Study Guide for COMMUNITY PROPERTY
Table of Contents
TABLE OF CONTENTS ....................................................................................................................................... - 1 -
1. BASIC DEFINITIONS & PRINCIPLES ..................................................................................................... - 2 -
1.1 DEFINITIONS .............................................................................................................................................. - 2 -
1.2 PRINCIPLES ................................................................................................................................................ - 2 -
2. CLASSIFICATION PROCESS..................................................................................................................... - 3 -
2.1 GENERAL PRESUMPTION ........................................................................................................................... - 3 -
2.2 3 METHODS OF REBUTTAL......................................................................................................................... - 3 -
2.3 SPECIAL PRESUMPTIONS (USUALLY BASED ON FORM OF TITLE)................................................................. - 4 -
2.4 JOINT TENANCY......................................................................................................................................... - 4 -
2.5 JT EXAMPLE .............................................................................................................................................. - 5 -
2.6 CLASSIFICATION METHODS ....................................................................................................................... - 6 -
3. CLASSIFICATION PROBLEM AREAS .................................................................................................... - 6 -
3.1 COMMINGLED FUNDS ................................................................................................................................ - 6 -
3.2 INSTALLMENT PURCHASES ........................................................................................................................ - 7 -
3.3 BUSINESS PROFITS ..................................................................................................................................... - 7 -
3.4 PEREIRA .................................................................................................................................................... - 7 -
3.5 VAN CAMP ................................................................................................................................................ - 8 -
3.6 LOAN TRANSACTIONS ............................................................................................................................... - 8 -
3.7 PURCHASE MONEY SECURED LOAN TRANSACTIONS ................................................................................. - 9 -
3.8 LUCAS APPROACH ...................................................................................................................................... - 9 -
3.9 MOORE APPROACH .................................................................................................................................. - 10 -
3.10 PMSI SUMMARY ..................................................................................................................................... - 10 -
3.11 REAL PROPERTY IMPROVEMENTS ............................................................................................................ - 11 -
3.12 EMPLOYEE BENEFIT AWARDS ................................................................................................................. - 11 -
3.13 PERSONAL INJURY AWARDS .................................................................................................................... - 13 -
4. LIMITATIONS ON CLASSIFICATION................................................................................................... - 13 -
4.1 LIMITATIONS ON PROPERTY WITHIN THE CP SYSTEM ............................................................................. - 13 -
4.2 CONSTITUTIONAL LIMITATIONS .............................................................................................................. - 14 -
4.3 LIMITATIONS ON PERSONS WITHIN THE COVERAGE OF THE CP SYSTEM................................................. - 14 -
5. MAJOR RAMIFICATIONS OF CLASSIFICATION .............................................................................. - 16 -
5.1 MANAGEMENT & CONTROL .................................................................................................................... - 16 -
5.2 CREDITORS’ RIGHTS ................................................................................................................................ - 17 -
6. DISTRIBUTION UPON TERMINATION OF MARRIAGE .................................................................. - 18 -
6.1 DISTRIBUTION UPON DISSOLUTION ......................................................................................................... - 18 -
6.2 DISTRIBUTION UPON DEATH ................................................................................................................... - 18 -
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 1 of 18
Study Guide for COMMUNITY PROPERTY
1. BASIC DEFINITIONS & PRINCIPLES
1.1 DEFINITIONS
1.1.1 SP
Acquired by gift, inheritance, or before marriage or after permanent separation
1.1.2 CP
All property acquired during the marriage.
1.2 PRINCIPLES
1.2.1 Equality Principle
Spouses have present existing & equal interests in the property
Each spouse owns an undivided ½ interest in the property, regardless of who acquired it.
1.2.2 Tracing Principle
Changes in form do not change the underlying classification
Trace back to the original source and classify accordingly
Ex: dividends take on classification of underlying stock
1.2.3 Principle of Contractual Modification
Operation of the CP system may be modified, limited or restricted by an agreement
between the spouses
1.2.3.1 Prenuptial – agreement before marriage
1.2.3.2 Transmutation
1.2.3.2.1 Agreement during marriage; often purely donative in nature
1.2.3.2.2 Ex: spouse donates SP stock to CP
1.2.3.2.3 Spouses may contract themselves totally out of the CP system
1.2.3.2.4 Inter-spousal agreements can take many forms and can transmute CP to SP
or SP to CP
1.2.3.3 Pre-1985 Transmutation Rules
1.2.3.3.1 1985 – Before 1985 oral transmutations (pillow talk) OK
1.2.3.3.2 Interspousal agreement could be very informal
1.2.3.3.3 Consideration not required for interspousal transmutation; only consent
needed
1.2.3.3.4 Agreements were fully executed when made
1.2.3.3.4.1 Even oral agreements regarding real property were valid b/c
fully executed agreements are outside the statute of frauds
1.2.3.3.5 Pre-1985 pre-nuptial agreements were held fully executed by marriage or by
subsequent ratification; thus they were fully enforceable even if not in
writing
1.2.3.3.5.1 Exception: no oral agreements allowed for joint tenancies
1.2.3.4 Post 1985 – Writing required.
1.2.3.4.1 Must be written and joined by other spouse
1.2.3.4.1.1 Exception: de minims gifts
1.2.3.4.2 3rd Party Notice: transmutation of real property is not effective as to third
parties who don’t have notice unless it is recorded
1.2.3.5 Premarital agreements
1.2.3.5.1 After 1986, the Uniform Premarital Agreement Act requires a writing
signed by both parties
1.2.3.5.1.1 All jdx require similar formalities
1.2.3.5.2 Contractual Formalities
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 2 of 18
Study Guide for COMMUNITY PROPERTY
1.2.3.5.2.1 Additionally, in order to have a valid interspousal agreement,
the usual contractual formalities must be met,
1.2.3.5.2.2 Except for consideration.
1.2.3.5.2.2.1 The promise of marriage is normally considered
sufficient consideration.
1.2.3.5.2.2.2 Similarly, donative intent for transmutations is
usually considered sufficient consideration.
