COMMUNITY PROPERTY
Professor Goodman - SCALE II
October 2004 - March 2005
Table of Contents
I. NEW FAMILY LAW ACT (NFLA) CHANGES .............................................. 2
A. PROCEDURAL (VOCABULARY) 2
B. SUBSTANTIVE 2
II. CHARACTERIZATION OF PROPERTY ........................................................ 2
A. GENERAL RULES (SECTIONS OF THE FAMILY CODE) 2
B. TRANSMUTATION 5
C. OVERCOMING CP PRESUMPTION BY PROOF OF SEPARATE OWNERSHIP 6
D. COMMINGLING OF FUNDS: MIXING OF SP AND CP IN ONE ACCOUNT 6
E. PEREIRA 29
F. VANKAMP 29
G. PROFITS FROM SEPARATE CAPITAL WHERE THE SPOUSE CONTRIBUTED
HIS/HER EFFORTS 31
H. DIVISION OF COMMUNITY ESTATE THAT INCLUDES OUT-OF-STATE REAL
PROPERTY 49
I. GOODWILL 11/30/2004 49
J. COMMUNITY CONTRIBUTIONS TO EDUCATION 1/13/2005 51
K. VALUATION OF AN ASSET 53
L. DATE OF SEPARATION 53
M. PUTATIVE SPOUSES (SPICE?) 57
N. QUASI-COMMUNITY PROPERTY 58
O. SECTION 2. DIVISION BY COURT ORDER 68
II. EXAM APPROACH -- WHAT MAX WANTS ............................................... 72
A. DEBT LIABILITY 86
B. PREMARITAL DEBTS 86
III. FAMILY LAW ISSUES ................................................................................... 109
A. MOVE-AWAY CASES: 109
B. MOVE AWAY CASE RULES 111
IV. QUESTIONS: .................................................................................................... 112
A. TERMINATION OF THE ESTATE BY DEATH 113
V. REVIEW ............................................................................................................ 113
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I. New Family Law Act (NFLA) Changes
A. Procedural (Vocabulary)
1. Plaintiff = Petitioner
2. Defendant = Respondent
3. Title of the Action = In Re Marriage
4. Divorce = Dissolution of Marriage
5. Annulment: A defect that was in existence at time of marriage
Judgment of Nullity of Marriage
6. Separate Maintenance = Legal Separation
B. Substantive
Divorce
a. Before Change—Had to have grounds for divorce (marital misconduct plus corroborating
evidence)
b. After Change—No Fault Divorce
1. Types
a. Irreconcilable Differences leading to irremediable breakdown of the marriage
b. Incurable Insanity proven by medical evidence
2. Statutes
a. §2335: Evidence of misconduct is inadmissible except in child custody hearings.
b. §2550: Mandatory equal division of community property
c. §2552: Date of valuation is as close to trial as practical unless there is a good cause
reason.
II. Characterization of Property
A. General Rules (Sections of the Family Code)
1. §760: Except as provided by statute, all property acquired during marriage is community property.
i. Jolly: W had no money when H married her. During marriage, H worked and W stayed at home.
Ten years after H died, W died. W had real property at death and it was unclear whether she got it on her
own after H died or whether it was a product of her community funds from her marriage. W‘s family
didn‘t want Probate Code §6402.5 (Property that had formerly been Community Property goes half to H‘s
heirs and half to W‘s heirs where: (1) Decedent is a surviving spouse [formerly married and not remarried],
(2) there were no children or issue from the former marriage, and (3) Decedent left no will) to kick in.
Analysis: Since W did not work, had no property at time of marriage, and evidence supported that she
had not
received a gift, devise, etc. (particularly since she was old), the presumption that property acquired
during marriage is community property was not rebutted.
Conclusion: The Real Property is community property
2. §770: Separate property is:
a. Property owned before marriage
a. Gifts, devises, bequests or descents
b. Rents, issues [comes out of rent or profits] and profits of property described in this section.
Intent of the Lender: Determines the characterization of property purchased with a loan
i. Ford: H (husband) and H‘s brother are tenants in common on two pieces of property. H swaps
with brother so
each would be a 100% owner in one property. H then buys the brother‘s property with a loan
secured
entirely by H‘s separate property.
Analysis: W (wife) points to four pieces of evidence that the property was considered community
property. Three
of them have no bearing on how the lender thought of the property. The only one that does
is W‘s
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signature on the mortgage and promissory note. However, Supreme Court precedent
(Flournoy and
Martin) was that the W‘s signature on a mortgage could not ―affect the rights of the parties.‖
As such, the
property in question was a ―profit‖ of H‘s separate property.
Conclusion: The property is H‘s separate property
ii. Grinius: Shortly after marrying, H and W opened a restaurant with money they got from an SBA loan
and a regular loan. Only H signed the SBA loan but both signed the regular one. The SBA loan was secured by
both Community and Separate Property but H put secretly put the title in his name alone. H & W signed a
prenuptial agreement that the property would all be SP for 6 years. At the end of 6 years, the property reverts to CP.
Retroactively. It is a self destructive prenuptial agreement. H started to commingle his SP funds with the CP.
Analysis: Until now, a court would look to whether the lender relied on CP or SP in extending its loan. Here,
however, the court overrules the old standard (even though it was established by the Supreme court {Grudelj} and
this is an appellate court), and says that a lender may rely in both SP and CP. Since the lender in this case did rely
on both, the presumption that property acquired during marriage is Community Property is not overcome.
Conclusion: The restaurant is Community Property Restaurant was CP but husband claimed that the land it was
built on was his SP. (p. 34). That property, under the exchange rule, had the same character as the borrowed funds.
i) Facts – Last Word From Courts On Credit Acquisitions And Intent Of The Lender
(1) H and W bought a restaurant together
(2) Obtained money from
(a) 20K down payment
(b) 80K SBA loan (small business admin)
(i) H signed loan guaranty
(ii) Secured by restaurant they were buying and H‘s SP
(c) 40K loan from Home Fed
(3) H had title to the property in his name alone
(4) T.C. – awarded restaurant to H as his SP
(a) Loan was traceable to SP
ii) Issue – Is Restaurant SP or CP
iii) Rule – Loan Proceeds Are Subject To The General Presumption That Property Acquired During
Marriage Is CP
(1) Presumption can be overcome with evidence that lender relied SOLELY on SP when making the
loan
iv) Hold – Restaurant Was CP
(1) loan was made in part on community‘s ability to repay the loan, per the terms of the SBA loan
v) Effect Is That It Is Practically Impossible To Classify A Loan Taken During Marriage As SP
(1) Source Of Collateral Is Irrelevant Because Bank Wants Repayment, Not The Collateral
3. §771: Earnings of spouse (and of minor children living with or in custody of the spouse) while living
separately and apart are separate property of that spouse.
Note: ―Living separately and apart‖ is a term of art. The real test is not if they are living under same roof but if they
are living as husband and wife. Max says: NEVER SAY ―LEGAL SEPARATION;‖ SAY ―separated for purposes
of § 771.‖
4. §772: Earnings and accumulation after legal separation are separate property.
5. §781(c): Personal injury award is separate property.
Note: Originally, they husband and wife could not sue each other for damages; Under Self, they can.
Insurance companies now often put clauses in K's saying that people in same household cannot sue under
K.
Retroactivity of anti-Lucas: Legislature says yes, Courts say no. Max says just know the statute as it
stands today. Legislature had given up trying to make anti-Lucas retroactive.
6. §2580: 2/3/2005
i) Section 2580 = there is a compelling state interest to provide for uniform treatment of marital property
(1) These enactments will apply to all property, regardless of the date of acquisition
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(2) These presumptions are rebuttable
(3) Presumptions must be in writing
ii) Section 2581 = at dissolution all property acquired by the couple in joint form including by tenancy in
common (which could be CP), JT, or tenancy by the entirety, or CP, is presumed to be CP, rebuttable
by
(1) A clear statement in the deed that the property is SP or
(2) Proof that the parties have made a written agreement that it is SP (Tomaier did not require a
writing)
(3) This is only for division of property on dissolution of marriage. It does not apply to death or
creditor claims.
(4) This partially overrules Tomaier for dissolution of marriage, but not for probate or for a creditor
suing a spouse.
(5) Only under dissolution or separation; not death.
iii) Family Code 2640 - Reimbursement Of Contribution 1/13/2005
(1) Only under dissolution or separation; not death.
(2) Property Is Community, But One Spouse Made A Separate Property Contribution To The
Acquisition Or Improvement Of The Property
(3) Unless Written Waiver, Spouse Is Entitled To Reimbursement For Contribution Of SP, To The
Extent Spouse Can Trace It To A SP Source
(4) But there is no interest or share in appreciation paid = only get the dollar amount put in
(5) Applies only at dissolution
(6) Includes
(a) Down Payments
(b) Improvements
(c) Reduction Of Loan Principal
(7) Does NOT Include
(a) Interest
(b) Maintenance
(c) Insurance
(d) Taxation
(8) NOTE: 2640 Typically Comes Up When The Special Presumption Arises From A Joint Title.
(9) Net value and gross value:
(a) Gross value is what property would sell for if not encumbrances
(b) Net value is value property would sell for after satisfaction of all encumbrances
(c) Reimbursement cannot exceed net value of property.
a. Probate Code §5305(b)(1): Notwithstanding §2581(above), the presumption that property held in
joint form is CP may be rebutted by oral tracing of the property to separate property unless there is a
writing clearly showing the property is intended to be CP.
Note: This twists the §2581presumption around.
PC § 5134 says the same thing. Net contribution of a party at any given time is the sume of the
following: get this from book
b. Comparing Joint Tenancy to Community Property
Joint Tenancy Community Property
Each spouse owns an undivided half. It‘s separate Each spouse owns an undivided half.
property so dissolution court has no jurisdiction
over it.
There‘s no probate since there‘s a right of Spouses can give away their own halves by
survivorship, i.e., the survivor gets all. will.
You can sell your share of joint tenancy without You can‘t sell your share of community
consent from your spouse or sue for partition, i.e., property without consent of your spouse.
sell the entire property and each spouse gets half
of the proceeds.
Interest is divided equally. If dissolution is based on fault, the community
property can be unequally divided (but not in
CA cuz of §2550.
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i. Tomaier: 1944 CAN’T GO BY FORM OF PROPERTY ON TITLE. NEED TO PROVE
IF IT’S CP.
j. we still had fault grounds for divorce. Unusual case b/c husband is the . So, back then, if he was
not at fault, the law required him to get more than ½ of the estate. He accused the wife of extreme cruelty. P sued
for dissolution and division of CP. The trial court excluded evidence that would have shown that a certain real
property in CA was acquired with community funds and with the intention that it remain CP. The trial court found
the property to be in joint tenancy. P appealed saying the property was CP even though the deeds said it was a joint
tenancy. Analysis: The trial court should have allowed in the evidence Conclusion: The property is CP Joint
tenancy property does not pass by will. So, if the property is joint tenancy, it is separate property and cannot be
community property. Joint tenancy property goes all to the survivor and is not affected by the will. If joint tenancy,
each spouse owns an undivided ½ interest and the court has no jurisdiction to intervene. But, if it‘s community
property, then the Court may intervene and give him more than ½. So, it‘s the husband who appeals, even though he
was the one who was granted the divorce. The Supreme Court reversed and said that it was all C.P. Parties cannot
by agreement change the status of property from CP to JT. Any evidence that tends to add to, or change the
contract, you can‘t admit parol evidence. H wants to show that despite the written instrument showing the property
as JT, he should have allowed parol evidence. P. 29 ―Again it may be shown that husband and wife intended to take
property as community property as community property even though they accepted a deed drawn to them as tenants
in common. The parol evidence does not generally apply to husband and wife disputes in order to prevent the use of
Common Law forms of conveyance (such as Joint Tenancy) to alter the community character of real property
contrary to the intention of the parties. At that time, you could have an oral transmutation of real property (no
longer true) which would violate the statute of frauds! Wife‘s attorneys claimed that the property was JT and she
should get ½; or alternatively there was a deed in which case she should get all of it. Why argue backwards like
that? The Court thought is was a backwards argument too. Siberell gave both parties something to quote. Can‘t
change the nature of CP by oral agreement (helps husband); use of CP to buy property is binding (helps wife). Tax
benefit to CP - if one spouse dies, the other gets the stepped up basis and there is no capital gain tax. Even though
California has not jurisdiction over land in other states, the California Court with personal jurisdiction can order a
party to convey land located in another state.
k. Siberell v. Siberell (Cal. 1937):
Community property and JT are different and cannot be the same. JT all goes to survivor and a will does not act
upon it. CP can be transferred by will. CP is liable for the debt of the spouse; JT is not. So, it‘s and either-or
proposition. Use of CP to purchase the property and the taking of title thereto in the name of the spouses as JT‘s is
tantamount to a binding agreement between them that the same shall not thereafter be held as CP.
l. Watson v. Peyton:
Wife‘s hidden intention not disclosed to the other party at the time the instrument is executed has not effect. Can‘t
have an agreement without two parties. Must be an express agreement, not implied.
m. Exchange Rule: when property is obtained in an exchange such as a sale (exchange of property
for money), the property acquired has the same status as the consideration given up in the exchange. See HN 8 on p
31. So, in Tomaier, personal property was exchanged for land out of state. Therefore, when he took CP $ and
bought real estate, it was an exchange. Applying the exchange rule, the property retained its characteristics.
c. §683.1 Safe Deposit Boxes: Safe deposit boxes do not create automatic joint tenancies on their
contents. Until this statute, they did so.
B. Transmutation
1. §850: Married persons may transmute community property to separate property, vice versa, and separate
property of
one spouse to separate property of the other.
2. §851: Fraudulent transfer laws apply—You can‘t transfer property with the sole purpose of evading
creditors
3. §852: Form of Transmutation—Transmutation must be in writing by an express declaration accepted by
the spouse
(although signature not required) whose property interest is adversely affected.
Note: If H fails to put the transmutation in writing, W can send him a thank you note to clarify it.
Note: This section does not apply to a gift between spouses of clothing, jewelry, or other tangible articles
of a personal
nature used principally by the spouse to whom the gift is made and not substantial in value taking into
account the
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circumstances of the marriage.
i. Woods: P has no property when he marries rich old lady.
At marriage, old lady orally agreed her property would
become CP. After marriage, she declared that it had become CP. However, she never transfer
title, control, or possession of any of her property. Trial court said the Statute of Frauds barred the
oral agreement.
Analysis: Transmutation can be accomplished by an oral agreement between parties.
Conclusion: It is CP
Note: This case has been overruled by §852.
4. §853: Estate planning documents—
A statement in a will of the character of property in a will is not admissible as
evidence of a transmutation of the property in a proceeding commenced before the testator‘s death
C. Overcoming CP presumption by Proof of Separate Ownership
D. Commingling of Funds: Mixing of SP and CP in one account
a. General Presumptions In Favor Of CP For Commingled Funds
1. General Rule: When separate and community funds are commingled in a bank account, assets
purchased from that account = community property
2. Property added to a commingled account during marriage is CP (Party asserting otherwise bears
burden)
3. Family Expense Doctrine—Funds withdrawn from a commingled account for paying community
living expenses are presumed to be community funds
At the time an asset is purchased from a commingled bank account, if there is evidentiary proof
that community expenses exceed community income, the remainder in the bank account is
considered separate property and thus, the purchased asset is SP. BOP on separate property
owner. And there is a presumption that we pay community living expenses out of CP funds first.
Called the FAMILY EXPENSE DOCTRINE.
4. Withdrawals (generally)—Any withdrawal from a commingled account for any purpose is
presumed to be CP because, nearly always, the expenditure falls in one of two categories: (a)
Payment of expenses—so the Family Expense Doctrine kicks in, (b) Buying an asset—so the
general presumption that property acquired during marriage is presumed to be CP kicks in.
b. Tracing:
There are different methods of "tracing" in determining what is SP and what is CP where a
mixture of SP and CP is available to purchase a given asset. The California cases, such as
Marriage of Mix, provide a good illustration of this. Dollar amount spent on separate asset must be
calculated with reasonable certainty and particularity. Two methods of tracing: consideration of
family expenses and direct tracing.
c. Direct Tracing:
Or, we can "trace" by showing SP funds going in at about the same time an asset is purchased out
of the account. Marriage of Mix tends to be a little strange because the Court used Wife‘s
testimony to determine what her intention was when the asset was acquired.
1) Again, generally we need more than the oral statement of someone that an asset was
acquired with SP and was intended to be SP when being acquired.
2) And remember the Hamlin case where it appeared that over the term of the marriage all
CP had been used for living expenses, yet assets acquired during marriage were treated as CP
because they could not be traced by "clear and convincing" evidence to a SP source.
d. See’s: (as in “See's candy").
Must be able to show that community funds have all been expended.
Is a CA case, but Randall says this will be WA law someday. Illustrates the rule that when SP is
used for living expenses there is no right of reimbursement to its separate property owner. A
mutual obligation to support exists between H and W. Not enough to just show that over the term
of the marriage all CP had been used up. Have to show that at the time of acquisition of a specific
item of property that there was no CP to use.
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See: W appeals a dissolution decree wherein the trial court allowed H to use the recapitulation theory to
establish that the funds remaining in an account were his separate property and to be reimbursed for paying
community expenses (while married) with SP. Trial Court awarded W $5,400 /mo alimony. H appeals that. W
appeals finding that there was no CP. So, both spouses appealed the ruling. The fight is over which funds were
used to acquire assets, CP or SP. H tried to overcome presumption of CP as to the $ he withdrew by showing that
the living expenses exceeded the community income. Therefore all that was left was SP. Analysis: H has the
burden of keeping records (or showing just cause why he could not through not fault of his own) adequate to
establish the balance of community income and expenditures to be able to take advantage of the Recapitulation
Theory. It appears H did not keep records. Furthermore, H may not be reimbursed for using his SP to pay
community obligations (living expenses) unless there was an agreement for reimbursement. Cuz using SP to pay
CP obligations is a presumptive gift. Conclusion: Remanded to apply these rules. His security account probably
was for dividends on stock he owned before the marriage which therefore would be SP. He mixed this with his
salary which is CP. By commingling CP and SP, it‘s all CP. Person claiming that it‘s SP has the burden of tracing
and proving that it‘s SP.
Example:
CP SP
5000 salary 5000
3000 w/d 2000
5000 salary 7000
6000 Living exp 1000
Always analyze as of the date of the withdrawal of the funds. Husband says he had 5k income and 6k
expenses, so it must be SP. This is wrong because it disregards assets acquired with CP which depleted the CP
account.
Record Keeping burden is not an excuse if H commingles and fails to keep records.
They were not disputing the $5,400 in alimony. But the Court reversed it anyway, even though it wasn‘t
appealed because if the CP/SP distribution changes then she may enjoy investment income that would obviate the
need for so much alimony.
In the absence of a written agreement to the contrary, use of SP to pay CP expenses is a gift to the
community. Max says: what if W is injured and hospitalized? If husband refuses to pay deposit from SP without a
reimbursement agreement it would be not be a voluntary agreement. She could be under duress. Same if she
needed to pay the rent or be evicted and he refused to help without a reimbursement agreement. Spouses are entitled
to mutual support. How do you avoid this problem? Take out a signature loan; general credit is CP. Then he can
repay the loan with CP without ever commingling.
e. Mix:
Direct tracing case. Case says you can supplement your documentary evidence w/ testimony. Case shows
there is a lot of play w/ regard to credibility of witnesses. Don't have to have perfect bank records to do direct
tracing.
During marriage, W drew from a commingled account to make some investments. Trial court held that the
profits from these investments were W‘s SP cuz W was able to trace it to her SP. Analysis: To rebut the
presumption that funds drawn from a commingled account are community funds, a party can use (1) Recapitulation
Theory or (2) Direct Tracing. As in See, W here failed to keep records adequate to take advantage of
Recapitulation. Furthermore, the schedule W introduced that itemized her expenditures on SP was insufficient to
satisfy tracing requirements cuz the schedule entries were not tied to any specific bank account(s). However, W‘s
testimony that she intended to make these expenditures for SP purposes convinced the trial court so this court will
uphold its finding since it got to actually hear W testify. Max says: p. 41 when she converted the bank account and
began depositing into it , this was probably a transmutation. Conclusion: The funds withdrawn were W‘s SP so
the profits therefrom likewise are W‘s SP
i) Facts – W Showed A Schedule Prepared By Her Of What Was Contributed And Spent From Her CP
ii) Held -- Evidence Of The Schedule Was Admissible And Substantial Evidence Of The Classification
Of Property
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iii) Note – Even Self-Serving Evidence Can Be Admissible To Show SP
iv) Uses Direct Tracing Of The Property Back To The Funds Used To Acquire It
f. Asserting separate character of commingled funds
1. Recapitulation Theory—You recapitulate the community income and community
expenses in an account where there were commingled funds during the entire period of marriage; if
expenses exceed income, then all that‘s left is SP
2. Reimbursement—Where a party uses SP to pay community expenses:
a. During marriage—That party is not entitled to reimbursement unless there is an
agreement to reimburse
3. Living Expense Presumption: when funds are withdrawn from a commingled account, it
is presumed that it was CP that was withdrawn.
4. Aggregate (Recapitulation) Theory: He recapitulated all of his salary during the marriage
and the income of the parties during the period of the marriage and the living expenses of the family.
When the living expenses exceeded the CP, all that could be left would be SP. Therefore when he makes a
withdrawal to buy an asset, he can only (mathematically) withdraw SP. P. 37 ―Such a theory is without
support in statute or case law of California.‖
(1) Property acquired during marriage is presumptively CP.
(a) Held that cannot add up everything at the end of the marriage and see what the balance is
(b) Must establish that the family expenses exceeded the CP at the time the acquisition at
issue was made. If not, SOL and subsequent expenditures for community are deemed gift.
(c) Problem is that people don‘t keep good enough records to establish this
(d) Get agreement in writing, keep records, separate account if can.
(2) Things that Count
(a) housing
(b) food
(c) medical expenses
(d) depends on standard of living of the family
(3) Idaho allows total recapitulation - Add up at the end of the marriage and divy up SP and CP.
f. Epstein 24 Cal 3d 76
H was pediatrician. After divorce, Pediatricain refused to treat kids and demanded payment for services
rendered. H paid. Then in the divorce, H asked for reimbursement. W said no, it was a gift under See. H argued
that it was absurd to assume a gift when divorce was pending.
See Rule: before separation, gift is presumed.
Epstein Rule: after separation, reimbursement is presumed.
4 Exceptions to Epstein Rule:
1. Intent: If gift was intended. (maybe he felt guilty and unilaterally intended a gift)
2. Agreement: If there is an actual agreement not to seek reimbursement.
3. Exclusive Use: If there is a payment and the amount of payment is approximately equal to
rental value. Example: family car is leased. Husband needs car for work so he pays the car
payment. He wants reimbursement cause he paid with SP. W says no way cuz he used the car. If
the payments made are roughly equal to the rental payments, no reimbursement is allowed.
4. Aspect of Support: family law.
b. During separation—That party is entitled to reimbursement unless:
(1) A party intended the expenditure to be a gift to the spouse, OR
(2) There is an express agreement that there is no reimbursement, OR
(3) One party has exclusive use of the asset used and the reasonable rental value of the
asset is fairly
close to the amount to be reimbursed.
E.g.: If parties are buying a car and, at separation, H takes the car and pays for it with his
SP, he can‘t
be reimbursed so long as the reasonable rental value is fairly close to the amount of the
car payment.
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i. Epstein: When a poor H and W separated, they owed their pediatrician some money.
Pediatrician
sent both parents a letter saying ―pay up or I stop treating your kids.‖ H (unlike
W, apparently) didn‘t want the doc to stop treating the kids so he used his
income (separate property since it was earned while H and W were separated) to
pay this community obligation. At dissolution, H wanted reimbursement from
the community for these payments.
Analysis: W cites See saying that since the parties had no agreement for
reimbursement, H couldn‘t
be reimbursed. However, Ct said that since H and W were separated, See does
not apply. Instead the presumption favors reimbursement for a party paying
community debts with separate funds during separation and is only overcome is
there is an agreement otherwise.
Conclusion: H is entitled to reimbursement
Separate Property Contributions to Community Property
a. Section 2640: A spouse who contributes separate property to the community estate is to be
reimbursed for the contribution UNLESS the spouse has waived his right of reimbursement IN
WRITING.
1. Reimbursement is permitted only for:
a. Down payments, AND
b. Payments used to improve property, AND
c. Payments that reduce the principal of a loan
2. It IS NOT permitted for:
a. Payments on the interest of the loan, AND
b. Payments made for maintenance, insurance, or taxation of the property
3. Other notes regarding the calculation:
Interest and inflation are not included,
The reimbursement amount cannot exceed the net value of the property at the time of
division.
b. What if C property is used to improve a SP asset or vice versa, use of C property to
improve the C asset or SP asset.
USE OF C PROPERTY TO IMPROVE OTHER SPOUSE‘S SP ASSET, A GIFT IS
PRESUMED.
C PROPERTY TO IMPORVE YOUR OWN SP MAKES C ENTITLED TO
REIMBURSEMENT. IT GETS THE AMOUNT SPENT OR INCREASE IN VALUE OF SP,
WHICHEVER IS GREATER
50K paid to improve vacation home, 75K increase, C reimbursed 75K. If no increase, get 50K
back.
USE OF SP TO IMPROVE OTHER SPOUSE‘S SP IS PRESUMED A GIFT
SP USED TO IMPROVE CP ASSET IS GOVERNED BY ANTI-LUCAS RULE, SP USED TO
MAKE IMPROVEMENTS TO CP ENTITLES YOU TO REIMBURSEMENT.
KNOW THREE DIFFERENT TYPES OF TITLE. In general, titled doesn‘t matter, except
married woman‘s special presumption. Simply tracing not enough to overcome married woman‘s
special presumption. title also matters for joint title, lucas and antilucas problem. Lucas says that
taking titled in joint and equal form is inconsistent to maintaining separate property
ownership interest. Under lucas you need an oral or written agreement to maintain ownership
and no automatic reimbursement. Ca leg attempted to overturn lucas and did so to some degree.
First enactment applied only to JT and said that those property are presumed CP for divorce
(UNLESS written agreement or some indication in the deed to the contrary) and gets automatic
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reimbursement unless waived in writing. But leg made a mistake by excluding CP and TIC and in
87‘, it was revised to include those and TIE. All are presumed CP for purposes of divorce, you
want to reserve SP ownership, need written agreement. This only applies for purposes of divorce,
at death, lucas still applies, any jointly titled asset w/SP contribution is presumed gift unless oral
or written agreement. And At death, title controls. Anti-lucas does not apply to bank accounts
that are jointly titled. Ordinary rules of tracing applies, can trace to SP if you can demonstrate
that, otherwise, = CP
i. Tallman: H and W bought a home financed in part by a $53K trust deed from the Scotts.
W paid the
Scotts $40K of her SP and they forgave the whole $53K. At dissolution the trial
court calculated the whole $53K as reimbursable to W. H appealed
Analysis: Since when W was reimbursed she did nothing (like placing a $13K lien on the
property) to evidence that she expected a reimbursement greater than $40K, the
community—not she—should benefit from $13K saved.
Conclusion: W‘s reimbursement amount is dropped from $53K to $40K
The wife used $6,818 of her separate property as part of the down payment the couple
made on their home, in In re Marriage of Tallman. FN3 Later she used $40,000 of her separate
property to pay off two deeds of trust on the couple's community property residence, and the
deedholders agreed to forgive the aggregate indebtedness of $53,000 under the deeds. At
dissolution, the trial court ordered the wife to be reimbursed under Family Code § 2640 for
the $6818 plus $53,000, or $59,818, before division of the remaining community equity in the
home. The Fourth District modified the judgment, holding that the proper measure of
reimbursement is the actual amount paid, $46,818 ($40,000 plus $6,818 separate property
down payment), not the amount of the indebtedness reduced, $53,000. Max says: when she
spent $40,000 to relieve a $53,000 debt, is she entitled to the $40,000 she paid or the $53,000
that was forgiven? Court held that the $13k spread was a benefit to the community and was not
expected, so she doesn‘t get it. § 2640 - DIP (downpayment, improvement, principle); NOT
interest.
b. Before §2640 (and 4800.2)
i. Lucas: (THIS CASE IS NO LONGER GOOD LAW…SEE ABOVE!) W put down $6350
of her SP on a house she and H bought. She then spent another $2962 of her SP on improvements to the
house. H and W took out a 17K loan on the rest and put title in the property as joint tenancy. H appeals
trial Ct‘s finding that W‘s down payment and improvement money was SP.
Analysis: Ct notices that there were 3 different rules on how to treat SP used for a down
payment on a house where title is taken as joint tenancy. Ct adopts Trantafello that says
that the down payment is a gift to the community unless there is evidence of an agreement
to the contrary.
Conclusion: Remanded for determination of whether an agreement existed
In re Marriage of Lucas (Cal Sup, 1980)
W used separate property as part of downpayment for house; court held house was comm
prop because act of taking title in joint ownership is inconsistent with intent to preserve
separate interests. Based on 1965 presuemption it is COMM PROP. Need both parties
intent, not just one. Cannot rebut with evidence of tracing or lack of donative intent. But
you can use to tracing to apportion the sp and cp portions of appreciation **Still may be
controlling for property acquired before 1985.
Max: parties buy a house; don‘t have enough in CP to make the down payment. So, one spouse makes a
SP contribution. Bjornstadt: SP spouse gets SP contribution back $ for $; then Aufmuth didn‘t like that rule b/c
spouses becomes partners based on pro-rata amount of contribution; so if you contribute $25k and that‘s 25% but
now the house is worth $1mm; you don‘t want $25k; you want 25%. Trantafello said SP spouse want‘s either a
reimbursement or a pro-rata share. But if you say nothing; it‘s a gift. Max says Trantafello is probably the best
way. So, going into Lucas, we had 3 different ways to divide up.
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4 EPSTEIN EXCEPTIONS
Max says: Lucas says use of SP for the benefit of CP presumes a gift of that property. Exception (also seen in
See); in Epstein parties are married and living together with one or more children who are being cared for by a
specialized children‘s doctor. They owe the doctor a lot of $. The couple separate; the doctor gets worried about
being paid. Doctor says, ―pay me or I quit.‖ So, the husband pays the debt from his earnings during the period of
separation. H has applied SP (earnings after separation) to pay a CP obligation. The debt arose during the marriage
and was a CP debt. But H paid it off with SP. Divorce case comes to trial. H says he wants to be reimbursed off
the top for the payment to the Doctor. W says that the rule is it is a gift. Cal. Sup. Ct. ruled for H; general rule that
SP for CP purposes is a presumptive gift presumes it is done while the couple are living together. But to presume a
gift when the couple are separated and fighting a divorce would be ridiculous. This is the Epstein Exception: (1)
AGREEMENT: There is a right to be reimbursed where the payments are made during separation unless there is an
agreement to the contrary; or (2) UNILATERAL INTENT TO MAKE A GIFT: there is a unilateral intent to make a
gift. Why would a H pay his separate funds unilaterally intending to make a gift? Maybe he doesn‘t want a divorce
and is trying to impress the W. Maybe he feels the marriage fell apart due to his own misconduct and he is trying to
assuage his guilt feelings by paying off the obligation and not seeking reimbursement. (3) ACQUISITION OR
PRESERVATION OF AN ASSET FOR EXCLUSIVE USE: or if payment was made to pay a debt incurred on
behalf of the spouse paying it off. Example: CP debt for car payment. H keeps car after separation and he makes
the payments. Comes the divorce and H claims that he paid a CP obligation with SP. He seeks reimbursement.
Court says no: if rental value of car was approximately equal to what he paid on the car loan, then no right to
reimbursement because he was merely preserving an asset roughly equal in value to the amount paid. Example: W
keeps house and mortgage payment is roughly equal to what she‘d pay in rent. (4) PAYMENT DISCHARGES A
SUPPORT DUTY.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
IV. Commingling Separate And Community Accounts
§ 6:26 Commingled funds that cannot be traced are presumptively community
property--Keeping accurate records for direct tracing
In a subsequent case to Mix, Estate of Murphy, FN1 although the California Supreme Court cited Mix with
approval, it specifically stated that "evidence which merely establishes the availability of separate funds on
particular dates without also showing any disposition of the funds is not sufficient proof to overcome the
presumption in favor of community property." FN2 The Murphy court, like that in See, further mandated that the
evidence required be that of "keeping adequate records." FN3
It appears that the stricter See and Hicks tests continue to be the rule, and that Mix may be restricted to its own
facts. In re Marriage of Marsden, FN4 reached a similar holding that evidence of stock sales, which did not clearly
indicate which of the separate and community bank accounts was used, was insufficient to establish separate
property. Marsden takes for granted that adequate records for the purposes of direct tracing of separate property
funds in bank accounts must show both the specific flow of separate property income and expenditure and the
particular account through which the funds moved.
See, also, In re Marriage of Higinbotham, FN5 where the husband refused to take responsibility for the family
finances and the wife used money out of a commingled bank account to make payments on the husband's separate
property house, in which there were inadequate records to sustain either direct, indirect or recapitulative methods of
tracing. The managing spouse, moreover, is not estopped to assert rights based upon the payment of commingled
funds toward the non-manager's separate property; nor by the mere fact of her managing the community accounts
does she assume by law a fiduciary duty to preserve the separate property.
Even for indirect tracing by use of the exhaustion method, there must be accurate records of the availability of
separate funds at the time of acquisition and the exhaustion of community funds on family expenses. FN6
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
VI. Acquisitions Using Both Separate And Community Property
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§ 6:43 Separate property contributions to the acquisition of community property assets
In 1983, the Legislature cut through the confusion of dozens of inconsistent rulings to provide by statute for the
direct reimbursement of separate funds used in the acquisition of community property. To be sure, the principal
purpose of the new amendment was to defeat what had become an all-too-facile presumption of the gift of separate
property to the community after In re Marriage of Lucas. FN1 The result, however, is a statutory rule providing for
the direct reimbursement of separate funds, except upon a written waiver, traced to the separate source. The
principal problem with the new statute, of course, is its limitation upon the amount of reimbursement. The statute
says reimbursement shall be made "without interest or adjustment for change in monetary values and shall not
exceed the net value of the property at the time of division." The reason, of course, was to prevent compounding, as
the separate property contributing spouse retains an interest in the community property acquired. Clearly, however,
separate funds used to contribute to the acquisition of community property are a questionable investment!
Family Code § 2640: (Max says this is ―Anti-Lucas‖ legislation; it brings back Bjornestadt)
(a) "Contributions to the acquisition of the property," as used in this section, include downpayments,
payments for improvements, and payments that reduce the principal of a loan used to finance the
purchase or improvement of the property but do not include payments of interest on the loan or
payments made for maintenance, insurance, or taxation of the property.
(b) In the division of the community estate under this division, unless a party has made a written waiver of
the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be
reimbursed for the party's contributions to the acquisition of the property to the extent the party traces
the contributions to a separate property source. The amount reimbursed shall be without interest or
adjustment for change in monetary values and shall not exceed the net value of the property at the time
of the division.
Section 2640 continues former Civil Code § 4800.2 without substantive change. In subdivision (b) "community
estate" has been substituted for "community property," to indicate that this provision applies to quasi-community
property as well as community property. FN2
Max says that before the 1929 depression, mortgagors just paid interest and kept renewing. But after the crash, they
didn‘t renew. The property was worth only $50k but the mortgage was $75k. This gave rise to deficiency
judgments. California enacted anti-deficiency statutes. Had to be a purchase money mortgage. Same as covered in
property transactions class. Cal Civ Proc Code § 580(b)
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
VI. Acquisitions Using Both Separate And Community Property
§ 6:49 Separate property contributions to the acquisition of community property
assets--When does Family Code § 2640 become effective?
The Law Revision Commission comment states that the rules embodied in Family Code § 2640 is "necessary
to remedy the rank injustice in former law" and that:
"Apart from correction of the rank injustice of former law and furtherance of social policy that immediate
application of § § 4800.1 and 2 [Family Code § § 2580 and 2640] seeks to achieve, failure to apply the
corrective rules to all litigation commenced after their effective date will result in unequal treatment of parties
and will preserve two different bodies of law for many years to come, whose application will depend upon such
factors as time of acquisition of property and the time of an alleged oral agreement. In the interest of equality
and for the purpose of having available to the public a manageable and understandable body of family law, the
Legislature finds that application of the legislation to all cases commenced on or after January l, l984, serves
important public policies." (Stats. 1986, ch. 539, § l).
The legislation had as its purpose the correction and change of the presumption of gift rule articulated in In re
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Marriage of Lucas, FN1 to cover situations in which separate property is contributed to the acquisition of
community property. Unfortunately, in the controversy over the legislation, we may have forgotten that Lucas
exaggerated the rule in the first place. Citing See v. See, FN2 the Lucas Court held that where separate property is
contributed to the acquisition of community assets without a contrary agreement, the contribution is presumptive of
a gift. A closer look at See, however, reveals that the rule in See was that separate property contributions to the
payment of community expenses or for community purposes are not reimbursable without interspousal agreement.
There is a great deal of difference between contributions to the payment of community expenses or use for
community purposes and contributions to the acquisition of assets that continue in existence at dissolution. The
Supreme Court's decision the year following See in Weinberg v. Weinberg, FN3 confirms this interpretation.
Laurence See was seeking reimbursement for family expenses paid out of separate funds after he had failed to trace
acquisitions to separate property sources. Mrs. Weinberg sought reimbursement for the payment of family expenses
out of an account funded by her personal injury award money. In In re Marriage of Epstein, FN4 Dr. Epstein had
paid for family expenses, including the maintenance of the home and the house payments after separation. All
sought reimbursement for the amount of money already spent on ongoing expenses. They were not seeking a share
in existing assets. Furthermore, in each of the Supreme Court cases, the underlying rationale of the rule not to
reimburse a party for payment of family expenses out of separate funds was rooted in the spousal support obligation.
The obligation of support can be met from either community or separate earnings and has nothing to do with the
purchase of assets of continuing value.
In l978, in a case on facts similar to Lucas, the Court of Appeal for the Fourth District in In re Marriage of
Smith, FN5 re-wrote the non-reimbursement rule to include the use of separate property for community purchases
and improvements. Citing See, Weinberg, and In re Marriage of Cosgrove, FN6 (another "community expenses"
case), the Court refused a wife reimbursement for separate money spent to build a pool at the home and buy
machinery for the community business. Smith represented a considerable extension of the non-reimbursement rule,
even though it cited no independent authority for the extension. FN7 Similarly, in In re Marriage of Camire, FN8
the court turned to the presumption of gift "rule" where it refused the community reimbursement of community
funds used for payments on a trust deed, taxes and insurance on a spouse's separate property. FN9
The proper developing rule before Lucas was that contributions to the acquisition of community property assets
out of mixed resources established a pro tanto sharing of the assets, by way of a proportionate,not direct,
reimbursement. Provost v. Provost, FN10 for example, gave the community an interest in the enhancement of value
of the separate property of the managing spouse who had used community property on its improvement. Provost is
not a direct reimbursement, but rather a proportionate sharing case. Similarly, In re Marriage of Moore, FN11
correctly articulated the proportionate sharing principle where community contributions are made to the acquisition
of separate property assets. Moore cites favorably and approves the proportionate sharing formula of In re Marriage
of Aufmuth, FN12 which was approved in Lucas. Lucas did not cite Provost and was decided shortly before Moore.
It cited only See, Weinberg and Epstein for the non-reimbursement rule. Where reimbursement was in order, Lucas
chose the proportionate sharing formula of Aufmuth. FN13
Lucas, thus, adopted a considerable extension of the non-reimbursement rule as it appeared, without substantial
precedential citation, two years earlier in Smith. Thus, the alarm of the Family Law Bar at Lucas was that, in
deciding between Aufmuth, Bjornstad, and Trantafello, the Court not only misstated the non-reimbursement rule for
the payment of family expenses, but that it cut off development of the proportionate sharing principles that should be
equally applied to all acquisitions using mixed resources. Lucas was decided in 1980. Given the murkiness of the
pre-Lucas case law, the First District's statement in In re Marriage of Cairo, that the presumption of gift/non-
reimbursement rule had been followed "for almost 20 years," FN14 is overly generous. Thus, it beggars imagination
how Fabian could speak of reliance by both bar and married couples on "the former law" when that "former law"
was never codified and is almost entirely the fabrication of recent and not entirely consistent case history.
