presumption: (1) Direct Tracing: By determining the amount of S/P in commingled funds /property evidence of a writing, reconstruction of records, showing sufficient S/P funds to cover price of property at time of purchase. (2) Family Expense: Family expenses are presumed to be C/P, and S/P contributions to family expenses are deemed gifts. But if it is shown AT THE TIME property acquired w/drawals for family expenses exceeded C/P deposits - item is then presumed S/P. b. Jointly held bank account presumed C/P unless traceable to S/P and no contrary agreement. 4. Community Services (TES) Used to enhance value of Property - a. "Although rents, issues & profits of S/P are generally S/P, if they result from more than minimal efforts of owner/manager spouse, then C/P is entitled to a proportionate share -- on the theory that TES is a community asset." (1) Ct. can select any reasonable formula; (2) Where the greater factor in creating profits was the owner/managees personal services: (a) S/P: Initial S/P investment + reasonable rate of return; (b) C/P: residual. (3) If owner/managees services were not the greater factor in creating profits: (a) C/P: Reasonable value of owner/ managees services (less any family living expenses already w/drawn from business earnings). (b) S/P: receives residual. (4) Non-Owner Spouse's TES: (a) Old Rule: gift (b) Modern Trend: applies above allocation principles applicable to increases in value of S/P resulting from efforts of non-owner spouse. 5. Community funds used to Improve S/P Realty (a) Fixtures generally follow title, and Community is entitled to reimbursement but no interest in C/P: (1) Where one spouse uses C/P or his S/P to make permanent improvements on the other spouse's S/P, there is a rebuttable presumption of a gift - can be REBUTTED by a writing. (2) Where C/P funds used by a spouse to imrrove his or her own S/P, w/o the others consent, community is ALWAYS ENTITLED TO REIMBURSEMENT ON A BREACH OF TRUST THEORY and community receives amount expended OR value added, whichever is greater. (3) Where C/P funds used by a spouse to preserve his/her own S/P, w/o the othees consent (taxes, assessments, insurance) the community is entitled to REIMBURSEMENT for amount expended. 6. Community Funds Used to Pay off PURCHASE PRICE Owed on S/P - a. Community obtains a pro-rata interest in the S/P in proportion to amounts from S/P & C/P funds . (1) Note that where S/P is used towards C/P property (e.g. principal of loan), spouse is entitled to contribution upon disposition. (2) Rule applies to downpayments, payments for improvements or which reduce the principal of the loan but does not apply to maintenance costs, insurance or taxes. 7. Separation of the Parties - a. The eaming & accumulations of either spouse while permanently living separate & apart are that spouses S/P. (1) Separate & apart: (a) present intention to reunite? (b) facade of a marital relationship? (2) Accumulations: (a) the acquisition of a property from my source. (3) Valuation: (a) of C/P for purposes of division upon divorce is made as of the date of trial (not date of separation) unless good cause requires otherwise. C. PRESUMPTIONS - Do any presumptions apply? (based on California statutes) 1 . General Presumption - a. "All property acquired for consideration during marriage is presumed to be C/P." 2. Married Woman S/P Presumption - a. "Property acquired by a married woman prior to 111175 by an instrument in writing is presumed to be her S/P --- unless a different intention is expressed in the instrument." b. Rebuttable as between H & W but is conclusive in favor of bona fide purchaser (BFP) who purchases from the married woman. 3. W & 3rd Party Tenancy in Common Presumption - a. "Conveyance to W & to any other person (including H) gives rise to a special presumption that a tenancy in common is created & W holds her share as S/P, absent a contrary intent in the instrument." 4. W & H C/P Presumption - a. "Conveyance to W&H gives rise to a special presumption that the property is C/P." 5. Jointly Held Property Presumption - a. "For the purposes of Dissolution/ Separation, any property jointly held is presumed to be C/P" absent a contrary written agreement that property is S/P and not C/P. 111. MANAGEMENT & CONTROL OF C/P DURING MARRIAGE A. Community Personal Property 1. Either spouse has management & control & power of disposition (other than testamentary) but neither spouse can: a. Make a gift without the othees written consent: (1) If spouse orally consents to gift, she will be estopped from attacking it! (2) Non-consenting spouse's remedy: Gift may be voided & recovered from the donee & the gift again is C/Pi But if donor spouse dies, the non-consenting spouse may recover only 1/2 the gift from either donee or donoes estate. b. Sell or encumber the furniture of the