2. CLASSIFICATION PROCESS
All property can be classified as either CP or SP
Classification process is aided by the existence of presumptions
2.1 GENERAL PRESUMPTION
2.1.1 Rebuttable presumption that all property acquired by a married person is CP
2.1.2 If no record of when property was acquired, Court will enquire:
2.1.2.1 Lengthy marriage?
2.1.2.2 Absence of SP with which to make the acquisition
2.2 3 METHODS OF REBUTTAL
2.2.1 Interspousal Agreement altering classification of property; or
2.2.2 Tracing the asset at issue to a SP source; or
2.2.2.1 Burden is on SP proponent and is based on nature or timing
2.2.2.2 Nature of the Acquisition (how was asset acquired)
2.2.2.2.1 Gifts: SP of acquiring spouse
2.2.2.2.2 Inheritance: SP of acquiring spouse
2.2.2.2.2.1 Ex: Gift of stock; stock sold to acquire another asset. Trace
back to stock & prove it’s SP
2.2.2.3 Timing of Acquisition (when was asset acquired)
2.2.2.3.1 Prior to Marriage: SP
2.2.2.3.1.1 Ex: Trace acquisition of Rolex during marriage to proceeds
from sale of stock which was owned prior to marriage.
2.2.2.3.2 While Living Separate & Apart: SP
2.2.2.3.2.1 Ex: § 771 earnings while living separate & apart are SP
2.2.2.3.2.2 Meaning of Separation
2.2.2.3.2.2.1 Physical separation PLUS
2.2.2.3.2.2.2 At least one spouse intends not to continue the
marriage as evidenced by
2.2.2.3.2.2.3 A course of conduct consistent with the intent to
permanently separate
2.2.2.3.3 Not a permanent separation:
2.2.2.3.3.1 Ex: maintaining façade of marriage or continuing to try
reconciliation is proof that they did NOT intend a permanent
separation
2.2.3 Show that the case comes within one of the Special Presumptions
2.2.3.1 (usually requires a showing of title documents)
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 3 of 18
Study Guide for COMMUNITY PROPERTY
2.3 SPECIAL PRESUMPTIONS (USUALLY BASED ON FORM OF TITLE)
2.3.1 Married Woman’s Special Presumption
2.3.1.1 §803 – special presumption of SP if:
2.3.1.1.1 Title in writing
2.3.1.1.2 Acquired by a married woman
2.3.1.1.3 Before 1/1/1975
2.3.1.2 Rationale:
2.3.1.2.1 Prior to 1/1/1975 H had sole management & control over assets
2.3.1.3 Rebuttable presumption of gift. To rebut:
2.3.1.3.1 Trace acquisition to CP source; and
2.3.1.3.2 Show lack of donative intent
2.3.1.3.3 Dual control over W’s earnings ended after 1951
2.3.1.3.3.1 Special presumption does not apply to assets acquired w/ W’s
earnings after 1951
2.3.2 Family Expense Presumption
Family expenses (necessaries) purchased with commingled funds are presumed to have been
purchased with CP assets.
2.3.3 Co-Ownership of Various kinds of Co-Tenancies
2.3.3.1 Acquisitions by a Married Woman and Another Party
2.3.3.1.1 Married Woman’s Special Presumption applies to property acquired by a
married woman jointly with another party, not her spouse
2.3.3.1.2 Presumption is that the property is held jointly between wife and other party
as tenants in common.
2.3.3.1.3 Must be acquired prior to 1975.
2.4 JOINT TENANCY
2.4.1 Effect of JT
2.4.1.1 Does not pass by will
2.4.1.2 Passes by operation of law to surviving JT (right of survivorship)
2.4.1.3 JT can be severed or partitioned
2.4.1.4 Creditors can normally only reach the interests of the debtor JT
2.4.1.5 But can reach the CP assets if not in JT
2.4.1.6 Tax impacts often different
2.4.2 Judicial Effect Given to JT
2.4.2.1 JT Cannot Co-Exist w/ CP in the Same Asset at the Same Time
2.4.2.1.1 It’s either CP or JT, can’t be both
2.4.2.2 New Exception for CPWROS:
2.4.2.2.1 CPWROS (now recognized in Cal.)
2.4.3 Act of taking title in JT gives rise to rebuttable presumption that JT was intended
“Acquiring title in joint and equal form is inconsistent with the intent to maintain a SP
interest.”
2.4.4 Rebuttal: showing of a mutual intent to the contrary.
2.4.4.1 Intent cannot be a secret.
2.4.4.2 Mutual ignorance of both spouses as to meaning and effect of JT is enough to rebut.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 4 of 18
Study Guide for COMMUNITY PROPERTY
2.4.5 Judicial Presumption (of JT) arises most frequently when the marriage ends by death of a
spouse.
Ex: H & W acquire house during marriage w/ CP funds. Title taken in JT. H dies. H’s
will purports to leave the house to his son, S, from a former marriage. Dispute b/t S & W is resolved
according to the JT form. But, S can rebut with evidence showing CP intent. If successful, S and W share
house ½ each.
2.4.6 Legislative Approach to JT: 1984: §§ 2580-2581 JT assets presumptively CP
2.4.6.1 Dissolution ONLY
2.4.6.2 Any property acquired by a H & W in Joint Form is Presumed to Be CP
2.4.7 Presumption is Rebuttable
2.4.7.1 Presumption of CP Rebuttable Only By A Writing
2.4.7.2 Clear Statement of SP in the Title; or
2.4.7.3 Written Interspousal Agreement
2.4.8 Cannot Be Rebutted By:
2.4.8.1 Showing of A Gift to One Spouse
2.4.8.2 Intent to Maintain JT
2.4.8.3 One Spouse Furnished All Consideration For The Asset and Had No Donative Intent
2.4.9 § 2640 Right of Reimbursement (SP on CP)