If reliance is important, then it should be reliance by the persons whose property is in issue. There is no way the
persons whose cases had been spun out into this conundrum could have relied upon the former law. It was not
codified, and the case law before Lucas was so uncertain that not even the bar could have relied upon it. The reliance
spoken of must, therefore, have been reliance upon reasonable and common expectations. But, as Texas law has
commonly and traditionally held, basic fairness as commonly understood, underlies the common person's
expectation that contributions from one estate to the benefit of the other will be reimbursable on dissolution of
marriage. FN15 The presumption of a very large amount of separate property as a gift, especially in a short-lived
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marriage, as in Fabian itself, is the last thing the average person would expect from the law. Californians are little
different from Texans in this regard. Would anyone really presume that a spouse's entire inheritance was intended as
a gift to the community in a marriage of short duration that would break up just a short while after the use of the
separate property to help in the acquisition of a community asset? What possible social purpose would such a
presumption have?
As California's greatest jurist, Justice Roger Traynor said, "We are given to justifying our tolerance for
anachronistic precedents by rationalizing that they have engendered so much reliance as to preclude their
liquidation. Sometimes, however, we assume reliance when in fact it has been dissipated by the patent weakness of
the precedent. Those who plead reliance do not necessarily practice it." FN16
The Legislation cutting off proportionate sharing principles in favor of a presumption of entitlement to direct
reimbursement is similarly at variance with the developing trend before Lucas, but it represents, at least, a
reasonable choice. Certainly, the presumption of gift to the community, rebuttable only upon the showing of a
contrary agreement, is both unwarranted and would spawn endless litigation over intent informally given in the
increasingly complex climate of dissolutions of second marriages and marriages of older couples in which separate
contributions are very frequent. The Legislation, however, is certainly more simple to apply, and the avoidance of
proportionate sharing calculations renders the law more clear and certain than before, precluding an enormous
amount of continuing litigation. Unfortunately, not only was Fabian a classic example of a hard case making bad
law, but it continued Lucas' misstatement of the former law. It did so, moreover, in the context of a decision so
poorly written that it was simply incomprehensible to the practicing bar. FN17
On August 24, 1995, the California Supreme Court issued an opinion in In re Marriage of Heikes, FN18
reversing the Second District Court of Appeal on the applicability of Family Code § 2640. On the basis of dicta in
the Supreme Court's earlier decision in In re Marriage of Hilke, FN19 the District Court of Appeal had decided that
Family Code § 2640 would apply to property acquired with the use of separate funds before the effective date of
the statute. The Supreme Court, reversing, reaffirmed its previous decision in In re Marriage of Fabian, FN20 to
deny the retroactive applicability of the statute.
While denying retroactive applicability to Family Code § 2640, the court at the same time re-affirmed its
position in Hilke, that the joint form presumption of Family Code § § 2580 and 2581 was to be applied
retroactively to previously acquired joint tenancies. Thus, Heikes states that the joint form presumption of
community property of Family Code § § 2580 and 2581 is retroactive in application, while the reimbursement
principle of Family Code § 2640 is not retroactive, notwithstanding the fact that both were parts of the same
legislation originally intended to be equally applicable.
The result of the Heikes decision is that the husband, who conveyed his separate property home and an
unimproved parcel to himself and his wife as joint tenants in 1976, found that the home and property were presumed
to be community property when dissolution proceedings were commenced in 1990, but he was not entitled to
reimbursement for his separate property contributions to them, as the pre-1984 law grounded a presumption of a gift
to the community. The court found that this was constitutionally compelled because his wife must have relied on the
law that was in effect in 1976 and did not have a reasonable chance to motivate the husband to make a written
waiver of his reimbursement rights between 1984 and 1990. The court says nothing about the husband's reliance or
the advice he may have received from his attorney who may or may not have relied on the law in force at the time he
first sought legal assistance.
After marriage, in 1976 the husband placed both separate properties into joint tenancy title with his wife. The
record indicates no reason for doing this, whether to refinance, provide for avoidance of probate, or simply make an
"unconditional gift," though the Supreme Court thought the last was the case. Of course, the state of the title in 1976
was inconclusive. The only statute in which title was legally relevant at that time was former Civil Code § 5110,
which applied to residences held in joint tenancy. The record says only that the husband made no agreement with his
wife that he would be reimbursed, and made no written agreement waiving his right of reimbursement for separate
contributions to the acquisition of community property.
The trial court held that the properties were community property under the joint form presumption of Family
Code § § 2580 and 2581 [former Civil Code § 4800.1], and that the holding of In re Marriage of Lucas, FN21
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should apply to presume that the husband made a gift of his separate property to the community. On this basis, the
court simply divided the properties between husband and wife as entirely community property. Six days later the
Supreme Court decided Hilke and the husband petitioned for a new trial on grounds of error of law. The Second
District Court of Appeal agreed with him that the Supreme Court in Hilke had effectively overturned Fabian, so that
Family Code § 2640 should be applied retroactively just like the joint form presumption of Family Code § § 2580
and 2581.
The Court of Appeal distinguished Fabian by noting that the law overturning Lucas had been enacted during
the pendency of appeals on both those cases. Here, the appellate court thought that there could be no reasonable
reliance on the former law, eliminating the principal constitutional restriction on retroactive applicability. FN22
The Supreme Court reversed, mainly by refuting the reliance factor:
"The only material factual distinction between this case and Fabian is that here, during the interval between
the enactment of § 4800.2 and the commencement of the dissolution proceeding, the wife theoretically could
have attempted to protect her property right by requesting the husband to execute a written waiver of his new
right of reimbursement. The unlikelihood that any such attempt could succeed in this or any other marriage
make its availability too insubstantial a factor to overcome the constitutional barriers to retroactivity set forth in
Fabian" (emphasis added).
According to this line of reasoning, the anti-Lucas legislation enacted in 1984 as Civil Code § 4800.2, and now
Family Code § 2640, may not be fully implemented for an entire generation. Whereas the legislation was aimed at
protecting the rights of the separate property donor spouse in marriage, this decision is completely focused on the
donee, and whether or not the donee could or could not have taken reasonable steps to secure the supposed gift.
The Supreme Court affirmed retroactive applicability of the joint form presumption of Family Code § § 2580
and 2581 by stating:
"... [H]ere, however, Buol does not preclude retroactive application of § 4800.1's [Family Code § § 2580
and 2581] presumption that the unimproved parcel conveyed by husband to himself and wife in joint tenancy is
community property, because the husband held no vested property right, as a joint tenant of the parcel, that he
would not also have held as owner of a community property interest while both spouses were still alive. (See In
re Marriage of Hilke, supra, 4 Cal.4th at 222, 14 Cal.Rptr.2d 371, 841 P.2d 891 [joint tenant's survivorship
interest, not a vested right]). We conclude that, in accordance with § 4800.1, the trial court properly treated the
unimproved lot as community property."
The fact that the husband's right in a true joint tenancy is separate property, not community property, and that
there is a vast present difference between spousal ownership interests in jointly held property and community
property, a distinction carefully elaborated by years of Supreme Court jurisprudence (see Chapter 4, § 4:51), seems
to have eluded the court.
The court reiterates dictum in Fabian that the state's interest in enacting Civil Code § 4800.2 [Family Code §
2640] was not sufficiently important to merit retroactive application. In spite of the fact that the Lucas court had to
choose between entirely contrary assessments of the law in deciding between appellate decisions in Bjornstad,
Aufmuth, and Trantafello, and that the Legislature itself prefaced its first amendment to the statute, an "urgency
amendment," with a statement that the pre-1984 law was confused and consistent results were not predictable, the
court here finds the former law consistent and not so unjust as to merit retroactive correction.
For substantiation of the relative unimportance of the 1984 law, the Supreme Court cites decisions in six
appellate cases decided between 1986 and 1990 by courts that held themselves bound by the authority of the same
Supreme Court announced in Fabian. In stretching the due process clause to treat married persons as if marriage
itself had no legal significance at all, these courts also failed to even mention Art I, § 21 of the California
Constitution, a direct descendant of Art XX, § 8 of the original 1872 Constitution charging the Legislature with the
protection of the separate property of spouses. The court quoted Fabian, which noted that:
"... in the interest of finality, uniformity and predictability, retroactivity of marital property statutes should be
reserved for those rare instances when such disruption would be necessary to promote a significantly important state
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interest."
The court quoted from its previous dicta in Fabian, and then found agreement in the Legislature's declaration
that it is a sufficient state interest to provide "uniformly and consistently" for the allocation of community and
separate interests in marital property. Standing the Legislative declaration on its head, the court concluded: "We
hold that the applicability of that requirement [§ 4800.2 reimbursement of separate property] is limited by the due
process clause to property acquired on or after January 1, 1984."
Heikes was a unanimous decision. The Justices of the Supreme Court formed a phalanx of opposition to the
Legislature. Regardless of the cogency of its argumentation, the court has decided definitely that Family Code §
2640 cannot be applied to property acquired before January 1, 1984.
Community Property contributions to Separate Property
a. Where community funds are contributed to one spouse‘s separate property—even where the other
spouse knows and consents to the expenditure—the community estate gets a pro tanto interest in the SP
for:
1. Payments used to improve property, (Wolfe, Bono)
2. Payments that reduce the principal of a loan (Marsden, Gowdy)
but not for:
1. Payments on the interest and taxes. (Moore, Wolfe)
Note: The calculations are at the time of separation
i. Gowdy: H bought a home before marriage. During marriage the community paid on
the home. At
dissolution, W wanted a pro tanto interest in the home. The Trial Court
followed the suggestion in Camire that there is a presumption of a gift where CP
is used for the benefit of one party‘s SP during marriage.
Analysis: It would be anomalous that there be a presumption of a gift in this case when
there is a
presumption of reimbursement when SP is spent to improve CP during marriage.
Conclusion: E gets a pro tanto interest in the home
ii. Wolfe: Community funds were used with W‘s consent to pay the property taxes and
to install a
drip irrigation system on H‘s SP. The trial court ordered reimbursement for
both.
Analysis: There is little logic in a rule that presumes a gift where community funds are
used to improve
a spouse‘s SP but does not engage in such a presumption for community
payments on an SP mortgage (Marsden). And it doesn‘t matter that W
consented cuz most spouses make spending decisions without considering the
possibility that they might divorce. The community has an interest in the SP for
the improvements. However, tax payments are outside this rule.
Conclusion: Since W‘s pleading only asks for reimbursement, there will be no remand to
determine
whether the community should actually get a pro tanto interest; However, the
CP gets no reimbursement for the taxes.
iii. Bono: Before marrying, H owned a pitiful trailer. H and W married in 1977 and
over the next 17 years, they spent 80K fixing up the trailer.
Analysis: Wolfe applies so the community has an interest in H‘s trailer. However, since
the facts fail to indicate whether the improvements actually increased the equity of the trailer, it is unclear whether
the community is entitled to straight reimbursement or a pro tanto interest.
Conclusion: Remanded to determine whether the improvement increased the equity
b. Formula for calculating the pro tanto community interest in a spouse‘s SP (Marsden):
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
VI. Acquisitions Using Both Separate And Community Property
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§ 6:46 Separate property contributions to the acquisition of community property
assets--Contributions to the acquisition of the property
Section 2640(a) summarizes the previous, often contradictory law, by the broadest possible definition of a
contribution to acquisition. Such a contribution includes:
(1) downpayments;
(2) payments for improvements; and
(3) payments to reduce the principal of a loan used to finance the purchase or improvement of the property.
Following the rationale of In re Marriage of Moore, FN1 however, there is no right to reimbursement for the
separate funds used to pay interest on a loan, maintenance, insurance, or taxation on the property. FN2 These non-
reimbursable expenses remain presumptively a gift to the community, unless a contrary agreement can be shown.
Since the former law expressed in Moore is here left unchanged, an agreement to reimburse interest, maintenance,
insurance, and taxation expenses made from a spouse's separate property can still be shown by evidence of a mutual,
oral or express or even implied agreement to this effect between the spouses. A reimbursement agreement,
technically, is not an interspousal transmutation agreement, governable by the formal writing requirements of
Family Code § 852.
The wife used $6,818 of her separate property as part of the down payment the couple made on their home, in
In re Marriage of Tallman. FN3 Later she used $40,000 of her separate property to pay off two deeds of trust on
the couple's community property residence, and the deedholders agreed to forgive the aggregate indebtedness of
$53,000 under the deeds. At dissolution, the trial court ordered the wife to be reimbursed under Family Code §
2640 for the $6818 plus $53,000, or $59,818, before division of the remaining community equity in the home. The
Fourth District modified the judgment, holding that the proper measure of reimbursement is the actual amount paid,
$46,818 ($40,000 plus $6,818 separate property down payment), not the amount of the indebtedness reduced,
$53,000.
The Supreme Court granted review on April 30, 1997 of In re Marriage of Walrath. FN4 The issue presented
was whether a spouse's right to reimbursement under Family Code § 2640 for separate property contributions to the
acquisition of a community property residence carries through to other community property acquired with a loan
secured by the residence. The Supreme Court answered in the affirmative.
The husband transmuted his separate property home in 1992 by deeding it to himself and his wife as joint
tenants. His equity interest in the home at the time was $146,000. The wife later paid $20,000 of her separate
property to reduce the mortgage principal. On dissolution of marriage, under Family Code § 2581 the joint tenancy
house was presumed to be community property.
In 1993 the couple refinanced the house, taking $180,000 out, thus reducing the equity interest in the house.
After placing $16,000 in a savings account, they used $60,000 to pay off the first mortgage and another $62,000 to
pay off a property in Nevada. With the remaining $40,500 they bought and improved investment property in
Nevada.
On dissolution in 1995, the husband petitioned for reimbursement of $146,000 under Family Code § 2640.
Based upon the value of the home at the time of property division, however, the trial court refused, granting instead
a proportionate reimbursement to both husband and wife in the remaining equity. At the time of division, due to
falling market values, the house was worth $175,000, with outstanding loans against it of $174,000, leaving equity
of $1000. Since the amount of reimbursement under Family Code § 2640 cannot exceed the net value of the
community property, neither the husband nor the wife could be reimbursed in full. Citing the California Law
Revision Comments to Family Code § 2640, the Court of Appeal affirmed the proper measure of reimbursement as
a proportion of the diminished equity "to the extent the party traces the contributions to a separate property source."
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Thus, the Court affirmed a split of the $1000 in equity, by giving $880 to the husband, and $120 to the wife.
The husband appealed that the additional community property assets that had been purchased by the loan on the
original house should be available as a source of reimbursement. The Supreme Court agreed, holding that a spouse's
reimbursement right upon dissolution for a separate property contribution to a community property acquisition
carries through to other community property subsequently acquired with proceeds from the original acquisition.
Thus, the husband and wife were entitled to recover their separate property contributions to the community home
out of the loan proceeds that were spent on other assets, since those assets had sufficient equity to reimburse both
parties for their separate contributions. FN5
The Supreme Court interpreted "the property" in Family Code § 2640 to include not only the specific
community property to which the separate property is originally contributed, but also any other community property
that is subsequently acquired from the proceeds of the initial property, and to which the separate property
contribution can be traced. Interpreting Family Code § 2640 to allow tracing to subsequently acquired assets is
supported by important policy considerations. It encourages married persons, the Court said, to freely and without
reservation contribute their separate property assets to benefit the community, and alleviates the need for spouses to
negotiate with each other during marriage regarding continuing reimbursement rights. Under this interpretation,
Family Code § 2640 protects the general expectations of most people in marriage, that is, that spouses will be
reimbursed for significant monetary contributions to the community should the community dissolve.
In the facts of this case, the husband's contribution of $146,000 would have been fully reimbursed if the house
had not been refinanced. The separate property contribution would have been reimbursed prior to the division of
community property. FN6 The fortuitous refinancing of the house, the Court held, should not disallow the
reimbursement.
On remand, the Supreme Court instructed the lower court for tracing purposes, that the ratio of the parties'
separate property contribution to the original home's total equity at the time of refinancing should be used to
ascertain what portion of the loan proceeds represented that separate contribution traceable to all the properties in
question, including those after acquired with the refinancing loan proceeds. The community is entitled to any
appreciation in these assets above the amount necessary to reimburse the parties for their separate property
contributions.
The remaining loan obligation, the Court held, was a community debt, as the loan was derived from security on
the jointly-held home, a community asset under Family Code § 2581. FN7 The Court found in Walrath that the
lender had relied for security on jointly-held property, not the separate property or the separate equity of either
spouse in the home. Loan proceeds from jointly-held property in dissolution are community, not separate property.
Thus, the outstanding indebtedness was a community debt. FN8
Justice Kennard, while concurring in the majority opinion that reimbursement under Family Code § 2640 can
be obtained from subsequently acquired properties, differs with the majority on the method of tracing to be used
under the statute. Justice Baxter, concurring and dissenting, wrote that reimbursement should be from the entire
"community estate" under Family Code § 2640, not just from those particular assets subsequently acquired, so that
regardless of fluctuating values of individual assets, if the gross community estate were sufficient an entire separate
property reimbursement would be available. This would eliminate the complexities of tracing through later-acquired
assets of different and fluctuating values by use of a proportionate or ratio formula. "Instead, the value of the entire
'community estate' at the time of division, however composed and achieved, is presumed to represent the total
separate-property contributions to that estate, up to the full dollar amount of such contributions. The community is
then entitled to any value above that amount. Within this formula," Justice Baxter said, "all community assets at the
time of division, regardless of their derivation, share pro rata in the burden of reimbursement until it is satisfied."
The Baxter formula, I believe, has the virtue of simplicity and is compatible with Family Code § 2640.
In In re Marriage of Stoll, FN9 the husband during marriage refinanced the home to which he previously held
title individually. In refinancing he added his wife's name and changed it to community property. The Fourth
District Court of Appeal, reversing a lower court decision, held Family Code § 2640 applicable and allowed the
husband to establish the value of the house on the basis of its value at refinance plus comparables. The lower court
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had held the house entirely community property because the husband had not kept strict documentary evidence of
the transactions. Tracing to the separate source, the Court of Appeal held, did not require the rigid requirement that
the contributing spouse submit authenticated written records establishing the exact value for real separate property
later transmuted to community property. As owner, the husband could render a valuation opinion.
As a condition for getting a bank loan to purchase property, the husband used $30,000 to pay down the couple's
credit card debt. He had obtained this money from his mother, alleging it was a loan the mother had made so the
couple could purchase the property. The wife claimed the money was a gift from the mother. On dissolution, the
issue became whether Family Code § 2640(b) was applicable for separate property reimbursement to him when the
property was assigned to the wife. The husband said it was reimbursable, because without the loan to pay down the
credit card debt, they could not have purchased the home.
The Court of Appeal held to the contrary, however, in In re Marriage of Nicholson and Sparks. FN10 Payment
of community debts prior to the acquisition of property, and unrelated to any improvement of the property did not
convert the pre-separation payment of community debts into a reimbursable contribution of separate property to the
acquisition or improvement of community property pursuant to the section.
Section 2640 represents a specific legislative rejection of the general presumption that separate property used
for community purposes is a gift, as it was applied in In re Marriage of Lucas. FN11 The statute, however, is
directly aimed at reimbursement for separate property used to make a down payment for the acquisition of, or to pay
for improvements to community property. Thus, the no-reimbursement rule of Lucas was rejected only insofar as the
separate property contributions are within the category of "contributions to the acquisition of property." Absent an
agreement, the use of separate property to pay community debts is not reimbursable, except where the payment is
post-separation. (Family Code § 2626.)
In re Marriage of Nicholson & Sparks is distinguishable from In re Marriage of Cochran, FN12 in which the
court allowed reimbursement under § 2640 for school fees required to get a permit necessary to improve a
residence. In Cochran the fees were found to be part of the cost of the improvements. Here, however, paying down
credit card debt was not a part of the acquisition costs. It was a paydown of preexisting debt to enable the couple to
qualify for the purchase money loan by reducing the ratio of their consumer debt to income. Reimbursable
payments, on the other hand, directly or indirectly contribute to the increase in equity or value of the community
property home.
Thursday, January 27, 2005
DeNovo -- ―anew‖ Deferential -- defer to the judgment of the trial judge. The Bono case extends the Moore
Marsden line to include improvements to the property.
Steps:
(1) Calculate the percentage of the original purchase price paid by community payments of
the principal.
E.g.: If purchase price was $100K and $20K of community funds have been used to
reduce the principal, the community/separate ratio is 20%/80%. So the community
interest is $20K and the separate interest is $80K.
(2) Calculate the amount of appreciation in the value of the property that occurred between
the time it was originally purchased and when community money was first used to make a
payment; Add this amount to the separate interest.
E.g.: If by the time of the 1st community payment, the value of the property is $140K,
then you add $40K to the $80K separate interest.
(3) Determine the amount of appreciation that occurred AFTER the parties married and
apportion that appreciation according to the percentages calculated in Step (1).
E.g.: If the value of the property climbed from $140K at the time of marriage to a present
value of $190K, then the appreciation is $50K. Thus, the community/separate portions
would $10K/$40K.
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(4) Total the community and separate values and reduce the separate estate‘s value by the
amount unpaid on the loan.
E.g.: If there is $70K left on the principal of the loan then:
The CP interest would be $20K + $10K = $30K
The SP interest would be $80K + $40K + $40K - $70K = $90K
In Bono v. Clark, FN2 the decedent's ex-wife sought a pro tanto share of the real property in his estate. The
Sixth District reversed a decision for the decedent's estate, remanding for the court to recalculate the ex-wife's
interest. At issue was $77,500-80,000 spent by the couple during marriage to improve a 600-square-foot trailer into
a 1920-square-foot home. The court held under the rationale of the Moore/Marsden line of cases, that the ex-wife
was entitled to one-half the proportionate increase in the value of the home due to the improvements made during
marriage with community funds. It expressly declined to order a direct reimbursement, in favor of the pro tanto
sharing principle of these cases. The lot itself comprised one-half of a parcel originally purchased in 1960 for
$12,500, but, as improved, sold in 2000 for $555,000.
Depending on two recent cases, In re Marriage of Wolfe, FN3 and In re Marriage of Allen, FN4 the court felt
confident in extending Moore, Marsen and Frick, from community contributions to the acquisition of separate
property, to community expenditures for improvement to one spouse's separate property. These five cases, plus
Gowdy, reject the presumption of gift of community property to the separate property acquisition or improvement.
FN5
The improvements made to the property were actually made six years after the beginning of marriage. In
calculating the community's pro tanto interest, therefore, the Court had to fashion a calculation formula different
from the earlier cases. The earlier cases began apportionment with the date of marriage, because at that date
mortgages payments began as community property. A different formula is required here, however, where the
improvements were made after marriage, awarding the separate estate any market appreciation occurring before
community improvements were made. Until the community began improvements, all of the equity appreciation
belonged to the decedent here as his separate property, as a result of his initial purchase of the property.
THE FORMULA DICTATES THAT:
1) the decedent's separate property interest includes both pre-marital and post-separation (six years)
appreciation in the value of the property;
2) only capital improvements figure in the calculation, and then only to the extent that those capital
improvements enhances the property's value; and
3) once the amount of the investment is calculated, the community's interest in the property is calculated as
"the ratio of the community investment to the total separate and community investment in the property."
That ratio, expressed as a percentage, is then multiplied by th appreciation in the property's value during the
marriage prior to separation. The plaintiff would then be entitled to one-half of the resulting amount as her
community property share. FN6
For further discussion of the proportionate sharing principle of the Moore/Marsden line of cases for post-
mortem claims, see Chapter 13, § 13:38 Distribution of separate property of a deceased spouse.
i. Marsden: H and W married in 1975 and W moved into H‘s house with him. W left husband in April
1975, moved into an apartment, and filed for divorce. However, she never followed through on
that action until she filed again in July 1978. H claims that the two of them were ―living separate
and apart‖ the whole 3 years. W says that they were not ―living separate and apart‖ between Sep
1976 and June 1977 because they acted like they acted like they were married.
Analysis: (1) Date of separation: Earnings of a spouse while ―living separate and apart‖ are the SP of
the spouse. The code defines ―living separate and apart‖ as when spouses have come to a parting
of the ways with no present intention of resuming marital relations; living in separate residences in
not determinative. Baragry says the question is ―whether the parties‘ conduct evidences a
complete and final break in the marital relationship.‖ The trial court‘s finding that the parties did
not ―live separate and apart‖ between Sep 1976 and June 1977 is supported by the evidence since
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W took no further action regarding her divorce for 3 years, they continued having sex, they hung
out in Mexico for the summer, they went to the Middle East together, and W moved by in with H
for a while.
(2) Valuation of the House: The trial court‘s valuation of H‘s share of the house was incorrect
since it to give him the benefit of prenuptial appreciation. The formula to be followed is listed
above.
(3) Stocks: H had a very large and complicated stock portfolio. During marriage, the community
combined funds in his account. This occurred cuz H‘s paycheck was direct deposited in the
account (CP) as were the proceeds from his stocks (SP). H can maintain the SP nature of the SP
funds even though they are in a commingled account if he can directly ―trace‖ the funds.
However, there is a presumption that funds withdrawn from a commingled account are CP. While
H kept a worksheet that was sufficient to show that there were adequate funds for him to have
withdrawn SP when he purchased stock, he DID NOT show that it actually WAS SP funds that he
used. He MUST show this. Unlike in Mix, the Trial Court here apparently wasn‘t willing simply
to believe H that when he withdrew funds he ―intended‖ for those funds to be SP. The stocks H
inherited and never traded, however, ARE his SP.
Max says that Marsden disagrees with Moore‘s use of straight line appreciation or dd&a. The
community should not participate in any appreciation that occurred before the marriage. Marsden
says look at cost; value at date of marriage; any appreciation between cost and date of marriage is
separate property. This is the Moore Marsden rule.
Frick says don‘t use cost, use value at date of marriage to determine % of SP to CP. So, to
determine the amount of APPRECIATION during the marriage, you start from the date of the
marriage. But to determine the amount of participation in the appreciation, you use the Cost b/c
the cost is what allows you to participate.
Max says: Never say ―legal separation.‖ It‘s a term of art. The only difference between legal separation and
divorce is that the couple remain legally married. Everything else is the same; they separate, distribute the estate,
etc. Some couples do this for theological reasons. Sometimes it‘s for financial reasons. See Family Code § 771.
Financial reason Example: Husband gets health insurance for him and his spouse. If H & W separate, one of her
support expenses might be health insurance. So, it‘s cheaper for her to stay on my policy so I get a legal separation.
This would assume that H & W never plan to re-marry. Requires consent of both spouses. Refusal can be appealed
and legal separation may be judicially imposed. A default is treated as a consent to the relief prayed for in the
petition.
In re Marriage of Frick, FN1 brought up the starting point of the Moore/Marsden formula, namely, should it be
based on the fair market value at the time of marriage or the capital contribution to the purchase price? A hotel and
restaurant had been acquired by the husband pursuant to a property settlement as part of the dissolution of his first
marriage. After the second marriage, community funds were used to make payments on the property and the
husband's skill and labor were factors going into appreciation of value of the real estate. The Court of Appeal chose
the ratio of capital contribution to purchase price:
The issue is how to divide the appreciation accruing during marriage, i.e., what percentage goes to the
separate property interest and what percentage goes to the community property interest. We believe fairness
dictates that the separate and community property's respective interest should be based on the ratio of capital
contribution to the purchase price. ... The community should share in the appreciation that accrues during
marriage in the same proportion that its capital contribution bears to the total capital contribution required to
own the property outright.
Max says: If it‘s treated as a capital contribution to start with. But if you borrowed that capital, then you are
responsible for paying off that loan.
Deliberate mis-appropriation. Pp 101-102: Must prove gift of CP or disposal w/o proper consideration to prevail in
a claim for misappropriation.
Contributions to the acquisition of property (down payment, financing, mortgage payments before marriage) are all
SP. If the CP also makes such payments, it‘s an acquision of CP. A certain % of the property will then be SP and
the other % will be CP. The difficulty comes when you have an unpaid mortagae balance coupled with appreciation
in property. In order to allocate the CP and SP, you don‘t use $ for $. You use a ratio based on capital contribution.
It‘s a non-issue if you don‘t have a mortgage.
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Example: Guy buys a house for $100k w/ a $75k mortgage. Then gets married. So upon divorce, assuming no
appreciation, and the mortgage is paid off during the marriage, The SP is the down payment b/c it was made before
marriage. That is SP. The CP portion is the mortgage principle paid during marriage with CP funds. So, if the CP
was used to pay off $75k of the mortgage, then it‘s 75% CP.
But, if a balance is still due on the mortgage and the property appreciated during the marriage, you have a big
fucking allocation issue.
Constitutional Limitations on Retroactive Application of Community Property Laws
To this extent Hilke cut a gordion knot of confusion in California law. The Court confirmed the previous
decisions in In re Marriage of Buol, FN2 and In re Marriage of Fabian, FN3 to the narrowest possible
interpretation of the facts in these cases, holding that retroactive application of Family Code § § 2581 and 2640 of
these cases would have violated due process because the law was enacted during the pendency of the cases and
retroactivity would have altered rights vested under the old law by interspousal contract. In Buol and Fabian, the
Court said vested rights would have been lost without notice and without the parties' having an opportunity to take
advantage of the new law. Since subsequent cases involve sufficient notice to all parties of California statutory
requirements, in effect, § 2581 can be retroactively applied to all joint interests now without violating due process
rights.
Thus, Hilke holds § 2581 to be fully retroactive where joint tenancy titles are at issue. FN4
c. Rank Injustice Test: Retroactive application of a change in community property law that
results in the impairment of a vested property right is a violation of Due Process unless:
(1) The law it is repealing was causing a rank injustice, OR
(2) Factors on p 126 ―it‘s necessary to subserve a sufficiently important state interest‖
i. Buol: H and W bought a house after marrying. W put earnings in a separate bank account
and then used the money to buy a home in joint tenancy. W made all the payments and H and W
made an oral agreement that the home was W‘s SP. While on appeal, §4800.1 (now §2640) was
enacted which said a WRITING was required to rebut the presumption that property acquired
during marriage in joint tenancy is CP. Moreover, that code was to be applied retroactively.
Analysis: Section 4800.1 was passed so as ―to promote the state‘s interest in equitable
distribution of marital
property upon dissolution.‖ It was not to cure some ―rank injustice‖ in the law.
Retroactive application of §4800.1 would substantially impair Esther‘s vested property
right without due process of law and is therefore unconstitutional.
Conclusion: W gets reimbursed
The Court confirmed the previous decisions in In re Marriage of Buol, FN2 and In re
Marriage of Fabian, FN3 to the narrowest possible interpretation of the facts in these
cases, holding that retroactive application of Family Code § § 2581 and 2640 of these
cases would have violated due process because the law was enacted during the pendency
of the cases and retroactivity would have altered rights vested under the old law by
interspousal contract. In Buol and Fabian, the Court said vested rights would have been
lost without notice and without the parties' having an opportunity to take advantage of the
new law. Since subsequent cases involve sufficient notice to all parties of California
statutory requirements, in effect, § 2581 can be retroactively applied to all joint interests
now without violating due process rights. The vested property right was her right to SP as
a result of the oral agreement w/ her husband. The writing requirement was passed
during the appeal; the COA said no retroactive application. No federal question b/c case
was ruled on under the Calif. Constitution. Mosk always liked to do this so that the
SCOTUS couldn‘t overrule the decision.
Vested right: can‘t be speculative; must be finalized. Evidentiary and procedural matters
can be enacted retroactively without offending due process unless they affect a vested
right. Legislative acts are presumptively prospective unless specifically stated otherwise.
Retroactive application of Cal. Civ. Code § 4800.1 would substantially impair appellee's
vested property right without due process of law. State interest in equitable dissolution of
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marital partnership was not furthered by retroactive effect. Retroactivity served only to
destroy appellee's legitimate separate property expectations as a penalty for lack of
prescience of changes in the law occurring after trial. Max says: tell us whether you
mean at the time of trial or the time the property was acquired. The Court never clarified.
The Court felt that it would be unfair to impose the writing requirement b/c there was no
chance of her getting his consent while they were in the middle of a divorce.
ii. Cairo: H took his SP inheritance money out of a community account and bought some
property with it.
The Trial Court found that the property was CP cuz H did it sorta sneakily. H appeals,
however, arguing that he deserves a reimbursement of his SP contribution to the property.
Analysis: After the court in Fabian found that retroactive application of §4800.2 (law
requiring a writing to
overcome the presumption that SP contribution to CP were reimbursable) violates due
process where it impairs vested property rights, the legislature amended §4800 pointing
out it‘s desire for retroactive application was to satisfy a ―compelling interest.‖
Nevertheless, calling it a ―compelling interest‖ doesn‘t make it so. Retroactively
applying §4800.2 to reimburse H for his separate contribution would
unconstitutionally deprive W of her vested community property rights without due
process.
Conclusion: No reimbursement for H
The gambling debts of a husband, who had used credit card accounts to raise money to
gamble, were assigned to him to pay on dissolution under the Family Code § 2625
"separate debts" classification, in In re Marriage of Cairo. He executed a deed taking his
SP and putting it in Joint Tenancy with wife. So now it‘s CP. But, he says that under
Lucas he should be reimbursed for his contribution of SP. Absent a contrary agreement,
SP contributions to CP are presumptive gifts. But then the law changed and said there is
a presumption of reimbursement unless there is a writing to the contrary.
In re Marriage of Fabian
James and Kathleen Fabian married on April 27, 1972, and separated on April 29, 1979. A few months
after marrying, the couple purchased the Villa Viejo Motel (Villa Viejo), the subject of this dispute, taking
title as "C. James Fabian and Kathleen, husband and wife as community property."
After a contested hearing, the trial court entered an (interlocutory) judgment of dissolution of marriage
on April 23, 1982. In the findings of fact and conclusions of law filed one day earlier, the trial court found,
inter alia, that the Villa Viejo and its income were community property. The court assessed the net equity in
the property at $790,391. The court also expressly found: "[James] invested $275,000.00 of money
received from separate property into the Villa Viejo prior to separation. There was no promise or agreement
between the parties that [James] should receive reimbursement or repayment of any part or all of said sum.
[James], therefore, made a gift of said separate funds to the community asset." The court then ordered an
accounting to determine the amount of Villa Viejo income that James had diverted to his separate property
holdings and further ordered that the Villa Viejo be sold and the proceeds divided equally.
While James' appeal was pending, Family Code § 2640 [former Civil Code § 4800.2] was enacted.
Under § 2640, separate property contributions to community property assets are to be reimbursed upon
dissolution, unless the contributing spouse has waived the right to reimbursement in writing. Discussing the
former law and the effect of § 2640, the Supreme Court held retroactive application of the amendment
unconstitutional:
Taken as a whole, the record supports the trial court's finding that the Villa Viejo was community
property. As we noted in Buol, " '[t]he status of property as community or separate is normally
determined at the time of its acquisition' (citations)." (39 Cal.3d at p. 757, 218 Cal.Rptr. 31, 705 P.2d
354.) Property acquired during the marriage by an instrument describing the marital partners as
husband and wife is presumed to be community property "unless a different intention is expressed in
the instrument." [Family Code § 760]. (See also See v. See, 64 Cal.2d 778, 783, 51 Cal.Rptr. 888, 415
P.2d 776 (1966).) The only intent expressed in this instrument supports the community property
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presumption: the couple chose to take title to the Villa Viejo as "C. James Fabian and Kathleen,
husband and wife as community property."
To overcome the community property presumption the spouse asserting a separate property
interest must establish by a preponderance of the evidence that the parties had a contrary agreement.
(Patterson v. Patterson, 242 Cal.App.2d 333, 341, 51 Cal.Rptr. 339 (1966); Thomasset v. Thomasset,
122 Cal.App.2d 116, 123, 264 P.2d 626 (1953).) "It is because of th[e] express designation of
ownership that a greater showing is necessary to overcome the presumption arising therefrom than is
necessary to overcome the more general presumption that property acquired during the marriage is
community property ... [t]he act of taking title in a joint and equal ownership form is inconsistent with
an intention to preserve a separate property interest. Accordingly, the expectations of parties who take
title jointly are best protected by presuming that the specified ownership interest is intended in the
absence of an agreement or understanding to the contrary." (In re Marriage of Lucas, 27 Cal.3d 808,
815, 166 Cal.Rptr. 853, 614 P.2d 285 (1980).) James has failed to rebut the community property
presumption.
The record is devoid of any evidence of an agreement or understanding that the Villa Viejo was
not to be community property. James admitted that ownership interests were never discussed. The
presumption of title cannot be overcome by a showing of hidden intent. (Lucas, supra, 27 Cal.3d at p.
813, 166 Cal.Rptr. 853, 614 P.2d 285.) Nor do principles of partnership law apply. Lacking any
evidence to the contrary, the trial court properly characterized the Villa Viejo and its income as
community property.
From the time of purchase, therefore, Kathleen had a vested property interest in the motel as
community property. (Cf. In re Marriage of Buol, 39 Cal.3d 751, 218 Cal.Rptr. 31, 705 P.2d 354; In re
Marriage of Bouquet, 16 Cal.3d 583, 591, 128 Cal.Rptr. 427, 546 P.2d 1371 (1976); Addison v.
Addison, 62 Cal.2d 558, 566, 43 Cal.Rptr. 97, 399 P.2d 897 (1965).) This vested interest entitled
Kathleen, at the time the trial court entered the interlocutory judgment, to half of the Villa Viejo [see
Family Code § 2550].
Moreover, for more than 20 years prior to the enactment of § 4800.2 [Family Code § 2640], it
was well-established that, absent an agreement to the contrary, separate property contributions to a
community asset were deemed gifts to the community. (See, supra, 64 Cal.2d at p. 785, 51 Cal.Rptr.
888, 415 P.2d 776; In re Marriage of Epstein, 24 Cal.3d 76, 82-83, 154 Cal.Rptr. 413, 592 P.2d 1165
(1979); Lucas, supra, 27 Cal.3d at p. 816, 166 Cal.Rptr. 853, 614 P.2d 285.) " 'A party who uses his
separate property for community purposes is entitled to reimbursement from the community or
separate property of the other only if there is an agreement between the parties to that effect'
(citations). While the parties are married and living together it is presumed that, 'unless an agreement
between the parties specifies that the contributing party be reimbursed, a party who utilizes his separate
property for community purposes intends a gift to the community' (citation)." (Lucas, supra, 27 Cal.3d
at p. 816, 166 Cal.Rptr. 853, 614 P.2d 285.)
Nothing in the record suggests that the parties had an agreement that James' contributions would
remain his separate property. Except in the context of his unsatisfying implied waiver argument, James
makes no claim that such an agreement existed. Therefore, the trial court properly determined the
community interest in the Villa Viejo to include the $275,000 gifted to the community.
II
Section 4 of Assembly Bill No. 26 states, "This act applies to the following proceedings: ... (b)
Proceedings commenced before January 1, 1984, to the extent proceedings as to the division of
property are not yet final on January 1, 1984." (Stats. 1983, ch. 342, § 4.) As this matter was still on
appeal on January 1, 1984, § 4800.2 [Family Code § 2640] presumably would apply to decrease the
community property interest in the Villa Viejo, assuming it exists, from $790,391 to $515,391.
Retrospective legislation, however, may not be applied where such application impairs a vested
property right without due process of law. (In re Marriage of Buol, supra, 39 Cal.3d 751, 218 Cal.Rptr.
31, 705 P.2d 354.) As was true in Buol, the unconstitutional impairment in the present case is manifest.
If applicable, § 4800.2 [Family Code § 2640] would operate to decrease Kathleen's share in the
motel more than one-third to $257,695.50, half of the $515,391 interest remaining to the community
after accommodation is made for James' revitalized separate property interest. Under § 4800.2
[Family Code § 2640] James would be entitled to reimbursement for his $275,000 separate property
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contribution because he never executed a written waiver of his newly created "right to reimbursement."
This reimbursement right did not exist at all prior to § 4800.2's [Family Code § 2640] January 1,
1984, effective date. Indeed, for more than a year and a half after the trial court rendered its judgment
of dissolution, the long-established rule that separate property contributions were non-reimbursable
absent a contrary agreement remained in effect. Thus, retroactive application of § 4800.2 [Family
Code § 2640] would impair Kathleen's vested property interest.
Fabian is quoted here because it provides a very good discussion of the rationale, context and effect of
the adoption of Family Code § 2640.
See In re Marriage of Heikes, FN4 in which the California Supreme Court, reversing the Second
District Court of Appeal, held that the principle codified in Family Code § 2640, that separate property
that is contributed to the acquisition of community property is reimbursable without written waiver, may
not be applied to property acquired before the effective date of the statute, January 1, 1984. Heikes
confirmed the non-retroactivity ruling of Fabian.
EXAM ALERT: MAX’S CONFUSING SHIT ABOUT FORM OF TITLE AND PRESUMPTIONS OF CP
UNDER CALIFORNIA LAW ARE ALL IN CHAPTER 4 OF BASSET.
iii. Heikes: H owned land as SP. In 1976, he transferred it to himself and W as joint tenants.