home, clothes of other spouse/kids: (1) Sale or encumbrance may be avoided, even if spouse who sold dies, entire transaction can be set aside, & surviving spouse need not-repay consideration. B. Community Real Property 1. Either spouse has management & control of community real property, but both parties must join in executing any instrument by which corn- munity real property is transferred encumbered or leased for > 1 year. 2. If the C/P real property is in one spouse's name, an instrument executed to a Bona Fide Purchaser (w/o notice of marriage) is presumed valid. Other spouse may rebut by showing that she was unaware of the transaction & did not consent; but if she did, she cannot attack. a. Non-consenting spouse may invalidate the transaction but must restore consideration to BFP. b. Non-consenting spouse's cause of action must be brought w/i I year. C. Community Property Business 1. A spouse who is operating a business that is all or substantially C/P has primary management & control of that business. Primary manager spouse may act alone but must give prior written notice of disposition of all or substantially all of personal property. Manager has a duty to spouse to act in good faith, disclose community assets & debts upon request, & obtain consent before taking a major action which affects C/P interest. Nonmanaging spouse may bring an action for reformation of title, accounting or impairment of interest. D. Quasi-Community Property 1. The law is silent as to whether spouse may make gift of his Q/CP w/o consent of other spouse, but allows for award where Q/CP or C/P deliberately misappropriated: a. Where marriage is terminated by death, if decedent gave away Q/CP non-consenting spouse may require transferee to restore 1/2 or its value to decedents estate, if decedent had a substantial quantum of ownership/ control of property at death. b. Non-consenting spouse must take against will to obtain restoration! E. Debts owed to 3d Parties 1. Debts incurred by H & W prior to ma@- owing spouse's S/P & earnings are liable, but not earnings & S/P of nonowning spouse. 2. C/P of either spouse liable for post-mariw Ws of either spouse & contracting spouse is also liable, but not other spouse's S/P. 3. S/P of either spouse is liable to pay costs of food, clothing, shelter & medical expenses (necessaries) if the debts were incurred while spouses were living together & there is NO Q/CP or C/P available. 4. Tortfeasor-spouse's liability will satisfied from C/P, then his S/P if tort occurred while spouse was performing activity for the community. If liability not based on act benefiting community, then tortfeasoes S/P goes before C/P. F. Debts as between H & W 1. Support payments to former srguse from S/P: If spouse pays support payments to former spouse from C/P of a second marriage & separate income of spouse was available but not used, community entitled to reimbursement to the extent of the separate income available. 2., If spouse pays S/P obligation w/CP, then C/P entitled to reimbursement. 3. If tortfeasor spouse is found liable for injury to the other spouse, C/P can't be used to discharge his liability unless S/P is exhausted first. 4. If a spouse receives personal injury recovery as S/P after separation, then non-injured spouse is entitled to reimbursement of her S/P or C/P. IV. DIVORCE& DEATH A. Divorce: Equal Division Rule 1. Court must divide Q/CP and CP equally. 2. Exceptions: a. Mutual agreement: parties can agree to an unequal division, if no fraud & full disclosure. b. Deliberate Misappropriation: can be remedied by offset. c. Absent Spouse: all property can be given to one spouse (if due diligence). d. Personal Injury damages: C/P personal injury damages awarded to injured spouse, unless justice requires otherwise, but at least % to injured spouse. e. Educational loans: assigned to spouse who received the education. f. Retention of jurisdiction: ct can order sale of residence at a later date if to do contra would hurt family. g. Insolvent Estate: Debts may be unequally divided, borne more heavily- by wealthier spouse. B. Death 1. INTESTATE a. Survivor inherits % CP (other Y2is already hers) & portion of S/P depending on who survives. 2. TESTATE a. S/P (1) Spouses are free to dispose of S/P to whoever they wish. b. C/P (1) Each spouse has power to dispose of 1/2 CP to whomever they wish. Remaining 1/2 belongs to surviving spouse. (2) If decedent leaves more than 1/2 of C/P to another, widow must elect whether to take under or against the will. C. 0 C/P (1) Acquiring spouse has testamentary power over 1/2 -other 1/2 goes to survivor. (2) BUT the non-acquiring spouse has no testamentary power over Q C/P if he dies first. It totally belongs to surviving spouse. d. Where an estate contains both C/P & S/P, debts & costs of administration are chargeable PRORATA against BOTH.