2.4.9.1 CP Divided at Dissolution, SP Contributions to CP entitled to Reimbursement
2.4.9.2 Reimbursement Limited to Funds Contributed (SP on CP)
2.4.9.2.1 No Buy-In for Appreciation or Interest
2.4.10 Retroactivity
2.4.10.1 Statutes are effective 1/1/1984
2.4.10.2 Legislature Says it’s retroactive
2.4.10.3 But the Courts Won’t Allow It
2.4.10.4 But the Retroactivity Law is still on the books
2.5 JT EXAMPLE
2.5.1 H & W buy home for $100k
2.5.1.1 W recently inherited $100k and used the inheritance to buy the home
2.5.1.2 Title is taken as JT w/ ROS
2.5.1.3 20 years later, dissolution
2.5.2 Home is now worth $500k (significant appreciation in the asset)
2.5.2.1 For purposes of dissolution, § 2581 says the home is presumptively CP
2.5.3 However, W can trace the entire purchase price of the home to her SP inheritance
2.5.3.1 W loses
2.5.4 In the absence of a writing, W is out of luck; the home is CP
2.5.4.1 However, W isn’t totally out of luck
2.5.5 W Eligible for Reimbursement & ½ CP
2.5.5.1 By virtue of § 2680, W is probably due reimbursement for her original SP contribution,
w/o interest or appreciation
2.5.5.2 She would also have a ½ interest in the CP
2.5.6 Only Applies On DISSOLUTION, Not on Death
2.5.6.1 In death cases, these sections don’t apply
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 5 of 18
Study Guide for COMMUNITY PROPERTY
2.5.6.1.1 In death cases, the judicial presumption in favor of the form of title still
applies
2.5.6.2 E.g., In death cases, the Court will presume a JT was intended if the title is JT.
2.5.7 As of 1986 all joint forms included, including TIC, T by the Entirety, etc.
2.6 CLASSIFICATION METHODS
2.6.1 Can the Asset Be Classified?
Remember, some property might defy classification as CP.
Ex.: The value of an education may be so speculative as to fall outside the ambit of the CP
system.
2.6.2 When Was the Property Acquired?
Classification is effective at the time of acquisition. Pre-marital and post separation = SP; During
marriage = CP.
2.6.3 Three Ways to Rebut General Presumption
2.6.3.1 Tracing is the most common method.
A change in form will not change the character or classification of the property. So, if
you can trace property acquired during marriage to a SP source, you may succeed in rebutting the general
CP presumption
2.6.3.2 Special Presumptions
Certain special statutory presumptions. If the facts come under a special presumption,
the general presumption is automatically rebutted. Ex: if a question involves a deed, or automobile
registration, or title document, consider a special presumption and whether it applies.
2.6.3.3 Finally, always look for an interspousal property agreement.
3. CLASSIFICATION PROBLEM AREAS
Biggest issue in classification is commingling of SP and CP assets. Other problem areas include
installment purchases, business profits, loan transactions, real property improvements, employee benefit awards, and
personal injury awards.
3.1 COMMINGLED FUNDS
Combining or mixing of CP and SP in a common pool. Ex: commingled funds in a common bank account.
If records are kept, classification may be easy. But, if commingled funds are maintained over a long period of time,
acquisition of assets w/ such funds can be problematic. General presumption applies and may be rebutted by
tracing.
3.1.1 Direct Tracing
Direct tracing can rebut the general presumption. Must be able to trace funds in and out of the
commingled account. Ex: W deposits $50k inheritance into commingled account. Later, she withdraws
the $50k and buys stock. If she can show records, it’s SP.
3.1.2 Indirect Tracing
Based on family expense presumption. Expenditure of commingled funds on family expenses is
presumptively intended as an expenditure of CP. If it can be established that at the time the disputed asset
was acquired, the balance of the account was expended by family expenses, then the remainder is SP.
Ex: $100k of CP and $50k of W’s SP commingled in a single account. Some years later, W
withdrew $50k to buy some stock. If W can show that at the time she withdrew the $50k to buy the stock,
the community expenses had exceeded $100k, the balance must be her SP. This showing must be made as
of the time of the acquisition. Total recapitulation is not permitted. Just showing that over the course of
time, the community expenses exceeded the balance, that is not good enough.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 6 of 18
Study Guide for COMMUNITY PROPERTY
3.2 INSTALLMENT PURCHASES
Asset acquired on time payments. Ex: asset of real estate through the use of an installment land sale
contract. Ex: W entered into a K to purchase Whiteacre for $150k, payable in 15 payments of $10k each. W makes
5 installment payments before marriage and the 10 remaining payments after marriage. Property is now worth
$200k. Is Whiteacre SP or CP? Some jdx use “inception of the right” approach and fix classification at the time of
the first payment. California uses the apportionment method.
3.2.1 Inception of the Right Method
Property is SP and community is entitled to reimbursement for the payments made from CP. But,
no buy-in as to the appreciation.
3.2.2 Apportionment Method
Apportion pro-rata based on payments made. 1/3 is W’s and 2/3 is CP. This ratio is applied to the
current value of Whiteacre. Thus, the $50k of appreciation is apportioned on this ratio.
3.3 BUSINESS PROFITS
Ex: H had a business worth $100k at time of marriage. H continued to work in business during marriage.
At dissolution, business is worth $500k, a $400k increase during marriage.
3.3.1 Tracing
General tracing principal normally mandates that profits and gains derived from SP be classified
as SP. But, in this case the H has been contributing his labor.
3.3.2 Time Skill Efforts Labor
Time, skill, efforts, and labor contributed to the management of a business during a marriage are
presumptively CP.
3.3.3 Apportionment of Newly Created Wealth
California law holds that TSEL used during a marriage to produce new wealth should be
apportioned relative to the proportional SP and CP contributions. The problem is, it is impossible to work
out such an apportionment with mathematical certainty. How do we know how much of the gain is
attributable to H’s TSEL? Or to the SP capital investment? We don’t really know for sure. But, California
Courts require an apportionment and they have worked out two different approaches for working out an
amount: Pereira and Van Camp.
3.4 PEREIRA
Allocate a fair return to spouse’s SP investment as SP income; then allocate any excess amounts of gain to
the community. I – SP = CP.
3.4.1 Determination of Fair Rate of Return on SP Investment
Normally, at trial, the evidence of a fair rate of return is set forth by one side or another. In the
absence of such evidence, the Court may, at its discretion, use the statutory interest rate.
3.4.2 Calculation of SP Allocation
Ex: Trial judge may accept 7% as a fair rate of return and the marriage lasted 20 years.. If so, the
Court would probably find that $140k of the gain is SP income [$100k SP investment x 7% x 20 years =
$140k]. Thus, out of the $400k gain, $140k goes to H. H gets $140k gain + $100k SP investment.
3.4.3 Remainder to CP
Community takes remainder, or $260k, which is then split 50/50.
3.4.4 When to Use Pereira
When the new wealth is created because of personal services.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 7 of 18
Study Guide for COMMUNITY PROPERTY
3.5 VAN CAMP
Isolate the reasonable value of the CP contribution. The reasonable value of the spouse’s services provided
during the course of the marriage. That amount is allocated to the community and the balance of the gain is SP. I –
CP = SP.