At dissolution,
H declared that he was entitled to reimbursement in accordance with §4800.2 (law
requiring a writing to overcome the presumption that SP contribution to CP were
reimbursable) since there was no writing.
Analysis: After the court in Buol and Fabian found that retroactive application of §4800
would be a
violation of due process in divorce proceedings begun BEFORE 1/1/84, the Legislature
amended it to say it would apply to all divorce proceedings begun AFTER 1/1/84
regardless of the date the CP was acquired. This enactment is, however, without effect.
Section 4800 WAS NOT passed to cure any rank injustice no matter how many times the
Legislature says it was. To apply §4800.2 retroactively here would be to deprive W of
her vested property interest without Due Process.
Conclusion: No reimbursement for H
1. In re M of Heikes (1995) –
a. FC §2640 says on divorce, either spouse will be reimbursed for contributions of SP to the
acquisition of any prop being divided as CP unless it is waived in writing. § effective on 1/1/84.
B/f then only entitled to reimbursement by agreement otherwise it was considered a gift. Ct
i. §2640 – on divorce right to reimbursement of SP unless waived in writing. (look up case
that just came out on this)
b. C: H's transfer in 76' of his SP to joint ownership of his W and himself gave W a vested
property interest that can't be const impaired by retroactive application of reimbursement
provisions.
On August 24, 1995, the California Supreme Court issued an opinion in In
re Marriage of Heikes, FN18 reversing the Second District Court of Appeal on
the applicability of Family Code § 2640. On the basis of dicta in the
Supreme Court's earlier decision in In re Marriage of Hilke, FN19 the District
Court of Appeal had decided that Family Code § 2640 would apply to
property acquired with the use of separate funds before the effective date of
the statute. The Supreme Court, reversing, reaffirmed its previous decision in
In re Marriage of Fabian, FN20 to deny the retroactive applicability of the
statute. Part of the anti-Lucas statutes. Lucas says you can rebut with an
agreement to the contrary. This is anti lucas b/c it changed the presumption
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AND required a written waive.
So form of title presumption can be applied retroactively.So the
unimproved lot was community property. The house was CP b/c that’s what
the statute said at time he changed form of title in 1976. The later statute
could be applied retroactively b/c no harm to a vested property interest.
While denying retroactive applicability to Family Code § 2640, the court
at the same time re-affirmed its position in Hilke, that the joint form
presumption of Family Code § § 2580 and 2581 was to be applied
retroactively to previously acquired joint tenancies. Thus, Heikes states that
the joint form presumption of community property of Family Code § §
2580 and 2581 is retroactive in application, while the reimbursement
principle of Family Code § 2640 is not retroactive, notwithstanding the fact
that both were parts of the same legislation originally intended to be equally
applicable.
The result of the Heikes decision is that the husband, who conveyed his
separate property home and an unimproved parcel to himself and his wife as
joint tenants in 1976, found that the home and property were presumed to be
community property when dissolution proceedings were commenced in 1990,
but he was not entitled to reimbursement for his separate property
contributions to them, as the pre-1984 law grounded a presumption of a gift
to the community. The court found that this was constitutionally compelled
because his wife must have relied on the law that was in effect in 1976 and
did not have a reasonable chance to motivate the husband to make a written
waiver of his reimbursement rights between 1984 and 1990. The court says
nothing about the husband's reliance or the advice he may have received
from his attorney who may or may not have relied on the law in force at the
time he first sought legal assistance.
After marriage, in 1976 the husband placed both separate properties into
joint tenancy title with his wife. The record indicates no reason for doing this,
whether to refinance, provide for avoidance of probate, or simply make an
"unconditional gift," though the Supreme Court thought the last was the case.
Of course, the state of the title in 1976 was inconclusive. The only statute in
which title was legally relevant at that time was former Civil Code § 5110,
which applied to residences held in joint tenancy. The record says only that
the husband made no agreement with his wife that he would be reimbursed,
and made no written agreement waiving his right of reimbursement for
separate contributions to the acquisition of community property.
The trial court held that the properties were community property under
the joint form presumption of Family Code § § 2580 and 2581 [former
Civil Code § 4800.1], and that the holding of In re Marriage of Lucas, FN21
should apply to presume that the husband made a gift of his separate
property to the community. On this basis, the court simply divided the
properties between husband and wife as entirely community property. Six
days later the Supreme Court decided Hilke and the husband petitioned for a
new trial on grounds of error of law. The Second District Court of Appeal
agreed with him that the Supreme Court in Hilke had effectively overturned
Fabian, so that Family Code § 2640 should be applied retroactively just
like the joint form presumption of Family Code § § 2580 and 2581.
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The Court of Appeal distinguished Fabian by noting that the law
overturning Lucas had been enacted during the pendency of appeals on both
those cases. Here, the appellate court thought that there could be no
reasonable reliance on the former law, eliminating the principal constitutional
restriction on retroactive applicability. FN22
The Supreme Court reversed, mainly by refuting the reliance factor:
"The only material factual distinction between this case and Fabian is that
here, during the interval between the enactment of § 4800.2 and the
commencement of the dissolution proceeding, the wife theoretically could
have attempted to protect her property right by requesting the husband to
execute a written waiver of his new right of reimbursement. The unlikelihood
that any such attempt could succeed in this or any other marriage make its
availability too insubstantial a factor to overcome the constitutional barriers to
retroactivity set forth in Fabian" (emphasis added).
Being a surviving joint tenant is not a vested interest. Same with
community property. So, changing from CP to JT doesn’t change a vested
property interest. So the Court says that Heikes was not deprived of any
vested property interst.
According to this line of reasoning, the anti-Lucas legislation enacted in
1984 as Civil Code § 4800.2, and now Family Code § 2640, may not be
fully implemented for an entire generation. Whereas the legislation was aimed
at protecting the rights of the separate property donor spouse in marriage,
this decision is completely focused on the donee, and whether or not the
donee could or could not have taken reasonable steps to secure the supposed
gift.
The Supreme Court affirmed retroactive applicability of the joint form
presumption of Family Code § § 2580 and 2581 by stating:
"... [H]ere, however, Buol does not preclude retroactive application of §
4800.1's [Family Code § § 2580 and 2581] presumption that the
unimproved parcel conveyed by husband to himself and wife in joint tenancy
is community property, because the husband held no vested property right,
as a joint tenant of the parcel, that he would not also have held as owner of a
community property interest while both spouses were still alive. (See In re
Marriage of Hilke, supra, 4 Cal.4th at 222, 14 Cal.Rptr.2d 371, 841 P.2d 891
[joint tenant's survivorship interest, not a vested right]). We conclude that, in
accordance with § 4800.1, the trial court properly treated the unimproved lot
as community property."
The fact that the husband's right in a true joint tenancy is separate
property, not community property, and that there is a vast present difference
between spousal ownership interests in jointly held property and community
property, a distinction carefully elaborated by years of Supreme Court
jurisprudence (see Chapter 4, § 4:51), seems to have eluded the court.
The court reiterates dictum in Fabian that the state's interest in enacting
Civil Code § 4800.2 [Family Code § 2640] was not sufficiently important to
merit retroactive application. In spite of the fact that the Lucas court had to
choose between entirely contrary assessments of the law in deciding between
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appellate decisions in Bjornstad, Aufmuth, and Trantafello, and that the
Legislature itself prefaced its first amendment to the statute, an "urgency
amendment," with a statement that the pre-1984 law was confused and
consistent results were not predictable, the court here finds the former law
consistent and not so unjust as to merit retroactive correction.
For substantiation of the relative unimportance of the 1984 law, the
Supreme Court cites decisions in six appellate cases decided between 1986
and 1990 by courts that held themselves bound by the authority of the same
Supreme Court announced in Fabian. In stretching the due process clause to
treat married persons as if marriage itself had no legal significance at all,
these courts also failed to even mention Art I, § 21 of the California
Constitution, a direct descendant of Art XX, § 8 of the original 1872
Constitution charging the Legislature with the protection of the separate
property of spouses. The court quoted Fabian, which noted that:
"... in the interest of finality, uniformity and predictability, retroactivity of
marital property statutes should be reserved for those rare instances when
such disruption would be necessary to promote a significantly important state
interest."
The court quoted from its previous dicta in Fabian, and then found
agreement in the Legislature's declaration that it is a sufficient state interest
to provide "uniformly and consistently" for the allocation of community and
separate interests in marital property. Standing the Legislative declaration on
its head, the court concluded: "We hold that the applicability of that
requirement [§ 4800.2 reimbursement of separate property] is limited by the
due process clause to property acquired on or after January 1, 1984." Max
says that Cairo said “saying to doesn’t make it so.” Retroactivity only allowed
for “rank injustice.” But no rank injustice here. So no retroactivity.
Legislature refuses to revoke this statute even though the SC said it’s not
constitutional.
Heikes was a unanimous decision. The Justices of the Supreme Court
formed a phalanx of opposition to the Legislature. Regardless of the cogency
of its argumentation, the court has decided definitely that Family Code §
2640 cannot be applied to property acquired before January 1, 1984.
b. Military Pensions
1. Gillmore Choice: Where H and W file for dissolution in a CP state, and one party has a
vested and mature military pension but has not retired, the spouse may select elect one of the
following:
(a) To immediately receive her community interest in the amount she would get if the
service member
were to retire at the date of the trial. This selection would:
(1) Still allow her to get all COLA (cost of living allowance) increases for
the pension‘s duration.
(2) NOT permit her to partake in any increases H receives after the date of
trial due to promotion, length-of-service, etc.
(3) Secure her interest so that she would get it even if he does something
later on that terminates his own entitlement e.g. dies or gets a
dishonorable discharge.
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(b) To wait until his actual retirement but get only her portion of the award as set at the
trial date. This
selection would:
(1) Also allow her to get all COLA increases for the pension‘s duration
(2) Permit her to partake in any increase H receives after the date of trial
due to promotion, length-of-service, etc.
(3) Require that she risk getting nothing in the event that he does
something after trial that terminates his own entitlement such as dies or
get a dishonorable discharge.
E. PEREIRA
Max says: when valuing increase in property value, formula is I = CP + SP.
INCREASE - SP = CP (PEREIRA). Court says rate of return is 7%. Court tells you what is SP. CP is just
math. Court determines SP from the evidence.
F. VANKAMP
INCREASE - CP = SP
A. When Community Funds or Labor Enhance Value of SP
1. Apportionment of Business Profits
a. Van Camp Accounting – Character of business was primary cause of growth
i. Manager-spouse’s services are valued at the going market salary
ii. Amount of family expenses paid from business earnings are subtracted
iii. Remainder of salary represents community portion of the business
iv. Rest of the business is SP
(1) Business value $100K at marriage, $400K at divorce; spouse’s services
(salary) = $300K (-$200K family expenses) = $100K CP, $300K SP
b. Pereira Accounting – Spouse’s management was primary cause of business
growth
i. SP = manager’s separate capital plus fair rate of return
ii. Remainder is CP
(1) Business value $100K at marriage, $400K at divorce. $100K + $100K
(10% return on investment x 10 years) = $200K SP, $200K CP
2. Community Payments Toward Purchase Price of SP
a. Community establishes proportional interest to the extent community
payments reduce principal debt
i. W purchased a house for $100K and community reduced principal debt
by $20K, house is 1/5 CP and 4/5 SP w/ appreciation allocated
proportionately
3. Improvements I think this is wrong; check book 1/13/2005
a. One spouse uses community funds to improve other spouses SP
i. Absent agreement to reimburse, gift is presumed when one spouse uses
community funds to improve other spouse’s separate estate
b. One spouse uses community funds to improve their own SP
i. Community is entitled to reimbursement of the greater of the cost of
improvement or amount by which the improvement increased the value
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Excessive Remuneration - too much salary is considered a constructive dividend for IRS tax purposes. So, if your
company pays you a million and you don‘t do shit, the IRS can call it a dividend and disallow the payroll expense
deduction AND tax the dividend.
In re Marriage of Gillmore
Max says: this is a follow-up case to Pereira. Gillmore offers the Van Camp formula.
The employee spouse in this case was eligible to retire and receive a
vested, monthly pension payment. Instead of retiring, however, he chose to
continue working and take retirement at some future time after separation. At
issue was the trial court's evaluation of the community's interest in the
pension and its refusal to order, upon petition, the immediate payment of the
non-employee spouse's interest in the pension. Can the court order the
pension divided at a time in which the employee spouse himself or
herself has not yet begun to receive it? The Supreme Court, reversing,
held that the court can order an immediate division of the pension and
payments to the non-employee spouse even if the employee spouse chooses
not to retire.
The California Supreme Court said:
Under California law, retirement benefits earned by a spouse during a
marriage are community property, subject to equal division upon the
dissolution of that marriage. (In re Marriage of Brown, 15 Cal.3d 838, 842,
126 Cal.Rptr. 633, 544 P.2d 561 (1976); Family Code § 2550.) This is true
whether the benefits are vested or nonvested, matured or immature. (Brown,
supra, at p. 842.) Vera and Earl agree that Earl's retirement benefits are
community property to the extent they were earned during their marriage.
The sole disagreement concerns the timing of the distribution of those
benefits. Vera contends that the trial court abused its discretion to postpone
distribution of the benefits until he actually retired and began to receive
payments from the pension plan.
Trial courts have considerable discretion to determine the value of
community property and to formulate a practical way in which to divide
property equally. (In re Marriage of Connolly, 23 Cal.3d 590, 603, 153
Cal.Rptr. 423, 591 P.2d 911 (1979).) However, that discretion has been
strictly circumscribed by the statutory requirement that all community
property be divided equally between the parties [Family Code § 2550].
Under the cases and statutory law, Earl cannot time his retirement to
deprive Vera of an equal share of the community's interest in his
pension. It is a "settled principle that one spouse cannot, by invoking
a condition wholly within his control, defeat the community interest
of the other spouse." (In re Marriage of Stenquist, 21 Cal.3d 779, 786, 148
Cal.Rptr. 9, 582 P.2d 96 (1978).)
Earl's retirement benefits are both vested and matured. He will not forfeit
his benefits if he leaves his employment voluntarily, is terminated or retires.
The only condition precedent to payment of the benefits is his retirement, a
condition totally within his control. A unilateral choice to postpone retirement
cannot be manipulated so as to impair a spouse's interest in those retirement
benefits. Max says: H argued that rents, issues and profits on SP are SP.
Fiddler on the Roof: Two Men ask Rabbi to settle a dispute. He listens and
tells them both they are right. Third guy says “They can’t both be right.”
And Rabbi tells him that he’s right too.
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2. Retroactivity: It is NOT a constitutional violation for a court to retroactively give a spouse
a share of a
service member‘s pension where a case has ruled against that spouse by following
McCarty (below).
McCarty: H argued that his military pension was his SP since a federal law said a
―pension was
the sole property of the service member. W argued that it was CP since in
every CP state, courts had held that a military is CP upon receipt.
Analysis: The US Sup Ct said the federal law spoke for itself; namely, Congress intended
a military
pension to be SP and that the statute preempted CA CP law.
ii. Castle: In response to McCarty, Congress passed a law saying that when it passed
the federal
pension law, it intended for each state to applied its own characterization of a
military pension. Furthermore, all judgments decided after McCarty should be
vacated. In Castle, the trial court gave W the pension choices (above). H
appealed on several grounds including an argument that retroactive application
of Congress‘s response statute to McCarty was a violation of separation of
powers. W appealed saying Gilmore says she should be able to select the
benefit of H‘s future promotion and get it NOW.
Analysis: Court said all of H‘s grounds of appeal had been decided against him except
one which was
awaiting a Sup Ct ruling. The Separation of Powers arguments fails since
Congress was simply clarifying its intention for enacting a statute rather than
overruling a Sup Ct decision. W has misread Gilmore. It offers the choice
outline above.
Conclusion: Trial court‘s award upheld.
Chapter 7. Property Requiring Special Treatment
I. Pensions And Retirement Benefits
§ 7:21 Problems of division--When the non-employee elects to take a share of a
matured pension--Basis of calculation
In re Marriage of Castle, FN1 held that military retirement benefits are divisible in advance of retirement,
whether the benefits are vested or not and subject to contingencies or not. If the pension is divided prior to the
military spouse's retirement, the non-military spouse must make a choice based upon the value of the pension at the
time of trial, not at some later time when the military spouse would become entitled, because of longer service, to a
higher pension. A military pension remains contingent, even after it vests, because it can be lost by death or
dishonorable discharge. Max says: Supremacy Clause says you have to obey Federal law and federal law is that
you can‘t attach military pensions b/c not subject to state court processes.
When, using the Gillmore FN2 rule, a non-employee spouse elects to take her or his share of the vested and
matured pension of the employed spouse, even before the employed spouse actually retires, he or she gives up a
right to any future increases in the pension resulting from longevity of service, increased age, or higher salary. If, on
the other hand, the spouse elects to postpone enjoyment of his or her share of the pension until it is later received by
the employed spouse, he or she will receive the proportionate share of the community's interest, which may have
increased. It could, however, be lost under the risk of non-payment, i.e., in event of a dishonorable discharge.
Electing the present benefit, however, she or he will be limited to the amount that could be payable at time of trial.
FN3
G. Profits From Separate Capital Where The Spouse Contributed His/Her Efforts
1. Van Camp Rule: Increase (I) – CP = SP. Calculate the value of H‘s services and subtract them
from the total
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increase in value. The remainder is H‘s SP since it represents profits from his biz. The amount
subtracted is CP.
i. Gilmore: H owned a biz when he married W. Over the course of their marriage, the
biz increased in value
from $182+k to $786+k due to H‘s work efforts during the marriage. At
dissolution, W wanted ½ of the increased biz value arguing it was CP since
acquired during marriage.
Analysis: The court looked at both Huber (which applied the Van Camp rule) and
Pereira. The trial
court had applied Huber since H introduced evidence which showed that the
salaries he allotted himself during the marriage were a proper measure of the
community interest. The court upheld the trial court‘s application of Huber.
Conclusion: Trial Court‘s Van Camp calculation upheld.
ii. Tassi: H died owning a meat company. At death, W discovered H had
given away a whole lotta property
related to the company to his brother. W believed much of it was CP that she
should have been able to consent to giving away, and therefore sued to disaffirm
the gifts. Bro says H gave him H‘s SP and that the salary H took for himself
represented the community share of the increased value of the biz.
Analysis: A spouse who wants to disaffirm a unconsented-to gift after marriage can
disaffirm only
50% of the amount of the gift (since the court presumes the other party would
have given his/her 50% share of the property to the donee). The trial court had
applied Huber but calculated that H‘s efforts contributed a greater share to
increased value of the biz than was represented by the salary he kept for himself.
Conclusion: Trial Court‘s Van Camp calculation upheld.
Chapter 6. Classifying And Sorting Out Interests Acquired During
Marriage
V. Active Management Of Profitable Separate Property
§ 6:35 The salaried services formula--A salary is not determinative of total
compensation
In Tassi v. Tassi, FN1 in evaluating a separate property meat business
operated by the decedent husband during his lifetime, the court said:
... The difficulty of obtaining evidence limited to small, wholly owned
businesses is obvious. The salary allowed by such owners to themselves lies
entirely in their own discretion, and the surest standard would not be what
such owners were accustomed to allow to themselves but rather what
independent employers were in the habit of paying others for similar services
in the free give-and-take of the open market. The court found no error in the
admission of this evidence.
In applying this principle of apportionment, the court is not bound to
adopt a predetermined percentage as a fair return on business capital which
is separate property, nor need it limit the community interest only to the
salary fixed as the reward for a spouse's services. The court may select
whatever formula will achieve substantial justice between the parties.
Gifts
SP - Do as you please
CP - Must have written consent of other spouse.
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Before death, the non-confirming spouse can dissafirm your approval of
the gift.
After death, the estate can only revoke half.
Rationale - testators can devise 50% of CP; so the courts don’t want to
put the surviving spouse in a better position because of the death of the other
spouse.\
c. Unauthorized Inter Vivos Gifts of CP – One spouse may not make an IV gift
of CP to a 3d party w/o other spouse’s written consent:
i. While both spouses still survive
(1) Non-consenting spouse can void gift
ii. At death of donor spouse
(1) Gift becomes testamentary transfer of donor spouse’s 1/2 interest
(2) Non-consenting spouse can set aside gift & recover 1/2 interest from
spouse’s estate or from the donee
2. Pereira Rule: Increase (I) – SP = CP Calculate H‘s capital investment in the biz and subtract it from the
total increase in value. The remainder is the return on H‘s efforts which is CP.
3. Selecting between Van Camp and Pereira:
Trial court is to choose the method that achieves substantial justice.
No appeals court has ever overturned the formula selected by a trial court so each party should
advocate the method that grants him the greater return.
These formulas also apply to division RP and securities
i. Beam: H inherited over $1.5 mill in the early years of his marriage so he didn‘t work. He did,
however,
dabble around in some loser investments. At dissolution, the community estate was
worth $38K but H gave it all to W. Nonetheless, the greedy b…h sued saying that H‘s
loser investments were his ―efforts‖ which should be calculated as CP income. The Trial
Ct agreed and applied Pereira by calculating a reasonable wage to attribute H. However,
this calculation showed there was no increase in the estate so the CP share was zilcho.
Analysis: W argues the TC should have applied Van Camp. This calculation lends to a
community income of
$357k. W wanted half. The court said that community expenditures must be subtracted
out to determine the community estate. W argued that H conceded on the stand that he
intended to spend his SP when paying living expenses. The court noted, however, that H
testified as such only cuz H believed all of the estate was his SP. Thus, when
expenditures were calculated in, the CP share under Van Camp was also zippo.
Conclusion: TC‘s use of Pereira upheld
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
§ 6:31. Active Management Of Profitable Separate Property
In general
A basic principle of the community property system is that the time, energy, skill,
and talent of the spouses are the fundamental source of the community's well-being and
resources. The use of time, energy, skill, or talent is the use of a community resource by
either party, so the resulting product is also a community property asset. On the other
hand, the rents, issues, and profits of separate property, under the rule of George v.
Ransom, FN1 are characterized as separate property. What of the case, however, in
which a spouse uses his time or talents, a community asset, to make his separate property
more productive or more valuable? This is a contribution of a community asset to the
enhancement of separate property. The problems of reimbursement arise in apportioning
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the recovery to the community and to the separate property. For example, the husband
has inherited a family business appraised at $100,000 in value. During the marriage, he
manages the business as his sole occupation. Earnings from the business are used to pay
family expenses. On dissolution, however, the appraised value of the business has
increased to $250,000. How should the increase in value be divided? Both separate and
community assets contributed to it. How should profits taken from the business, but still
on hand in savings accounts or certificates of deposit, be divided?
Case law has developed distinct approaches to the problem of proportionate
reimbursement in these cases. The courts apportion the increase in value or profits earned
by first distinguishing the predominant source of the earning. It may come primarily from
the labor and skill of the spouse managing the business, or it may be largely attributable
to factors independent of the person, i.e., the general increase in property values, etc. The
formula of restitutionary reimbursement will then be chosen to reflect which source of
earning was most decisive.
The Pereira FN2 rule is applied in cases in which the court finds the principal
source of gains was the skill and labor of the spouse. FN3 The major part of the gains are
then considered to be community property, and, thus, reimbursable to the community.
The separate property is evaluated with a growth rate of interest commensurate to a
comparable amount placed in a long-term, well-secured investment. Obviously, this rate
of growth will vary and is itself subject to litigation. The balance of earnings after the
separate property is appraised at the appropriate growth rate will be divided between the
spouses as community property.
On the other hand, the Van Camp FN4 rule applies where the court finds that the
principal source of earnings was not the skill and labor of the spouse owning the separate
property, but the natural growth of the business itself or factors outside the control of the
spouse. The community will be reimbursed for the spouse's services in skill and labor to
the amount of a reasonable value of these services. The value remaining in the
appreciated property is separate property. The court has wide discretion to choose the
approach it will take to achieve a just and equitable result for the spouses.
Once the court finds the amount to be allocated to the community, it must then
deduct the living expenses of the community, because these are presumably paid from
community earnings. Only the balance remaining will be divisible community property.
FN5
The Pereira and Van Camp rules, and variations thereof, are applied across the board
now in cases of the active management of profitable separate properties. This includes
full-time as well as part-time activities, and all ranges of profitable activity from farming,
running businesses, keeping income property, to investing and managing a stock
portfolio.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:32 The capital growth formula
Pereira v. Pereira
Husband and wife were married in 1900. At that time the defendant was, and ever
since had been, carrying on a saloon and cigar business, then producing a net income of
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about $5,000 annually. He owned the cigar and saloon stock and fixtures, worth in all
about $15,500, and had besides some $6,000 in cash. Soon after the marriage, he bought
the home, paying $2,700 for it, and he afterwards expended $2,300 in improving it. A
year and a half after his marriage, he bought the property in which he was conducting
business at the price of $40,000. He paid $5,000 in cash, and afterwards, out of his
income, he paid the balance of the price and accumulated the cash on hand at the time of
the trial, in addition, amounting to over $12,000. His net income at the time of the trial
was about $11,000 a year:
The decision of the court was made upon the theory that all of his gains received
after marriage, from whatever sources, were to be classed as community property,
and that no allowance was made in favor of his separate estate on account of interest
or profit on the $15,500 invested in the business at the time of the marriage. This
capital was undoubtedly his separate estate. The fund remained in the business after
marriage and was used by him in carrying it on. The separate property should have
been credited with some amount as profit on this capital. It was not a losing business
but a very profitable one. It is true that it is very clearly shown that the principal part
of the large income was due to the personal character, energy, ability, and capacity of
the husband. This share of the earnings was, of course, community property. But
without capital he could not have carried on the business. In the absence of
circumstances showing a different result, it is to be presumed that some of the profits
were justly due to the capital invested. There is nothing to show that all of it was due
to defendant's efforts alone. The probable contribution of the capital to the income
should have been determined from all the circumstances of the case, and as the
business was profitable it would amount at least to the usual interest on a long
investment well secured.
The subsequent modification of the Pereira decision, the result of an interspousal
compromise, was to return the husband's initial separate investment to him at the legal
rate of interest and allocate the remainder of the assets to the community. This judicially
approved compromise was the source of the Pereira rule. The Pereira rule returns
separate property with its growth (interest) to the party originally owning it, while the
remainder is presumed to be attributable to community skill and effort.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:33 The salaried services formula
Van Camp v. Van Camp
At the time of his marriage, the husband was president and manager of the Van
Camp Sea Food Company, to the management of which he devoted his exclusive
attention. For the services so rendered, he received the sum of $1,000 per month, until
January 1918, when his salary was increased to $1,500 per month. In addition to salary,
he received from the company during the period of the marital relation an additional sum
of $12,203 for the purpose of meeting expenses incurred by him in connection with the
business. During the period in question, he was engaged in no other business whatsoever,
and, excepting the money received from the corporation, he had no income other than
that derived as rents, issues, and profits from the property owned by him at the time of his
marriage. The total amount received by him from the corporation on account of salary
and expense money during the existence of the marital relation was the sum of $69,203.
It therefore follows that all other income, large or small and regardless of the amount
thereof, must necessarily have been derived from the property that he owned at the time
of his marriage.
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The Court, in deciding the community interest, distinguished Pereira, stating:
In our opinion, the circumstances attending the Pereira case are not applicable
to the facts involved herein. While it may be true that the success of the corporation
of which defendant was president and manager was to a large extent due to his
capacity and ability, nevertheless without the investment of his and other capital in
the corporation he could not have conducted the business; and while he devoted his
energies and personal efforts to making it a success, he was by the corporation paid
what the evidence shows was an adequate salary, and for which another than himself
with equal capacity could have been secured. Had such course been pursued and
defendant contented himself merely with the receipt of dividends from the business,
the character of the dividends as separate property could not have been questioned.
Instead, however, of doing this, he entered upon the duties as manager of the
corporation, gave his exclusive time and efforts thereto, for which he received first
$12,000 and later $18,000 per year... [I]n the instant case, it is impossible to say what
part of the enormous dividends paid by the Van Camp Sea Food Company should be
apportioned to the skill and management thereof and what part should be
apportioned to the investment of the capital and the favorable conditions under
which the business was conducted. ... in view of the fact that he was adequately paid
by the corporation for his services, such compensation must be deemed the extent of
his personal earnings, and the balance of the profits derived from the business
accredited to the use of the capital invested therein, in the same manner as though he
had not been employed by the corporation.
The Van Camp rule assigns to the community the salary earned or the amount which
would have been a fair salary for services rendered. The remainder of profit and/or
appreciated value is deemed separate property.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:34 The salaried services formula--Choosing between Pereira and Van Camp
The Pereira formula is grounded in the community property presumption that
underlies California marital property law. The Pereira formula computes a fair return on
the separate investment and allocates the balance of the increase as community property
arising from community labor. Thus, the community property presumption is rebutted
only to the extent that separate property naturally would increase in a given economic
period. All other increases are presumptively community property.
The Van Camp formula for allocating separate increases computes a fair
compensation for community labor and allocates the balance to separate property.
Perhaps because of its grounding in the community property presumption, California
courts historically favored the Pereira approach. FN1 However, in 1971, the California
Supreme Court gave trial courts the discretion to select whichever "formula [would]
achieve substantial justice between the parties." FN2
To provide some guidance as to which formula would achieve "substantial justice,"
the Beam decision directed trial courts to consider the "chief contributing factor in the
realization of income" in choosing between the two formulas. Presumably, if the chief
contributing factor is personal labor, Pereira is used; if capital invested is a more
important factor, Van Camp is chosen. FN3
In the continuing debate between the formulas, California trial courts consider the
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following factors in an effort to achieve "substantial justice between the parties":
(1) Type of business. If the business is labor intensive, the Pereira formula is favored.
(2) Inflation. In a relatively stable economic growth period, Pereira is favored.
(3) Reasonable compensation for efforts. If the community has benefitted from an
adequate salary during the marriage, Van Camp will probably be used. FN4
Another area in which the decision between Pereira and Van Camp is subject to
debate is in apportionment after separation. When one spouse works to increase the
earnings of a community property asset during the period between separation and trial,
increases from spousal labor [Family Code § 771] are arguably separate property
earnings. A fair market increase of the community property asset in this same time period
returns to the community. Thus, Pereira and Van Camp may be applied in reverse. FN5
The Imperato court chose not to speculate on which formula to apply in this situation, but
once again allowed trial courts the flexibility to choose the formula that would best
achieve substantial justice.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:35 The salaried services formula--A salary is not determinative of total compensation
In Tassi v. Tassi, FN1 in evaluating a separate property meat business operated by
the decedent husband during his lifetime, the court said:
... The difficulty of obtaining evidence limited to small, wholly owned
businesses is obvious. The salary allowed by such owners to themselves lies entirely
in their own discretion, and the surest standard would not be what such owners were
accustomed to allow to themselves but rather what independent employers were in
the habit of paying others for similar services in the free give-and-take of the open
market. The court found no error in the admission of this evidence.
In applying this principle of apportionment, the court is not bound to adopt a
predetermined percentage as a fair return on business capital which is separate
property, nor need it limit the community interest only to the salary fixed as the
reward for a spouse's services. The court may select whatever formula will achieve
substantial justice between the parties.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:36 The salaried services formula--The percentage can vary
In evaluating the separate property interest of a husband in an automobile dealership
in Gilmore v. Gilmore, FN1 the Supreme Court, in an opinion written by Mr. Justice
Roger Traynor, allowed the husband to prove a higher rate of growth of his separate
property business than usual:
... The trial court found that the salaries paid defendant by the corporations for
his services "rendered to and on behalf of said corporations during the married life of
the parties hereto, were and are sufficient to fully compensate said defendant and the
community for all of the services rendered to and on behalf of said corporations by
defendant during said period of marriage, all of which said salaries have been used
and expended for community purposes during said marriage." In Huber v. Huber, 27
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Cal.2d 784, 792, 167 P.2d 708, the court stated that "In regard to earnings, the rule is
that where the husband is operating a business which is his separate property, income
from such business is allocated to community or separate property in accordance
with the extent to which it is allocable to the husband's efforts or his capital
investment." It has frequently been held that a proper method of making such
allocation is to deduct from the total earnings of the business the value of the
husband's services to it. The remainder, if any, represents the earnings attributable to
the separate property invested in the business. (Harrold v. Harrold, 43 Cal.2d 77, 79-
81, 271 P.2d 489; Huber v. Huber, supra, 27 Cal.2d 784, 792; Logan v. Forster, 114
Cal.App.2d 587, 599-601, 250 P.2d 730; Cozzi v. Cozzi, 81 Cal.App.2d 229, 232-
233, 183 P.2d 739; Seligman v. Seligman, 85 Cal.App. 683, 687, 259 P. 984.) This
method was followed by the trial court in this case, and the evidence sustains its
findings. Defendant's corporations were staffed by well-trained personnel who were
capable of carrying on the businesses unassisted. Defendant worked relatively short
hours and took many extended vacations. There was expert testimony that the
salaries he received, which were found to constitute community income, were more
than ample compensation for the services he rendered. Moreover, during the period
involved there was a tremendous increase in automobile business that was
accompanied by an increase in the value of dealer franchises.
See, also, In re Marriage of Folb, FN2 in which the court affirmed a 12 percent
simple return while determining that compounding would be unjust on the facts.
The current statutory rate of interest used to calculate the growth of separate property
business capital is 10 percent. FN3
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:37 The salaried services formula--There are no exceptions
In Estate of Neilson, the proportionate reimbursement rule of Pereira and Van Camp
was applied to the property of a decedent who had worked a separate property farm:
There is no reason why a grain farmer or nursery operator who conducts his
enterprise on separate real property should be exempted from the normal
apportionment rule and not be required to account to the community for a portion of
the profits ... Although it may be difficult to make an apportionment, it is
"impossible" only in the sense that it cannot be mathematically certain. (See Jenkins
v. Jenkins, 110 Cal.App.2d 663, 666, 243 P.2d 79, where 5/14 of 28 head of cattle
bought with the husband's separate property were apportioned to the community.)
The long line of cases starting with Pereira dispels any notion that such impossibility
justifies a finding that none of the proceeds belongs to the community. These cases
have established the rule that when part of the proceeds from a separate property
enterprise or investment arise from the husband's efforts, there must be an
apportionment ... FN1
Note, in apportioning the value of profits in the motion picture industry, In re
Marriage of Zaentz. FN2
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
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§ 6:38 The salaried services formula--Fluctuating values
The husband's separate business at the time of the parties' separation was equal in
value to what it had been before marriage. The wife, however, attempted to offer
evidence that during the marriage the value of the business had dropped to zero. She
sought to have the increase in value from that point declared a community asset. Stating
that a trial court should not be required to track the oscillations in growth or decline of a
business throughout marriage, the Court of Appeal in In re Marriage of Denney, FN1
held that in the absence of a bankruptcy proceeding, which establishes that a business had
a zero value at a precise time, a trial court does not err in refusing to admit evidence
concerning the decreased value of a spouse's separately owned business during marriage.
The holding of Denney may have been compelled by the record. As a rule, however,
the standard adduced by the petitioning wife, broadly stated, seems impeccable. If the
business bottomed out at a provable point during the marriage, the community interest is
certainly calculable thereafter using the increased value from that time. While the
community interest will remain proportionate, the exact calculus of value, even where a
business fluctuates, is a question of evidence, which should be admissible as it is
relevant.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:39 Active management, time, and skills
Beam v. Bank of America
Mr. and Mrs. Beam were married on January 31, 1939; the instant divorce was
granted in 1968, after 29 years of marriage. Prior to and during the early years of
marriage, Mr. Beam inherited a total of $1,629,129 in cash and securities, and, except for
brief and insignificant intervals in the early 1940's, he was not employed at all during the
marriage but instead devoted his time to handling the separate estate and engaging in
private ventures with his own capital. Mr. Beam spent the major part of his time studying
the stock market and actively trading in stocks and bonds. Over the lengthy marriage, Mr.
Beam's total estate enjoyed only a very modest increase to $1,850,507.33.
Evidence introduced at trial clearly demonstrated that the only moneys received and
spent by the parties during their marriage were derived from the husband's separate
estate. According to the testimony of both parties, the ordinary living expenses of the
family throughout the marriage amounted to $2,000 per month and, in addition, after
1960, the family incurred extraordinary expenses (for travel, weddings, gifts) of $22,000
per year. Since the family's income derived solely from Mr. Beam's separate estate, all of
these household and extraordinary expenses were naturally paid from that source. The
Supreme Court acknowledged, however, that the value of the husband's time and skill in
managing his portfolio was a community asset. Unfortunately, the draconian family
expense doctrine consumed whatever the community could gain:
Without question, Mr. Beam's efforts in managing his separate property
throughout the marriage were more than minimal (cf. Weinberg v. Weinberg, 67
Cal.2d 557, 567-568, 63 Cal.Rptr. 13, 432 P.2d 709 (1967); Cozzi v. Cozzi, 81
Cal.App.2d 229, 232, 183 P.2d 739 (1947); Estate of Barne, 128 Cal.App. 489, 492,
17 P.2d 1046 (1932)), and thus the trial court was compelled to determine what
proportion of the total profits should properly be apportioned as community income.
The trial court in the instant case was well aware of these apportionment
formulas and concluded from all the circumstances that the Pereira approach should
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be utilized. As stated above, under the Pereira test, community income is defined as
the amount by which the actual income of the separate estate exceeds the return
which the initial capital investment could have been expected to earn absent the
spouse's personal management. In applying the Pereira formula the trial court
adopted the legal interest rate of 7 percent simple interest as the "reasonable rate of
return" on Mr. Beam's separate property.
The wife concedes that the use of Pereira formula does sustain the trial court's
conclusion that the present remainder of the husband's estate is entirely his separate
property, but she contends that, under the circumstances the Pereira test cannot be
said to "achieve substantial justice between the parties" (Logan v. Forester, 114
Cal.App.2d 587, 600, 250 P.2d 730 (1952)) and thus that the trial court erred in not
utilizing the Van Camp approach. Although the trial judge did not explicitly
articulate his reasons for employing the Pereira rather than the Van Camp analysis,
we cannot under the facts before us condemn as unreasonable the judge's implicit
decision that the modest increment of Mr. Beam's estate was more probably
attributable to the "character of the capital investment" than to the "personal activity,
ability and capacity of the spouse." (Cf. Estate of Ney, 212 Cal.App.2d 891, 898, 28
Cal.Rptr. 442 (1963).) In any event, however, we need not decide whether the court
erred in applying the Pereira test because we conclude, as did the trial court, that
even under the Van Camp approach, the evidence sufficiently demonstrates that all
the remaining assets in the estate constitute separate property.
Under the Van Camp test community income is determined by designating a
reasonable value to the services performed by the husband in connection with his
separate property. At trial Mrs. Beam introduced evidence that a professional
investment manager, performing similar functions as those undertaken by Mr. Beam
during the marriage, would have charged an annual fee of 1 percent of the corpus of
the funds he was managing; Mrs. Beam contends that such a fee would amount to
$17,000 per year (1 percent of the 1.7 million dollar corpus) and that, computed over
the full term of their marriage, this annual "salary" would amount to $357,000 of
community income. Mrs. Beam asserts that under the Van Camp approach she is
now entitled to one-half of this $357,000.
Mrs. Beam's contention, however, overlooks the fundamental distinction
between the total community income of the marriage, i.e., the figure derived from the
Van Camp formula, and the community estate existing at the dissolution of the
marriage. The resulting community estate is not equivalent to total community
income so long as there are any community expenditures to be charged against the
community income (emphasis added). A long line of California decisions has
established that "it is presumed that the expenses of the family are paid from
community rather than separate funds (citations) [and] thus, in the absence of any
evidence showing a different practice, the community earnings are chargeable with
these expenses (citations)." This "family expense presumption" has been universally
invoked by prior California decisions applying either the Pereira or Van Camp
formula (citations). Under these precedents, once a court ascertains the amount of
community income, through either the Pereira or the Van Camp approach, it deducts
the community's living expenses from community income to determine the balance
of the community property.
If the "family expense" presumption is applied in the present case, clearly no
part of the remaining estate can be considered to be community property. Both
parties testified at trial that the family's normal living expenses were $2,000 per
month, or $24,000 per year, and if those expenditures are charged against the annual
community income, $17,000 under the Van Camp accounting approach, quite
obviously there was never any positive balance of community property which could
have been built up throughout the marriage. "When a husband devotes his services to
and invests his separate property in an economic enterprise, the part of the profits or
increment in value attributable to the husband's services must be apportioned to the
community. If the amount apportioned to the community is less than the amount
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expended for family purposes, and if the presumption that family expenses are paid
from community funds applies, all assets traceable to the investment are deemed to
be the husband's separate property." (Estate of Neilson, 57 Cal.2d 733, 742, 22
Cal.Rptr. 1, 371 P.2d 745 (1962).)
In the instant case, of course, Mr. Beam made no conscious choice to spend his
separate property, rather than the "imputed" community property on the family's
living expenses. Only by means of a formula now applied by the court do we divide
Mr. Beam's income into theoretical "community" and "separate" portions; Beam
could hardly draw upon a fictionalized separate source to pay family expenses ...
Mrs. Beam further contends, however, that even if the "family expense"
presumption remains intact, the presumption was rebutted in the instant case because
Mr. Beam testified at trial that family expenses were paid from his separate property.
If Mr. Beam's actions demonstrated that he had made a conscious choice to use
separate property, as opposed to available community property, to pay living
expenses, such use of his separate property would, of course, constitute a gift to the
community for which he would be entitled to no reimbursement. (See v. See, 64
Cal.2d 778, 785, 51 Cal.Rptr. 888, 415 P.2d 776 (1966).) The record clearly shows,
however, that Mr. Beam's testimony rested totally on his assumption that all of his
funds were his separate property; we cannot realistically characterize the husband's
testimony as indicating that he consciously chose to pay for community expenses out
of income which we now deem purely separate income, rather than from the income
which, theoretically under the Van Camp formula, may now be designated
community income.
If Mrs. Beam is to receive the benefit of the "community income" imputed by
virtue of the Pereira or Van Camp tests, that income in the absence of evidence that
Mr. Beam consciously declined to use available community funds, must be charged
with the expenses that have been incurred by the community over the marriage; the
income cannot fairly be isolated from the correlative expenses. (Cf. 1 deFuniak,
Principles of Community Property (1943) § 159, p. 445.) Therefore we cannot
conclude on this record that the trial court erred in finding that the "living expense"
presumption had not been rebutted.
In sum, even if the trial court had utilized the Van Camp approach in
determining community income, as the wife suggests, the court would still have
properly concluded that there was no resulting community property from the
earnings of her husband's separate property. We therefore conclude that the wife's
initial contention is without merit.
The Supreme Court in Beam agreed with the petitioning wife that any increase in
value, even to a stock portfolio, directly attributable to the time, effort, skill or energy of
the other spouse expended during marriage is a community property asset to which
divisible or offsetting value can be assigned. Unfortunately, the draconian family expense
doctrine consumed whatever the community gained (see, above, § 6:20).
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:40 Active Management, Time, And Skills--"Never Marry A Rich Person"
The family living expense presumption in Beam undermined the apportionment of
part of the increased value of the husband's stock portfolio as community property.
Application of the presumption ate away all of the wife's share of the community assets.
Beam was a harsh decision. The California Supreme Court held that apportionment
was required, but then, applying the family living expense presumption, held no
community property was left for Mrs. Beam on dissolution.
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Perhaps a person who marries a wealthy spouse, as was the situation in Beam, would
receive greater protection if the statutes were amended to provide that rents and profits
from separate property are community, dispensing with the need to apportion. Another
possibility would be to adopt a family living expense allocation system, whereby living
expenses would be charged ratably to community and separate property. In the
meanwhile, however, the best protective device is a premarital agreement allowing a
sharing of appreciated property upon either dissolution or death of the independently
wealthy spouse. FN1
Two cases on point, illustrating the problems of relatively long marriages that
produce no community property because neither spouse worked and invested separate
property was used during the marriage as the sole means of support, are In re Marriage of
De Guigne FN2 ("The (12-year) marriage generated no community property ... [T]he
fact that no community property came from the marriage does not relieve ... of his
support obligation."), and In re Marriage of Destein FN3 ("The husband was not
gainfully employed during the marriage, relying for living expenses on his 'substantial
wealth and property.' ")
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
V. Active Management Of Profitable Separate Property
§ 6:41 Tax note--The passive activity rule
The Tax Reform Act of 1986 and the Revenue Act of 1987 provided that the losses
and credits from passive activities could not be used to shelter income from non-passive
sources (e.g., salaries, dividends and profits from a trade or business in which the
taxpayer is materially involved). Passive activity losses and credits may, however, be
used to shelter income from other passive activities. The passive loss and credit rule is
referenced principally in 26 USCA § 469 [see, also, 26 USCA § 1211].
26 USCA § 469(c)(1) defines a "passive activity" as any activity involving the
conduct of any trade or business in which the taxpayer does not materially participate.
Material participation, for purposes of this section, is involvement of the taxpayer in the
operation of the activity on a basis which is regular, continuous and substantial [26
USCA § 469(h)].
Illustrative of the non-material participation test are losses and credits attributable to
a limited partnership interest, as well as any rental activity, although a special rule
permits up to $25,000 of losses and credits (in the sense of a deduction equivalent) from
real estate rental activities to be used to offset non-passive activity income. Losses from
working interests in oil and gas property are not limited by the passive loss rule as long as
the taxpayer's liability with respect to that interest is not limited. Thus, a passive activity
may include (1) activities conducted in connection with a trade or business and (2)
holding property for the production of income.
The passive loss rule applies to taxable years beginning after 1986.
Insofar as the passive loss rule entails "non-material participation" of the taxpayer
and limits his or her ability to utilize tax losses, it seriously affects individual taxpayers.
Since it provides for testing such activity also by participation of the taxpayer's spouse
[26 USCA § 469(d)(1)], it also affects marital property, and marital interests in
separately held property.
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A tax professional should be consulted in planning and utilizing the passive loss rule,
because at this stage its application and ramifications are more complex than should be
discussed here. For community property law purposes, however, what is the significance
of a taxpayer's utilization of the passive loss rule in respect to income-producing separate
property? Probably, no direct consequence. There may be some probative value, FN1 in
applying the passive activity definition to separate property to use the loss and credit rule.
The mere declaration on an income tax return, however, is not probative that there is the
complete passivity required by the community property principles to disallow the
community a share in the product of separate property.
In fact, since the federal tax passive activity definition includes any rental activity,
the definition would be broader than the active management of rental property test under
the Pereira line of cases would permit. In other words, the community may still have a
pro tanto interest in separate property accrued value, profits, dividends or rents under the
active management principle of California community property law, even though the
taxpayer spouse declares it a "passive activity" on his or her income tax return under 26
USCA § 469.
Amendments to the passive activity rules made in 1993, adding 26 USCA §
469(c)(7), Special Rules for Taxpayers in Real Property Businesses, [P.L.103-66, §
13143(a)], do not change the fundamental community property law analysis in this
respect.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
VI. Acquisitions Using Both Separate And Community Property
§ 6:42 In general
Separate and community funds may be used together to purchase property that will
be divided later between husband and wife. This can occur either through installment-
type purchase contracts, in which various installments are paid wholly or even partially
with different funds, or by piecemeal acquisitions, such as insurance contracts executed
before marriage with payment of premiums continuing from community earnings. On
dissolution of the marriage or death, the courts must decide an appropriate way to divide
the property. The former case law, it must be admitted, was in complete disarray in
working rules for direct reimbursement and proportionate participation in value and in
setting out various standards of evaluation for restitutionary recoveries.
Chapter 6. Classifying And Sorting Out Interests Acquired During Marriage
VI. Acquisitions Using Both Separate And Community Property
§ 6:43 Separate property contributions to the acquisition of community property assets
In 1983, the Legislature cut through the confusion of dozens of inconsistent rulings
to provide by statute for the direct reimbursement of separate funds used in the
acquisition of community property. To be sure, the principal purpose of the new
amendment was to defeat what had become an all-too-facile presumption of the gift of
separate property to the community after In re Marriage of Lucas. FN1 The result,
however, is a statutory rule providing for the direct reimbursement of separate funds,
except upon a written waiver, traced to the separate source. The principal problem with
the new statute, of course, is its limitation upon the amount of reimbursement. The statute
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says reimbursement shall be made "without interest or adjustment for change in monetary
values and shall not exceed the net value of the property at the time of division." The
reason, of course, was to prevent compounding, as the separate property contributing
spouse retains an interest in the community property acquired. Clearly, however, separate
funds used to contribute to the acquisition of community property are a questionable
investment!
Family Code § 2640:
(a) "Contributions to the acquisition of the property," as used in this section,
include downpayments, payments for improvements, and payments that reduce
the principal of a loan used to finance the purchase or improvement of the
property but do not include payments of interest on the loan or payments made
for maintenance, insurance, or taxation of the property.
(b) In the division of the community estate under this division, unless a party has
made a written waiver of the right to reimbursement or has signed a writing
that has the effect of a waiver, the party shall be reimbursed for the party's
contributions to the acquisition of the property to the extent the party traces the
contributions to a separate property source. The amount reimbursed shall be
without interest or adjustment for change in monetary values and shall not
exceed the net value of the property at the time of the division.
Section 2640 continues former Civil Code § 4800.2 without substantive change. In
subdivision (b) "community estate" has been substituted for "community property," to
indicate that this provision applies to quasi-community property as well as community
property. FN2
In re Marriage of Fabian
James and Kathleen Fabian married on April 27, 1972, and separated on April 29,
1979. A few months after marrying, the couple purchased the Villa Viejo Motel (Villa
Viejo), the subject of this dispute, taking title as "C. James Fabian and Kathleen, husband
and wife as community property."
After a contested hearing, the trial court entered an (interlocutory) judgment of
dissolution of marriage on April 23, 1982. In the findings of fact and conclusions of law
filed one day earlier, the trial court found, inter alia, that the Villa Viejo and its income
were community property. The court assessed the net equity in the property at $790,391.
The court also expressly found: "[James] invested $275,000.00 of money received from
separate property into the Villa Viejo prior to separation. There was no promise or
agreement between the parties that [James] should receive reimbursement or repayment
of any part or all of said sum. [James], therefore, made a gift of said separate funds to the
community asset." The court then ordered an accounting to determine the amount of Villa
Viejo income that James had diverted to his separate property holdings and further
ordered that the Villa Viejo be sold and the proceeds divided equally.
While James' appeal was pending, Family Code § 2640 [former Civil Code §
4800.2] was enacted. Under § 2640, separate property contributions to community
property assets are to be reimbursed upon dissolution, unless the contributing spouse has
waived the right to reimbursement in writing. Discussing the former law and the effect of
§ 2640, the Supreme Court held retroactive application of the amendment
unconstitutional:
Taken as a whole, the record supports the trial court's finding that the Villa
Viejo was community property. As we noted in Buol, " '[t]he status of property as
community or separate is normally determined at the time of its acquisition'
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(citations)." (39 Cal.3d at p. 757, 218 Cal.Rptr. 31, 705 P.2d 354.) Property acquired
during the marriage by an instrument describing the marital partners as husband and
wife is presumed to be community property "unless a different intention is expressed
in the instrument." [Family Code § 760]. (See also See v. See, 64 Cal.2d 778, 783,
51 Cal.Rptr. 888, 415 P.2d 776 (1966).) The only intent expressed in this instrument
supports the community property presumption: the couple chose to take title to the
Villa Viejo as "C. James Fabian and Kathleen, husband and wife as community
property."
To overcome the community property presumption the spouse asserting a
separate property interest must establish by a preponderance of the evidence that the
parties had a contrary agreement. (Patterson v. Patterson, 242 Cal.App.2d 333, 341,
51 Cal.Rptr. 339 (1966); Thomasset v. Thomasset, 122 Cal.App.2d 116, 123, 264
P.2d 626 (1953).) "It is because of th[e] express designation of ownership that a
greater showing is necessary to overcome the presumption arising therefrom than is
necessary to overcome the more general presumption that property acquired during
the marriage is community property ... [t]he act of taking title in a joint and equal
ownership form is inconsistent with an intention to preserve a separate property
interest. Accordingly, the expectations of parties who take title jointly are best
protected by presuming that the specified ownership interest is intended in the
absence of an agreement or understanding to the contrary." (In re Marriage of Lucas,
27 Cal.3d 808, 815, 166 Cal.Rptr. 853, 614 P.2d 285 (1980).) James has failed to
rebut the community property presumption.
The record is devoid of any evidence of an agreement or understanding that the
Villa Viejo was not to be community property. James admitted that ownership
interests were never discussed. The presumption of title cannot be overcome by a
showing of hidden intent. (Lucas, supra, 27 Cal.3d at p. 813, 166 Cal.Rptr. 853, 614
P.2d 285.) Nor do principles of partnership law apply. Lacking any evidence to the
contrary, the trial court properly characterized the Villa Viejo and its income as
community property.
From the time of purchase, therefore, Kathleen had a vested property interest in
the motel as community property. (Cf. In re Marriage of Buol, 39 Cal.3d 751, 218
Cal.Rptr. 31, 705 P.2d 354; In re Marriage of Bouquet, 16 Cal.3d 583, 591, 128
Cal.Rptr. 427, 546 P.2d 1371 (1976); Addison v. Addison, 62 Cal.2d 558, 566, 43
Cal.Rptr. 97, 399 P.2d 897 (1965).) This vested interest entitled Kathleen, at the time
the trial court entered the interlocutory judgment, to half of the Villa Viejo [see
Family Code § 2550].
Moreover, for more than 20 years prior to the enactment of § 4800.2 [Family
Code § 2640], it was well-established that, absent an agreement to the contrary,
separate property contributions to a community asset were deemed gifts to the
community. (See, supra, 64 Cal.2d at p. 785, 51 Cal.Rptr. 888, 415 P.2d 776; In re
Marriage of Epstein, 24 Cal.3d 76, 82-83, 154 Cal.Rptr. 413, 592 P.2d 1165 (1979);
Lucas, supra, 27 Cal.3d at p. 816, 166 Cal.Rptr. 853, 614 P.2d 285.) " 'A party who
uses his separate property for community purposes is entitled to reimbursement from
the community or separate property of the other only if there is an agreement
between the parties to that effect' (citations). While the parties are married and living
together it is presumed that, 'unless an agreement between the parties specifies that
the contributing party be reimbursed, a party who utilizes his separate property for
community purposes intends a gift to the community' (citation)." (Lucas, supra, 27
Cal.3d at p. 816, 166 Cal.Rptr. 853, 614 P.2d 285.)
Nothing in the record suggests that the parties had an agreement that James'
contributions would remain his separate property. Except in the context of his
unsatisfying implied waiver argument, James makes no claim that such an agreement
existed. Therefore, the trial court properly determined the community interest in the
Villa Viejo to include the $275,000 gifted to the community.
II
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Section 4 of Assembly Bill No. 26 states, "This act applies to the following
proceedings: ... (b) Proceedings commenced before January 1, 1984, to the extent
proceedings as to the division of property are not yet final on January 1, 1984."
(Stats. 1983, ch. 342, § 4.) As this matter was still on appeal on January 1, 1984, §
4800.2 [Family Code § 2640] presumably would apply to decrease the community
property interest in the Villa Viejo, assuming it exists, from $790,391 to $515,391.
Retrospective legislation, however, may not be applied where such application
impairs a vested property right without due process of law. (In re Marriage of Buol,
supra, 39 Cal.3d 751, 218 Cal.Rptr. 31, 705 P.2d 354.) As was true in Buol, the
unconstitutional impairment in the present case is manifest.
If applicable, § 4800.2 [Family Code § 2640] would operate to decrease
Kathleen's share in the motel more than one-third to $257,695.50, half of the
$515,391 interest remaining to the community after accommodation is made for
James' revitalized separate property interest. Under § 4800.2 [Family Code § 2640]
James would be entitled to reimbursement for his $275,000 separate property
contribution because he never executed a written waiver of his newly created "right
to reimbursement." This reimbursement right did not exist at all prior to § 4800.2's
[Family Code § 2640] January 1, 1984, effective date. Indeed, for more than a year
and a half after the trial court rendered its judgment of dissolution, the long-
established rule that separate property contributions were non-reimbursable absent a
contrary agreement remained in effect. Thus, retroactive application of § 4800.2
[Family Code § 2640] would impair Kathleen's vested property interest.
Fabian is quoted here because it provides a very good discussion of the rationale,
context and effect of the adoption of Family Code § 2640.
See In re Marriage of Heikes, FN4 in which the California Supreme Court,
reversing the Second District Court of Appeal, held that the principle codified in Family
Code § 2640, that separate property that is contributed to the acquisition of community
property is reimbursable without written waiver, may not be applied to property acquired
before the effective date of the statute, January 1, 1984. Heikes confirmed the non-
retroactivity ruling of Fabian.
Chapter 6. Classifying And Sorting Out Interests Acquired During
Marriage
V. Active Management Of Profitable Separate Property
§ 6:39 Active management, time, and skills
Beam v. Bank of America
Mr. and Mrs. Beam were married on January 31, 1939; the instant divorce
was granted in 1968, after 29 years of marriage. Prior to and during the early
years of marriage, Mr. Beam inherited a total of $1,629,129 in cash and
securities, and, except for brief and insignificant intervals in the early 1940's,
he was not employed at all during the marriage but instead devoted his time
to handling the separate estate and engaging in private ventures with his own
capital. Mr. Beam spent the major part of his time studying the stock market
and actively trading in stocks and bonds. Over the lengthy marriage, Mr.
Beam's total estate enjoyed only a very modest increase to $1,850,507.33.
(13%)
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Evidence introduced at trial clearly demonstrated that the only moneys
received and spent by the parties during their marriage were derived from the
husband's separate estate. According to the testimony of both parties, the
ordinary living expenses of the family throughout the marriage amounted to
$2,000 per month and, in addition, after 1960, the family incurred
extraordinary expenses (for travel, weddings, gifts) of $22,000 per year.
Since the family's income derived solely from Mr. Beam's separate estate, all
of these household and extraordinary expenses were naturally paid from that
source. The Supreme Court acknowledged, however, that the value of the
husband's time and skill in managing his portfolio was a community asset.
Unfortunately, the draconian family expense doctrine consumed
whatever the community could gain:
Without question, Mr. Beam's efforts in managing his separate property
throughout the marriage were more than minimal (cf. Weinberg v. Weinberg,
67 Cal.2d 557, 567-568, 63 Cal.Rptr. 13, 432 P.2d 709 (1967); Cozzi v.
Cozzi, 81 Cal.App.2d 229, 232, 183 P.2d 739 (1947); Estate of Barne, 128
Cal.App. 489, 492, 17 P.2d 1046 (1932)), and thus the trial court was
compelled to determine what proportion of the total profits should properly be
apportioned as community income.
The trial court in the instant case was well aware of these apportionment
formulas and concluded from all the circumstances that the Pereira approach
should be utilized. As stated above, under the Pereira test, community
income is defined as the amount by which the actual income of the
separate estate exceeds the return which the initial capital
investment could have been expected to earn absent the spouse's
personal management. In applying the Pereira formula the trial court
adopted the legal interest rate of 7 percent simple interest as the
"reasonable rate of return" on Mr. Beam's separate property.
The wife concedes that the use of Pereira formula does sustain the trial
court's conclusion that the present remainder of the husband's estate is
entirely his separate property, but she contends that, under the
circumstances the Pereira test cannot be said to "achieve substantial justice
between the parties" (Logan v. Forester, 114 Cal.App.2d 587, 600, 250 P.2d
730 (1952)) and thus that the trial court erred in not utilizing the Van Camp
approach. Although the trial judge did not explicitly articulate his reasons for
employing the Pereira rather than the Van Camp analysis, we cannot under
the facts before us condemn as unreasonable the judge's implicit
decision that the modest increment of Mr. Beam's estate was more
probably attributable to the "character of the capital investment"
than to the "personal activity, ability and capacity of the spouse." (Cf.
Estate of Ney, 212 Cal.App.2d 891, 898, 28 Cal.Rptr. 442 (1963).) In any
event, however, we need not decide whether the court erred in applying the
Pereira test because we conclude, as did the trial court, that even under the
Van Camp approach, the evidence sufficiently demonstrates that all the
remaining assets in the estate constitute separate property.
Under the Van Camp test community income is determined by designating
a reasonable value to the services performed by the husband in connection
with his separate property. At trial Mrs. Beam introduced evidence that a
professional investment manager, performing similar functions as those
undertaken by Mr. Beam during the marriage, would have charged an annual
fee of 1 percent of the corpus of the funds he was managing; Mrs. Beam
contends that such a fee would amount to $17,000 per year (1 percent of the
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1.7 million dollar corpus) and that, computed over the full term of their
marriage, this annual "salary" would amount to $357,000 of community
income. Mrs. Beam asserts that under the Van Camp approach she is now
entitled to one-half of this $357,000.
Mrs. Beam's contention, however, overlooks the fundamental distinction
between the total community income of the marriage, i.e., the figure derived
from the Van Camp formula, and the community estate existing at the
dissolution of the marriage. The resulting community estate is not equivalent
to total community income so long as there are any community expenditures
to be charged against the community income (emphasis added). A long line of
California decisions has established that "it is presumed that the expenses of
the family are paid from community rather than separate funds (citations)
[and] thus, in the absence of any evidence showing a different practice, the
community earnings are chargeable with these expenses (citations)." This
"family expense presumption" has been universally invoked by prior California
decisions applying either the Pereira or Van Camp formula (citations). Under
these precedents, once a court ascertains the amount of community income,
through either the Pereira or the Van Camp approach, it deducts the
community's living expenses from community income to determine the
balance of the community property.
If the "family expense" presumption is applied in the present case, clearly
no part of the remaining estate can be considered to be community property.
Both parties testified at trial that the family's normal living expenses were
$2,000 per month, or $24,000 per year, and if those expenditures are
charged against the annual community income, $17,000 under the Van Camp
accounting approach, quite obviously there was never any positive balance of
community property which could have been built up throughout the marriage.
"When a husband devotes his services to and invests his separate property in
an economic enterprise, the part of the profits or increment in value
attributable to the husband's services must be apportioned to the community.
If the amount apportioned to the community is less than the amount
expended for family purposes, and if the presumption that family expenses
are paid from community funds applies, all assets traceable to the investment
are deemed to be the husband's separate property." (Estate of Neilson, 57
Cal.2d 733, 742, 22 Cal.Rptr. 1, 371 P.2d 745 (1962).)
In the instant case, of course, Mr. Beam made no conscious choice to
spend his separate property, rather than the "imputed" community property
on the family's living expenses. Only by means of a formula now applied by
the court do we divide Mr. Beam's income into theoretical "community" and
"separate" portions; Beam could hardly draw upon a fictionalized separate
source to pay family expenses ...
Mrs. Beam further contends, however, that even if the "family expense"
presumption remains intact, the presumption was rebutted in the instant case
because Mr. Beam testified at trial that family expenses were paid from his
separate property. If Mr. Beam's actions demonstrated that he had made a
conscious choice to use separate property, as opposed to available
community property, to pay living expenses, such use of his separate
property would, of course, constitute a gift to the community for which he
would be entitled to no reimbursement. (See v. See, 64 Cal.2d 778, 785, 51
Cal.Rptr. 888, 415 P.2d 776 (1966).) The record clearly shows, however, that
Mr. Beam's testimony rested totally on his assumption that all of his funds
were his separate property; we cannot realistically characterize the husband's
testimony as indicating that he consciously chose to pay for community
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expenses out of income which we now deem purely separate income, rather
than from the income which, theoretically under the Van Camp formula, may
now be designated community income. Max liked this argument. He calls it a
“cute” argument.
If Mrs. Beam is to receive the benefit of the "community income" imputed
by virtue of the Pereira or Van Camp tests, that income in the absence of
evidence that Mr. Beam consciously declined to use available community
funds, must be charged with the expenses that have been incurred by the
community over the marriage; the income cannot fairly be isolated from the
correlative expenses. (Cf. 1 deFuniak, Principles of Community Property
(1943) § 159, p. 445.) Therefore we cannot conclude on this record that the
trial court erred in finding that the "living expense" presumption had not been
rebutted.
In sum, even if the trial court had utilized the Van Camp approach in
determining community income, as the wife suggests, the court would still
have properly concluded that there was no resulting community property
from the earnings of her husband's separate property. We therefore conclude
that the wife's initial contention is without merit.
The Supreme Court in Beam agreed with the petitioning wife that any
increase in value, even to a stock portfolio, directly attributable to the time,
effort, skill or energy of the other spouse expended during marriage is a
community property asset to which divisible or offsetting value can be
assigned. Unfortunately, the draconian family expense doctrine consumed
whatever the community gained (see, above, § 6:20).
H. Division of Community Estate that includes Out-of-State Real Property
1. Family Code §2660 (Modernly): Where the community includes RP located in another state, the court
must:
(a) First, try to divide the estate so one party gets all the RP in the other state but equal division is
maintained,
(b) If (a) is not possible, then require the parties to convey the RP or award the entitled party its value
in cash
2. Old-skool rule
i. Rozan: H and W purchased RP in North Dakota using personal property that they acquired while
living in
CA.
Analysis: The court upheld the trial court‘s finding of CA domiciliary since H lived there with the
―intention to
remain‖ when the PP was acquired. CA law says that PP acquired during marriage is CP.
Since PP was used to buy the RP in North Dakota, the RP was part of the community.
Since the court found extreme cruelty on H‘s part, it award W 65% of the RP in ND and
sorta told ND that it should give this judgment ―full faith and credit.‖ When W later sued
in ND, the ND court gave ―full faith and credit‖ to the CP status despite its not being a
CP state. However, it refused to give the 65% award effect pointing out that the CA
court did not order H to execute a deed.
Conclusion: The RP in ND is CP
I. Goodwill 11/30/2004
It is biz value that is separate and apart from its assets; It‘s an expectation of continuing and future
patronage
It can attach to a product, location, name, or reputation
1. Goodwill in a biz that is built up during a marriage is CP (NOT after divorce…must be at time of
dissolution)
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i. Watts: Upon divorce, H (a surgeon) has a biz that W argues has goodwill that is CP. Trial Ct said that
there is no goodwill since there is no market for the practice. Max says: Old rule was that sole law practices
couldn‘t be sold. That rule changed. Not sure what it has to do with this case. Analysis: Even though there was no
market value, the goodwill of the business could have been calculated using the excess earnings formula. Also, on
these facts, the Trial Ct erred in failing to require H to reimburse the community estate for his exclusive use of both
the family residence and the medical practice between the date of separation and the date of trial (This IS NOT,
however, a mandatory rule but on a case-by-case basis). What if one spouse is in a business partnership and she gets
a % of the business upon dissolution of the partnership? Can the other spouse be bound by that formula? The Court
considers but is not bound by the partnership dissolution agreement. Conclusion: Remanded for calculation and
award of goodwill and reimbursement for exclusive use of CP during separation. Max Says: Cal SC rule on death
taxes: valuation of decedent‘s practice for purposes of death taxes. Court cited some of the COA cases on
dissolution and approved those methods. So, in a tax case, we have one opinion that approves but did not consider
the methods of valuing goodwill.
(a) Goodwill can be measured by market value, excess earnings, or any legitimate method that takes into
account some past value (cant‘ value on future value estimates).
(b) Excess Earnings Method: amount earned in excess of what one would make on his or her own. So, if
physician is making $120k, but a similarly qualified physician at Kaiser would only make $100k; the excess
earnings is $20k. Max says: the Courts start with 6 times the gross earnings or 12 times the monthly net and then
apply a multiplier to that .
(c) Can‘t deny goodwill based only on one method. Can‘t limit finding to only one methodology.
(d) Goodwill can NOT be valued based on any method that takes into account the post-marital efforts of
either spouse. Fortier (p. 48).
(e) Goodwill CP is subject to reimbursement if one spouse had exclusive use of the CP after separation at
the discretion of the Court.
(f) Community Goodwill is based on the value as a going concern at the date of dissolution.
(g) The Court considers but is not bound by a partnership dissolution agreement.
ii. Aufmuth: 11/30/2004 H and W married in 1967. H was a law student and worked part time. W was a
teacher. In 1969, they had a kid so W stopped working and they took out a loan to pay for H‘s 3 rd year. The balance
due on the loan at separation was $1230. Also, in 1974, H became a 5% shareholder in his law firm. Analysis: A
legal education is a property right but is not CP cuz: (1) case precedent (Todd) suggests that it couldn‘t be since it
would be impossible to value it, (2) a determination that it is CP would require Cts to divide up postdissolution
earnings which are SP. Furthermore, goodwill should not be included in valuing H‘s interest in his firm cuz H: (1)
was young, (2) had been a member of the bar for only 7 years, (3) had been a shareholder for only 2 years.
Conclusion: Legal education is not CP; No allowance for goodwill. Max says: the degree has value and if
wrongfully withheld, a student could sue for damages, such as the cost of tuition. The Court in Aufmuth said
education ≠ property within the context of dissolution of a marriage. So the Court‘s property holding is narrow.
AUFMUTH FORMULA: When SP and CP is used to buy a common residence, calculate the SP and
CP on dissolution by using the ratio of SP:CP that existed in the down payment.
2. Valuing Goodwill
Goodwill is relatively easy to determine with commercial ventures; the difficulty is with professional
ventures (legal partnerships, etc.) because the Ct must distinguish between the biz‘s goodwill and the
individual‘s goodwill. A person‘s goodwill is not readily marketable
a. Methods
1. Market Value—Goodwill is the market value of the biz minus the balance sheet (or Profit/Loss
Statement)
Accounting Methods
a. Balance Sheet—A snapshot in time; It shows the cost of items less depreciation plus
improvements
b. Profit &Loss Statement—A period of time
Two measures
1. Cash basis: Shows money in and money out
2. Accrual basis: Keeps track of when income/interest began accruing
Excess Earnings—Amount the party makes in current biz minus amount an outside company would
pay the
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party to work for it
‗X‘ times gross income
‗X‘ times net income
b. No case precedent for valuing:
1. Celebrity goodwill
2. Executive goodwill
J. Community Contributions To Education 1/13/2005
1. §2641:
(a) Where CP is used to pay for education or to pay off a loan incurred for education, upon dissolution
of
marriage or legal separation (NOT probate):
(1) The community is to be reimbursed for contributions that substantially enhance the
earnings capacity
(NOT ‗earnings‘) of one party; the amount includes interest accruing at the end of the
calendar year in which the contributions were made
(2) Upon dissolution, a loan incurred during marriage for education becomes a separate
liability for the recipient of the education.
(c) The application of this section will be reduced or modified if the circumstances of a given case
would render its
application unjust. These circumstances include, but aren‘t limited to where:
(1) The community has substantially benefited from the education, training, or loan incurred.
(E.g: H gets a JD
and family lives well together for 15 years). There is a rebuttable presumption that the
community has not substantially benefited where the beginning of dissolution proceedings
occurs fewer than 10 years from the community contributions. The presumption flips when
the proceedings begin more than 10 years later.
(2) The education is offset by an education the other party got also funded with CP
(3) The education helps the party getting it to get employment that substantially reduces the
need of support that would otherwise be required,
E.g.: If H is an MD and W is a homemaker and W goes to school and gets a degree, she needs
less from H for support then would be otherwise required
2. Watt Rule: Only the direct expenses (tuition, books, fees, etc.) from the education are reimbursable
under
§2641; Living expenses are not cuz the parties would have had them anyway.
Sullivan Case: Husband had 7 years of post graduate training. He did not work at all during that period.
Wife supported him. He became a board certified urologist. They divorced. She sued and said the valuation of the
education was CP. He argued it‘s not an asset b/c it cannot be valued. He was just starting out in practice and was
only earning about the same as his wife. Aufumuth note 11 on p 54: Education acquired with CP s/b CP; but Court
rejected that argument. Also, Impossible to value. Under Aufmuth, no community interest in education such as
medical school. in Sullivan asked Court to overrule Aufmuth and Todd. Max represented the husband on the re-
trial.
CFC §2641: (enacted in response to prof’l degrees problem)
The community is entitled to reimbursement for ―community contributions to education or training of a party
that substantially increases the earning capacity of that party‖ . Returns to working spouse only what was
actually given and takes from student spouse only what was actually spent for education (doesn‘t look at oppty
cost)
The reimbursement can be reduced or modified based on:
1) the fact that community has already substantially benefited from the education. There is a rebuttable
presumption (affecting burden of proof) that the comm has NOT substantially benefited from contributions
made less then 10 years before the commencement of the proceeding/ has benefited from contributions
made more than 10 years before.
2) if education or training of spouse#1 is offset by education or training of spouse #2 Offset for education of
other spouse: what if one spouse works and the other just goofs off? Should H receive an offset for basket
weaving classes taken by W? Statute just says education is offset by education expenses paid by CP of
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other spouse. Open issue as to whether the other education costs must increase the earnings capacity in
order to qualify for an offset. So, the basket weaving may or may not be offset.
3) if the education results in gainful employment that reduces the need for support otherwise required (if they
are rich, basically)
4) The only remedy available it for community contributions; it‘s not property. So, Dr. Sullivan didn‘t really
hate the decision because it was a state school so his tuition was low so he didn‘t mind paying.
Todd v. Todd (Cal App, 1969)
After marriage husband rem= ncert college ad entered law school. Education is an intangible ncertai
rightwhich is too ncertain to be divided; thus, while a property right, not part of community. But, the
value of a professional practice is community property valued at time of dissol. (goodwill)
Marriage Of Aufmuth (1979)
same result as Todd
Marriage of Sullivan (1982)
carried one step further—says educational degree is not a property right at all (SP or CP). Max’s
argument: he changed the law by representing the husband. Both parties petitioned for rehearing
on the same case. Max won on his petition for rehearing. Then the wife argued for rehearing. Max
argued that she is not entitled to rehearing. Her petition was denied. Wife takes it to Cal Supreme
Court. Max for Husband, Prof Bloomberg from UCLA (her first case) for wife. 2 years later, no
decision from SC. So, Cal Legislature enacted 2641 and then SC said to just follow it.
Property Characterisitcs as noted in Sullivan Appellate Decision: (1) it can be owned it common; (2)
it’s part of your estate when you die; (3) it is devisible by will. With a degree or license to practice,
you can’t have any of these three characteristics.
In re Marriage of Sullivan
Janet and Mark Sullivan were married in September of 1967. The following year, Mark entered medical school
at Irvine and Janet began her final year of undergraduate college at UCLA. From 1968 through 1971, Mark attended
medical school, while Janet worked part-time while completing her undergraduate education. After graduation, she
obtained a full-time position which she held through 1971.
In 1972, the husband began his internship in Portland, Oregon. The wife gave up her full-time job to accompany
him there. Shortly after the move, she obtained part-time employment.
Both parties then moved back to California. Shortly afterward, they separated. In August 1978, the husband
petitioned for dissolution of the marriage. While the case was pending before the court, the Legislature amended the
Family Law Act to provide compensation in all cases not yet final on January 1, 1985. On final appeal, the Supreme
Court said:
The amendments provide for the community to be reimbursed, absent an express written agreement to the
contrary, for ―community contributions to education or training of a party that substantially enhances the
earning capacity of the party‖ [Family Code § 2641]. The compensable community contributions are
defined as ―payments made with community property for education or training or for the repayment of a
loan incurred for education or training.‖ (Ibid.) The reimbursement award may be reduced or modified
where an injustice would otherwise result. (Ibid.) Max says what is the earnings enhancement for someone who
has never worked before? Use of statistics on earnings capacity based on level of education. Focus on fact that
it‘s earnings capacity.
Max‘s hypo: H gets law degree, becomes lawyer, but takes a lower paying job. Statute talks about
capacity not actual earnings. Example: Armand Hammer was a doctor but never practiced medicine. He went
into the oil business. He made much more as an oil magnate than he ever could have as a doctor. Somerset
Maugham was a lawyer but became a writer. Same with lawyer who wrote the music for ―Stardust.‖ The
schooling did not enhance their earnings capacity.
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Interest accrues at legal rate (currently 10% in California). § 2641 is one of the rare statutes that provides
for interest. Accrues from end of calendar year of benefit.
Max says the wife is the one who broke up the marriage, but he couldn‘t talk about it because of no-fault
divorce rule. Max says H read in ―Medical Economics‖ about a guy who got his medical degree in the Carribean.
This guy had taken the medical board in the U.S. but had not yet received the result. He divorced. Trial judge said
he would pass and earn $1mm. W awarded $250k in alimony. Dr. Sullivan said to settle quickly. But he wanted to
know what the Court would say. So Max comes up with the idea that they settle for differing payments based on
decision; then a judicial determination would not be moot. Then they can settle and the SC will still issue a ruling.
So Max sends the SC a letter and they never respond.
In addition to providing for reimbursement, the amendments require the court to consider, in awarding
spousal support, ―the extent to which the supported spouse contributed to the attainment of an education,
training, or a license by the other spouse‖ [Family Code § 4320(b)]. Max says that based on Watt, W got
higher amount of support due to her contribution to education. In Watt, she argued for living expenses, but did
not get them b/c those costs would be incurred no matter what. Max asks: what about child care expenses?
Suppose they live in a rural area and they live next to parents who take care of kid while he goes to school and
she goes to work. If they then move to LA cause he is going to USC, so they have higher expenses all around:
Living, rent, child care, etc. Are those expenses which are due to education? Gray area: no decisions on this
point. Special living expenses could be reimbursed under Watt.
Open Question: Does tuition credit in lieu of direct payments count? No decisions. So, if you work in the library
to cover your tuititon, no rule on whether it counts toward CP. Also, can be any kind of training, even watch repair
(Per Max 1/13/2005).
K. Valuation of an Asset
1. Date of:
a. §2552: For purposes of dividing property at dissolution, the date of valuation of an asset shall be
as near as
practicable to the time of trial. However, a party may ask for an earlier date so long as he/she
gives notice.
1. Notice (says case law) includes:
(a) A Notice Motion, AND
(b) A Declaration of Good Cause.
Good Cause
Often involves a showing a bad faith actions by the other party
E.g.: Doc expects the Ct to award a large amount of spousal support to W at dissolution
proceedings so he
starts working only part time before trial to lower his income. W files a declaration saying H
is trying to
lower the support award by reducing his income before trial. Ct will likely allow an earlier
date for valuing
H‘s income.
b. Small Partnership: Green—Where a party is a partner in a small partnership that depends solely
on the efforts
of that party, the dater of valuation of the partnership is as the date of separation and NOT the date
of trial (this is cuz efforts by a spouse AFTER separation are SP)
2. Interest and Taxes
L. Date of Separation
This occurs when either of the parties does not intend to resume the marriage and his or her actions
suggest the finality of the marital relationship (Hardin). All factors are to be considered. None are
determinative. Threshold requirement of living separate and apart. ―Separate and apart‖ is not possible
under the same roof unless clear and unambiguous proof. (Norviel).
Note: This requires subjective intent that is objectively determined from all evidence of words and actions
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i. Baragry: On Aug 4, 1971, H moved out of home and into apartment with his girlfriend. For the next
four years, he
would maintain continuous and frequent contacts with his kids who lived with his wife. He, at
times, took W to social occasions. He paid all household bills and regularly brought his laundry to
W. He did not, however, have sexual relations with W and lived with his girlfriend the entire
time. W appeals the trial court‘s finding that the parties separated on Aug 4, 1971 and argues
instead that it should be Oct 14, 1975 (date H filed for dissolution).
Analysis: Ct says that the fact that H and W lived in separate residences is not determinative. The only
evidence that
there was a complete and final break in the marital relationship was the absence of an active
sexual relationship and H‘s cohabitation elsewhere with a girlfriend.
Conclusion: Date of separation (somehow) is Oct 14, 1975
Chapter 4. Separate Property And Interspousal Agreements Excluding Property
From The System
I. Generally-The Separate Property Of Each Spouse Is Not Subject To The
Community Property System
§ 4:5 Earnings after separation--The intent no longer to be married
In Loring v. Stuart, FN1 the task before the court was to determine whether or not the funds with which a wife
executed a mortgage were her separate property. In order to find that the wife's earnings were her separate property,
the court first found that the couple was living separate and apart. The husband testified that when he left his wife
and family, the possibility of reconciliation existed. However, apparently six months before giving the testimony,
the husband determined that the marital differences were irreconcilable. This determination occurred after the wife
had executed the mortgage. Based on the husband's testimony, the court held, inter alia, that the couple was living
separate and apart when the wife earned the money with which to execute the mortgage. The court left open the
question of precisely when living separate and apart actually commences.
Loring suggests that a marriage is "over" if one spouse is firmly convinced that the marriage cannot be saved
even though the other may still be hoping for reconciliation. FN2 Retrospectively, the court may decide there really
was no basis for such hope in view of the other spouse's final decision.