3.5.1 Value of Spouse’s TSEL
Ex: Expert testimony says that a fair wage is $15k per year to do what H did for the business.
$15k x 20 years = $300k CP; $100k balance of gain = SP.
3.5.2 Effect of H Drawing a Salary
If H drew a salary in excess of $15k, and used it to pay community expenses, then the community
has already been fairly compensated. Therefore, whatever gain exists, must be attributable to the SP
investment of the H.
3.5.3 When to Use Van Camp
When the new wealth is created by function of capital investment.
3.6 LOAN TRANSACTIONS
Property acquired during marriage through a credit transaction, or a loan transaction, will come within the
general presumption of CP. Tracing can be used to rebut, but for loan transactions it is a little different than normal
tracing. Ex: H borrowed $100k from bank during marriage. H used the proceeds to buy stock. Now, the
classification of the stock is at issue. The stock was acquired during marriage, so the general presumption is that it
is CP. But, if H wants to establish that the stock is SP, we need to know what the stock is traceable to. H can trace
the stock to the loan proceeds. But, that doesn’t really solve the problem. So, the next step is to try and determine
where the loan came from.
3.6.1 Primary Intent of the Lender Test
Realistically, the lender probably relied on multiple factors in reaching a decision to make the
loan. Assets, earnings, etc. Courts will try to ascertain the primary intent of the lender. If H can show that
the bank relied primarily on some SP asset that he owned, the Court may classify the loan proceeds as SP.
If the loan proceeds are classified as SP, then so too is the stock which H purchased with the loan proceeds.
3.6.2 Modern Trend: Sole Intent of the Lender
The SP proponent has been required to show that the lender relied solely on the existence of the
borrower’s SP when making the loan. Failure to make such a showing results in imposition of the general
presumption for CP. Ex: H owns Blackacre as SP. H borrows $1k from the bank and posts Blackacre as
security for the loan. Assume Blackacre is worth $100k. H could possible show that the $1k loan was
produced by the valuable SP collateral. If the H can establish that, then the loan proceeds are classified as
SP and so too are the assets acquired with the loan proceeds.
3.6.3 Repayment of Loan w/ CP
3.6.3.1 No Buy In
If the Court agrees, and the stock is classified as SP, and there is evidence that H repaid
the loan from his earnings. Under a credit acquisition, the repayment of the loan has no impact. The
community has no ownership interest as a result.
3.6.3.2 Right of Reimbursement
Community is entitled to reimbursement for the CP used in repaying the loan.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 8 of 18
Study Guide for COMMUNITY PROPERTY
3.7 PURCHASE MONEY SECURED LOAN TRANSACTIONS
Ex: Prior to marriage, W wishes to buy stock for $1,000. W does not have the money and decides to
borrow. If the lender requires W to put up the stock itself as collateral, it will be a purchase money security
instrument (PMSI). Assume W subsequently is married, and pays off the loan using CP, and then gets divorced. If
the classification of the stock is put at issue, in this situation, the purchase of the stock and the borrowing of the
money are very closely interrelated. The loan would not have been obtained but for the stock, the stock could not
have been purchased but for the loan.
3.7.1 Full Repayment of PMSI w/ CP
Court will treat the repayment of the PMSI as installment payments on the underlying asset; in this
case, the stock. Because the loan and the loan proceeds are so closely interrelated, the payments on the
loan are treated as direct payments on the underlying asset.
3.7.2 Partial Repayment of PMSI w/ CP
Ex: H only repays 20% of the loan during the marriage. Court will apply a hybrid theory: the
Lucas / Moore approach. Most commonly applied in the instances of residential real property with a PMSI.
3.8 LUCAS APPROACH
Ex: During marriage, W inherited $20k from her mother. Assume W uses this money to make a down
payment on a house. The house has a purchase price of $100k. W puts down the $20k inheritance as the down
payment and she borrows $80k from the bank for the balance of the purchase price. The bank wants security for the
loan, so W agrees to execute a purchase money deed of trust to secure the loan. This means that the house being
purchased by W is being used as security for the loan. Further assume that W takes title to the house in her name
alone. Thereafter she makes principal and interest payments on the loan with her earnings during marriage. Assume
that some years later, H & W are now getting divorced. Assume that the house has increased in value by $200k to
$300k. Further assume that the loan balance is now $60k. The question is how to classify the house.
3.8.1 Step 1: Classify the Loan Components
Under the apportionment approach first developed in the Lucas case, the first thing we need to do is
classify the following elements:
(1) $20k Funds used for the down payment, [SP]
(2) $80k Loan proceeds, [CP under intent of lender test] and
(3) any principle payments made on the loan [$80k - $60k balance = $20k CP principle pmts].
3.8.2 Step 2: Compute SP/CP Proportion
To work out an apportionment we need to determine the amount of appreciation attributable to the SP
contribution and the amount of appreciation attributable to the CP contribution. $20k/$100k = 20% SP contribution.
$80k/$100k = 80% CP contribution.
3.8.3 Attribute Property Appreciation to SP and CP
$200k gain x 20% = $40k SP appreciation + SP down payment $20k = $60k SP.
$200k gain x 80% = $160k CP + $20k CP principle pmts = $180k CP
Loan balance = $60k.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 9 of 18
Study Guide for COMMUNITY PROPERTY
3.9 MOORE APPROACH
Ex: Before marriage, H decided to purchase a home at a cost of $100k. Further assume that H had $20k he
wanted to use as a down payment, and that he obtained a bank loan for the remaining $80k. Assume that the lender
wants security, so H agrees to execute a purchase money deed of trust as security for the $80k loan. This means that
the house being purchased by H is being used as security for the loan. Shortly after this deal closes, and before H
makes any loan payments, H marries W. Assume that after marriage, H uses his earnings during marriage to make
payments on the loan. Some years later, H & W are getting divorced and again, classification of the house has been
put at issue. We need to know the classification of the house. Assume that the house is now worth $300k and the
current loan balance is $60k.
3.9.1 Step 1: Classify the Loan Components
Under the apportionment approach first developed in the Lucas case, the first thing we need to do is
classify the following elements:
(1) $20k Funds used for the down payment, [SP]
(2) $80k Loan proceeds, [SP b/c loan made prior to marriage] and
(3) any principle payments made on the loan [$80k - $60k balance = $20k CP principle pmts].