When persons file for dissolution but continue cohabitation, they may have destroyed the "appearance" of
marriage. In other words, they may be able to live "separate and apart" [Family Code § 771] in the same house! De
facto separation is a question of intent. FN3 The court found a de facto separation even when husband and wife
continued to live in the same house in Popescu v. Popescu, FN4 where the wife refused to speak to her husband and
locked herself in various rooms of the house. FN5
Where the date of separation becomes an issue in litigation, the court is not bound by a proposed interspousal or
marital settlement agreement, but is duty bound to consider all the relevant evidence. FN6
In In re Marriage of Peters, FN7 the Third District held that, where the date of separation is disputed, the
burden of proof on the proponent is the preponderance of evidence standard, rather than clear and convincing
evidence standard, under Evidence Code § 115. Citing von der Nuell, the Court also affirmed that the expressed
intent of one of the parties is not conclusive. Evidence of the conduct of both parties is essential.
ii. Makeig: 1/20/2005 Where H and W lived separately for 14 years until H‘s death, the court found there
was never a separation
since there was no evidence intent not to be married or any marital discord. The parties had been
saving up to buy a house in which they would live together. They simply never saved up enough.
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Chapter 4. Separate Property And Interspousal Agreements Excluding Property
From The System
I. Generally-The Separate Property Of Each Spouse Is Not Subject To The
Community Property System
§ 4:3 Earnings after separation
Makeig v. United Security Bank & Trust Co.
Plaintiff and his deceased wife were married at Bakersfield in 1914, and were never divorced. The wife died in
1928, leaving a will bequeathing the sum of $10 to her husband and the bulk of her estate to her brother. At the time
of her death a savings account in her name contained the sum of $10,000. The court found the account was
community property of the husband and his deceased wife, and gave judgment for him on his right to receive his
intestate share. FN2
In the period of fourteen and one-half years between the marriage of the parties and the wife's death, they lived
together for a period of about six weeks immediately following the marriage. Then by agreement, the wife returned
to San Francisco and to her work. Three years later, she visited for a week in El Paso; but since the husband did not
have a steady job and had been moving from place to place working as a barber three or four weeks in a place, the
wife again returned to San Francisco. In December 1917, the husband came to San Francisco and lived in one hotel
while his wife lived in another. Thereafter, the husband lived in Bay Point. All of this time his wife continued to live
in San Francisco. She never lived with him at Bay Point, but during that time the record discloses the parties visited
back and forth, the husband sometimes meeting her in San Francisco, and several times she visited him at Bay Point
over weekends, occupying the same room. In Bay Point, the husband introduced her as his wife.
The marriage status of the two was practically secret, except to three of the husband's friends at Bay Point. The
wife's closest friends did not know of it. The husband even addressed all his letters to her under her maiden name.
The husband's explanation of their status was that his wife liked San Francisco and they were trying to get money
together for a home.
The primary issue in the case was briefly this: Was the money deposited in the account at the time of the wife's
death community property, or was it separate property as the earnings and accumulations of the wife while living
separate and apart from her husband within the meaning of Family Code § 771? In deciding that the bank accounts
were community property the Court of Appeal defined "living separate and apart":
[T]he words "... living separate and apart from her husband" do not mean a temporary absence of the wife.
There must have been an abandonment on the part of the husband or wife, or a separation which was intended
to be final.
Living separate and apart ... as contemplated by the [Family Code § 771] does not apply to a case where a
man and wife are residing temporarily in different places due to economic or social reasons, but applies to a
condition where the spouses have come to a parting of the ways and have no present intention of resuming the
marital relations and taking up life together under the same roof. Under modern conditions there is many a man
living and working in one place and his wife living and working in another, seeing one another only on
weekends, sometimes not for months at a time, yet they are not living separate and apart within the meaning of
the section, for there has been no marital rupture, and there is a present intention to live together as man and
wife, and their status is only temporary, although it may happen that the condition might exist for some years.
***
What we have above set forth seems to support the inference that there had been no final rupture of the
marital relationship. The parties to the marriage were and always had been quite friendly; and while, perhaps,
the case is unique in the long and persistent separation of the spouses so far as their actual abode is concerned,
such living apart seems to have been regarded by them as temporary and with the idea of ultimately establishing
a common home. The positive testimony of the husband was that up to that time it had been their mutual desire
as soon as convenient to resume common habitation. ...
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iii. Kerr: H was a bit nutty. At one point he thought the authorities were coming to take him to a nuthouse
so he ran off to Arizona for a year. When he returned, W refused to take him back. At dissolution proceedings, the
court said the parties had not been separated for that year cuz H ran away from the authorities; not from W, so there
was no intent. Not result of marital rift; separation was result of his nuttiness. So, no real separation per the § until
he returned home and she told him to take a powder.
iv. Hardin: After a big argument in 1969, H walked out on W. They two, however, continued there
economic relationship, saw each other often and communicated regularly for the next 14 years. Only then did they
file for dissolution. Trial Ct found the date of separation to be in 1969. W appeals saying it wasn‘t until 1983 when
H filed for dissolution. Analysis: The date of separation is when either party perceives a rift in the relationship as
final. The H‘s and W‘s subjective intents are to be objectively determined from their words and actions. Here, the
Trial Ct relied on insufficient evidence to ascertain what was the subjective intent of the parties. Conclusion:
Remanded for Trial Ct to consider ALL the evidence to make a determination of date of separation Held – final
break occurs when either or both of the parties does not intend to resume the marriage and his or her actions
bespeak the finality of the marital relationship
v. Norviel: Husband and wife sleep in separate beds. Husband tells wife he wants divorce but takes
several months to move out and separate his finances. He moves into a new house purchased in joint tenancy with
CP funds. Court finds test for separation:
(1) At least one spouse has subjective intent to end the marriage; AND
(2) There is objective evidence of conduct furthering that intent
(a) This prong requires evidence of a complete and final beak up.
(b) There can be no date of separation until this prong is accomplished
(c) Living apart physically is a threshold requirement to separation, whether or not it is
sufficient by itself to establish separation
(d) It is theoretically possible to live apart in the same dwelling, but such would require clear and
unambiguous proof.
The Sixth District Court of Appeal in In re Marriage of Norviel, FN8 held that spouses are not "living separate
and apart" within the meaning of the statute governing the designation of property as "separate" or "community"
unless they reside in different places. This typically requires each spouse to take up residence at a difference
address. Thus, a husband and wife who lived in the same house after the husband announced his decision to end the
marriage, were not separated as of that time, even though they slept in separate bedrooms. To show that spouses are
living apart physically while still occupying the same dwelling, the evidence must demonstrate unambiguous,
objectively ascertainable conduct amounting to a physical separation under the same roof.
The facts in Norviel are peculiar. The couple had experienced marital problems for several years prior to the
husband's telling his wife at the family's regular Sunday night dinner that "[t]his was the end of the marriage" and he
intended to file for dissolution. This was on June 28, 1998. The husband said he would move out of the home and
into a rental property they were in the process of buying as soon as the property was ready for occupancy. During
the two months between the announcement and the move, August 15, 1998, the couple continued to live in the house
as "roommates," in the husband's words. But they also maintained a semblance of a family relationship, ate together
on occasion, planned a family vacation, kept their finances jointly until September, 1998, and, finally, closed escrow
on the rental house by taking title in joint tenancy form as husband and wife. They neither slept together nor
discussed reconciliation. In fact, shortly after the announcement, the husband sent flowers to his wife for their
fifteenth wedding anniversary. The husband actually filed for dissolution at the end of the two month interim period.
In the time between the husband's announcement and his move out of the home and filing, the husband earned
stock options "worth a considerable sum." This case is solely an appeal from a trial court decision for the husband
setting the date of separation at the time of the husband's announcement of his intention. Relying on the "total
circumstances" rule, explained particularly in In re Marriage of Hardin FN9 and In re Marriage of von der Nuell,
FN10 that is, the two factors that must combine at once for separation, namely: 1) at least one spouse must entertain
the subjective intent to end the marriage; and 2) there must be objective evidence of conduct furthering that intent,
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the Sixth District reversed. Where evidence of conduct is not clear and convincing, the appellate decision
favored the continuation of the marriage until such time as the husband actually moved out of the home.
M. Putative Spouses (Spice?)
1. § 2251: If either or both spouses believed in good faith that their ‗marriage‘ was valid and it turns out it
is void or
voidable, the party(s) shall be putative spouse and the property will get divided as though they
were actually married.
2. § 2252: Debt liability for putative spouses is the same as regular spouses.
Thursday, March 03, 2005
Old rule of divorce in California was for an interlocutory judgment; had to follow up to finalize. ―Cooling off‖
period. But that has since been repealed and now divorces are final. Most other states still have the interlocutory
system. Usually there was a restraining order against future marriage for a certain period of time in that state.
Interlocutory means you now have to wait at least 6 months from date of service. You serve. They get 30 days to
respond. If they default, you get a judgment but it‘s not valid until 6 months. But you don‘t have to enter a request
for a final decree.
3. Monti Rule: Where a divorced spouse continues to live with her/his ex-spouse with a good faith belief
in the
continued validity of their legal marriage in ignorance of a divorce degree, he/she is a putative
spouse
Monti: H and W got an interlocutory degree in OH which ‗entitled‘ them to file for divorce. They
changed
their minds but W‘s attorney filed anyway unbeknownst to W. (Somehow H found out
along the way). They moved to CA and had a kid. A few years later they separated and
W learned that they had already been divorced. She sued to get some of the property
arguing she was a putative spouse.
Analysis: The essence of the putative spouse doctrine is the good faith belief of a valid marriage.
There should be no requirement that there be a void or voidable marriage.
In re Marriage of Monti
Shirley and Clifford Monti were divorced in 1959 in the Ohio Court of Common Pleas.
Afterwards, they reconciled and moved to California. In San Francisco, they established and
operated a business together in their home. In 1963, one child was born to them. In 1981 they
separated and Shirley filed for dissolution of the marriage. Shirley alleged that she "truly believed"
they were still married, because Clifford had told her that the Ohio divorce would not become
final unless he made a personal appearance in court. This advice was wrong. In spite of the fact
that the couple did not remarry after the Ohio divorce had become final in July of 1959, the Court
of Appeal accorded Shirley the status of a putative spouse:
The Family Law Act codified already existing law regarding the status and property
rights of the putative spouse. "The sections pertaining to void marriage are largely declaratory
of existing law and are not intended to work significant substantive changes." (4 Assem.J., p.
8060; see also Luther & Luther, Support and Property Rights of the Putative Spouse, 24
Hastings L.J. 311, 317 (1973).)
Thus, § 4452 [Family Code § 2251] merely codifies the substantive law existing before
1969 defining a putative spouse. Before that time, it was well-settled that the essential basis of
a putative marriage was a belief in the existence of a valid marriage. (Vallera v. Vallera, 21
Cal.2d 681, 684, 134 P.2d 761 (1943); Estate of Edgett, 111 Cal.App.3d 230, 233, 168
Cal.Rptr. 686 (1980); Sancha v. Arnold, 114 Cal.App.2d 772, 777, 251 P.2d 67, 252 P.2d 55
(1952); Estate of Foy, 109 Cal.App.2d 329, 331-332, 240 P.2d 685 (1952).)
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Although this principle is usually applied in situations where a ceremonial marriage
becomes void or voidable, case law before 1969 applied the principle in situations similar to
the case at bar. In Feig v. Bank of Italy etc. Assn., 218 Cal. 54, 21 P.2d 421 (1933), aff'd 5
Cal.2d 266, 54 P.2d 3 (1936), petitioner continued to live with his "wife" in absolute
ignorance of the existence of the divorce proceeding and decree. The court stated that he was
entitled to an equitable apportionment of gains resulting from their joint efforts if he "in good
faith believed himself at all times to be the lawful husband of the decedent ..." (Feig v. Bank
of Italy etc. Assn., supra, 218 Cal. at p. 58, 21 P.2d 421.)
This case potentially presents a situation almost identical to those in Feig ... Shirley
alleged the following facts: In 1959 Clifford and Shirley reconciled on his birthday. Clifford
told her that the pending divorce would not become final unless he appeared in court. Relying
on his statement, she believed that a second marriage ceremony was unnecessary because she
was still his lawful wife. Meanwhile her attorney entered a final divorce decree without her
knowledge. She believed that a valid marriage existed until she found out otherwise in 1981.
Clearly, Shirley has alleged sufficient facts to form the essential basis of a putative
marriage. In keeping with the Legislature's intent, the Family Law Act, specifically § 4452
[Family Code § 2251], must be interpreted to include as a putative spouse a divorced spouse
who continues to live with the ex-spouse in ignorance of the final divorce decree and with a
good faith belief in the continuing validity of the marriage.
4. Vyronis Rule: The ―good faith belief‖ that a marriage was valid must be objectively reasonable.
ii. Vyronis: Silly Persian chick with a PhD and two kids moved to CA and met some dude she
wanted to bang.
She was a strict Muslim so fornication was a big sin. She performed some ridiculous
―Muta‖ ceremony that is supposed to be sufficient for marriage in Iran. However, the
two of them did nothing at all that made them seem like H and W other than jump each
others‘ bones from time to time. When ‗H‘ told ‗W‘ he was going to marry some other
chick, ‗W‘ got pissed off cuz her convenient access to sex was about to cut off.
Analysis: While there need only be a ‗good faith‘ belief that a void/voidable marriage was valid
for a party to be
considered a putative spouse, that ‗good faith‘ belief must be objectively reasonable. It
was just too ridiculous for this chick to believe this Muta shit was legit.
Conclusion: Sorry…but ‗W‘ is no putative spouse
5. Marvin Rule: Where there is a live-in arrangement that is cut off, the court will uphold the agreement
to the extent it
does not involve straight-up prostitution.
iii. Marvin: Rich dude meets a bimbo in a strip club or something and moves her in with him.
She says they
made an agreement that she would take care of him and he would ―provide for her for the
rest of her life.‖ He apparently found someone younger or something cuz he kicked her
out. She sued to get ½ of the one million bucks he pulled in while the two of them were
together.
Analysis: This IS NOT a CP case cuz there was no marriage. This IS NOT even a quasi-CP case
cuz it requires
that at least one party have a good faith belief that there was a marriage. This is a
contract case. Live-in arrangements are very common today so these agreement should
be enforced to the extent they don‘t involve straight-up prostitution. The demurrer is
overruled and this case should go to trial.
Conclusion: At trial, the court found no agreement, express or implied but awarded the bimbo
―rehabilitation‖
money. Her attorney appealed to get special attorney‘s fees and the appellate court
reversed, dropping even the rehab award.
N. Quasi-Community Property
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2/17/2005 Max says: compare Family Code § 125 and Probate Code § 66. Under the PC, if a spouse dies, the PC
only addresses the QCP acquired by a decedent. In § 125, there is not distinction between acquired by decedent or
surviving spouse.
Marvin v. Marvin FN5
Meretricous - guilty knowledge.
Lee Marvin and Michele Triola lived together for seven years. On separation, Michele Triola asked for a
division of the property acquired in Lee Marvin's name during that time as well as future support. She said that in
October of 1964 she and defendant "entered into an oral agreement" that while "the parties lived together they would
combine their efforts and earnings and would share equally any and all property accumulated as a result of their
efforts whether individual or combined." Furthermore, they agreed to "hold themselves out to the general public as
husband and wife" and that "plaintiff would further render her services as a companion, homemaker, housekeeper
and cook to ... defendant." Shortly thereafter she agreed to "give up her lucrative career as an entertainer [and]
singer" in order to "devote her full time to defendant ... as a companion, homemaker, housekeeper and cook"; in
return defendant agreed to "provide for all of plaintiff's financial support and needs for the rest of her life."
Michele Triola lived with Lee Marvin from October of 1964 through May of 1970 and fulfilled her obligations
under the alleged agreement. During this period the parties, as a result of their efforts and earnings, acquired in
defendant's name substantial real and personal property, including motion picture rights worth over $1 million. In
May of 1970, Lee compelled Michele to leave his household. He continued to support her until November of 1971,
but thereafter refused to provide further support. The Supreme Court held she had made out a cause of action in
contract:
In Trutalli v. Meraviglia, 215 Cal. 698, 12 P.2d 430 (1932) we established the principle that nonmarital
partners may lawfully contract concerning the ownership of property acquired during the relationship. We
reaffirmed this principle in Vallera v. Vallera, 21 Cal.2d 681, 685, 134 P.2d 761 (1943), stating that "If a man
and woman [who are not married] live together as husband and wife under an agreement to pool their earnings
and share equally in their joint accumulations, equity will protect the interests of each in such property." ...
Defendant first and principally relies on the contention that the alleged contract is so closely related to the
supposed "immoral" character of the relationship between plaintiff and himself that the enforcement of the
contract would violate public policy. He points to cases asserting that a contract between nonmarital partners is
unenforceable if it is "involved in" an illicit relationship (see Shaw v. Shaw, 227 Cal.App.2d 159, 164, 38
Cal.Rptr. 520 (1964) (dictum); Garcia v. Venegas, 106 Cal.App.2d 364, 368, 235 P.2d 89 (1951) (dictum)), or
made in "contemplation" of such a relationship (Hill v. Estate of Westbrook, 95 Cal.App.2d 599, 602, 213 P.2d
727 (1950); see Hill v. Estate of Westbrook, 39 Cal.2d 458, 460, 247 P.2d 19 (1952); Barlow v. Collins, 166
Cal.App.2d 274, 277, 333 P.2d 64 (1958) (dictum); Bridges v. Bridges, 125 Cal.App.2d 359, 362, 270 P.2d 69
(1954) (dictum)). A review of the numerous California decisions concerning contracts between nonmarital
partners, however, reveals that the courts have not employed such broad and uncertain standards to strike down
contracts. The decisions instead disclose a narrower and more precise standard; a contract between nonmarital
partners is unenforceable only to the extent that it explicitly rests upon the immoral and illicit consideration of
meretricious sexual services.
Although the past decisions hover over the issue in the somewhat wispy form of the figures of a Chagall
painting, we can abstract from those decisions a clear and simple rule. The fact that a man and woman live
together without marriage, and engage in a sexual relationship, does not in itself invalidate agreements between
them relating to their earnings, property, or expenses. Neither is such an agreement invalid merely because the
parties may have contemplated the creation or continuation of a nonmarital relationship when they entered into
it. Agreements between nonmarital partners fail only to the extent that they rest upon a consideration of
meretricious sexual services. Thus the rule asserted by defendant, that a contract fails if it is "involved in" or
made "in contemplation" of a nonmarital relationship, cannot be reconciled with the decisions ...
The principle that a contract between nonmarital partners will be enforced unless expressly and inseparably
based upon an illicit consideration of sexual services not only represents the distillation of the decisional law,
but also offers a far more precise and workable standard than that advocated by defendant.
... [I]n the present case a standard which inquires whether an agreement is "involved" in or "contemplates"
a nonmarital relationship is vague and unworkable. Virtually all agreements between nonmarital partners can be
said to be "involved" in some sense in the fact of their mutual sexual relationship, or to "contemplate" the
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existence of that relationship. Thus defendant's proposed standards, if taken literally, might invalidate all
agreements between nonmarital partners, a result no one favors. Moreover, those standards offer no basis to
distinguish between valid and invalid agreements. By looking not to such uncertain tests, but only to the
consideration underlying the agreement, we provide the parties and the courts with a practical guide to
determine when an agreement between nonmarital partners should be enforced. ...
In summary, we base our opinion on the principle that adults who voluntarily live together and engage in
sexual relations are nonetheless as competent as any other persons to contract respecting their earnings and
property rights. Of course, they cannot lawfully contract to pay for the performance of sexual services, for such
a contract is, in essence, an agreement for prostitution and unlawful for that reason. But they may agree to pool
their earnings and to hold all property acquired during the relationship in accord with the law governing
community property; conversely they may agree that each partner's earnings and the property acquired from
those earnings remains the separate property of the earning partner. So long as the agreement does not rest upon
illicit meretricious consideration, the parties may order their economic affairs as they choose, and no policy
precludes the courts from enforcing such agreements.
In the present instance, plaintiff alleges that the parties agreed to pool their earnings, that they contracted to
share equally in all property acquired, and that defendant agreed to support plaintiff. The terms of the contract
as alleged do not rest upon any unlawful consideration. We therefore conclude that the complaint furnishes a
suitable basis upon which the trial court can render declaratory relief.
Plaintiff's complaint can be amended to state a cause of action founded upon theories of implied contract or
equitable relief.
As we have noted, both causes of action in plaintiff's complaint allege an express contract; neither assert
any basis for relief independent from the contract. In In re Marriage of Cary, supra, 34 Cal.App.3d 345,
however, the Court of Appeal held that, in view of the policy of the Family Law Act, property accumulated by
nonmarital partners in an actual family relationship should be divided equally. Upon examining the Cary
opinion, the parties to the present case realized that plaintiff's alleged relationship with defendant might
arguably support a cause of action independent of any express contract between the parties. The parties have
therefore briefed and discussed the issue of the property rights of a nonmarital partner in the absence of
an express contract. Although our conclusion that plaintiff's complaint states a cause of action based on an
express contract alone compels us to reverse the judgment for defendant, resolution of the Cary issue will serve
both to guide the parties upon retrial and to resolve a conflict presently manifest in published Court of Appeal
decisions.
Both plaintiff and defendant stand in broad agreement that the law should be fashioned to carry out the
reasonable expectations of the parties. Plaintiff, however, presents the following contentions: that the decisions
prior to Cary rest upon implicit and erroneous notions of punishing a party for his or her guilt in entering into a
nonmarital relationship, that such decisions result in an inequitable distribution of property accumulated during
the relationship, and that Cary correctly held that the enactment of the Family Law Act in 1970 overturned
those prior decisions. Defendant in response maintains that the prior decisions merely applied common law
principles of contract and property to persons who have deliberately elected to remain outside the bounds of the
community property system. Cary, defendant contends, erred in holding that the Family Law Act vitiated the
force of the prior precedents.
As we shall see from examination of the pre-Cary decisions, the truth lies somewhere between the positions
of plaintiff and defendant. The classic opinion on this subject is Vallera v. Vallera, supra, 21 Cal.2d 681.
Speaking for a four-member majority, Justice Traynor posed the question: "whether a woman living with a man
as his wife but with no genuine belief that she is legally married to him acquires by reason of cohabitation alone
the rights of a co-tenant in his earnings and accumulations during the period of their relationship." (21 Cal.2d at
p. 684.) Citing Flanagan v. Capital Nat. Bank, 213 Cal. 664, 3 P.2d 307 (1931), which held that a nonmarital
"wife" could not claim that her husband's estate was community property, the majority answered that question
"in the negative." (pp. 684 to 685.) Vallera explains that "Equitable considerations arising from the reasonable
expectation of the continuation of benefits attending the status of marriage entered into in good faith are not
present in such a case." (p. 685.)
The majority opinion in Vallera did not expressly bar recovery based upon an implied contract, nor
preclude resort to equitable remedies. But Vallera's broad assertion that equitable considerations "are
not present" in the case of a nonmarital relationship (21 Cal.2d at p. 685) led the Court of Appeal to
interpret the language to preclude recovery based on such theories. (See Lazzarevich v. Lazzarevich, 88
Cal.App.2d 708, 719, 200 P.2d 49 (1948); Oakley v. Oakley, 82 Cal.App.2d 188, 191-192, 185 P.2d 848
(1947).)
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Consequently, when the issue of the rights of a nonmarital partner reached this court in Keene v. Keene, 57
Cal.2d 657, 21 Cal.Rptr. 593, 371 P.2d 329 (1962), the claimant forwent reliance upon theories of contract
implied in law or fact. Asserting that she had worked on her partner's ranch and that her labor had enhanced its
value, she confined her cause of action to the claim that the court should impress a resulting trust on the
property derived from the sale of the ranch. The court limited its opinion accordingly, rejecting her argument on
the ground that the rendition of services gives rise to a resulting trust only when the services aid in acquisition
of the property, not in its subsequent improvement. (57 Cal.2d at p. 668.) Justice Peters dissenting, attacked the
majority's distinction between the rendition of services and the contribution of funds or property; he maintained
that both property and services furnished valuable consideration, and potentially afforded the ground for a
resulting trust.
This failure of the courts to recognize an action by a nonmarital partner based upon implied contract, or to
grant an equitable remedy, contrasts with the judicial treatment of the putative spouse. Prior to the enactment of
the Family Law Act, no statute granted rights to a putative spouse. The courts accordingly fashioned a variety of
remedies by judicial decision. Some cases permitted the putative spouse to recover half the property on a theory
that the conduct of the parties implied an agreement of partnership or joint venture. (See Estate of Vargas, 36
Cal.App.3d 714, 717-718, 111 Cal.Rptr. 779 (1974); Sousa v. Freitas, 10 Cal.App.3d 660, 666, 89 Cal.Rptr.
485 (1970).) Others permitted the spouse to recover the reasonable value of rendered services, less the value of
support received. (See Sanguinetti v. Sanguinetti, 9 Cal.2d 95, 100-102, 69 P.2d 845, 111 A.L.R. 342 (1937).)
Finally, decisions affirmed the power of a court to employ equitable principles to achieve a fair division of
property acquired during putative marriage. (Coats v. Coats, 160 Cal. 671, 677-678, 118 P. 441 (1911);
Caldwell v. Odisio, 142 Cal.App.2d 732, 735, 299 P.2d 14 (1956).)
Thus in summary, the cases prior to Cary exhibited a schizophrenic inconsistency. By enforcing an express
contract between nonmarital partners unless it rested upon an unlawful consideration, the courts applied a
common law principle as to contracts. Yet the courts disregarded the common law principle that holds that
implied contracts can arise from the conduct of the parties. Refusing to enforce such contracts, the courts spoke
of leaving the parties "in the position in which they had placed themselves" (Oakley v. Oakley, supra, 82
Cal.App.2d 188, 192), just as if they were guilty parties in pari delicto.
Justice Curtis noted this inconsistency in his dissenting opinion in Vallera, pointing out that "if an express
agreement will be enforced, there is no legal or just reason why an implied agreement to share the property
cannot be enforced." (21 Cal.2d 681, 686.)
Still another inconsistency in the prior cases arises from their treatment of property accumulated through
joint effort. To the extent that a partner had contributed funds or property, the cases held that the partner obtains
a proportionate share in the acquisition, despite the lack of legal standing of the relationship. (Vallera v.
Vallera, supra, 21 Cal.2d at p. 685 supra; see Weak v. Weak, supra, 202 Cal.App.2d 632, 639.) Yet courts have
refused to recognize just such an interest based upon the contribution of services. As Justice Curtis points out,
"Unless it can be argued that a woman's services as cook, housekeeper, and homemaker are valueless, it would
seem logical that if, when she contributes money to the purchase of property, her interest will be protected, then
when she contributes her services in the home, her interest in property accumulated should be protected."
(Vallera v. Vallera, supra, 21 Cal.2d 681, 686-687) ...
The principal reason why the pre-Cary decisions result in an unfair distribution of property inheres in the
court's refusal to permit a nonmarital partner to assert rights based upon accepted principles of implied contract
or equity. We have examined the reasons advanced to justify this denial of relief, and find that none have merit.
First, we note that the cases denying relief do not rest their refusal upon any theory of "punishing" a
"guilty" partner. Indeed, to the extent that denial of relief "punishes" one partner, it necessarily rewards the
other by permitting him to retain a disproportionate amount of the property. Concepts of "guilt" thus cannot
justify an unequal division of property between two equally "guilty" persons.
The argument that granting remedies to the nonmarital partners would discourage marriage must fail; as
Cary pointed out, "with equal or greater force the point might be made that the pre-1970 rule was calculated to
cause the income-producing partner to avoid marriage and thus retain the benefit of all of his or her
accumulated earnings." (34 Cal.App.3d at p. 353.) Although we recognize the well-established public policy to
foster and promote the institution of marriage (see Deyoe v. Superior Court, 140 Cal. 476, 482, 74 P. 28
(1903)), perpetuation of judicial rules which result in an inequitable distribution of property accumulated during
a nonmarital relationship is neither a just nor an effective way of carrying out that policy.
We conclude that the judicial barriers that may stand in the way of a policy based upon the fulfillment of
the reasonable expectations of the parties to a nonmarital relationship should be removed. As we have
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explained, the courts now hold that express agreements will be enforced unless they rest on an unlawful
meretricious consideration. We add that in the absence of an express agreement, the courts may look to a variety
of other remedies in order to protect the parties' lawful expectations.
The courts may inquire into the conduct of the parties to determine whether that conduct demonstrates an
implied contract or implied agreement of partnership or joint venture (see Estate of Thornton, 81 Wn.2d 72, 499
P.2d 864 (1972)), or some other tacit understanding between the parties. The courts may, when appropriate,
employ principles of constructive trust (see Omer v. Omer, 11 Wash.App. 386, 523 P.2d 957 (1974)) or
resulting trust (see Hyman v. Hyman, 275 S.W.2d 149 (Tex.Civ.App.1954)). Finally, a nonmarital partner may
recover in quantum meruit for the reasonable value of household services rendered less the reasonable value of
support received if he can show that he rendered services with the expectation of monetary reward. (See Hill v.
Estate of Westbrook, supra, 39 Cal.2d 458, 462.)
Since we have determined that plaintiff's complaint states a cause of action for breach of an express
contract, and, as we have explained, can be amended to state a cause of action independent of allegations of
express contract, we must conclude that the trial court erred in granting defendant (Marvin) a judgment on the
pleadings.
Max says: this is not a CP case; it‘s a K‘s case.
§ 2:21 The broad sweep of Marvin
Marvin v. Marvin, FN1 rejected the rationale of In re Marriage of Cary, FN2 that property
rights may accrue to a person on the basis of the relationship alone so long as it appears to be a
family-type union. To this extent, the court agreed with Beckman v. Mayhew. FN3 On the other
hand, the court accepted Cary's result and rejected that of Beckman. In so doing, the court took
cohabiting persons out of the Family Law Act and put them directly before the civil courts with
the full panoply of individual contract and equitable rights and defenses. Marvin is, thus, strictly
a contract case.
By the introduction of equity into litigation between cohabiting partners, the issue of fault, not
admissible in dissolution, legal separation, or nullity proceedings, may be introduced, along with
standard overreaching, unconscionability, unclean hands, estoppel, laches, and waiver types of
equity arguments.
Moreover, a quantum meruit remedy enables a cohabiting partner to use the remedy of
reimbursement for services rendered. Compensation for services, discounted by benefits received,
puts a cohabiting partner in a different position than a married person. Certainly, in the law today,
a legal spouse cannot be reimbursed for domestic services rendered. FN4
An implied agreement or remedy based upon the principles of quasi-contract may be shown
by evidence and enforced in property division between cohabiting parties. Between married
persons, however, the only agreements having property or contract validity must be express and in
writing [Family Code § § 852, 1611].
Finally, Marvin is completely silent about the duties and responsibilities cohabiting parties
have towards each other, such as would apply to married persons, as good faith dealing [Family
Code § § 721, 1100(e)], mutual support [Family Code § § 3900, 4302], debt liability [Family
Code § § 900 et seq.]. Clearly no agreement between cohabiting parties can create community
property or any other legal relationship similar to marriage.
Max Says: does § 2251 apply to putative spouses? Quasi marital would have been QCP if the marriage had been
valid. See p 74, fn 18. It‘s an open issue. Max says that her expectations should not be frustrated; so if they allow
her to take half that would probably be the way the Court would rule; but since it wasn‘t at issue; there was no
official ruling on that point. See fn 11 on p 69; many reasons to co-habitate. So, no reason to assume that the law
should not apply.
§ 2200 Incestuous Marriages
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§ 2201 Bigamous and Polygamous Marriages
§ 2210 Grounds for Nullity
2200. Incestuous marriages
Marriages between parents and children, ancestors and descendants of every
degree, and between brothers and sisters of the half as well as the whole blood,
and between uncles and nieces or aunts and nephews, are incestuous, and void from
the beginning, whether the relationship is legitimate or illegitimate. (Stats.1992,
c. 162 (A.B. 2650), ¤ 10, operative Jan. 1, 1994.)
2201. Bigamous and polygamous marriages; exceptions; absentees
(a) A
subsequent marriage contracted by a person during the life of a former husband or
wife of the person, with a person other than the former husband or wife, is illegal
and void from the beginning, unless:
(1) The former marriage has been dissolved or adjudged a nullity before the
date of the subsequent marriage.
(2) The former husband or wife (i) is absent, and not known to the person to
be living for the period of five successive years immediately preceding the
subsequent marriage, or (ii) is generally reputed or believed by the person to be
dead at the time the subsequent marriage was contracted.
(b) In either of the cases described in paragraph (2) of subdivision (a),
the subsequent marriage is valid until its nullity is adjudged pursuant to
subdivision lb) of Section 2210.
(Stats.1992, c. 162 (A.B. 2650), ¤ 10, operative Jan. 1, 1994.)
2210. Annulment, causes for
Max says Tennyson poem about Enuch Arden.
CHECK NOTES: WHO CAN MOVE FOR NULLITY?
WHEN CAN YOU HAVE TWO LEGAL SPOUSES?
Fraud: majority says it must be vital to the relationship or to the essentials of the marriage.
Essentials of the marriage: very few cases; cohabitation; intention to have reasonable sex; to have children. These
are the 3 essentials of marriage.
Minority view: misrep of a material fact (doesn‘t have to be vital to the marriage).
Barnes: former life as a hooker was not vital to the marriage; no nullity granted
Foy: woman had a bastard child. She told new guy it was a legitmate child. He sued for annullment and it was
denied as not vital.
Misrepresentation as to social or financial position are NOT sufficient for annullment.
Even minority view is that lying about this shit is not fraud.
Hardesty: guy married woman who was pregnant by another guy; he didn‘t know she was pregnant. Annullment
granted on basis that when she impliedly said she would have kids, there was 6 months that she couldn‘t since she
was already 3 montsh pregnant.
Aufor: woman could not have kids. She had a duty to speak. Annullment granted; ti was fraud.
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Millard: intent not to have intercourse
Maslow: intent not to have children
Douglas: H guilty of 2nd Degree murder; paroled. Condition of parol: don‘t violate any state laws. He violated a
law. If the authorities knew he would have parole revoked. He marries. Then the authorities find out about the
violation and send him back to jail. She sues for fraud and it‘s granted and court said that he should have known he
violated parole and therefore might go back to jail and could not co-hatibate which is an essential of marriage.
Refusal to go through a religious ceremony: she sues for annullment and she shows she is still a virgin. Court said
that the ceremony was obviously important b/c marriage never consummated; so annulment granted.
Lamberti: civil ceremony so he could tell immigration that he was married. She introdcued evidence of her
virginity and court granted fraud nullity.
Duress: marriage by force. Arkansas case: man shows up at another guy‘s place with a shotgun at 2AM. Takes
guy with him. Guy wakes up minister and they force him to marry. Annullment granted; if no wedding there would
have been a funeral.
What if woman says marry me or I‘ll cry rape? So he marries her then sues for annullment. Is that duress.
Majority: if threat was without good cause (he didn‘t rape her) then he can have the annullment. Minority:
whenever she makes the threat, legitimate or not, he has married her under duress (even if he‘s a rapist). Marriage
under threat of prosecution of a crime is duress (minority view).
Incapacity: inability to engage in sexual intercourse. California 193 CalApp2nd Panic. Wman marries 66 ytear old
guy; she says he had no capacity. Annullment granted by tC but reversed on appeal. B/c 2210 says either party was
incapable and appears to be incurable. She didn‘t prove that it was incurable. Today, with no fault, petitions for
annulllment are rare.
4 year SOL: there must be a cause of action and a voluntary cohabitation will end the COA. So if she stays after
she finds out the incapacity is not temporary, she loses the COA.
DIVORCE VS ANNULLMENT
ANNULLMENT SPEAKS AS OF THE DATE OF THE MARRIAGE; DEFECT EXISTED AT DATE OF
MARRIAGE. If it happened after a valid marriage, it can only be solved by dissolution.
VOID MARRIAGE: INCEST & BIGAMY
VOIDABLE: Usually waived by voluntary cohabitation after discovery.
Why do we distinguish between void and voidable? B/c void does not require a Court order. It‘s void ab initio.
Voidable: marriage is valid until grant of a judgment of nullity of marriage.
Good ethical lawyers always recommend that a seek a formal judgment so that there is a formal court record for
probate and other possible future proceedings.
A void marriage doesn‘t need a judgment. Suppose a woman is in a criminal case and is charged with writing a bad
check. And she has told her husband that she knew she didn‘t have funds. If the prosecution calls her husband, he
can testify if it‘s a void marriage b/c no legal marriage; if voidable he can‘t b/c of spousal privilege.
Voidable can be waived by voluntary cohabitation; void cannot.
Judgment of nullity of marriage is back dated to date of marriage.
Divorce is like terminating a K at the time the marriage ends. Judgment of nullity is retroactive.
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A marriage is voidable and may be adjudged a nullity if any of the following
conditions existed at the time of the marriage:
(a) The party who commences the proceeding or on whose behalf the proceeding
is commenced was without the capability of consenting to the marriage as provided
in Section 301 or 302, unless, after attaining the age of consent, the party for
any time freely cohabited with the other as husband and wife.
(b) The husband or wife of either party was living and the marriage with
that husband or wife was then in force and that husband or wife (1) was absent and
not known to the party commencing the proceeding to be living for a period of five
successive years immediately preceding the subsequent marriage for which the
judgment of nullity is sought or (2) was generally reputed or believed by the party
commencing the proceeding to be dead at the time the subsequent marriage was
contracted.
(c) Either party was of unsound mind, unless the party of unsound mind,
after coming to reason, freely cohabited with the other as husband and wife.
(d) The consent of either party was obtained by fraud, unless the party
whose consent was obtained by fraud afterwards, with full knowledge of the facts
constituting the fraud, freely cohabited with the other as husband or wife.
(e) The consent of either party was obtained by force, unless the party
whose consent was obtained by force afterwards freely cohabited with the other as
husband or wife.
(f) Either party was, at the time of marriage, physically incapable of
entering into the marriage state, and that incapacity continues, and appears to be
incurable. (Stats.1992, c. 162 (A.B. 2650), ¤ 10, operative Jan. 1, 1994.)
2251. Status of putative spouse; division of community or quasi-community
property (a) If a determination is made that a marriage is void or voidable and
the court finds that either party or both parties believed in good faith that the
marriage was valid, the court shall: (1) Declare the party or parties to have
the status of a putative spouse.
(2) If the division of property is in issue, divide, in accordance with
Division 7 (commencing with Section 2500), that property acquired during the union
which would have been community property or quasi-community property if the union
had not been void or voidable. This property is known as "quasi-marital property".
(b) If the court expressly reserves jurisdiction, it may make the property
division at a time after the judgment. (Stats.1992, c. 162 (A.B. 2650), ¤ 10,
operative Jan. 1, 1994.)
¤ 2252. Liability of quasi-marital property for debts of parties
The property divided pursuant to Section 2251 is liable for debts of the
parties to the same extent as if the property had been community property or
quasi-community property.
(Stats.1992, c. 162 (A.B. 2650), ¤ 10, operative Jan. 1, 1994.)
In re Marriage of Buckley (Cal. Ct. App. 1982) page 83
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PROCEDURAL POSTURE: Appellant husband challenged an order of the Superior Court of
San Mateo County (California), which granted respondent wife's motion for judgment on the
pleadings and dismissed his action for fraud and concealment against respondent.
OVERVIEW: Respondent wife filed a petition for dissolution. Appellant husband cross-
claimed for annulment under Cal. Civ. Code § 4401, on the ground that on the date of their
wedding, respondent's prior marriage had not yet been finally dissolved. A stipulated
judgment was entered, which divided the community property and awarded respondent
spousal support and attorney's fees. Subsequently, appellant brought an action for fraud
and concealment against respondent, seeking an amount equal to that which respondent
received in the stipulated judgment. The trial court granted respondent's motion for
judgment on the pleadings. The appellate court affirmed, holding that Cal. Civ. Code § 43.4
prohibited actions alleging fraudulent inducement into a void marriage. Further, appellant
was collaterally estopped from relitigating the issue of respondent's fraud, as such was
necessarily determined in the previous action. In so ruling, the appellate court held that the
award of spousal support and attorney's fees in the prior stipulated judgment impliedly
found that respondent was innocent of fraud, Cal Civ. Code §§ 4456, 4455.
OUTCOME: The appellate court affirmed the dismissal of appellant husband's action against
respondent wife for fraud and concealment, because actions alleging fraudulent inducement
into a void marriage were prohibited. Additionally, appellant was collaterally estopped, due
to a prior stipulated judgment dividing the parties' property and awarding respondent
spousal support and attorney's fees, from relitigating the issue of respondent's fraud
Annullments don’t always result in award of spousal support. Basis of his damages claim
was fraud. DON’T SAY COHABITATE. THE WORD IS COHABIT. Heart balm statutes:
marriage was held to be a civil contract; so the heart balm suits were breach of contract
suits. Anti-heart balm legislation in California dates to 1939. Then ’s tried to get around
the law by suing in tort. No COA if there is criminal conversation (that’s what the unmarried
person does when he cheats with a married woman.) No COA if for alienation of affection.
So the legislature enacted a statute banning tort actions as well. But you can recover
property wrongfully taken by fraud. Since H stipped to all the damages, it was res judicata
and H was collaterally estopped from raising the issues on appeal.
This case reminds me of a torts case we covered:
Buckland v. Buckland, 2 All E.R. (1967)
Handouts, Page 111, Briefed 25-Nov-03
Summary
Π Buckland seeks ruling that his Maltese marriage is void because it lacked his consent. In the alternative, if the
marriage cannot be annulled, π wants a divorce based on adultery. Π alleges he was coerced into marrying a
Maltese girl he knew while working in Malta. He was accused of rape, the girl was pregnant, and he was told that if
he did not marry her he would go to jail for rape. He eventually married her but then took off for England and
sought to have the marriage annulled. The judge found that his consent had been coerced and and that the marriage
was null and void. Consent for marriage which is coerced is nonconsent. What if he had been convicted
criminally? Could that be introduced at his civil hearing for divorce/annullment? Maybe. Especially if there were
witnesses who had seen the two together in a hotel known for renting by the hour. Both Buckland and Weiler had
fear of losing their jobs which impacted their decisions and was a form of duress. But Weiler was not really under
duress but she ―gave it up‖ e.g. told the truth because of the pressure of the interview. Buckland says the pressure of
the police interview and detention led him to consent to the marriage. He used the marriage in Malta to get out of
the Maltese jail, then used the Maltese criminal charge to annul the marriage in England. Double dipping.
Lamberti v. Lamberti (Cal. Ct. App. 1969) page 93
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PROCEDURAL POSTURE: Defendant husband appealed a judgment of the Superior Court
of Los Angeles County (California), which granted to plaintiff wife an annulment of her
marriage to her husband.
OVERVIEW: The wife sought an annulment after her husband's promise that the couple's
civil ceremony would be followed by a religious ceremony never materialized. The marriage
was never consummated because the parties never lived together as husband and wife and
the husband never contributed anything to the support and maintenance of the wife. On
appeal, the husband, who was an Italian citizen, claimed that the evidence was insufficient
to support the judgment granting annulment. The court affirmed the trial court's judgment
and held that the evidence was more than sufficient to support the determination that the
husband's objective in marrying the wife was to acquire an advantageous alien status and
that the promises he made were solely to induce her to have a civil ceremony without any
intention of fulfilling his promises once his underlying purpose had been accomplished. The
wife did not discover the fraud until after the civil ceremony and it was then that the
husband made it clear that he had no intention of marrying her in the church.
OUTCOME: The court affirmed the trial court judgment.
Green Card marriage case. Court held that a fraudulent promise to participate in a religious
marriage ceremony was cause for nullification, especially if the marriage is not
consummated. Majority: fraud must go to the essentials of the marriage. Minority: fraud
must be material.
43.5 - no heart balm suits in K
43.4 - no heart balm suits in tort
Yes, so on the exam you need to look for reliance on religious ceremony.The court makes
an exception to 43.4 where the basis of the fraud (a tort) is fraudulent inducement based on
a promise to participate in a religious wedding ceremony, especially if the marriage is not
consummated.
The court in this case found that the W’s reliance on the promise for religious purposes was
material because of the evidence of her strong faith. So, it’s a back hand way of using the
minority rule in California.
So, on an exam, here’ s the test:
Is it a heart balm suit?
If yes, is it in K? If in K, it’s not a legal COA in California.
If yes is it in Tort? If yest, it’s not a legal COA in California UNLESS you can show reliance
on religion and probably an unconsummated marriage.
Right, if it goes to any of the 3 essentials: (1) having sex; (2) cohabit; (3) having kids.
“heart balm” suits allege damages caused by a broken promise to marriage. “I had a
broken heart b/c he stood me up, so give me $$”
Family Code § 2550: Equal division rule in dissolution or separation. MANDATORY EQUAL
DIVISION PROVISION. Max says: don’t assume that California is uniformly a CP state.
What is divided on dissolution is QCP, CP, and debts. So now it’s called the “community
estate.”
Family Code § 2551: Characterization of liabilities as SP or CP.
Family Code § 2552: Valuation as of trial date; unless another date will be more
equitable. This is for dissolution or separation.
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O. Section 2. Division by Court Order
1. FC §§2500-3808 pg. 551-7. LOTS TO READ.
a. § 2501 Community Estate: Comm. estate includes both CP and QCP, SP does not include
QCP. Comm. estate includes both comm. and quasi comm. assets and liabilities of the parties.
QCP at D includes RP located outside the state. Difference w/ death as to QCP – the situs of
the RP controls
b. § 2550 Manner of Division of Comm. Estate – Manner of division is to divide comm.
estate equally. (very important) Ct must accept upon written agreement of parties or on oral
agreement in ct …divide the comm. estate equally. Equal division means as equal as possible.
c. § 2551 ct shall characterize liability as either SP or CP and confirm or assign them to the
parties in terms we discussed two weeks ago
d. § 2552 Valuation: ct shall value assets and liabilities as near as practicable to time of trial.
Ct has to also value assets and liabilities. Must be valued as close as possible to the time of
trial.
i. Ex. bought Cisco stock in 1990, filed in 1999, finally in 2001 trial. So value at 2001 =
time of trial.
ii. BUT section in code says that if one of the parties moves for it the ct can, with a
showing of good cause, value it before the trial in order to accomplish equal division.
e. § 2554 Failure to Agree on Voluntary division of property; submission to
arbitration: if this happens estate may be submitted to arbitration if the total value of the
comm. and QCP in controversy in the opinion of the ct does not exceed $50,000. Max says
he’s never seen an arbitration and he’s never seen a change in division on appeal. (§ 2555)
f. § 2660 Property in another state: ct will try and divide it so it's not necessary to change
the nature of the interests held in the RP in the other state.
2. Exceptions to equal division rule:
a. § 2602 – if you misappropriated funds ct can account for this in division. Can award value to
other party as an additional award or as an offset.
b. § 2604 If estate is less than 5k and a party can't be located ct can award whole thing to one
spouse. Comm. estates worth less than 5k and if one of the parties can't be located, it can give
it to one of the parties or divide it unequally.
3. Talked about debt rules a few weeks ago but they are included in this section. .
4. § 3802 Differed Sale of Home order: situation where the home is the primary comm. asset. If you
have kids who are minors ct can defer the division (sale) of the home.
a. Ex. 200k in equity, should be divided equally if only real asset, 100k each. BUT if H lives in
house w/ child ct can: 1) order H to pay W 100k in house, 2) do a differed home sale – ct can
consider all factors is FC and decide that its order will be differed sale i.e. sell the house in two
years if kid is 16. Ct looks at the factors here. Have to look at econ circs of both parties to
determine if this is fair.
5. Parameters of the ct we need to know:
a. Jxd of the ct to divide property:
b. Equal division:
c. Valuation:
d. Tax Consequences:
B. Equal Division Requirement
1. W/ certain limited exceptions, ct is required to divide CP equally. § 2501 defines divisible comm.
estate to include both CP and QCP assets and liabilities.
2. Various kinds of division: a) in kind – ½ to each or b) ct can award an undivided ½ interest in
asset, c) can award spouse certain items and give other spouse other items of equal value, d) can order
asset sold and proceeds divided equally. Ct has flexibility in choosing which is best.
a. Max says “in kind” is the most common. The equalizer is that the party getting more has to
pay ½ the difference to the other party. So, if the husband gets the law practice worth $150k
and she gets house worth $200k; she has to pay him ½ of the difference or $25k. That way
they both get $175k. But, her liability can be wiped out in bankruptcy. Also, if the enjoyment
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of an asset is deferred for some period of time, such as the W can’t pay the $25k right away,
maybe she can only pay $5k per year. So, the time value of money and his portion of
enjoyment is being deferred. So he gets compensated by an award of interest at a rate
determined by the trial judge.
b. Max says that the court can also make the parties take turns taking assets. You make a list
and then you go down the list. Just like a draft in the NFL. I take the washer. You take the
dryer. I take the chair. You take the desk. Max says you need a really specific inventory list.
c. One case said an auction between the parties in not allowed.
3. Problem divisions: 1) pension and retirement bennies, 2) only one significant CP asset, such as family
home w/ minor children, 3) where liabilities exceed value of assets.
4. Exceptions to equal division:
a. Misappropriation: § 2602 ct may award, from one spouses share of property, any sums
deliberately misappropriated by that spouse to the exclude of the CP interest of the other
spouse. This isn’t really exception in that its ensuring equal division in light of
misappropriation.
b. Small CP estate: § 2604 if net value of CP estate is less than $5000 and party cannot be
located through exercise of reasonable diligence, the dissolution ct may award all property to
other spouse. Max says: “be located when?” They can’t be served. If he’s in prison, she can
find him, so this section doesn’t apply. Even though the estate is only $200, it must be
divided equally b/c he can be found. As a practical matter, the judge usually awards W the
furniture and orders her to pay him the $100 and hope that H never enforces the judgment
for $100.
c. Personal injx awards: personal injx damages recovered by spouse during M = CP. On D §
2603 mandates that such personal injury damages are to be assigned to the injured spouse,
unless the ct determines that the interest of justice req's another disposition. Factors: econ
needs and circs of each party, time that has elapsed since recovery of damages, accrual of
cause of action. Max says: think GR, Exception to GR, Limitation on Exception to GR
i. GR - all goes to injured spouse
ii. Exception - Ct thinks there should be a division
iii. Limitation - injured party must get at least half.
d. If parties otherwise agree (FC § 2550); why would you agree to an other than equal division?
H might feel guilty. Or may offer 70% of the estate if W waives alimony.
5. Cts options in equal division: The rule is equal division.
a. Division in Kind: ½ and ½.
b. Offset assets of equal value:
c. Ct can order sale and split of proceeds:
d. Ct can in some circs award an offset:
e. Exceptions to equal division rule: see above.
i. Misappropriation:
ii. Small estate:
Personal injury awards: see also personal injx award rules in other sections.
Debts
FC § 2625 - was it incurred for benefit of community?
PART 6. DEBTS AND LIABILITIES
2620 The debts for which the community estate is liable which are unpaid at the time of trial or for which the
community estate becomes liable after trial, shall be confirmed or divided as provided in this part.
2621 Debts incurred by either spouse before the date of marriage shall be confirmed without offset to the spouse
who incurred the debt.
2622 (a) Except as provided in subdivision (b), debts incurred by either spouse after the date of marriage but
prior to the date of separation shall be divided as set forth in Sections 2550 to 2552, inclusive, and Sections 2601 to
2604, inclusive.
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(b) To the extent that community debts exceed total community and quasi-community assets, the excess of debt
shall be assigned as the court deems just and equitable, taking into account factors such as the parties' relative ability
to pay.
2623 Debts incurred by either spouse after the date of separation but before entry of a judgment of dissolution of
marriage or legal separation of the parties shall be confirmed as follows:
(a) Debts incurred by either spouse for the common necessaries of life of either spouse or the necessaries of life of
the children of the marriage for whom support may be ordered, in the absence of a court order or written agreement
for support or for the payment of these debts, shall be confirmed to either spouse according to the parties' respective
needs and abilities to pay at the time the debt was incurred.
(b) Debts incurred by either spouse for nonnecessaries of that spouse or the children of the marriage for whom
support may be ordered shall be confirmed without offset to the spouse who incurred the debt.
2624 Debts incurred by either spouse after entry of a judgment of dissolution of marriage but before termination
of the parties' marital status or after entry of a judgment of legal separation of the parties shall be confirmed without
offset to the spouse who incurred the debt.
2625 Notwithstanding Sections 2550 to 2552, inclusive, all separate debts, including those debts incurred by a
spouse during marriage and before the date of separation that were not incurred for the benefit of the community, -
shall be confirmed without offset to the spouse who incurred the debt. Max says: W makes H get a haircut. Was
that for the benefit of the community?
2626 The court has jurisdiction to order reimbursement in cases it deems appropriate for debts paid after
separation but before trial. See v See said spouse spends for benefit of community is not entitled to reimbursement.
But Epstein involved debt incurred to pediatrician for community purposes. But after separation, the pediatrician
wanted to be paid but he couple were already divorced. So H paid with his SP after the divorce. He paid a CP
obligation with Separate Property. Under See, he had no right to reimbursement. But Epstein‘s attorney argued that
his case was distinguishable from See b/c in See payments were made while parties were living together, but in
Epstein the parties were living apart. So it would be insane to say that H intended a gift when he was fighting a
divorce. So, Court flipped rule around and said that there is a right to reimbursement if:
1. Agreement to waive reimbursement
2. Unilateral waiver of reimbursement (maybe he feels guilty)
3. Paying spouse had use of the asset (one car family, H takes car on which they still owe a debt. Both signed
the note, the car is CP, the obligation to repay is a community obligation. But H has exclusive use of car
during period of separation. He is not entitled to reimbursement if amount he pays is roughly the cost of a
rental vehicle.) H is gettng value, so no reimbursement.
4. H moves out, leaving W and kids. She pays mortgage. She wants to be reimbursed for paying a
communtiy obligation. But, she had exclusive use of house, so if rental value ≈ mortgage then no reimb.
5. Discharge of duty of support; no reimb.
2627 Notwithstanding Sections 2550 to 2552, inclusive, and Sections 2620 to 2624, inclusive, educational loans
shall be assigned pursuant to Section 2641 and liabilities subject to paragraph (2) of subdivision (b) of Section 1000
shall be assigned to the spouse whose act or omission provided the basis for the liability, without offset.
Chapter 5. Liability for Death or Injury
1000 (a) A married person is not liable for any injury or damage caused by the other spouse except in cases
where the married person would be liable therefor if the marriage did not exist.
(b) The liability of a married person for death or injury to person or property shall be satisfied as follows: (1) If
the liability of the married person is based upon an act or omission which occurred while the married person was
performing an activity for the benefit of the community, the liability shall first be satisfied from the community
estate and second from the separate property of the married person. (2) If the liability of the married person is not
based upon an act or omission which occurred while the married person was performing an activity for the benefit of
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the community, the liability shall first be satisfied from the separate property of the married person and second -
from the community estate.
(c) This section does not apply to the extent the liability is satisfied out of proceeds of insurance for the liability,
whether the proceeds are from property in the community estate or from separate property. Notwithstanding -
Section 920, no right of reimbursement under this section shall be exercised more than seven years after the
spouse in whose favor the right arises has actual knowledge of the application of the property to the satisfaction of
the debt.
Johnson v. Calvert (1993) page 111
PROCEDURAL POSTURE: Appellant surrogate sought review of an order from Court of
Appeal for the Fourth District, Division Three (California), which, under the Uniform
Parentage Act, Cal Civ. Code §§ 7000-721 (repealed 1994), affirmed the trial court's ruling
that respondents, genetic parents, were the natural parents of a child born as a result of a
surrogacy contract.
OVERVIEW: Appellant surrogate entered into a contract with respondents, genetic parents,
whereby she would gestate a zygote conceived of respondents genetic material.
Respondents filed a declaratory judgment action seeking a determination that they were the
natural parents of the child. The appellate court affirmed the trial court's holding that they
were. On further appeal, the court affirmed, holding that although the Uniform Parentage
Act, Cal Civ. Code §§ 7000-721 (repealed 1994), recognized both genetic consanguinity and
giving birth as means of establishing a mother and child relationship, when the two means
did not coincide in one woman, she who intended to procreate the child and raise as her
own, was the natural mother. The court held that the surrogacy contract was not barred by
public policy. The court held that the determination that respondents were the natural
parents of the child did not deprive appellant of her constitutional rights as appellant was
not exercising her own right to make procreative choices. Rather she agreed to provide a
necessary and profoundly important service without any expectation that she would raise
the child as her own.
OUTCOME: The court affirmed the judgment that respondents, genetic parents, were the
natural parents of a child gestated by appellant surrogate. Although the Uniform Parentage
Act recognized both genetic consanguinity and giving birth as means of establishing a
mother and child relationship, when the two means did not coincide in one woman, she who
intended to procreate the child and raise as her own, was the natural mother.
3/10/2005 Werdiger dissent: she wrote the majority opinion in Heikes. Issue was who is
the mother. There’s more than one test.
Maternity Tests:
Blood test
Proof of Giving Birth
Intent to procreate is the tie breaker
She could generate eggs but couldn’t carry a child to term so she chose surrogacy.
This was the first surrogacy case in California.
Child was genetically a child of both the H & W.
Max says: the uniform parentage act did not contemplate surrogacy cases. Possible evils:
it’s illegal to pay someone to let you adopt your kid; you can’t sell a kid. Surrogacy sounds
like selling kids. But the Court says surrogacy is different from adoption because the parties
voluntarily agree to in vitro prior to the pregnancy; it’s not a case of inducing someone to
give up a kid after they become pregnant. Since no evidence of coercion or duress, no
argument for involuntary servitude. Exploitation of the poor argument fails b/c court
reasons that poor woman take lots of crappy jobs and giving birth is just another crappy
job.
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Max says: what if the parents change their mind? Is the surrogate stuck raising the kid?
Undecided so far. This is what happened in Buzzanca infra.
Monday, March 07, 2005
This class included Family Law and CP. Review is the day before the exam (next week). No
Family Law on the final exam.
All that’s left is family law and it’s not going to be on the final. So, today and Thursday are
family law and they’re not on the final.
In re Marriage of Buzzanca (1998) page 135
PROCEDURAL POSTURE: Appellant wife challenged a judgment of the Superior Court of
Orange County (California), which held that appellant and appellee husband were not the
legal parents of the child because there was no biological connection with the minor child
they intended to procreate by surrogate, using an embryo and sperm not of either party,
and as a result appellee owed no child support.
OVERVIEW: Appellant wife and appellee husband entered into a surrogate contract for
birthing a child. Appellant did not contribute the embryo and appellee did not contribute the
sperm. During divorce proceedings appellant petitioned to establish herself as the lawful
mother of the child. The trial court held that neither party was biologically connected to the
child, nor were they the lawful mother and father. On appeal the court reversed. Under the
Uniform Parentage Act, Cal. Fam. Code § 7613, a husband who consented to artificial
insemination was treated in law as the father by virtue of the consent. Similarly, therefore,
the result was the same when a married couple consented to in vitro fertilization by
unknown donors and implantation into a surrogate. Also noted was that § 7613 incorporated
common law estoppel that prevented appellee was claiming he was not the father because
the consent to a medical procedure that resulted in a birth of a child established
parenthood. Finally, the court held that the same reasoning which established paternity by
reason of appellee's conduct of consent necessarily applied to establish maternity. Thus,
appellant and appellee were the lawful parents.
OUTCOME: The court reversed the judgment which held that appellant wife and appellee
husband were not the lawful mother and father of the child, because when a married
couple using non-genetically related embryo and sperm implanted into a surrogate
intended to procreate a child, under the Uniform Parentage Act they were the lawful
parents of the born child. Therefore, appellee owed child support.
3/10/2005 Neither the father or mother were genetically related to the child; they used donated egg & sperm. But
Court said that they were the parents b/c they consented to the whole process and they caused the child to be born.
II. Exam Approach -- What Max Wants
Answer the question chronologically; if dates in question are not chronological arrange them chronologically so you
can tell a story
1. First thing: determine status of property involved (read and see if status is given before you decide)
a. Go asset by asset to determine CP, QCP, QMP, SP
b. Don‘t divide the property yet
2. If there are debts involved, address each debt separately and determine whether the CP is liable or if H‘s
SP or W‘s SP is liable, even before they got sued
3. Division of CP -- there are several ways to do this. Court can mix methods, using one method for some
assets and another method for other assets. There are innumerable ways of dividing property in a
dissolution.
a. Property can be sold and proceeds divided equally among the parties
i. This auction method eliminates the need to value the property
ii. It‘s not a popular method b/c the spouses don‘t want to spend all that time going through
an auction
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iii. Also, one spouse may worry that the other spouse is trying to sell the asset cheap; maybe
one spouse is living in the house and tries to delay auction of the house
iv. But Courts like it b/c then they don‘t have to value the assets
v. Remember that spouses are allowed to give their opinion as to the value of their own
property; so H could testify what he thinks his ½ of the CP is worth
vi. Max says that buyers bid low in forced dissolution sales
b. In Kind Division:
i. Example: you could divide a 20 acre parcel of land equally, H gets north half, W gets
south half
ii. Courts like this b/c they don‘t have to value
c. Asset Division
i. Value each asset
ii. Example: assume there‘s only 2 assets
1. Bldg w/ equity of $100k
2. Stock worth $80k
3. You balance it per the below example and it all works out
Asset H W
Bldg $100k
Stock $80k
Equalizer -10k 10k
$90k $90k
d. Draft Choice
i. Just like an NFL draft
ii. Requires a very detailed inventory
iii. I take the washer, you take the dryer, etc …
e. Auction is NOT permissible
i. This is common in non-marital partnerships where they auction
ii. Not allowed in divorce b/c it favors the cash rich spouse
iii. Advantage is that it can be done in the lawyer‘s office
iv. Can be used ONLY if both spouses agree
f. List Choice
i. A spouse makes 2 lists of all the CP
ii. The other spouse picks one list and takes all that stuff
g. Claims for Reimbursement
i. One party advances $ and is due a reimbursement
4. So this is why you don‘t divide it first b/c they could change the division through agreement
5. Re-read and proof read before submitting your exam
6. Max hates IRAC b/c some issues IRAC doesn‘t work well. Also, students who use IRAC waste time
talking about the issue when he knows what it is from the discussion; or the issue is wrongly stated and not
precise enough
7. Max wants a 2 or 3 word heading for each item discussed. E.g., ―The Car‖ ―The Debt Owed to Mother‖
etc.
a. So, title each section of the answer
8. Don‘t handwrite b/c Max hates trying to decipher handwriting
9. Some professors require that you give the argument for both sides; they want you to. Max doesn‘t care to
hear both sides. There are some issues where reasonable minds cannot differ. Example: inherited property
is SP; so it‘s ridiculous to argue inapposite. Just give the f*ing answer.
10. Be brief and don‘t fight the facts. If the facts state that the agreement is in writing, don‘t tell him what the
law would be if it was oral; that‘s not the question and you get no extra points for talking about it.
11. Don‘t get convoluted; there are no trick questions.
12. Don‘t simply repeat the question. Max will say ―I know the facts, I gave them to YOU!‖
13. Just weave the facts in to your analysis: ―Because the property was inherited, it is SP.‖
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14. Don‘t give a summary. If you said the right thing in the body of your answer, you already got credit. If
you made a mistake in the body of your answer, and your repeat it in the summary, you‘re just reminding
him of your mistake.
15. No flowery introductions: ― Because the parties are domiciled in California then California law will be used
to determine the dissolution consequences …‖
16. If the question is ambiguous, then argue both sides. But if the problem says ―Parents made a gift‖ don‘t
talk about what would happen if it was a loan.s
17. 2 Essays; no multiple choice.
Chapter 5. Constitutional Issues And Conflicts Within The Federal System
V. Full Faith And Credit
§ 5:50 In general
Property acquired by a California domiciliary will be subject to the classification and rules of
California law regardless of where the property is located. Execution of a decree or order by a
California court in another state, however, directly brings up the question of the reach of a court
which has taken threshold in personam jurisdiction over a party to marriage dissolution
proceedings. In 1957, Mr. Justice Traynor explained the principles involved in framing an opinion
to support an order requiring a husband to transfer title to real property located in North Dakota to
his former wife:
Defendant contends finally that the judgment directly affects the title to land in another
state and therefore exceeded the court's jurisdiction. A court of one state cannot directly affect
or determine the title to land in another (citations). It is well settled, however, that a court, with
the parties before it, can compel the execution of a conveyance in the form required by the law
of the situs and that such a conveyance will be recognized there. (Muller v. Dows, 94 U.S. 444,
449-450, 24 L.Ed. 207.) If the court has entered a decree of specific performance, but the
conveyance has not been executed, the majority of states, including California, will give effect
to the decree ... There is no sound reason for denying a decree of a court of equity the same full
faith and credit accorded any other kind of judgment ... (Rozan v. Rozan, 49 Cal.2d 322, 317
P.2d 11, at page 330 (1957)).
The North Dakota courts gave full faith and credit to the California court's classification of the
property as community property. They refused, however, to give the wife 65 percent of the
property, because such an unequal division would be contrary to North Dakota law. FN1
The Rozan case illustrates the problem the courts have had in classifying and dividing property
under the state's community property system. California courts can take jurisdiction over persons in
the state and property personally owned by such persons, but after classifying out-of-state real
property as separate or community, can only indirectly affect title in the other state [Family Code §
2660]. They must depend on courts in the state of situs to enforce their orders and actually secure
transfer of title as required.
The definition of community property in the Family Code [§ 760] confirms the holding of
Rozan that community property is all property acquired by married California domiciliaries,
wherever the property is located: "Except as otherwise provided by statute, all property, real or
personal wherever situated (emphasis added), acquired by a married person during the
marriage while domiciled in this state is community property."
Section 760 restates the first part of former Civil Code § 5110, and extends the definition of
community property to include real property situated outside California. The effect of extending the
definition of community property to out of state property is that California courts will treat it as
community property for all purposes.
Marriage of Recknor
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Guy knocks up girlfriend in the middle of her divorce. He insists on marriage before kid is born. But her divorce
was not final and he knew it. When they split up, he claimed that the marriage was void and therefore he owed
nothing in the property division. Court ruled that since he knew the marriage was void he was estopped from
challenging it‘s validity or relying on its invalidity in the divorce.
Chapter 5. Constitutional Issues And Conflicts Within The Federal System
I. Generally; Quasi-Community Property Legislation
§ 5:3 The Constitutionality Of Quasi-Community Property Legislation--The
Constitutional Theory Adopted By Addison
Addison distinguished the previous law that had been struck down in Thorton as
unconstitutional in two respects: (1) the new quasi-community property legislation is limited in
scope; i.e., it does not change the characterization of property brought to California by new
domiciliaries for all purposes, but merely for the limited purpose of division on dissolution or
legal separation and for purposes of post-mortem succession; and (2) the statute, the court says, is
not being applied retroactively. This latter point is the focal point of a new distinction that will
later appear in case law applying amendments to the law to already-acquired property, but not yet
adjudicated cases. This distinction seems to have been more palatable to the court until a broader
basis for constitutionally-permissible retroactive application for future amendments would be
spelled out in In re Marriage of Bouquet. FN1
After making these distinctions, the court then articulated the paramount state interest in
providing statutory protection for spouses seeking the assistance of the California courts in
dissolution and legal separation. On the basis of that paramount interest, the police power of the
state, the power to regulate and govern, can abridge vested rights to redress evident injustice. The
state may even discriminate under the privileges and immunities clause for purposes of achieving
substantial justice.
To meet existing conflicts of laws theory, Addison also suggests that both parties must be
California domiciliaries in order for the courts here to take initial jurisdiction over quasi-
community property located out-of-state. The interpretation was adopted as a jurisdictional rule in
In re Marriage of Roesch. FN2 Note, the rule is applicable to jurisdiction over property, not the
person. FN3
In re Marriage of Vryonis
Estoppel requires reasonable basis; objectively reasonable. The Second District Court of Appeal, in a case
of first impression in California, In re Marriage of Vryonis, FN7 reversed a Superior Court determination that the
woman was a putative spouse, holding that a private Moslem "Muta" marriage ceremony performed in her
apartment was inadequate to establish a basis for good faith belief, in spite of the woman's testimony that she
believed the ceremony had created a valid and binding marriage. Subsequently, all indicia of marriage were lacking
and the parties never did cohabit. Though the trial court believed the woman to be a putative spouse, the Court of
Appeal reversed, holding from the facts that such a belief was objectively unreasonable. Thus, there is an apparent
disparity between the California appellate districts on the need of a solemnization ceremony as a threshold fact to
determine the status of a putative spouse. See, infra, § 2:7. Estoppel requires party making assertion be ignorant of
the facts. P. 51. COA cannot overrrule each other; but can refuse to follow; can be unpersuaded.
In a very important decision from the Second District Court of Appeal, In re Marriage of Vryonis, FN8 the
doctrine of good faith belief underpinning putative spousal status was re-examined and, on the basis of almost
exclusively post-enactment of the Family Law Act statutes and cases, considerably altered from the broad equitable
considerations that previously had been used by the courts. The Court held: l) good faith belief must have an
objectively reasonable basis; and 2) the belief in valid marriage under the doctrine must be belief that a lawful
California marriage has been contracted. On this basis, the Court reversed a lower court decision, holding the
woman could not be a putative spouse because she could not have reasonably believed she was lawfully married
under California law.
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The woman (Fereshteh) in the case was an member of the Shiah Moslem Twelve Islams religious sect. The man
(Speros) was a non-practicing member of the Greek Orthodox Church. She had been married before and was the
mother of two children. In her Los Angeles apartment, Fereshteh performed a private religious ceremony,
conforming to the requirements of a "Muta" marriage, authorized by the Moslem sect to which she belonged. The
parties kept the marriage secret and did not hold themselves out as husband and wife. All indicia of marriage were
lacking. No marriage license was obtained. The parties did not cohabit, but rather, maintained separate residences.
They did not inform friends or relatives of the marriage.
On frequent occasions, Fereshteh requested Speros to solemnize their marriage in a mosque or other religious
setting, which Speros refused. Fereshteh began telling people of the marriage only after Speros informed her that he
intended to marry another woman, which he subsequently did.
On Fereshteh's petition, the trial court held a bifurcated hearing on the validity of the marriage and the putative
spouse status. While holding that Speros at no time intended a valid California marriage, the trial court, nonetheless,
held Fereshteh to have believed in good faith that the marriage was valid and, thus, was a putative spouse.
Reversing, the Court of Appeal held that Family Code § 2251(a) requires a threshold determination of a void
or voidable marriage, FN9 or without it, at least, a basis of relief in the reasonable expectations of the parties (or
party) to an alleged marriage entered into in good faith.
The Court then added that the phrase in Family Code § 2251(a) "either or both parties believed in good faith
that the marriage was valid" requires good faith belief in the existence of a lawful California marriage and that the
requisite good faith belief must have a reasonable basis.
Referring to cases in other areas of civil and criminal law, the Court asserts that "good faith belief" is a legal
term of art requiring an objective standard.
"A proper assertion of putative spouse status must rest on facts that would cause a reasonable person to harbor a
good faith belief in the existence of a valid marriage. Where there has been no attempted compliance with the
procedural requirements of a valid marriage, and where the usual indicia of marriage and conduct consistent with a
valid marriage are absent, a belief in the existence of a valid marriage, although sincerely held, would be
unreasonable and therefore lacking in good faith."
Distinguishing the two major cases in which putative status had been affirmed without solemnization of the
marriage, the Court said: "While solemnization is not an absolute prerequisite to establishing a putative
marriage (Wagner v. County of Imperial, 145 Cal.App.3d 980, 983, 193 Cal.Rptr. 820 (4th Dist.1983); Santos v.
Santos, 32 Cal.App.2d 62, 89 P.2d 164 (4th Dist.1939)), it is a major factor to be considered in the calculus of good
faith. Without some diligent attempt to meet the requisites of a valid marriage (Miller v. Johnson, 214 Cal.App.2d
123, 126, 29 Cal.Rptr. 251 (2d Dist.1963)), a claim of good faith belief in a valid marriage would lack any
reasonable basis."
On the facts, the Court held Fereshteh's assertion completely unreasonable.
Vryonis adds that case law further defines the requisite belief as belief in a lawful marriage, that is to say, a
marriage that complies with California statutory requirements, principally relying on Schneider v. Schneider, FN10
and Feig v. Bank of Italy Nat. Trust & Sav. Asso. FN11 The putative marriage doctrine, the Court says, protects the
expectations of innocent parties who believe they are lawfully married.
Vryonis is troubling. First, the case admits that Civil Code § 4452 [Family Code § 2251(a)] does not say
"lawful." Family Code § 2251(a) clearly says that there must be good faith belief in a "valid" marriage. Caselaw
before 1969, FN12 used the term "valid," not "lawful." Though the Court in Vryonis downplays the difference, it
may be significant. Must a person know what California law requires as to licensing, solemnization and
authentication and then in good faith make every effort to conform, but simply fail due to an unforeseen defect of
form? The requirement of compliance with the details of civil execution and recording of marriage would eliminate
from good faith status persons solemnizing marriage in the ceremonies of many non-Western religions in California
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who believe their marriages to be valid, though they may know they were solemnized by religious leaders not
officially licensed to perform marriages here. People who do not believe in divorce for religious reasons may resume
cohabitation after reconciliation following a civil divorce. Many do not feel the need for another civil marriage.
FN13 Vryonis, by interpreting Family Code § 2251(a) to require belief that California statutory requirements have
been met, rather than simple belief in the validity of marriage, considerably narrows the application of the relief
envisioned by the statute. Under Justice Kline's rationale it is extremely unlikely, moreover, that another non-
English speaking couple, believing in good faith that a common law marriage can be contracted in California
informally, as it can be in their native country, could qualify for putative status, as in Santos v. Santos. FN14
Secondly, in dictum Vryonis says that subsequent events (after a ceremony) are not germane to whether there
was a proper effort to create a valid marriage in the first instance. Does this mean that good faith cannot be shown
by the conduct of the parties during the relationship? Can a defective ceremony, nonetheless, ever ripen with the
passage of time into a putative spousal status? [Family Code § 2251] and Lazzarevich v. Lazzarevich, FN15 seem
to allow the possibility that a spouse later becomes convinced that the marriage is valid, even though not so at first,
and the later conviction turns out to be erroneous. Can a person come to believe that his or her marriage is valid, or
must she have firmly believed it all along?
Thirdly, while the facts in Vryonis are compelling, particularly the secret ceremony and the subsequent lack of
ratification in normal marital conduct between persons who are highly educated and broadly experienced in life, the
standard of the objectively reasonable person in assessing good faith belief need not have been so broadly
articulated. There is ample precedent for the Court of Appeal simply to have disbelieved the woman's honesty on the
basis of a lack of substantial evidence. The evidence below revealed that her conduct was entirely inconsistent with
her later protestations. A broad, objective standard of evaluation may undermine equitable foundations in the classic
law for providing relief even for those who should have known better, but, in fact, were less well-educated and less
able to fend for themselves. FN16
Centinela Hospital Medical Center v. Superior Court,
―Good Faith‖ is a legal term of art. See p. 56. Must be objectively reasonable belief. Following Vryonis,
is Centinela Hospital Medical Center v. Superior Court, FN17 refusing to grant putative spousal status, for
purposes of bringing a wrongful death action, to a plaintiff who lacked an objectively reasonable good faith belief in
the validity of the marriage. Although plaintiff and decedent had lived together for many years, privately exchanged
vows, shared bank accounts, made purchases and incurred debts together, and although decedent had changed her
last name to that of the plaintiff, the couple had never made an attempt to conform to the procedural requirements of
Family Code § § 300 et seq., for a valid marriage. Since California does not recognize common law marriages
initiated here, the Second District rejected the plaintiff's claim. In so doing the Court declined to follow Wagner v.
County of Imperial, finding the reasoning of Vryonis more persuasive. Plaintiff's belief "[their] marriage was proper
in every respect" lacked an objectively reasonable basis, the Court held. "Without some effort to comply with
Family Code § § 300 and 306, [plaintiff's] indicia, standing alone, are insufficient to support a reasonable, good
faith belief in lawful California marriage."
Centinela, concurring with Vryonis, raises the test for good faith belief to qualify for putative spousal status
from personal belief in the validity of marriage to belief that the marriage is a "lawful California marriage," thus
requiring a threshold determination that the couple complied with Family Code § 306 formalities, i.e., went
through a proper wedding ceremony, license and all. The standard is what an objectively reasonable person (the tort
norm) would believe was a proper wedding. A void or voidable marriage must be a ceremonial marriage complying,
as best the couple can, with California statutes to meet this test.
Both Vryonis and Centinela are departures from pre-Family Law equity decisions. By excluding from putative
spousal status all those who through ignorance, inability or religious or cultural belief do not jump through the
Family Code § 306 hoops, these cases preclude the application of equity in otherwise deserving cases. What the
Second District seems to have forgotten in their zeal for bright line determinations is that ceremonial formalities do
not make marriage; freely-consenting persons alone do. Ceremonies are evidentiary; belief and consent are
substantive. One may wonder whether such an unbending, draconian rule really serves the traditional legislative
intent to allow the courts to provide equity and fairness in individual, deserving cases.
Max says: Recknor is a COA from our district. But Vryonis is from another district. So the
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construction of valid belief versus lawful belief is not clear.
Following the lead of the Second District in Vyronis and Centinela Hospital Medical Center, that putative
spousal status requires proof of an objectively reasonable belief in the validity of marriage, is the Fourth District's
decision in Welch v. State of California. FN18 In Welch a surviving spouse sued the state Department of
Transportation for the wrongful death of her husband. The couple had lived together for thirty years, holding
themselves out as and considering themselves husband and wife. After the alleged putative widow had undergone
two divorces early in her life, she and the decedent had entered into a common law marriage in California. Without
license and without solemnization they pronounced their vows "stating that they loved each other and that they were
going to spend the rest of their lives together."
The Court of Appeal affirmed a trial ruling against the plaintiff, holding that she was not a "putative spouse" for
purposes of standing to sue under Code of Civil Procedure § 377.60(b) for the wrongful death of a spouse. The
subjective belief of a putative spouse, the Court ruled, even if honestly held, did not constitute good faith required to
establish standing to prosecute a wrongful death action. The putative spouse's claim that her common law vows with
the decedent established a valid marriage was unreasonable, as a matter of law.
Welch provides precedent now in two Districts, the Second and the Fourth, for undermining the equitable
jurisprudence of California courts, now codified in Family Code § 2251, by requiring in all cases an objective
standard of ascertainment of "good faith belief." Quoting Vyronis, the appellate court held that in order to establish
good faith belief a person must prove diligence in attempting to form a valid marriage under state law: "Without
some diligent attempt to meet the requisites of a valid marriage (citation), a claim of good faith belief in a valid
marriage would lack any reasonable basis."
Welch is inconsistent with Santos and its attempt to distinguish Wagner is not persuasive. It should be noted
that the couple lived together for thirty years in all outward appearances as a married couple. They thought of
themselves not as cohabitants, but rather as married persons. While the court backs off from the requirement of
"solemnization" in every case, it completely overlooks the fact that thousands of couples in California, particularly
from minority or immigrant backgrounds, live in common law marriages, which in subjective good faith they
believe to be valid, even though the couple may have begun their lives together without license or with religious or
cultural solemnization meeting state standards. Are these all to be denied "putative" spousal status without
evaluation of their subjective state of mind, in times of tragedy and destitution? That was certainly not the intent of
the "equitable" tradition of California jurisprudence in the past.
Continuing the Vyronis-Centinella line of cases disallowing putative spousal status except upon grounds of
objective, formal standards of the reasonably aware person is In re Estate of DePasse. FN19 On the day before his
"wife" died, the plaintiff "husband" asked a hospital chaplain to perform their marriage. The chaplain noted that the
plaintiff had not obtained a marriage license, nor was there sufficient time to obtain one. Nevertheless, he performed
the ceremony. Subsequently, the surviving spouse obtained an ex parte order establishing the fact of marriage
[Health and Safety Code § 103450]. He then filed a petition for one-half of her estate as an omitted spouse, since
the marriage took place after the decedent's will had been executed [Probate Code § 21611].
The Sixth Circuit held that the husband's awareness of the fact that the "hospital marriage ceremony" was
unlicensed defeated his claim of "good faith belief in the validity of the marriage." Evidence that the chaplain and
the prospective husband discussed the urgency of the time constraints, the Court held, was not an excuse for
omitting the mandatory requirement [Family Code § 350] of the law, nor was it an extenuating factor in permitting
the Court to find that the petitioner would have been in good faith to have proceeded with the unlicensed wedding
ceremony. "Subjective good faith belief in a valid marriage, even when held by a credible and sympathetic party, is
not sufficient to confer putative spouse status: a determination of good faith is tested by an objective standard."
(emphasis added)
DePasse elevates licensing and registration of marriage to a validating condition in the law. Furthermore, it
suggests bad faith in the husband in calling in the hospital chaplain to perform the marriage on her deathbed. It never
addresses the question of why the couple went through the marriage ceremony in the first place, simply dismissing
the possibility that either she (the decedent) or he (the petitioner) might have actually believed they were doing the
best they could in the trying circumstances to rectify their relationship by marriage. There is no doubt at all that in
the canon law of most mainline churches the marriage was valid and the chaplain could not have been accused of
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endorsing a charade.