3.9.2 Step 2: Compute SP/CP Proportion
$20k SP down pmt + $80k SP loan proceeds - $20k CP principle pmts = $80k/$100k = 80% SP
$20k CP principle pmts / $100k purchase price = 20% CP.
3.9.3 Attribute Property Appreciation to SP and CP
$200k gain x 80% = $160k SP appreciation + SP down payment $20k = $180k SP.
$200k gain x 20% = $40k CP + $20k CP principle pmts = $60k CP.
Loan balance = $60k.
3.10 PMSI SUMMARY
3.10.1 Remember, Principal Only
Only principal goes to the acquisition, so only principal pmts count.
3.10.2 Timing is Key
If loan is taken out before marriage, the loan proceeds will be SP and the SP proponent will take
lion’s share of the valuation. Vice versa for loans made during marriage.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 10 of 18
Study Guide for COMMUNITY PROPERTY
3.11 REAL PROPERTY IMPROVEMENTS
3.11.1 Classify According to Underlying Asset
The classification rules derive from c/l fixtures doctrine. When real property is improved by one
spouse, the improvement will always take on the classification of the underlying real property.
3.11.2 Right of Reimbursement
Depends on nature of funds used, nature of estate improved, and which spouse made the
improvements.
3.11.2.1 CP on Other Spouse’s SP [Gift Presumption]
Ex: W owns a house in law as her SP. H uses $10k of CP to have a swimming pool built
on that property. The pool will take on the classification of the underlying real estate (W’s SP in this case).
The issue is whether the community is entitled to reimbursement. Generally, a gift is presumed and no
reimbursement is allowed.
3.11.2.2 CP on Spouse’s Own SP [Buy-in Rule]
Ex: H owns a house in law as his SP. H uses $10k of CP to have a swimming pool built
on that property. The pool will take on the classification of the underlying real estate (H’s SP in this case).
The issue is whether the community is entitled to reimbursement. In this case, probably yes. If the
community were not reimbursed, H would be enriching his own SP estate at the expense of the community.
Therefore, the community is reimbursed the greater of the amount expended or the value added.
3.11.2.3 SP on CP [Before 1984 Gift; After 1984 Reimbursement but No Buy-in]
Ex: H & W own a house in law as CP. H uses SP of $10k to build a swimming pool.
Here, the pool will take on the classification of the underlying real estate (CP in this case). The issue is
whether H is entitled to reimbursement. Case law generally held that reimbursement was not appropriate,
using instead the gift presumption. This presumption has been changed by statute. Under § 2640, a spouse
who uses SP to improve CP will be entitled to reimbursement unless the spouse signed a written waiver.
The measure of reimbursement is statutorily limited to the amount expended.
3.11.3 Buy-in Allowed for CP on Spouse’s Own SP
In the case of CP on spouse’s own SP, California Courts allow the community reimbursement for
the greater of funds expended or the value added.
3.12 EMPLOYEE BENEFIT AWARDS
Primarily talking about retirement benefits and other benefits deriving from one’s employment. Used to be
viewed as gratuities to faithful employees. Courts rejected the gift analysis and recognized that both employee and
employer contributions to a retirement plan should be treated as compensation for services rendered. Thus,
retirement benefits are viewed as deferred compensation for CP classification.
3.12.1 Vested – Nonvested Distinction Abolished
All retirement benefits are capable of being classified as CP. Brown case in 1976 changed this.
Portion of benefits attributable to earnings during marriage is classified as CP.
3.12.2 Vested - Matured
Vesting occurs when the employee has an irrevocable right to the benefits, even though the
employment relationship may be terminated downstream. Maturing benefits occurs when the employee
reaches the retirement age and meets the various conditions for retirement and is actually eligible to start
receiving the benefits. Ex: Employee has been working for employer for 10 years. He is now 50 years
old. If he reaches the age of 65 he will be eligible for retirement under the particular plan. At this point,
his benefits will be vested; but they have not yet matured. They will mature when he reaches that age
requirement and is actually eligible to start receiving the benefits.
3.12.3 ERISA
Requires pension benefits to vest in 5 years. So, no long periods of unvested benefits.
3.12.4 Division of Unvested Benefits at Dissolution
If benefits are not vested at dissolution, trial judge has broad discretion to fashion a remedy.
3.12.4.1 Cash Out Method
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 11 of 18
Study Guide for COMMUNITY PROPERTY
Court calculated the present value of the unvested pension benefits. Court may then
award the pension rights to the employee spouse and award other community assets of equal value to the
other spouse.
3.12.4.2 Reserving Jurisdiction
Alternatively, Court may choose to classify the community interest in the pension; and
then reserve jurisdiction to supervise the actual payments of the pension rights to the spouses when the
pension rights have actually matured. This option makes sense when the benefits calculation is speculative.
3.12.4.3 Apportionment Issues
If pension benefits have been earned before and during the marriage, apportionment is
necessary.
3.12.4.3.1 Defined Contribution
Defined Contribution plans keep a separate account for each employee. The
account shows contributions by the employee and employer. The plan managers invest these
contribution and periodically credit the participant with a share of the gains on the investment.
The gains will fluctuate with the market. Money apportionment can be worked out to determine
how much gain is SP and how much is CP.
3.12.4.3.2 Defined Benefit
There are no separate accounts detailing contributions and gains by
employee. Rather, you have a contract between the employer and employee. According to the
terms of the contract, working for the employer for a prescribed period of time will qualify the
employee to receive a certain set of benefits. Either a fixed amount or, more likely, a % of
average salary or salary at retirement. Rather than a fixed amount, the employee has a right to a
package of benefits. It is impossible to work out a money apportionment under a defined benefit
plan. Instead, a time apportionment is used, apportioning the benefits according to the amount of
time before marriage and during marriage that the employee worked for the company.
3.12.5 Stock Options
Primary intent of the employer test. If the employer’s primary intent was to retain the
employee, then the stock options represent golden handcuffs. Here, rather than being a form of
compensation for past efforts, we might be looking at compensation for future efforts. To the extent that
the future efforts fall outside the marriage, they would be SP.
3.12.6 Termination Benefits
Severance pay received after permanent separation should be classified based on all available
facts. If it is compensation for past service, it is CP; future service is SP. A key point is the employee had
an absolute right to the payment, or the payment was made to ease the employee’s transition. If it was a
guaranteed payment, it will likely be considered CP.
3.12.7 Disability Payments
If a substitute for the employee’s earnings during marriage, CP. Post-divorce disability payments
are normally SP.
3.12.7.1 Employee Cannot Elect Disability in Order to Defeat CP Interest
If employee has an option between disability and retirement, he may not elect disability
payments in order to defeat the CP interest. To the extent that disability benefits represent retirement pay,
CP interest will be awarded.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 12 of 18
Study Guide for COMMUNITY PROPERTY
3.13 PERSONAL INJURY AWARDS
Two major components of a PI award: pain and suffering and lost earnings. PI awards could be classified
on these bases. However, California takes an all or nothing approach. Either the award is all pain and suffering or
all lost wages.
3.13.1 Awards Recovered From a 3rd Party During Marriage
PI awards recovered from a third party during marriage are CP.
3.13.2 Awards Recovered From a 3rd Party After Permanent Separation
PI awards recovered from a third party during marriage are SP of the injured spouse.
3.13.3 Awards Recovered From a Spouse
A spouse who recovers damages for an interspousal tort keeps the award as his or her SP.
3.13.4 Division of CP at Dissolution
§ 2603 requires CP PI damages at dissolution be assigned to the injured spouse unless the interests
of justice require another disposition. Court will consider economic condition of the parties, time lapse
since the injury. In any case, the injured spouse must receive at least 50% of the award. This exception to
the equal division mandate whereby the injured spouse could receive more than ½ of the damage award
does not apply if the damages have been commingled with other community property.
4. LIMITATIONS ON CLASSIFICATION
4.1 LIMITATIONS ON PROPERTY WITHIN THE CP SYSTEM
Most kinds of legally recognized and protected property interests fit into the CP classification system
without difficulty. However, there are certain relationships that have value, that have economic value, but the
Courts have removed them from the system. The most significant, probably, is the value of a professional education.
4.1.1 Education Benefits
To date, the California Courts have held that the value of a professional education acquired by a
spouse during marriage and the concomitant increased earning capacity of that spouse are not property
within the ambit of the CP system. Primarily because the valuation is too speculative and relies on future
earnings which are not CP.
4.1.2 Legislative Response – Right of Reimbursement For Tuition and Fees
§ 2641 still holds that value of a professional education acquired by a spouse during marriage and
the concomitant increased earning capacity of that spouse are not property within the ambit of the CP
system. However, the legislature has granted a form of reimbursement for CP contributions to the
educational costs. The educational costs have been limited to direct educational costs, such as tuition and
fees. Food, clothing, and shelter are not reimbursable.
4.1.3 Term Life Insurance
Ex: During marriage, H takes out a term life insurance policy on his own life. Policy limit is
$100k and premiums of $200 per year are paid with CP. H names his son from a prior marriage, Sam, as
beneficiary. 10 years later, H dies. The issue is whether the wife has any rights with regard to the term life
insurance policy. In a death situation, there are a number of possibilities. We could say that she would be
entitled to the full $100k because this was a CP asset and H should not have named S as the beneficiary
without W’s consent. Another possibility would be to say that W should be entitled to reimbursement for
the amount of CP expended ($2,000 in premium payments).
4.1.3.1 On Death At Least ½ Is CP
The California Courts have taken a middle ground. Life Insurance policies are treated somewhat
like wills in terms of beneficiary designation (quasi-testamentary act). Thus, the Courts have allowed a
spouse to designate a beneficiary to receive up to ½ of the policy proceeds.
4.1.3.2 On Dissolution
Division of Authority. Most Courts of Appeal treat the policy as SP. Rationale: No
value until the policy holder dies. Minority is contra.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 13 of 18
Study Guide for COMMUNITY PROPERTY
4.1.3.3 Value of Renewal Right
If policyholder is uninsurable elsewhere, the right of renewal may be of value. Ex:
policyholder has suffered a stroke and cannot get insurance anywhere else. But, because he has this policy,
he has a right to renew. This renewal right has been valued as CP by some Courts.
4.1.4 Whole Life Insurance
Whole life has a death benefit component and an investment component. Because of the
investment component, the whole life policy has a cash surrender value. The cash surrender value is CP.
4.2 CONSTITUTIONAL LIMITATIONS
4.2.1 Federal Preemption
The major constitutional restriction is encountered in the Supremacy Clause. Various employment
benefits are classifiable as CP. However, where you have retirement and employee benefits that have been created
by federal legislation, the propriety of classifying them as CP may be questionable. The underlying issue is
basically a constitutional question. The issue is whether the Supremacy Clause of the United States Constitution
will preclude the classification of the benefits as CP. Under the Supremacy Clause, state laws, including state
marital property laws, must yield to any conflicting federal law, when Congress in exercising a constitutionally
granted source of power has expressly or impliedly sought federal supremacy.
4.2.1.1 Military Benefits
The issue of federal preemption has arisen most frequently with respect to military
pensions and benefits. The state Courts have repeatedly held that state law should not be preempted. But,
in several SCOTUS opinions, federal preemption has been found. For example, preemption has been found
with respect to Veterans’ life insurance programs where the Veteran has the absolute right to designate
someone other than his spouse as the beneficiary. Another example involves military disability pay.
SCOTUS has held that military disability pay cannot be classified as CP, even where it acts as a substitute
for retirement pay. Bottom Line: any exam question dealing with a federal right or benefit, be sure to at
least mention the possibility of federal preemption.
4.2.2 Substantive Due Process
Retroactive enactment of legislative amendments to the CP system. California Courts have held
that expansion of a wife’s CP rights cannot be enacted retroactively where so doing would impair the
husband’s vested property rights. Similarly, the retroactive application of § 2581 (JT presumptively CP)
and § 2640 (right to reimbursement of SP spent to improve CP) have been found unconstitutional.
4.3 LIMITATIONS ON PERSONS WITHIN THE COVERAGE OF THE CP
SYSTEM
4.3.1 The Requisite Of A Valid Marriage
Valid California marriage is required to have true CP.
4.3.2 Putative Marriage
At least one, if not both parties have an honest and good faith belief in a valid California marriage.