Once again, the Court decides the issue by inserting into Family Code § 2251(a) the word "lawful," where the
statute itself says "valid." It then construes the requirement of good faith necessary to achieve the status of a
"putative" spouse to embrace all the legal formalities the law requires to fulfill the recording requirements of the
public statisticians for ceremonial marriage. This was not by any stretch an attempt of the petitioner and his dying
wife to enter into a, God-forbid, common law marriage. In these extremely extenuating circumstances, where,
indeed, there simply was "no time" to get a license, the couple, and their chaplain, did what they thought best to
achieve a marital union. What else could they have done? Is it at all reasonable to think, that when a person is at the
point of death, equity may establish the possibility of a valid marriage, notwithstanding the lack of a license? Or is it
peremptory, as the Court declares, that any reasonable person knowing he should get a license to marry, also knows
that the obligation of licensing brooks no exception whatsoever? That not only defies the long tradition and lore of
deathbed marriage in our law, but common sense itself.
DePasse is a formalistic, lock-step decision at variance with the tradition of equity that serves as a foundation
for the provision of the law for putative spousal status. The Court suggests that the ceremony was meaningless and
the couple knew it was meaningless. This is not necessarily so. Whether, as the Court concludes, before the
ceremony the couple had lived together and held themselves out as married (a factor relevant for common law
marriage, not putative spousal status), pooled their earnings, or shared an economic interdependence is not directly
relevant. The tradition of the law properly construed should give weight to the actual, subjective belief of petitioners
in these cases.
Chapter 5. Constitutional Issues And Conflicts Within The Federal System
V. Full Faith And Credit
§ 5:53 Choice of law problems
Resolving problems of a choice of law in multistate transactions is difficult. FN1 The three
most widely used general approaches to resolve the conflict of laws problem are:
(a) Law of the Place. Used in all American states until the last two decades, this traditional
approach requires the court to characterize a problem as one of liability in tort, validity of
contract, ownership of personal property, etc. The original Restatement of Conflict of Laws
then provides rules to apply: in a tort case, use the law of the state of the victim's injury;
contract validity case, the law of the state where the contract was allegedly made; marital
property case, the law of the state where husband and wife were domiciled when personal
property was acquired.
(b) Interest Analysis. Under this system, the court examines the law of the plaintiff's domicile and
of the defendant's domicile. If they reach the same result, the court adopts it without regard to
such territorial factors as the law of the place of the tort or where the contract was made. If the
laws of the parties' domiciles point to different results, there is little agreement among
interest-analysis states as to how to resolve the conflict. Some break it by using the law of the
forum; others try to determine which of the states has the greater interest in the outcome of the
case (e.g., the stronger public policy); some states use the "better law" in this situation
(usually found to be the law that compensates an aggrieved party). California uses the interest
analysis system.
(c) Significant Relation. As promulgated by the Restatement (Second) Conflict of Laws (1971),
this system examines all territorial connections of a problem to the several states involved, not
just one territorial factor as in the old law of the place of contract. In addition, this system
borrows from interest analysis and directs the court to consider, along with territorial
connections, the policies of the states where involved parties are domiciled. After weighing all
such factors, the state with the most significant relation to each legal issue is determined.
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§ 5:54 Choice Of Law Problems--Jurisdiction Where The Only Marital Property Is
Quasi-Community Property
The parties lived in Pennsylvania virtually their entire married life. After the separation, the
husband moved his domicile to California; the wife remained in Pennsylvania. Most of the marital
property consisted in Pennsylvania real estate, bank accounts, investments, personal property, and
a pension fund. After a California trial court divided property, the wife appealed on the ground
that in this case the court lacked jurisdiction. The Court of Appeal agreed in reversing. It stated
that where both parties are not before the California court, jurisdiction and the application of
quasi-community property law is improper. The proper forum to afford the wife protection was
Pennsylvania. FN1
The jurisdictional rule enunciated in Roesch is taken from dicta in Addison v. Addison, FN2
the California Supreme Court case vindicating the constitutionality of quasi-community property
legislation governing the division of marital property at dissolution of marriage. The Addison-
Roesch jurisdictional rule is often articulated as a blanket jurisdictional prohibition over quasi-
community property unless both parties are California domiciliaries and both seek legal alteration
of their marital status in a California court, so that the court has personal jurisdiction over both. In
this broad articulation, the Addison-Roesch rule is both overbroad and unnecessary for a number
of reasons.
Many cases involving classification and division of quasi-community property proceed to the
merits without jurisdictional challenge, notwithstanding lack of California domicile by one of the
parties. Once final adjudication on the merits has been entered, the lack of contest is tantamount to
consent to jurisdiction. FN3
Secondly, quasi-community property is not always out-of-state property. It can be located in
California. If located in this state, e.g., having been acquired during marriage at a time when the
couple was domiciled elsewhere, the California courts have in rem jurisdiction over it and can
adjudicate and assign the personal entitlements to it to the person over whom the court properly
takes jurisdiction in personam, even if it is only one party. FN4
Thirdly, quasi-community property held in joint form under Family Code § 2581, on
dissolution is presumed to be community property. Family Code § 2581 is a blanket
presumption, expressly including any joint form of ownership, tenancy by the entirety or
community property of another community property state. These latter forms of concurrent
ownership fit only into the definition of quasi-community property of Family Code § 125. If any
property acquired during marriage and held in joint form by husband and wife is presumed to be
community property at dissolution, the community property presumption itself abrogates Addison-
Roesch to the extent the quasi-community property is jointly held. If one spouse is not a California
domiciliary, the presumption of joint form converting the property to community property would
remove it from the ambit of the Addison-Roesch jurisdictional ban.
Finally, the dicta in Addison that were picked up in Roesch were an articulation of an entirely
different legal context. Since Addison was decided, spousal rights to quasi-community property
during marriage have been augmented dramatically. The most obvious instances are in the equal
right to subject the property to homestead protection FN5 and to community debt liability. FN6
Addison still considered quasi-community property entirely the separate property of the earning
spouse. If the property and the earning spouse were outside the jurisdictional reach of a California
court, Addison reasoned, the court could decide the marital status of the petitioner before it, but
could not reach the quasi-community property for adjudication and division. The premise
underlying Addison, and then Roesch, however, is not true today. During marriage even the non-
earning spouse has a valid ownership interest in the property in California law. He or she can
subject it to contract and tort liability, file a homestead to protect it, and is entitled to be supported
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from it. FN7 Thus, he or she has a present, existing, and valid ownership right to the property that
should be vindicated by a California court properly taking jurisdiction over the petitioning spouse.
The fatal flaw in Addison-Roesch is that it puts marital property, property earned during marriage,
into the same category as the separate property of a spouse under Family Code § 770. This is
neither necessary nor true. Whereas there may be cases, such as Roesch itself, in which a
California court should abstain from taking jurisdiction under a state interest analysis, as discussed
above, because proper venue would be in another state in the interests of convenience and justice,
there are other cases in which this state has a significant interest in assuring the equitable
distribution of marital property, for which the Addison-Roesch jurisdictional rule should not be
considered an absolute prohibition.
In re Marriage of Fransen, FN8 is a partial variation on the Addison-Roesch rule. The Court
here reversed a lower court decision to abstain from adjudicating the spousal interest in quasi-
community property. Both spouses were California domiciliaries at the time, but only the ex-wife
had petitioned the court to alter her legal status. The Court held that, so long as both are
domiciliaries, Roesch is satisfied if either spouse initiates a legal proceeding to alter the marital
status. Thereby, the property acquired by the husband while domiciled outside the state (a military
pension) was made subject to a quasi-community property division.
The reasoning of the Fransen court is instructive: "We declare that this criterion of Roesch is
satisfied when either spouse initiates a legal proceeding to alter the marital status. To require
otherwise would enable one spouse to defeat a quasi-community property claim of the other
spouse by merely refusing to seek a dissolution, annulment, or legal separation" (emphasis added).
An out-of-state ex-spouse could defeat a California domiciliary spouse's right to his or her
portion of the quasi-community property in the same way. Since a spouse has a marital right in
jointly held property regardless where acquired [Family Code § 2550] and in quasi-community
property for purposes of debt, homestead, and support, even in the case of a nondomiciliary the
jurisdictional requirement of one petitioning spouse over community property should also be the
bottom-line for quasi-community property. Then a decision to abstain or not can properly be made
by a court under a state interest analysis, as in Roesch, without bowing to jurisdictional absolutes.
Certainly, under the small estate default statute [Family Code § 2604], where the net value of the
community estate is less than $5,000, the rights of a petitioning California domiciliary should not
be frustrated by a defaulting nondomiciliary also as to the quasi-community property component.
As to other cases, where a petitioning California domiciliary would otherwise have no practical
recourse, would have to leave the state and establish domicile elsewhere, pursuing the other
around the country, California courts should properly provide a jurisdictional forum for the
classification and assignment to the domiciliary of his or her share of the quasi-community
property. If the property is located in this state, the court can then mandate its division and
assignment. If the property is outside the state, the petitioning spouse should have an enforceable
judgment that will be executed elsewhere under full faith and credit principles, as it would be if
the property were community property. FN9
3. Constitutional Limitations:
A. The Due Process and Privileges and Immunities Clause
1. What do we do w/ people who are M outside the state and get property outside state and move
here? How do cts deal w/ it at divorce or death?
2. Answer: Quasi-Comm. property:
a. FC §125 Quasi-Comm Prop (on divorce) – QCP means RP or PP, wherever situated,
acquired b/f or after operative date of code in any of the following ways:
i. (a) by either spouse while domiciled elsewhere which would have been CP if
the spouse who acquired this prop had been domiciled in this state at
the time of its acquisition (test).
ii. (b) in exchange for RP or PP, wherever situation, which would have been CP if
the spouse who acquired the prop so exchanged had been domiciled in this state
at the time of acquisition.
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b. PC § 66 Quasi-Comm Prop: (on death.)
i. All PP wherever situated, and all RP situated in the state, acquired by decedent
while domiciled elsewhere that would have been CP of the decedent and the SS if
the decedent had been domiciled in this state at the time of its acquisition. (also
goes for exchanges).
c. PC § 101 Quasi- Comm Prop: on death ½ of decedent's quasi-CP belongs to the SS and
the other half to the decedent.
d. Contrast this w/ Pre-Thornton rule: Ct said all PP anywhere and RP located in Cal that
would have been CP at time purchased b/c CP at time you move to cal. Ct says this is
unconst b/c you are taking SP of someone out of state and b/c they cross the borders you
are changing it. Violates privileges and immunities and due process.
3. QCP doesn't change property during M – it only applies at dissolution and at death.
QCP meant to solve problem of people who move to the state and they get divorce or one of them
dies.
4. Addison v. Addison (1965)- H: Quasi-CP, which applies only if divorce or sep maintenance
action filed after parties have b/c domiciled in cal, is not unconst. After domiciled in Cal, creates
state interest so no P&I problem.
a. What is diff b/t death and divorce? Testamentary power is always subject to state law so
ct says succession rights can be altered b/c they are creature of state law (so no
retroactivity problem). Probate statute however, doesn't apply to RP acquired outside the
state.
5. In re M of Roesch pg. 221 (1978)- Rules: in absence of § to the contrary, PP acquired by
spouse during M while domiciled in CL state does not lose its character as SP of acquiring
spouse upon change of domicile to CP state. Furthermore, the rule of tracing is invoked so that
all property later acquired in exchange for CL SP is likewise deemed SP.
a. Addison creates two rules: 1) both spouses have to change domicile, 2) and must seek
legal alteration of marital status in cal ct. (both spouses don't have to seek a divorce).
Max says: Bouquet says it‘s OK to enact retroactive CP rules. These are cases when it‘s done under the
constitutional police powers of the state.
1. § 125: Quasi-CP is all RP or PP acquired:
(a) By either spouse while domiciled elsewhere which would have been CP if the spouse who
acquired it had been living in CA at the time of acquisition
(b) In exchange for RP or PP wherever located, which would have been CP had the spouse who
acquired it in the exchange been living in CA at the time of acquisition
Note: The Family Code definition of Quasi-CP differs from the Probate Code‘s. Probate Code
§66 discusses
property acquired by the ―decedent‖ whereas Quasi-CP is acquired by the decedent.
2. Addison Rule: The Quasi-CP statute applies only where:
(a) Both H and W cross the state line into to CA, AND
(b) Only after moving into to Ca do they ask for a divorce.
i. Addison: H and W divorced cuz H was cheating on W. The only CP was the furniture. The trial
court
assigned to H the obligation to pay the taxes on his own. Both parties appealed; H to
share the tax obligations and W to have more property declared CP.
The Sociological Problem: The court discusses the problem regarding Quasi-CP: In non-CP states,
the trial court
can award one party‘s SP to the other party if it pleases. In CP states, the trial court
cannot do this. When H and W live in a non-CP state, all of H‘s earnings are his SP. If
the two then move to a CP state like CA and then file for dissolution, the W is screwed
cuz all the property is SP and the trial court cannot award it to W.
Thornton: Congress had passed a quasi-CP statute but Thornton struck it down as unconstitutional.
It violated
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Due Process cuz it took vested property rights away from one spouse to give them to the
other. It also violated the privileges and immunities of a citizen since it did this property
swap because the parties moved across state lines.
Analysis: The court bitches about Thornton for a while but does not overrule it. It distinguishes it.
The court
says that the new form of the statute shot down by Thornton does not disturb the vested
property rights of a party who merely crosses the CA border. The property remains
vested in the acquiring party UNLESS and UNTIL there is a divorce. As such, there is
no Privileges and Immunities violation. Moreover, since the state‘s interest in the
matrimonial property of the parties upon dissolution is ―compelling,‖ the state may award
quasi-CP in accordance with its police powers.
Conclusion: The quasi-CP statute is upheld and applied
ii. Roesch: H worked up the ladder at a steel company to become the CEO. He was then offered
a position as a
CEO in CA which he took. H and W filed for divorce. The trial court awarded W some
of H‘s stuff but she wanted more.
Analysis: W wasn‘t entitled to shite since only H moved to CA and Addison requires that BOTH
parties move
to CA for the Quasi-CP statute to kick in. W should quit her bitching. Since H didn‘t
contest the award on appeal, it would remain as it was.
Conclusion. The trial court‘s award remains.
Quasi-community property legislation reclassifying property for purposes of distribution on
the dissolution of marriage was finally upheld in Addison v. Addison, FN12 decided in 1965.
Addison, to be sure, must be read carefully. Property may be reclassified for
new California domiciliaries on death or the dissolution of marriage, events
over which California probate and family law courts have jurisdiction. This,
the court says, is a valid regulatory exercise of the state police power. Note
that the quasi-community property statutes do not change the classification
of property brought to California for all purposes; they reclassify primarily
in the event of the distribution of assets after death or on dissolution of
marriage.
The fatal flaw in Addison-Roesch is that it puts marital property, property earned during
marriage, into the same category as the separate property of a spouse under Family Code § 770.
This is neither necessary nor true. Whereas there may be cases, such as Roesch itself, in which a
California court should abstain from taking jurisdiction under a state interest analysis, as discussed
above, because proper venue would be in another state in the interests of convenience and justice,
there are other cases in which this state has a significant interest in assuring the equitable
distribution of marital property, for which the Addison-Roesch jurisdictional rule should not be
considered an absolute prohibition.
Max says: ―adv‖ just means you reversed names of and ∆ so you can alphabetize your files.
Appellate Rule: Court will reverse only if ruling below was prejudicial to the moving party
(appellant). Since husband did not appeal in Roesch, the husband does not get a modification of
judgment. The appellate court said she was not entitled to any property; so if husband had cross-
appealed, then he could have not paid anything.
Review Addison.
She recovered costs on appeal b/c she was the
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Family Code § 125
"Quasi-community property" means all real or personal property, wherever
situated, acquired before or after the operative date of this code in any of the following
ways:
(a) By either spouse while domiciled elsewhere which would have been community property
if the spouse who acquired the property had been domiciled in this state at the time of its
acquisition.
(b) In exchange for real or personal property, wherever situated, which would have been
community property if the spouse who acquired the property so exchanged had been
domiciled in this state at the time of its acquisition.
By defining quasi-community property as all property, wherever situated that would have
been treated as community property had the acquiring spouse(s) been domiciled in California at
the time of acquisition § 125 assures that the division of marital property on dissolution of
marriage, and to a large extent during marriage, does not depend merely upon the fortuity of when
and where the property was originally acquired.
Addison v. Addison
The husband and wife moved to California from Illinois. During their ten years of married life
in Illinois, they accumulated $143,000, attributable to the husband's earnings in the used car
business. This money was subsequently invested in several California businesses. After the couple
filed for dissolution, the Legislature passed Civil Code § 164 [now Family Code § 125]. The
Supreme Court in Addison was met with a challenge to the constitutionality of the statute which
re-classifies already-acquired property, brought from another state, for purposes of division upon
dissolution of marriage. The Court upheld the constitutionality of the statute:
The sociological problem to which the quasi-community property legislation addresses
itself has been an area of considerable legislative and judicial activity in this state. One
commentator has expressed this thought as follows: "Among the perennial problems in the
field of community property in California, the status of marital personal property acquired
while domiciled in another State has been particularly troublesome. Attempts of the
Legislature to designate such personalty as community property uniformly have been
thwarted by court decisions."
The problem arises as a result of California's attempts to apply community property
concepts to the foreign, and radically different common-law theory of matrimonial rights. In
fitting the common-law system into our community property scheme the process is of two
steps. First, property acquired by a spouse while domiciled in a common-law state is
characterized as separate property. Second, the rule of tracing is invoked so that all property
later acquired in exchange for the common-law separate property is likewise deemed separate
property. Thus, the original property, and all property subsequently acquired through use of
the original property is classified as the separate property of the acquiring spouse.
One attempt to solve the problem was the 1917 amendment to the Civil Code. ... Insofar
as the amendment attempted to affect personal property brought to California which was the
separate property of one of the spouses while domiciled outside this state, Estate of Thornton,
1 Cal.2d 1, 33 P.2d 1, 92 A.L.R. 1343, held the section was unconstitutional. The
amendment's effect upon real property located in California was never tested but generally
was considered to be a dead letter as the section was never again invoked on the appellate
level.
Another major attempt to alter the rights in property acquired prior to California domicile
was the passage of Probate Code § 201.5 [now § § 101, 6101, 6401]. This section gave to the
surviving spouse one half of all the personal property wherever situated and the real property
located in California which would not have been the separate property of the acquiring spouse
had it been acquired while domiciled in California. As a succession statute, its
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constitutionality was upheld on the theory that the state of domicile of the decedent at the time
of his death has full power to control rights of succession. (In re Miller, 31 Cal.2d 191, 196,
187 P.2d 722.) In other words, no one has a vested right to succeed to another's property
rights, and no one has a vested right in the distribution of his estate upon his death. Hence
succession rights may be constitutionally altered ...
In the present case, it is contended that Estate of Thornton, supra, 1 Cal.2d 1, is
controlling and that the current legislation, by authority of Thornton, must be held to be
unconstitutional. Thornton involved a situation of a husband and wife moving to California
and bringing with them property acquired during their former domicile in Montana. Upon the
husband's death, his widow sought to establish her community property rights in his estate as
provided by the then recent amendment to Civil Code § 164. The majority held the section
unconstitutional on the theory that upon acquisition of the property the husband obtained
vested rights which could not be altered without violation of his privileges and immunities as
a citizen and also that "to take the property of A and transfer it to B because of his citizenship
and domicile, is also to take his property without due process of law. This is true regardless of
the place of acquisition or the state of his residence."
***
Thus, the correctness of the rule of Thornton is open to challenge. But even if the rule of
that case be accepted as sound, it is not here controlling. This is so because former § 164 of
the Civil Code has an entirely different impact from the legislation presently before us. The
legislation under discussion, unlike old § 164, makes no attempt to alter property rights
merely upon crossing the boundary into California. It does not purport to disturb vested
rights "of a citizen of another state, who chances to transfer his domicile to this state, bringing
his property with him ..." (Estate of Thornton, supra, 1 Cal.2d 1, at p. 5.). Instead, the
concept of quasi-community property is applicable only if a divorce or separate
maintenance action is filed here after the parties have become domiciled in California.
Thus, the concept is applicable only if, after acquisition of domicile in this state, certain acts
or events occur which give rise to an action for divorce or separate maintenance. These acts or
events are not necessarily connected with a change of domicile at all.
It cannot be successfully argued that the quasi-community property legislation is
unconstitutional because of a violation of the due process clause of the federal Constitution.
Morton has not been deprived of a vested right without due process. As Professor
Armstrong has correctly pointed out in her article, supra: "Vested rights, of course, may be
impaired 'with due process of law' under many circumstances. The state's inherent sovereign
power includes the so-called 'police power' right to interfere with vested property rights
whenever reasonably necessary to the protection of the health, safety, morals, and general
well-being of the people. The annals of constitutional law are replete with decisions
approving, as constitutionally proper, the impairing of, and even the complete confiscation of,
property rights when compelling public interest justified it.
"The constitutional question, on principle, therefore, would seem to be, not whether a
vested right is impaired by a marital property law change, but whether such a change
reasonably could be believed to be sufficiently necessary to the public welfare as to justify the
impairment" (citations).
Clearly the interest of the state of the current domicile in the matrimonial property of the
parties is substantial upon the dissolution of the marriage relationship. This was expressly
recognized by the United States Supreme Court in Williams v. North Carolina, 317 U.S. 287,
63 S.Ct. 207, 87 L.Ed. 279, 143 A.L.R. 1273, where it was said (at p. 298): "Each state as a
sovereign has a rightful and legitimate concern in the marital status of persons domiciled
within its borders. The marriage relation creates problems of large social importance.
Protection of offspring, property interests, and the enforcement of marital responsibilities are
but a few of commanding problems in the field of domestic relations with which the state
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must deal."
In recognition of much the same interest as that advanced by the quasi-community
property legislation, many common-law jurisdictions have provided for the division of the
separate property of the respective spouses in a manner which is "just and reasonable" and
none of these statutes have been overturned on a constitutional basis.
We are of the opinion that where the innocent party would otherwise be left unprotected
the state has a very substantial interest and one sufficient to provide for a fair and equitable
distribution of the marital property without running afoul of the due process clause of the
Fourteenth Amendment. For the same reasons § § 1 and 13 of Article I of the California
Constitution, substantially similar in language, are not here applicable.
Morton also asserts that there is an abridgment of the privileges and immunities clause of
the Fourteenth Amendment. As has been observed "The 'privileges and immunities' protected
are only those that belong to citizens of the United States as distinguished from citizens of the
States--those that arise from the Constitution and laws of the United States as contrasted with
those that spring from other sources." (Hamilton v. Regents of the University of California,
293 U.S. 245, 261, 55 S.Ct. 197, 79 L.Ed. 343, reh. den. 293 U.S. 633, 55 S.Ct. 345, 79 L.Ed.
717.) Aside from the due process clause, already held not to be applicable, Thornton may be
read as holding that the legislation there in question impinged upon the right of a citizen of the
United States to maintain a domicile in any state of his choosing without the loss of valuable
property rights. As to this contention, this distinction we have already noted between former
Civil Code § 164 and quasi-community property legislation is relevant. Unlike the legislation
in Thornton, the quasi-community property legislation does not cause a loss of valuable rights
through change of domicile. The concept is applicable only in case of a decree of divorce or
separate maintenance.
It is also argued that the legislation here under discussion may be unconstitutional under
the privileges and immunities clause of § 2 of article IV of the United States Constitution. It
is there provided that "The Citizens of each State shall be entitled to all Privileges and
Immunities of Citizens in the several states." The argument is that under the doctrine of
Spreckels v. Spreckels, supra, 116 Cal. 339, California has refused to tamper with vested
marital property rights of its own citizens and must therefore accord the same treatment to
citizens of other states. As the United States Supreme Court has observed, "Like many other
constitutional provisions, the privileges and immunities clause is not an absolute. It does bar
discrimination against citizens of other States where there is no substantial reason for the
discrimination beyond the mere fact that they are citizens of other States. But it does not
preclude disparity of treatment in the many situations where there are perfectly valid
independent reasons for it. Thus the inquiry in each case must be concerned with whether
such reasons do exist and whether the degree of discrimination bears a close relation to them.
The inquiry must also, of course, be conducted with due regard for the principle that the
States should have considerable leeway in analyzing local evils and in prescribing appropriate
cures." (Toomer v. Witsell, 334 U.S. 385, 396, 68 S.Ct. 1157, 92 L.Ed. 1460, rehg. den. 335
U.S. 837, 69 S.Ct. 12, 93 L.Ed. 389.) In the case at bar, Leona, as a former nondomiciliary of
California, is a member of a class of people who lost the protection afforded them in Illinois
had they sought a divorce there before leaving that state. She has lost that protection, and is
thus in need of protection from California. Hence, the discrimination, if there be such, is
reasonable and not of the type article IV of the federal Constitution seeks to enjoin.
A. Debt Liability
Thursday, February 24, 2005
B. Premarital Debts
Chapter 9. Interspousal Accounting And Creditors' Rights
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I. Mismanagement Of The Community Property During Marriage
§ 9:1 In general
Operative July 1, 1987, legislation relating to the management and control of community property put into
effect several unprecedented measures to protect the community property. First, the spouse operating a business that
is all or substantially all community property has the primary, rather than the sole, management and control of that
business or interest [Family Code § 1100(d)]. Second, one spouse may have a claim against the other for breach of
a fiduciary duty during marriage respecting the way community funds are used [Family Code § 1102(e)]. Third, a
spouse is authorized to petition the court, even during marriage, for an accounting or other equitable relief, if
necessary [Family Code § 1101]. FN1 To clarify that the § 1100(e) fiduciary duties and § 1101 remedies apply
equally to community and quasi-community property, "community estate" has been substituted for "community
interest," and "community property" replaced by the more explicit "community assets and liabilities" [see Family
Code § 63].
§ 9:2 The spouse operating a community business
Family Code § 1100(d) specifies that the spouse operating a business that is all or substantially all community
personal property has the primary, rather than the sole, management and control of it. What this means is that, while
that spouse may continue to act alone in all transactions directly concerning the day-by-day operations of the
business, he or she must now give prior written notice to the other spouse of any sale, lease, exchange,
encumbrance, or other disposition of all or substantially all personal property used in the business. The notice
requirement is irrespective of the fact that title to the property may be in the managing spouse's name only.
Family Code § 1100(d) provides:
Except as provided in subdivisions (b) and (c), and in Section 1102, a spouse who is operating or
managing 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. Primary management and
control means that the managing spouse may act alone in all transactions but shall 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 (including personal
property used for agricultural purposes), whether or not title to that property is held in the name of only
one spouse. Written notice is not, however, required when prohibited by the law otherwise applicable to
the transaction.
Remedies for the failure by a managing spouse to give prior written notice as required by this
subdivision are only as specified in Section 1101. A failure to give prior written notice shall not adversely
affect the validity of a transaction nor of any interest transferred.
Section 1100(d) specifies a business or an interest in a business that is all or substantially all community
personal property. If the business holds title to community real property, § 1102 requires joinder of both spouses in
any instrument by which the community real property is leased for more than a year, or is sold, conveyed or
encumbered.
Personal property does not include a leasehold interest in real property, under Family Code § 700. The lease
itself is real property, subject to § 1102 to the extent the community has an interest in it.
The former Civil Code § 5125(d) provided that a change in the form of a business is not subject to prior written
notice. Since the intent of the current redaction of § 1100(d) was to preserve the law without change, changes in
form, e.g., incorporation, partnership form, etc., would not require written notice to the non-managing spouse.
§ 9:3 Fiduciary duties
The duty of good faith between spouses was enlarged to include a duty to make full disclosure, upon request, of
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all community property assets and liabilities. The standard of care mandated by the amended statute is not quite that
of strict trust law, but certainly consonant with or above that required of persons dealing with each other in a
confidential relationship.
Family Code § 1100(e) provides:
(e) Each spouse shall act with respect to the other spouse in the management and control of the community
assets and liabilities in accordance with the general rules governing fiduciary relationships which control
the actions of persons having relationships of personal confidence as specified in Section 721, until such
time as the assets and liabilities have been divided by the parties or by a court. This duty includes the
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, and to provide equal access to all
information, records, and books that pertain to the value and character of those assets and debts, upon
request.
A husband intentionally misrepresented a property acquisition to his wife, saying the property was to be
acquired in both their names, as joint tenants, while fraudulently inducing her to sign a quitclaim deed releasing her
share back to him. The violation of Family Code § 1100(e) allowed the court to treat the property as community on
dissolution. Even though the property was purchased with money from the husband's separate inheritance, the Court
of Appeal affirmed the community property classification. FN1 Affirming voidance of the quitclaim deed, the court
cited Kane v. Mendenhall: FN2 "Where one signs an instrument without reading it in reliance on representations as
to its contents, in fact false, the instrument may be avoided where a confidential relation exists between the parties."
The rule applies to spouses. FN3
The coercive and threatening actions of a husband against his wife after separation were held to be a substantial
violation of the confidential relationship and standard of Family Code § § 721 and 1100(e), constituting grounds to
set aside a marital settlement agreement in In re Marriage of Baltins. FN4
Family Code § 1100(e) affirms that the fundamental fiduciary relationship between spouses, requiring good
faith dealing, full disclosure and accounting, lasts "until such time as the property has been divided by the parties or
by the court." To this extent, the statute rejects In re Marriage of Connolly, FN5 and In re Marriage of Stevenot,
FN6 which seemed to imply that after separation, when both parties are represented by attorneys, the fiduciary
relationship ends. The statute affirms that the fiduciary relationship continues until final division. Indeed, post-
separation lack of disclosure and failure to make good faith efforts to provide a fair and just settlement can ground
an action to nullify a marital settlement agreement. FN7
The fiduciary duties do not rise to the strict trust standard, which would posit liability for reimbursement even
for simple negligence, FN8 but are more closely akin to a partnership standard. FN9
The continuing nature of fiduciary duties between spouses was explained by the Second Appellate District
Court in Worton v. Worton. FN10 An action by the wife against the husband for fraud and conversion based on his
failure to disclose the full value of his pension benefit plan during dissolution proceedings was not barred by res
judicata, since the husband's non-disclosure was a violation of his fiduciary duty to account to her for their
community property, depriving her of the opportunity fully to present her case in the dissolution proceeding.
Spouses' fiduciary relationship regarding the control of community property does not terminate when they separate
or begin dissolution proceedings; the duty of disclosure continues until the marriage is dissolved and the community
property divided by the court. Accordingly, the trial court erroneously granted summary judgment in the husband's
favor. In Worton the facts indicated the husband's concealment of $62,000 in excess funding of a community
property defined benefit pension plan. The court held the excess to be concealed assets, not simply a misjudgment of
the value of an asset, thereby skirting the non-disclosure of value rule, FN11 to find actual fraud on the part of the
husband. FN12
Because after separation the husband violated his fiduciary duties in investing community funds in a risky and
failing business the court found that he alone had to bear the risk of loss. His wife had objected to the investment
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and urged that he place the funds in the hands of a professional manager while the court retained jurisdiction and
had not yet adjudicated rights to it. FN13
Effective January 1, 1992, the "good faith" language of former Civil Code § 5125 was replaced with
"fiduciary" duty. Family Code § 1100(e) was simultaneously amended to add that property transactions between
husbands and wives are subject to the general rules "governing fiduciary relationships" that control the actions of
persons occupying confidential relations with each other and that "[t]his confidential relationship is a fiduciary
relationship subject to the same rights and duties of non-marital partners ..." [Family Code § 721]. Section 1101(a)
was also amended to provide that a claim may be brought against the spouse whose breach of the fiduciary duty
imposed by § 1101(e) results in an impairment in the claimant spouse's interest in the community. These
amendments were intended by the Legislature to replace a "good faith" standard with a higher fiduciary standard for
interspousal transactions.
The First District held, in In re Marriage of Reuling, FN14 that the fiduciary standard now impressed on
interspousal transfers would require the "utmost good faith for the benefit of the other spouse." This would mean
that full disclosure of all factors going into an opinion of the value of an asset should be made in negotiating a
marital settlement agreement. Failure to disclose the basis for an opinion of value would undermine the validity of
the subsequent agreement. The Reuling court, however, also held that the 1992 amendments could not be applied
retroactively to transactions occurring before that time. In the facts, the husband complied with the standards of the
law at the time. Furthermore, the community stock at issue could not be traded earlier, nor information disclosed,
without violation of the husband's insider status in contravention of § 16(b) of the Securities Exchange Act of 1934.
FN15 Federal law was pre-emptive on this issue.
In In re Marriage of Duffy, FN16 the Second District Court of Appeal reversed a trial judgment, on
insufficiency of the evidence, that had awarded a former wife $400,684.00 from the husband on grounds that he had
breached his fiduciary duty of disclosure to her. The Court held, moreover, that in investing the community assets
the husband did not owe her a duty of care in the circumstances.
The couple separated after 34 years of marriage. Early on in the marriage the wife abdicated management and
control of the family finances entirely to the husband. The couple made a number of investments in real estate estate
and business interests over the marriage. In each investment the record indicated that the wife made either no or
cursory inquiries about either prices or terms, though she did go through the formalities of signing off on all
documentation. The investment at issue here, more than half a million dollars in an I.R.A. account managed by a
stock broker friend, collapsed in value after the friend persuaded the husband to invest the entire fund in a single
stock. The wife's expert estimated damages for the husband's alleged breach of fiduciary duty, by not candidly
informing the wife of the history of the account, by using the difference between the highest value of the IRA
account and its value at the time closest to trial--a loss of over $400,000.
The Court of Appeal held that Family Code § 1100(a) (equal management and control) and 1100(e)(fiduciary
duties of managing spouse involve "the obligation to make full disclosure to the other spouse of all material facts
and information ... and to provide equal access to all information, records, and books that pertain to the value and
character of the assets ..., upon request.") depends on similarly worded duties expressed in Family Code § 721(b).
The fiduciary duty formula for interspousal relations, in turn, comes from Corporations Code § 16503, giving a
business partner the right to have access to, inspect and copy books of account., and § 16403, conferring the right to
disclosure, on demand, of information regarding the partnership business. Both statutes require that the duty of
disclosure follows a specific request or demand of a partner for the information. The evidence in the record below
indicated that the wife had gone with the husband to open the I.R.A. account, knew of its existence, but never asked
specifically for any information about the investment of assets in the account. She had asked and obtained
information about other investments, but had not sought any kind of information on this investment account
specifically. The Court of Appeal found the record showed that she could obtain information upon inquiry, but had
failed to do so in this case. There being no evidence in the record that it would have been futile for her to have asked
about the account, the Court of Appeal refused to excuse her failure to inquire:
"In summary, there is no evidence, substantial or insubstantial, that Patricia Duffy every sought information
about the investment of MCA assets, which information Vincent Duffy failed or refused to provide. There
consequently is no evidentiary support for the trial court's finding that Vincent Duffy breached his fiduciary duty of
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full disclosure upon request."
Thus, under the statute, the Court held the ex-husband had no duty to provide information unless the other
spouse requests. The wife failed to demand accounting. That failure was fatal to her interests.
Furthermore, the Court held that, whereas in managing the community assets a spouse had a duty of loyalty to
the other spouse, he or she does not have a duty of care. FN17 The amendments to the fiduciary duties sections of
the management and control statutes in 1991 elevated the duties to loyalty and good faith, requiring the spouses to
act for the benefit of the community in all management decisions, but did not require that all decisions prudently be
made. A husband and wife are guaranteed the same good faith standard as the law provides to non-marital business
partners: "... [T]his 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. This confidential relationship is analogous to the
fiduciary relationship of nonmarital business partners, ..." FN18 The Prudent Investor Rule applicable to trustees
under Probate Code § 16040(b), the duty of care appropriate to trustees for the benefit of beneficiaries of trusts,
was expressly excluded from interspousal fiduciary obligations under § § 721 and 1100 of the Family Code: "In
short, a spouse generally is not bound by the Prudent Investor Rule and does not owe to the other spouse the duty of
care one business partner owes to another." FN19
§ 9:4 Remedies
Family Code § 1101 provides three major remedies to a spouse to correct mismanagement of the community
estate by the other spouse:
(1) The equitable remedy of accounting and disclosure [§ 1101(b)];
(2) The protective device of a judicial order adding a spouse's name to community property to provide notice to third
parties dealing with the managing spouse [§ 1101(c)]; and
(3) Restitution and damages, to restore half the community property (50%) to the innocent spouse, that was
transferred or undisclosed in violation of the fiduciary duty [§ 1101(g)], or all of it (100%) where violation of
the fiduciary duty was deliberate and calculating [§ 1101(h)].
Family Code § 1101 thus, provides a full range of remedies for circumstances in which a breach of the duty
imposed by Family Code § § 1100 and 1102 "results in a substantial impairment to the claimant spouse's present
undivided one-half interest in the community estate" [Family Code § 1101(a)]. An action under this statute is
governed by a three-year statute of limitations, "commencing within three years of the date a petitioning spouse had
actual knowledge that the transaction or event for which the remedy is being sought occurred" [Family Code §
1101(d)(1)]. An action under this statute may be brought without filing a petition for dissolution, legal separation, or
nullity [Family Code § 1101(f)]. An action under this statute can also be brought in conjunction with a dissolution,
legal separation or nullity action, or upon the death of a spouse, without regard to the time limits specified in
Family Code § 1101(d)(1).
Family Code § 1101 provides:
(a) A spouse has a claim against the other spouse for a breach of the fiduciary duty imposed by Section 1100
or 1102 that results in impairment to the claimant's spouse's present undivided one-half interest in the
community estate, including, but not limited to, a single transaction or a pattern or series of transactions,
which transaction or transactions have caused or will cause a detrimental impact on the claimant
spouse's undivided one-half interest in the community estate.
(b) A court may order an accounting of the property and obligations of the parties to a marriage and may
determine the rights of ownership in, the beneficial enjoyment of, or access to, community property, and
the classification of all property of the parties to a marriage.
(c) A court may order that the name of a spouse shall be added to community property held in the name of
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the other spouse alone or that the title of community property held in some other title form shall be
reformed to reflect its community character, except with respect to any of the following:
(1) A partnership interest held by the other spouse as a general partner.
(2) An interest in a professional corporation or professional association.
(3) An asset of an unincorporated business if the other spouse is the only spouse involved in operating
and managing the business.
(4) Any other property, if the revision would adversely affect the rights of a third person.
(d)(1) Except as provided in paragraph (2), any action under subdivision (a) shall be commenced within 3
years of the date a petitioning spouse had actual knowledge that the transaction or event for which the
remedy is being sought occurred.
(2) An action may be commenced under this section upon the death of a spouse or in conjunction with an
action for legal separation, dissolution of marriage, or nullity without regard to the time limitations
set forth in paragraph (1).
(3) The defense of laches may be raised in any action brought under this section.
(4) Except as to actions authorized by paragraph (2), remedies under subdivision (a) apply only to
transactions or events occurring on or after July 1, 1987.
(e) In any transaction affecting community property in which the consent of both spouses is required, the
court may, upon the motion of a spouse, dispense with the requirement of the other spouse's consent if
both of the following requirements are met:
(1) The proposed transaction is in the best interest of the community.
(2) Consent has been arbitrarily refused or cannot be obtained due to the physical incapacity, mental
incapacity, or prolonged absence of the non-consenting spouse.
(f) Any action may be brought under this section without filing an action for dissolution of marriage, legal
separation, or nullity, or may be brought in conjunction with the action or upon the death of a spouse.
(g) Remedies for breach of the fiduciary duty by one spouse as set out in Section 721 shall include, but not be
limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset
undisclosed or transferred in breach of the fiduciary duty plus attorney's fees and court costs. However,
in no event shall interest be assessed on the managing spouse.
(h) Remedies for the breach of the fiduciary duty by one spouse when the breach falls within the ambit of
Civil Code § 3294 shall include, but not be limited to, an award to the other spouse of 100 percent, or an
amount equal to 100 percent, of any asset undisclosed or transferred in breach of the fiduciary duty.
Family Code § 1101 continues former Civil Code § 5125.1 without change, except that in Family Code §
1101(a) "community estate" has been substituted for "community interest," indicating that the statute applies both to
community and quasi-community property [see Family Code § 63].