The earnings and accumulations of the putative marriage are recognized by judicially created equitable
remedies. These remedies have been partially codified in § 2251 which recognizes the equitable system in
dissolution or annulment proceedings. It characterizes this equitable CP as quasi-marital property and
provides for an equal division.
4.3.2.1 Quasi-Marital Property
Property which would have been CP if the marriage had been valid. To qualify for QMP
treatment, at least one spouse must have had a good faith belief in the existence of a valid marriage.
4.3.2.2 Termination of a Putative Marriage by Death
If a putative marriage is terminated not by dissolution or annulment, but by death of a
party, the judicially created equitable CP system continues to apply. The property that would have been
true CP had there been a valid marriage would be treated in the same fashion as CP. Ex: Suppose we have
a couple A & B who live together with a good faith belief that they are validly married. Let’s say they
accumulate $500k of property over the course of their 20 year relationship. Then one of them dies. A dies
intestate, survived by B and by A’s sister Sally. Assume that the $500k of property is QMP. Under that
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 14 of 18
Study Guide for COMMUNITY PROPERTY
assumption, that property would all be treated as CP for succession purposes; and all the property would go
to B because B would take as a surviving spouse would.
However, suppose that in addition to the QMP, A owned 100 shares of stock that she had
inherited from her father. The question then is whether the surviving putative spouse would get the same
share that a surviving spouse would get (1/2 of the decedant’s SP). California Supreme Court has held that
the surviving putative spouse should be treated in the same fashion as a legal spouse for all intestate
succession purposes, including succession rights to SP.
Note: The putative spouse has been treated just like a legal spouse for a number of other
purposes, such as qualifying as a surviving spouse for purposes of the wrongful death act, qualifying for
social security and workers’ compensation benefits.
4.3.3 Domicile
The controlling principal here is that marital property rights are governed by the law of the
domicile of the married person at the time the property is acquired. This means that if the parties were
never domiciled in a CP jdx, then CP will not apply, even though the couple may have acquired property in
the CP jdx. Ex: Oregon couples acquiring property in California.
4.3.3.1 Use of CP to Acquire SP in a Non-CP State
§ 760 has been amended to include even out-of-state real property. So, by statute, the
definition of CP encompasses even out-of-state real property. But even before that amendment, California
Courts classified out-of-state real property as CP by using the tracing principle.
4.3.3.2 Subject Matter (In Rem) Jdx
Only the Courts in the situs state have jdx to enter a decree that directly affects title to the
property (in rem jdx). The California Courts can declare that a piece of out-of-state real property is CP, but
only the Courts of the jdx where the land is located can issue a decree that directly affects or changes the
title. For that reason, by statute in California, wherever possible the trial Court in a dissolution case should
avoid trying to interfere with the title to real property located outside the jdx.
4.3.3.3 Preferred Approach for Out-of-State Real Property
The out-of-state real property should be awarded to the spouse who has the legal title and
the other spouse should be awarded other CP assets of equal value. This solution avoids that jdx problem.
4.3.3.4 Change of Domicile
Persons who move from a non-CP state to a CP state. Ex: H & W move from Ohio to
California for retirement. Then, H dies. This could leave a gap into which the surviving spouse falls. Ohio
uses a form of dower rights, such as elective share statutes which give the surviving spouse 1/3 to ½ of the
decedant’s estate, even if the decedant has disposed of the property in some other fashion by devise. The
surviving spouse is accorded the statutory protection of the elective share statute. CP states, however, do
not have this dower type protection.
CP states focus on the accumulation of property during the marriage and rely on the CP
ownership to protect the surviving spouse. That is, the surviving spouse owns his or her ½ of the CP estate
and no one can take it away from them. But, if you have a couple from a common law state or non CP jdx,
they move to California after retirement, they don’t have CP. They were not domiciled in California when
the property was acquired. On the other hand, the elective share rights which would have been available in
Ohio are no longer available in California. To cover this gap, several of the CP states have developed a
remedial concept commonly referred to as QCP.
4.3.3.5 QCP
Property owned by California domiciliaries which was acquired in non-CP states is
treated as QCP upon dissolution or death. § 125 states that all personal and real property, wherever
situated, and whenever acquired that would have been CP if acquired by a California domiciliary will be
denominated QCP for purposes of dissolution and will be treated and divided like CP. The constitutionality
of this legislation in the dissolution setting has been upheld. With regard to the situation where a marriage
ends in death, similar problems can arise when a married couple moves from a common law jdx to
California and then one of them dies. Probate codes §§ 66, 101, 102 were enacted to address this issue.
Personal property and California CP if acquired by a California domiciliary will be denominated QCP and
will be treated in some ways like CP for wills and succession purposes.
4.3.3.6 QCP – True CP Differences at Death
QCP statutes apply only on death of the acquiring spouse.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 15 of 18
Study Guide for COMMUNITY PROPERTY
5. MAJOR RAMIFICATIONS OF CLASSIFICATION
5.1 MANAGEMENT & CONTROL
Up until 1970, management and controll of CP assets was vested in the H in all CP jdx’s. There were some
exceptions, such as the W’s earnings and personal injury awards. Because the H had such extensive control over the
community, the equality principal did not really extend to management and control. The equality principal only
applied to ownership rights, not to management and control. This mostly changed in the 1970’s. Except for Texas,
all CP states extend the equality principal to management and control. There are some exceptions.
5.1.1 Exceptions to Equality of Management and Control
5.1.1.1 CP Business
§ 1100(d), the spouse who is operating or managing a business or an interest in a business
which is CP personal property will have the primary management and control of that business.
5.1.1.2 Bank Account Held in the Name of One Spouse Alone
The other spouse will not have management and control rights, even though the account
may contain CP funds.
5.1.2 Management and Control Restrictions
5.1.2.1 Gift Limitation
Neither spouse may make a gift of community personal property nor dispose of
community personal property for less than adequate consideration without the written consent of the other
spouse. This was how the spouse recovered the gambling debts of her husband in the Hotel del Rio case.
5.1.2.2 Community Real Property
Neither spouse may convey or encumber community real property, even for consideration
unless both spouses join in the conveyance.
5.1.3 Requirement of Good Faith
Each spouse is required to act in good faith with respect to the other spouse in connection with the
management and control of the CP.
5.1.4 Violations of Management and Control Restrictions or Limitations
In some cases, two persons may be in need of protection. In the gift situation, where one spouse
improperly makes a gift of CP, generally it’s only the other spouse who stands in need of a remedy or
protection. But, if real property has been transferred for consideration, if it has been sold to someone for
valuable consideration, both the non-consenting spouse and the transferee may stand in need of some
remedy or some type of protection.
5.1.4.1 Improper Gifts of Personal Property
Ex: H & W own 100 shares of ABC Co. stock as CP. H gifts the stock w/o W’s consent.
Sometime later, W learns of and objects to the gift. The transaction will be voidable by the non-consenting
spouse.
5.1.4.1.1 Objection During Marriage
If the non-consenting spouse acts to set aside the gift during the marriage,
she can have the gift set aside in its entirety.
5.1.4.1.2 Objection After Marriage
If the non-consenting spouse acts to set aside the gift after the marriage, she
may recapture ½ of the property. The rationale is that once the community has terminated, the
non-consenting spouse will be recovering his or her share as SP.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 16 of 18
Study Guide for COMMUNITY PROPERTY
5.1.4.2 Conveyances of Real Property Where One Spouse Holds Record Title
Ex: Blackacre is CP but title is in W’s name alone. W sells Blackacre to a 3 rd party for
$100k. Further assume that H did not join in this conveyance. If H discovers the sale and wishes to set
aside the sale, he must satisfy § 1102 which imposes a rebuttable presumption of the validity of the
transaction. The presumption applies if one spouse holds record title in his or her name alone and transfers
community real property to a bona fide purchaser for value without notice of the marriage. If H can show
that he did not know of nor consent in any way, he may be able to rebut the presumption.
Note: If the purchaser had notice (is not a BFP), the presumption does not apply. The purchaser
may still prevail on an estoppel theory. Ex: H did not sign the deed but had participated in negotiations or
knew of the transaction and said nothing.
5.1.4.2.1 Statute of Limitations
§ 1102 contains a 1 year SOL. Rationale: promote stability of recording
system. Statute runs upon recording by purchaser. Recordation is deemed to be notice to non-
consenting spouse.
5.1.4.2.2 Requirement to Refund Purchase Price
If the non-consenting spouse prevails, the sale contract is rescinded and the
purchaser is entitled to a refund of the purchase price.
5.1.4.3 Successful Challenge During Marriage
If the non-consenting spouse successfully challenges a transaction during marriage, the
entire transaction will be set aside. This means that the entire transaction is deemed invalid and any
creditor involved will have no recourse against CP, not even H’s ½. The underlying obligation, say if H
borrowed $100k against security in Blackacre, the obligation remains, but the security interest disappears.
5.2 CREDITORS’ RIGHTS
The basic principle here is that creditors’ rights are coextensive with management and control rights. If a
spouse has a right to manage and control a piece of property, normally his or her creditor will be able to reach that
property. There are some limited exceptions, but this is a rule-of-thumb that is applicable in most situations. Well,
what property is under each spouse’s management and control? Each spouse has the right to manage and control all
CP and his or her own SP. So, what that means from the standpoint of a creditor, the debtor spouse’s creditors will
be able to reach the debtor spouse’s SP and also all of the CP. Note then that creditors’ rights are keyed in to
management and control rights, they are not keyed in to ownership rights. Each spouse owns an undivided ½
interest in the CP but has management and control rights over all CP.
5.2.1 Tort Obligations Incurred During Marriage
Ex: One spouse commits a tort during marriage. A 3 rd party sues and is awarded a judgment
against the spouse. The question then arises as to what property the tort judgment creditor may reach.
Ultimately he may reach all of the tortfeasor’s SP and all of the CP. But, in California, we have a priority
scheme overlayed on that basic principal.
5.2.1.1 Order of Satisfaction
§ 1000 establishes establishes the order of satisfaction for tort obligations. The statute
requires the tort obligation be classified as either community or separate and then sets up a preference for
payment out of CP first or SP first. Note: none of this affects the tort judgment creditor’s right to recovery.
It merely sets out the rights and obligations of the spouses.
5.2.1.1.1 Activities In Furtherance of the Marriage
The CP is primarily liable, tortfeasor’s SP is secondarily liable.
5.2.1.1.2 Activities Not Performed For Benefit of the Community
Tortfeasor’s SP is primarily liable, CP is secondarily liable.
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 17 of 18
Study Guide for COMMUNITY PROPERTY
5.2.2 Contractual Obligations Incurred During Marriage
The basic rule is that the contracting spouse’s SP and all of the CP will be liable.
5.2.2.1 Contracts for Necessaries
The contractual obligation broadens if you have a contract for necessaries. In that
situation, the creditor may be able to reach not only the CP and contracting spouse’s SP, he may be able to
reach the non-contracting spouse’s SP. This is because the non-contracting spouse may be deemed to be
personally liable for an obligation for necessaries of life.
5.2.3 Obligations Incurred Prior to Marriage
(1) SP of debtor spouse; (2) CP w/ the possible exception of the earnings of the other spouse, so
long as her earnings are not comingled with CP and to which the debtor spouse does not have access.
5.2.4 Creditors’ Rights After Dissolution
Ex: Tort judgment creditor has judgment against W for $100k. Assume that the community has
more than $100k in assets to satisfy the obligation. Further assume that W was acting for the benefit of the
community when the tort ocurred. Normally, the tort judgment creditor during marriage could reach the
CP. But, suppose that before the TJC can collect, H & W get divorced. Assume that the CP has been
divided 50/50 between H & W. So now H & W each have $50k of former CP. He may go against W’s SP.
But, may he go after H’s SP which used to be CP? Case law in California would have allowed the creditor
to reach all of the former CP. However, by statute in California, that rule has been changed. § 916 deals
with the rights of creditors after a division of CP in connection with the dissolution of a marriage. The
current statute states that post-dissolution the SP of the debtor spouse will be liable, together with any
property received by the debtor spouse in the division of the CP. So, the debtor spouse’s share of the
former CP would be liable. However, property received by the non-debtor spouse received in the division
will not be liable unless the debt was specifically assigned to that spouse in connection with division at
dissolution.
6. DISTRIBUTION UPON TERMINATION OF MARRIAGE
6.1 DISTRIBUTION UPON DISSOLUTION
6.2 DISTRIBUTION UPON DEATH
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
c56bb1d4-ab8c-464a-9deb-334b175d605e.doc Ted Finamore Page 18 of 18