The intent of the Legislature was to clarify and enhance the duties owed by one spouse to another in managing
community property. Family Code § 1101 does not affect the rights of any third parties. It was the intent of the
Legislature to set a standard with regard to the financial and property rights of the marriage which would promote an
equal marital partnership protecting the rights and establishing the responsibilities of both parties equally. The
standard is intended to be equal to the good faith and confidential relations standard of Family Code § 721. Yet the
standard is also not intended to be as high as the strict trust and fiduciary standard of Probate Code § § 16000 et
seq. FN1
The interspousal management statute also extends case law by making express an obligation to disclose assets
and obligations upon request. It expressly maintains the standard of care that controls management of community
property prior to separation to the period after separation or dissolution of marriage so long as the property remains
undivided by the parties or a court. FN2
The most troublesome part of Family Code § 1101 is paragraph (e), which enables the court, on motion of one
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spouse, to dispense with the requirement of spousal consent in transactions requiring the consent of both parties. If
one spouse will not give consent, the court can allow the transaction to go through if, in the court's judgment, the
proposed transaction is in the best interest of the community and consent has been arbitrarily refused or cannot be
obtained due to physical incapacity, mental incapacity, or the prolonged absence of the non-consenting spouse.
This statute undermines the rationale of Andrade Development Co. v. Martin FN3 ("We believe the
nonconsenting spouse should be fully protected. ... Disposal of community property or partition of the spouses'
interests should be allowed only where the spouse consents or where a court sitting in equity can provide an
equitable result as in dissolution or probate proceedings."), as well as the carefully drawn protections of Family
Code § 1103 and the Conservatorship proceedings of Probate Code § § 3000 et seq. It seems to provide an ex
parte hearing before a court of general civil jurisdiction in which, without the need to file a petition for property
division incident to dissolution, legal separation or a declaration of nullity, the court itself can decide what is in the
best interests of the community and whether or not a non-consenting spouse is being arbitrary in withholding
consent.
Does this mean that a non-consenting spouse must prove reasonable cause, or incur the expenses of defending
her or his right to withhold consent against the opinion of a court? Does it mean that, on a court's appraisal of the
mental or physical capacity of the non-consenting spouse, the entire conservatorship proceedings may be avoided?
Until now, under those statutes requiring mutual consent, a non-consenting spouse had the right to be arbitrary. FN4
During the existence of the marriage, the court could not decide the best interests of the community if both spouses
were legally competent. If a spouse was incompetent or legally incapacitated, the other had judicial recourse under
Family Code § 1101(c). Even in cases of prolonged absence, the legal provisions of conservatorship of absent or
missing conservatees [Probate Code § § 1840, 1845 et seq.] should have been adequate. If the court chooses to act
on paragraph (e), therefore, the court should consider primarily the benefit of the spouse and the estate, under the
principles of the California Substituted Judgment Act in Probate Code § § 2580-2586. FN5
The "add-a-name" remedy of Family Code § 1101(c) enables a petitioning spouse to obtain a court order
adding his or her name to community property managed by the other spouse. This right extends to all community
property, other than that generally included within the Family Code § 1100(d) business exception, i.e., partnership
interests, an interest in a professional corporation or association, a solely managed business or other property, if the
addition would adversely affect the rights of third persons. The purpose of adding the name of the non-managing
spouse is to reflect the community nature of the asset. It is not clear, however, whether the add-a-name remedy is
available whenever title to community property is held in the name of one spouse alone, or whether it may be
ordered by the court only when the non-managing spouse has "a claim against the other spouse for a breach of the
duty imposed by Family Code § § 1100 or 1102 that results in substantial impairment to the claimant spouse's
present undivided one-half interest in the community estate" [Family Code § 1101(a)]. The better reading of the
statute would favor a preventive order over a restriction to a purely remedial device. Thus, Family Code § 1101
should create a series of independent claims in its first three sections. The subsection (c) add-a-name remedy and the
subsection (b) accounting remedy should be available without any showing of a subsection (a) violation. FN6
Damages and restitution, of course, operate post facto.
In 1992 remedial sections (g) and (h) were added, now carried over by Family Code § 1101(g) and (h).
Section (g) provides a remedy for the breach of fiduciary duty, i.e., failure to disclose, account, overreaching,
etc., of § 721, by an award to the innocent spouse of at least 50 percent of any asset undisclosed or transferred in
breach of the fiduciary duty. It also provides attorney fees and court costs incurred by the innocent spouse. Interest,
however, may not be assessed against the managing spouse. The language of Section (g) is close to that of § 2602,
suggesting that the award will result in the property awarded becoming the separate property of the innocent spouse.
The Section says the award is "to the other spouse," not to the community.
If breach of the fiduciary duty was deliberate and calculating FN7 the court can award the innocent spouse all--
100 percent--of any asset undisclosed or transferred in breach of the fiduciary duty. FN8
A management and control protection afforded spouses under the Labor Code should also be mentioned. Labor
Code § 300(b) requires a spouse to consent to an assignment of the other spouse's wages. Thus, a debtor spouse
cannot unilaterally consent to a wage assignment or its equivalent as a means to satisfy indebtedness. FN9 Of
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course, involuntarily, a judgment against a debtor can be enforced by way of a wage assignment without spousal
consent, under Code of Civil Procedure § § 704.070, 706.020 et seq. Note, also, Civil Code § 706.051
(exempting amounts necessary for support).
A. Liability For Contractual Obligations
1. General Rules Of Liability
§ 9:5 In general
The fundamental principle of the California community property system governing contract liability and
contract creditors' claims traditionally was that liability went in tandem with the legal right of management and
control. FN1 Thus, creditors could reach all property subject to the management and control of a spouse incurring
the obligation.
The former principle of management-liability was changed to provide a different emphasis in 1985 when
creditors' rights against marital property were re-organized. Since both husband and wife now have the equal right to
manage the community property, each can subject the community property, the earnings of both and their common
assets, to liability for the payment of debts. The liability is based on ownership and not on which spouse is actually
managing at the time the debt is incurred. Of course, the separate property of a contracting spouse will also be
subject to the claims of the creditors' of that spouse. Excluded from liability, with exceptions, is the separate
property of the non-consenting and non-contracting spouse. Obviously, therefore, the classification of property as
community or separate is a vital first step in allocating responsibility for debts.
Operative January 1, 1985, the law of marital property debtor-creditor relations was reorganized into a single,
comprehensive package.
The Family Code clarifies the extent of applicability of this chapter by defining "debt" in the broadest terms.
Family Code § 902 provides:
"Debt" means an obligation incurred by a married person before or during marriage, whether based
on contract, tort, or otherwise.
Thus, the rights of all creditors, private and public, against the marital community fall within the provisions of
this chapter. Whether the debt arises out of a contract, a personal injury cause of action, or a civil penalty, etc. FN2
Since the time frame in which a debt is contracted is legally important, the Family Code also specifies the time
debts are incurred.
Family Code § 903 provides:
A debt is "incurred at the following time:
(a) In the case of a contract, at the time the contract is made.
(b) In the case of a tort, at the time the tort occurs.
(c) In other cases, at the time the obligation arises.
Under Family Code § 903, for ability of a debt within community property, debts are incurred at the time the
contract is made, regardless of whether performance extends into a post-separation period. FN3
§ 9:6 Community property
Family Code § 910 provides:
(a) Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by
either spouse before or during marriage, regardless of which spouse has the management and control of
the property and regardless of whether one or both spouses are parties to the debt or to a judgment for
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the debt.
(b) "During marriage" for purposes of this section does not include the period during which the spouses are
living separate and apart before a judgment of dissolution of marriage or legal separation of the parties.
Family Code § 911 provides:
(a) The earnings of a married person during marriage are not liable for a debt incurred by the person's
spouse before marriage. After the earnings of the married person are paid, they remain not liable so long
as they are held in a deposit account in which the person's spouse has no right of withdrawal and are
uncommingled with other property in the community estate, except property insignificant in amount.
(b) As used in this section:
(1) "Deposit account" has the meaning prescribed in § 9105 of the Commercial Code.
(2) "Earnings" means compensation for personal services performed, whether as an employee or
otherwise.
§ 9:7 Community property--Levying on the bank account of the judgment debtor's
spouse
Code of Civil Procedure § 700.160(b)(2) requires for a judgment creditor's levy on the community property in
a bank account held in the name of the non-debtor spouse either a court order or an accompanying affidavit to the
bank showing the marital relationship of the account-holder and the judgment creditor. In Grover v. Bay View Bank,
FN1 the First District held that the bank was not required to impose a levy on the account, notwithstanding the fact
that the bank officer apparently lost the documentation supplied by the creditor, precisely because the creditor failed
to comply with the statute. Moreover, the bank was not required by law to point out to the creditor his error in filing.
Here the creditor alleged that the debtor's spouse had nearly $70,000 in the account at the time he served papers on
the bank. Shortly thereafter, she withdrew the bulk of the money from the account without bank interference.
Research References:
West's Key No. Digests, Husband and Wife 269.
FNa Attorney at Law, Danville, California.
FN1 Grover v. Bay View Bank, 87 Cal.App.4th 452, 104 Cal.Rptr.2d 677 (1st Dist.2001).
Chapter 9. Interspousal Accounting And Creditors' Rights
II. The Rights Of Creditors Against The Community
A. Liability For Contractual Obligations
1. General Rules Of Liability
§ 9:8 Quasi-community property
Family Code § 912 provides:
For the purposes of this part, quasi-community property is liable to the same extent, and shall be
treated the same in all other respects, as community property.
§ 9:9 Separate property
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Family Code § 913 provides:
(a) The separate property of a married person is liable for a debt incurred by the person before or during
marriage.
(b) Except as otherwise provided by statute:
(1) The separate property of a married person is not liable for a debt incurred by the person's spouse
before or during marriage.
(2) The joinder or consent of a married person to an encumbrance of community estate to secure
payment of a debt incurred by the person's spouse does not subject the person's separate property to
liability for the debt unless the person also incurred the debt.
§ 9:10 Personal liability for necessaries of life
Family Code § 914 provides:
(a) Notwithstanding Section 913, a married person is personally liable for the following debts incurred by the
person's spouse during marriage:
(1) A debt incurred for necessaries of life of the person's spouse while the spouses are living together.
(2) Except as provided in § 4302, a debt incurred for common necessaries of life of the person's spouse
while the spouses are living separately.
(b) The separate property of a married person may be applied to the satisfaction of a debt for which the
person is personally liable pursuant to this section. If separate property is so applied at a time when non-
exempt property in the community estate or separate property of the person's spouse is available but is
not applied to the satisfaction of the debt, the married person is entitled to reimbursement to the extent
the property was available.
§ 9:11 Post-separation liability of the spouses after division of property
Family Code § 916 provides:
(a) Notwithstanding any other provision of this chapter, after division of community and quasi-community
property pursuant to Division 7 (commencing with Section 2500):
(1) The separate property owned by a married person at the time of the division and the property
received by the person in the division is liable for a debt incurred by the person before or during
marriage and the person is personally liable for the debt, whether or not the debt was assigned for
payment by the person's spouse in the division.
(2) The separate property owned by a married person at the time of the division and the property
received by the person in the division is not liable for a debt incurred by the person's spouse before
or during marriage, and the person is not personally liable for the debt, unless the debt was assigned
for payment by the person in the division of the property. Nothing in this paragraph affects the
liability of property for the satisfaction of a lien on the property.
(3) The separate property owned by a married person at the time of the division and the property
received by the person in the division is liable for a debt incurred by the person's spouse before or
during marriage and the person is personally liable for the debt, if the debt was assigned for payment
by the person in the division of the property. If a money judgment for the debt is entered after the
division, the property is not subject to enforcement of the judgment and the judgment may not be
enforced against the married person, unless the person is made a party to the judgment for the
purpose of this paragraph.
(b) If property of a married person is applied to the satisfaction of a money judgment pursuant to subdivision
(a) for a debt incurred by the person that is assigned for payment by the person's spouse, the person has
a right of reimbursement from the person's spouse to the extent of the property applied, with interest at
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the legal rate, and may recover reasonable attorney fees incurred in enforcing the right of
reimbursement.
A. Liability For Contractual Obligations
2. Premarital Debts
§ 9:12 Right of reimbursement
Family Code § 920 provides:
A right of reimbursement provided by this chapter is subject to the following provisions:
(a) The right arises regardless which spouse applies the property to the satisfaction of the debt, regardless
whether the property is applied to the satisfaction of the debt voluntarily or involuntarily, and regardless
whether the debt to which the property is applied is satisfied in whole or in part. The right is subject to
an express written waiver of the right by the spouse in whose favor the right arises.
(b) The measure of reimbursement is the value of the property or interest in property at the time the right
arises.
(c) The right shall be exercised not later than the earlier of the following times:
(1) Within three years after the spouse in whose favor the right arises has actual knowledge of the
application of the property to the satisfaction of the debt.
(2) In proceedings for division of community and quasi-community property pursuant to Division 7
(commencing with Section 2500) or in proceedings upon the death of a spouse.
§ 9:13 In general
The common law rule that a husband assumed the premarital debts of his wife on marriage is not the law in
California. Premarital debts are the responsibility of the debtor spouse. The separate property and earnings of the
debtor spouse after marriage are responsible for his or her premarital debts. The earnings of a non-debtor spouse
after marriage are not liable for the premarital debts of the other spouse, provided the earnings are kept separate and
uncommingled [Family Code § 911].
Thus, the earnings of the non-debtor spouse will be protected if he or she maintains a deposit account in which
only his or her earnings and/or separate property are deposited. If he or she maintains a common or joint account in
which earnings are commingled and accessible to the debtor spouse, those earnings will not be protected.
Where community property earnings of a spouse have been used to pay off the premarital debts of the other
spouse, a court may order reimbursement to the community in a subsequent dissolution. FN1 Reimbursement may
also be ordered where one spouse pays off debts assigned to the other in the dissolution decree [Family Code §
916(b)]. On dissolution of marriage outstanding premarital debts are to be assigned to the debtor spouse without
offset [Family Code § 2621].
In re Marriage of Lister
This was an appeal from a trial court order that the husband reimburse the community for property he used to
satisfy his premarital and post-separation debts. The premarital debts had been cancelled by the husband's creditor
upon receipt of title to the couple's family home, quitclaimed by deed executed by both husband and wife. Debts
contracted by the husband after separating from the wife were satisfied by refinancing a second community property
home.
The trial judge found that the wife did not know about or consent to the transfer of the house solely in
cancellation of her husband's premarital debts. The judge thus conceded the transfer was a breach of the husband's
fiduciary obligation to his wife and an abuse of his power of management and control [Family Code § 1100(e)]. He
also found that the husband had transferred this community asset to a creditor to satisfy a debt that was not as great
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as the value of the asset. He, therefore, ordered the husband to reimburse the community. In addition, the judge
treated the amount borrowed by the husband after separation as his separate debt which he had improperly repaid
from a loan on a community asset, and ordered reimbursement. The Court of Appeal affirmed:
The community property, with the exception of wife's earnings, traditionally is liable for all debts of the
husband, however and wherever contracted. (Weinberg v. Weinberg, 67 Cal.2d 557, 563, 63 Cal.Rptr. 13, 432
P.2d 709 (1967).) Nonetheless, the community may be entitled to reimbursement if the husband uses
community property funds to discharge his separate indebtedness. (In re Marriage of Walter, supra, 57
Cal.App.3d 802, 806, 129 Cal.Rptr. 351 (1976); see, also, 7 Witkin, Summary of Cal. Law (8th ed. 1974)
Community Property, § 84, pp. 5173 to 5174.)
Currently spousal obligations are viewed first from the creditors' standpoint and for this purpose the
community property is liable. On dissolution of the marriage where equal division of the community property
and liabilities are in issue, transactions of the spouses inter se are subject to review and the separate debts of one
spouse may be excluded from the shared community obligations. (See In re Marriage of Epstein, 24 Cal.3d 76,
89, 154 Cal.Rptr. 413, 592 P.2d 1165 (1979).) "Between the spouses, certain obligations which are properly
characterized as separate may be assigned to the responsible person if unpaid, or reimbursement may be ordered
in favor of the community if the debt was paid from community assets." (In re Marriage of Stitt, 147
Cal.App.3d 579, 587, 195 Cal.Rptr. 172 (1983).) Although the community property may be at risk where one
spouse has separate debts, this does not preclude the court from ordering reimbursement to the community
following a non-consensual transfer of community real property. (See, e.g., Mitchell v. American Reserve Ins.
Co., 110 Cal.App.3d 220, 167 Cal.Rptr. 760 (1980)).
The court correctly held that husband was not entitled to use funds from a loan on community property to
repay this separate obligation. (In re Marriage of Walter, supra, 57 Cal.App.3d 802, 806-807; In re Marriage of
Mahone, 123 Cal.App.3d 17, 25, 176 Cal.Rptr. 274 (1981).) Husband's earnings while separate were his
separate property [Civil Code § 5118; now Family Code § 771], as were debts he incurred after separation
which were not related to the community, and the court did not abuse its discretion in ordering him to reimburse
the community. (In re Marriage of Hopkins, 74 Cal.App.3d 591, 600, 141 Cal.Rptr. 597 (1977).)
§ 9:14 Liability of quasi-community property
A major change effected by the 1984 debtor-creditor amendments was to equate quasi-community property with
community property for purposes of debt liability. The use of "community estate" in Family Code § 910,
corresponding to the former introductory definitional statute Civil Code § 5120.020, extends the concept of
community property to quasi-community property and real property located in another state that would be
community property if situated in this state [Family Code § § 63 and 760]. Family Code § 912 then provides, by
way of reiteration and emphasis:
"For purposes of this chapter, quasi-community property is liable to the same extent, and shall be
treated the same in all other respects, as community property."
This means now that the Legislature has adopted a unitary marital property scheme for purposes of debtor-
creditor relations in California. The California Law Revision Commission's comment, in response to a possible
constitutional challenge to this change, was:
In the case of applying community property creditors' remedies principles to quasi-community property, the
public policy served is so fundamental as to outweigh the possible impairment of private property rights.
Moreover, application of community property treatment to the interest of a spouse in quasi-community property
may be viewed simply as an extension of the general support obligation of the spouse or agency principles (17
Cal.L.Rev.Comm'n Rep., p. 12, n. 14 (1984)).
What is abundantly clear in this change, however, is not only an extension of general support obligations or
agency principles; it is also an extension of the non-earning spouse's ability to manage and control quasi-community
property earned while domiciled out of state by the other spouse. The non-earning spouse can subject this property
to debt liability. The Law Revision Commission saw "no significant constitutional issue presented by this rule." FN1
The equalization of community and quasi-community property for purposes of creditors' rights fulfills a public
policy to achieve equal sharing of marital assets and liabilities, to promote equal access to credit for both spouses, to
treat all residents of California equally, and to protect the interests of California creditors.
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Note that debt liability of the spouses occurring during marriage is an issue distinguishable from the assignment
of debts for payment between the spouses at legal separation or on dissolution. FN2
§ 9:15 Overpayment of debts or payment of debts not legally collectible
Overpayment or payment of debts not legally collectible are gifts that should be recapturable for the benefit of
the community under Family Code § 1100(b). The interspousal entitlement to disclosure and accounting of Family
Code § § 1100(e) and 1101 also enable a spouse to recapture these payments in violation of a managing spouse's
fiduciary duties.
§ 9:16 Reimbursement as restitution
The reimbursement rules of Family Code § 920 establish an absolute right to reimbursement unless there has
been an express written waiver by the spouse in whose favor the right arises. Reimbursement is restitutionary, not
punitive. Misappropriations made in good or bad faith are irrelevant, as are equity defenses to the exercise of the
right.
Section 920 limits reimbursement rights to a three-year period of enforceability, after discovery of the
application of property to the satisfaction of debt. The period will be less if dissolution of marriage occurs before the
end of the three-year period. Reimbursement applies even though the spouse seeking reimbursement may personally
have paid the debt or consented to its payment, unless the spouse expressly waived in writing the right to
reimbursement. FN1
Reimbursement includes not only the amount originally spent, but also interest on it at the legal rate plus
reasonable fees and costs incurred in enforcing the right of reimbursement [Family Code § 916(b)].
California statutory and case law now provide at least a dozen circumstances in which total or partial
reimbursement between spouses is in order:
(1) When separate property is used to contribute to the acquisition of community property [Family Code § 2640]
(without interest);
(2) For community contributions to the education or training of a spouse [Family Code § 2641(b)(1)] (with
interest);
(3) When one spouse's community earnings are used to pay off the premarital debts of the other [Family Code §
916(b)] (with interest);
(4) When, after separation, the property of one spouse is used to pay the debts contracted by the other spouse
[Family Code § 916(a)(2)] (with interest);
(5) When one spouse uses his or her separate property to pay for the necessaries of the other spouse when there is
sufficient non-exempt community or separate property of the other available [Family Code § 914(b)] (with
interest);
(6) When the post-separation property or earnings of a spouse are used in satisfaction of a money judgment assigned
in a court order for payment by the other [Family Code § 916(a)(3)] (with interest);
(7) When a spouse overpays a debt or pays a debt not legally collectible without the consent of the other spouse
(with interest); FN2
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(8) When a spouse uses the community property without the other spouse's consent to pay off separate indebtedness
FN3 (with interest) or to improve his or her separate property FN4 (with interest);
(9) When a spouse uses community property to pay child support or spousal support when non-exempt separate
property was available but not used [Family Code § 915(b)] (with interest);
(10) When a spouse uses post-separation earnings to pay off unassigned community debts before final dissolution
FN5 (with interest);
(11) Where a spouse or the community has paid medical expenses for an injured spouse and that spouse recovers
damages from a third-party tortfeasor [Family Code § 781(b)] (with interest);
(12) Where tort liability is satisfied either from insurance or contrary to the priorities of Family Code § 1000 (with
interest).
Use of separate property during marriage to pay for community expenses or to pay community debts is not
reimbursable, without an express agreement to that effect between spouses. FN6
Loss of a community asset through the criminal conduct of one spouse, in addition to misappropriation of
community funds, may also trigger the right to reimbursement. For example, the Court of Appeal in In re Marriage
of Beltran, FN7 held that, when the husband's criminal conduct directly caused the forfeiture of military pension
right to which the community had a right, "in equity," he should reimburse the community for the loss.
§ 9:17 Amount and conditions of reimbursement
Where reimbursement to the community is provided, the amount of reimbursement and the conditions under
which it may be gained are statutory.
Family Code § 920 provides:
A right of reimbursement provided by this chapter is subject to the following provisions:
(a) The right arises regardless which spouse applies the property to the satisfaction of the debt, regardless
whether the property is applied to the satisfaction of the debt voluntarily or involuntarily, and
regardless whether the debt to which the property is applied is satisfied in whole or in part. The right
is subject to an express written waiver of the right by the spouse in whose favor the right arises.
(b) The measure of reimbursement is the value of the property or interest in property at the time the
right arises.
(c) The right shall be exercised not later than the earlier of the following times:
(1) Within three years after the spouse in whose favor the right arises has actual knowledge of the
application of the property to the satisfaction of the debt.
(2) In proceedings for division of community and quasi-community property pursuant to Division 7
(commencing with Section 2500) or in proceedings upon the death of a spouse.
§ 9:18 Agency
A husband or wife has the power to act as the agent of the other. Both, of course, can subject the community to
their debts. One may, however, even subject the separate property of the other to debts if a valid agency relationship
can be established. Proof of agency can be derived from circumstantial or direct evidence either of consent or of the
subsequent ratification of acts done without previous authority. In Hulsman v. Ireland, FN1 at a time when the
husband alone had management and control of the community and alone could subject the community to debt, the
wife formed a partnership in a restaurant business with a third party. Partnership debts contracted by the wife
became the obligation of the community on proof that the husband acknowledged and ratified the business activity
of the wife. FN2
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Agency cannot be implied from the marriage relation alone, FN3 although much less evidence is required to
show a principal-agent relationship between husband and wife than between non-spouses. FN4
§ 9:19 Surety on a debt
In Gunn v. United Air Lines, Inc., FN1 the husband designated the children of his former marriage as the
beneficiaries of the death proceeds in a retirement fund. This was in accord with a property settlement agreement in
which the fund became a surety against child support obligations. On the husband's death, the court held that the
designation was not a gift, but a payment of a pre-existing legal obligation. The community or surviving spouse was
entitled to nothing, not even a share in the increased value of the fund accruing during the second marriage. FN2
Under Family Code § 913(b)(2), the joinder or consent of a spouse to an encumbrance of the community
property to assure payment of the other spouse's debt does not substantially subject the joining or consenting
spouse's separate property to the debt.
§ 9:20 The earnings of the non-debtor spouse are not liable for premarital debts of the
other if segregated
Family Code § 911(b) provides that the earnings of a spouse during marriage are not liable for the debt
incurred by the other spouse before marriage. These earnings, after paid, remain not liable so long as they are held in
a deposit account in which the debtor spouse has no right of withdrawal and are uncommingled with other
community property, except property insignificant in amount.
Commingling and deposit in an account jointly or commonly accessible or into the account of the debtor
spouse, will remove the insulation of non-liability.
Payment of the other spouse's premarital debts out of a commingled or commonly accessible account is not
reimbursable on dissolution.
On the other hand, payment of the other spouse's prenuptial debts out of a segregated account from the earnings
of the non-debtor spouse is reimbursable to the payor on dissolution.
§ 9:21 Debts contracted during marriage
The community estate is liable for all debts of either spouse incurred during marriage. The debt satisfaction
provisions of Family Code § § 900 et seq. are retroactive and applicable regardless of the purpose of the debt
[Family Code § 930]. This is a significant change from prior law. Before 1975, except for the wife's earnings and
certain other limited items, FN1 the community property earnings of the husband were not liable for the debts of the
wife. Now all the community property, the husband's earnings, the wife's earnings and all their accumulated
common assets, are liable equally for the debts of husband or wife contracted during marriage.
Section 910(b) defines "during marriage" to exclude that time period during which spouses are living separate
and apart before a judgment of dissolution of marriage or legal separation of the parties. This definition brings the
debt liability provisions of the Family Code into conformity with Family Code § 711, providing that the post-
separation earnings and accumulations of either spouse are the separate property of that spouse. It is now clear that
post-separation earnings and liabilities are the separate property and responsibility of the individual person, not the
community. FN2
The separate property of either spouse is liable for the debts, contracts and tort claims of that spouse, whether
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incurred before or during marriage and whether for separate or community benefit. The separate property of a
spouse is not liable for the debts of the other. There are some exceptions:
(1) If husband and wife are living together and there is not sufficient community property, the separate
property of each spouse is liable for the debts of the other or of the community for the necessities of life,
FN3 i.e., food, shelter, medical expenses, and clothing. The obligation is derived from the statutory duty
of support husband and wife owe each other and their children [Family Code § § 3900, 4300, 4301].
(2) When one spouse incurs a debt as the agent of the other, the creditor is entitled to payment from the
principal's separate estate [Family Code § 1000(a)]. FN4
There is a right of reimbursement from the community if a spouse chooses to use his or her separate property to
pay community debts incurred by the other spouse, except for necessities, unless there has been an express
agreement between the spouses to waive the right [Family Code § 916(a)(2)].
The creditor seeking to reach community assets under control of the married debtor must first establish the
personal liability of the debtor spouse. FN5
Although community property is liable for a debt incurred by either spouse during marriage [Family Code §
910(a)], a wife cannot be added to a judgment rendered against her husband in an action in which she was not
named and had no opportunity to defend. A judgment creditor was thus not entitled to add the name of the judgment
debtor's wife to the judgment by a postjudgment amendment. The judgment creditor's attempt to garnish the
husband's wages in Arizona had failed because Arizona law prohibits execution against community property assets
unless both spouses are named as judgment debtors. Although Code of Civil Procedure § 187 allows a
postjudgment amendment adding a judgment debtor on an alter ego theory, no evidence was provided to indicate
that the wife had in fact controlled the previous litigation. A new party cannot be added by a postjudgment
amendment where no claim is made against the new party personally, the new party did not participate in the
defense of the action, and the new party did not have any duty to appear and defend in the action. Since no evidence
indicated that wife had involvement with or control over husband's defense, she should not be added as a judgment
debtor. An order amending the judgment to add her as additional judgment debtor was reversed. FN6
Note that the entire community property is subject to satisfaction for a debtor spouse's obligations contracted
during marriage, even if the spouse is actually exercising exclusive management and control over some community
assets, for example, where the spouse is operating, as the "primary" manager, a community property business
[Family Code § 1100(d)], or community assets are deposited in an account in the name of one spouse [Financial
Code § 851], or where one spouse is acting alone after the other has been placed in conservatorship [Probate Code
§ 3051]. The community will be liable for the debts of either spouse, even in these situations in which only one
spouse is actually exercising exclusive management and control.
Recoveries for personal injuries, where the cause of action arises during marriage, are community property.
[Family Code § 781] Since these are community property, they are liable for the debts of either husband or wife.
FN7
Separate and community property held by the non-debtor former spouse after post-dissolution division of
community property is not liable for the debts incurred by the other spouse, unless the court order assigned the debt
to the non-debtor spouse in the division of property on dissolution [Family Code § 916(a)]. FN8
Proceeds from the sale of community property can be used to satisfy debts incurred by a spouse prior to
dissolution. In In re McCoy, FN9 a bankruptcy case, the court held that sale proceeds could be used, even though
the debt was contracted by the husband, while the couple was separated by their own consent, but before dissolution.
The Bankruptcy Court for the Southern District of California found that Family Code § 910 [former Civil Code §
5120.110] specifically provided that community property was liable for a debt incurred by a spouse during marriage,
and that none of the statutory exceptions were applicable The court distinguished American Olean Tile Co. v.
Schultze. FN10 In American Olean, because a marital settlement agreement had been executed, the debt contracted
was the sole liability of the debtor spouse, even though the debt was contracted before a final judgment. In McCoy
there was no marital settlement agreement at all, so the debt fell on the community.
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The liability of community earnings for the debts of either spouse contracted during marriage [Family Code §
910(a)] is illustrated very starkly in a decision of the Federal District Court for the Eastern District of California, in
Tull v. United States, FN11 wherein the court held that the IRS could levy on the wages of a husband whose wife
was being penalized by the IRS for failure to fulfill payroll tax obligations. The wife was secretary and treasurer of a
small trucking company. When the company ran into financial difficulties, it failed to pay a portion of its federal tax
liability. The wife was held personally liable for the company's failure under Internal Revenue Code § 6672(a).
The court held that the 100 percent penalty charged against her, $203,904.32, later reduced by subsequent payments
to $92,029.94, could be collected by levying on the husband's wages, even though he was not a party to the
delinquency and did not know about it, and the community was not benefited by it. A spouse's knowledge, consent,
or benefit from the debt is irrelevant under § 910(a) for liability for the debt, as the statute recites only the
formalities of the time frame within which the debt was contracted.
In Reynolds and Reynolds Co. v. Universal Forms, Labels & Systems, Inc., FN12 an employer who alleged
that his former employees violated confidentiality agreements, joined the employees' spouses solely in their
capacities as co-representatives of the community estates. Under Family Code § 913(b)(2), where a non-debtor
spouse is named solely as a community representative in order to bind the community for acts committed by the
debtor spouse during marriage, and not in an effort to reach the non-debtor spouse's separate property, the non-
debtor spouse may opt not to participate in the litigation and will be dismissed as essentially a nominal defendant
upon his or her request. The dismissed non-debtor spouse, however, cannot later contest the determinations of
liability and community responsibility made in his or her absence.
ENDED HERE
FOR NEXT CLASS: MEMORIZE THE DEBT RULES AND READ MONTI 2/24/2005
§ 9:22 Spousal and child support obligations
Spousal and child support obligations, arising out of a previous marriage and constituting a continuous debt that
must be satisfied out of the obligated spouse's earnings, constitute a special kind of premarital debt for purposes of
satisfaction and reimbursement should there be a dissolution of the second marriage.
Family Code § 915 provides:
(a) For the purpose of this chapter, a child or spousal support obligation of a married person that does not
arise out of the marriage shall be treated as a debt incurred before marriage, regardless whether a court
order for support is made or modified before or during marriage and regardless whether any installment
payment on the obligation accrues before or during marriage.
(b) If property in the community estate is applied to the satisfaction of a child or spousal support obligation of
a married person that does not arise out of the marriage, at a time when nonexempt separate income of
the person is available but is not applied to the satisfaction of the obligation, the community estate is
entitled to reimbursement from the person in the amount of the separate income, not exceeding the
property in the community estate so applied.
(c) Nothing in this section limits the matters a court may take into consideration in determining or modifying
the amount of a support order, including, but not limited to, the earnings of the spouses of the parties.
Section 915 continues former Civil Code § 5120.150 without change, except to substitute "community estate"
for "community interest," indicating parity of application to community and quasi-community property [see Family
Code § 63].
In re Marriage of Smaltz
This was the second marriage for both parties. Pursuant to court order entered prior to the parties' marriage, the
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husband paid $450 per month in spousal support payments to his former wife throughout the course of his marriage
to the wife. These support payments, in the total sum of $16,200, were made out of community property funds
earned during their marriage. The trial court found that there were no separate funds available to the husband during
the marriage from which the payments could be made. Nevertheless, it ordered the husband to reimburse the
community for the support payments made.
The husband, on appeal, contended that the trial court was in error in requiring him to reimburse the marital
community for spousal support payments made to his former wife out of community funds. He argued that, as there
was no separate property from which the support payments could have been paid, it is inequitable to require
reimbursement to the marital community. The Court of Appeal, agreeing with the husband, reversed the trial order:
The rule is well established that community property is liable in its entirety ... to satisfy a husband's
obligations, whether incurred before or after marriage, and whether incurred for the husband's personal benefit
or for the benefit of the community. (Weinberg v. Weinberg, 67 Cal.2d 557, 562-63, 63 Cal.Rptr. 13, 432 P.2d
709 (1967); Grolemund v. Cafferata, 17 Cal.2d 679, 688-689, 111 P.2d 641 (1941).) In Weinberg v. Weinberg,
supra, the Supreme Court held that this rule applied to support obligations: "The policy of protecting the
husband's creditors outweighs the policy of protecting family income even from premarital creditors of the
husband. Community property is therefore 'available to such creditors.' (Grolemund v. Cafferata, supra, 17
Cal.2d 679, 689; Nichols v. Mitchell, 32 Cal.2d 598, 610, 197 P.2d 550 (1948); Odone v. Marzocch, 34 Cal.2d
431, 440, 211 P.2d 297, 212 P.2d 233, 17 A.L.R.2d 1109 (1949).) As such a creditor, a husband's first wife can
levy against the community property of his second marriage for alimony payments due. (Bruton v. Tearle, 7
Cal.2d 48, 57, 59 P.2d 953, 106 A.L.R. 580 (1936); Yager v. Yager, 7 Cal.2d 213, 220, 60 P.2d 422, 106 A.L.R.
664 (1936).)"
However, it does not follow that because the community is liable it can never claim reimbursement from
the husband. Reimbursement has been allowed where the husband abused his right of management and control
by expending community funds without the consent of his wife, so as to effect improvement of his separate
estate. (In re Marriage of Jafeman, 29 Cal.App.3d 244, 105 Cal.Rptr. 483 (1972); see Weinberg v. Weinberg,
supra; In re Marriage of Walter, 57 Cal.App.3d 802, 129 Cal.Rptr. 351 (1976).)
Relying on the above rules, the Supreme Court held in Weinberg v. Weinberg, supra, that the marital
community was entitled to partial reimbursement for the husband's use of community funds to meet alimony
and child support obligations, where such obligations were satisfied from the community and separate incomes
of the husband. The court reasoned that under such circumstances it would be unjust to the wife to allow the
husband to preserve his separate estate by using only community funds to meet support obligations which were
substantially based on his separate income, and that it would be equally unjust to charge the obligation wholly
to the husband's separate income since the obligations were continuing and were based in part upon his
community earnings. The court therefore held that the obligation should have been apportioned on a pro rata
basis between the two incomes and that the community was entitled to recoup that portion of the support
payments which should have been charged to the husband's separate estate (67 Cal.2d at pp. 564-564).
The present case is distinguishable on its facts from Weinberg. Here, there were no separate funds available
during marriage from which appellant's support payments could be made.
The difficulty with respondent's position is that it would be the community, and not the wife, that is entitled
to reimbursement of community funds. Furthermore, such right of reimbursement arises only where the husband
has abused his right of management and control or since January 1, 1975, the effective date of Civil Code §
5125 [Family Code § 1100(a)], either spouse has abused the right of management and control. The obvious
implication of the Supreme Court's ruling in Weinberg is that support obligations based upon community
earnings are community obligations; hence it is not an abuse of a husband's power for him to use community
funds to discharge a support obligation based upon his community earnings. Here the only funds upon which
support payments could be based were earnings, which were community property. It is therefore illogical to
argue that the wife is entitled to reimbursement for such expenditures simply because she did not consent to
them.
§ 9:23 Judgments against one spouse filed during marriage
11601 Wilshire Associates v. Grebow, FN1 arose out of a lawsuit in which a commercial landlord sued tenants
for breach of a lease. Grebow and his law partner each had personally guaranteed the office lease of their law firm.
In the suit against Grebow the landlord included Grebow's wife as a co-defendant. The appellate court affirmed a
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lower court ruling that, because the wife had not personally signed the lease or given a personal guarantee, she
should be dismissed. The mere fact that the husband's personal guarantee would make her liable for the community
indebtedness under Family Code § 910, which makes the community responsible for the debts of either spouse
contracted during marriage, was not a sufficient ground to sue the wife personally.
On advice of counsel, the landlord had originally joined the wife, both because the strategy, they thought, would
have allowed greater facility FN2 if the couple moved to Arizona, as was feared, a collection against community
property under Arizona law would have required that both spouses be named the judgment debtors.
The court rejected plaintiffs rationale. In California law, if the landlord had won a judgment from the husband
in this case, under Family Code § 910, the entire community property would be liable to the extent permitted by the
statute. The appellate court, relying on Reynolds and Reynolds Co. v. Universal Forms, Labels & Systems, Inc., FN3
said this was not a sufficient reason to allow the plaintiff to sue an unwilling spouse in her capacity as co-owner of
the community property. In Reynolds the plaintiff had sued Universal and five of its employees on various tort and
contract theories stemming from their alleged unfair competition and violation of confidentiality agreements. The
employees' spouses were also named as defendants, although there were no allegations that the spouses had
personally committed any wrongful acts. Plaintiffs admitted that it joined the spouses under Family Code §
1000(b) (torts committed in an activity for the benefit of the community rendering the community primarily liable)
to facilitate access to the community property. The Reynolds court, however, dismissed the wife under Federal Rules
of Civil Procedure 12(b)(6), because, where a spouse is not personally liable for an obligation, it is not proper to join
her solely in her capacity as a community representative if she is unwilling to participate in the litigation.
§ 9:24 The no-reimbursement rule where community income is used to pay spousal or
child support obligations from a prior marriage
Family Code § 915 classifies support obligations arising out of a previous marriage or for children of the
paying spouse only as debts incurred before marriage. As such, Family Code § 911 makes the liability for
satisfaction of the obligation run to both the debtor spouse's separate property or earnings and the community
property of the second marriage. Unlike contract debts incurred before marriage, however, spousal and child support
payments are reimbursable only if, at the time of payment, there was sufficient non-exempt separate property to
have made the payment, but instead of using separate property, the spouse chose to use community earnings to make
the payments. In other words, the purpose of the reimbursement provision of Family Code § 915(b) is to avoid a
paying spouse saving his or her separate property and avoiding division on subsequent dissolution, while depleting
the community property instead.
Note: (a) There must be sufficient separate property income at the time when child or spousal support payments
were made. If separate property is later acquired, for example, by a later inheritance, the reimbursement obligation
does not arise. (b) non-exempt separate property does not include that property exempt from creditors' claims, as
listed in Code of Civil Procedure § § 704.010 et seq., such as furniture, clothing, tools of a trade, etc. (c) The
community is entitled to reimbursement under § 915(b), not just on the division of community property at
dissolution, declaration of nullity or legal separation, but also after the death of the paying spouse. In fact, the rule of
Family Code § 915 suggests a general right of reimbursement at any time, even during the existence of the
marriage [see, also, Family Code § 920(c)(1)].
Note that, whereas a right of reimbursement can be waived by express written waiver by an interested spouse
who would gain from it [Family Code § 920(a)], the mere fact that the spouse gave consent to the payment of the
support obligation by the other spouse is not a waiver. In fact, whether the non-obligated spouse consents or not to
the use of community property to pay the other's support obligations will not affect the community's right to
reimbursement.
Where a husband owed $19,249 in child support, to collect the arrearages, the District Attorney executed a lien
against the community property home put into escrow after the husband and his second wife separated. The wife
claimed a right of the community to reimbursement. The trial court denied her request on the basis that both case
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law FN1 and Family Code § 915(b) make reimbursement dependent upon "available separate property" of the
obligor.
The Third District reversed, reasoning that Family Code § 2620, allowing a court to confirm without offset a
premarital debt to the spouse who had incurred it, and Family Code § 2626, giving courts jurisdiction to order
reimbursement where appropriate for debts paid after separation but before trial, would have allowed the court to
order reimbursement. FN2
Construing this section, In re Marriage of Orchard, FN3 affirmed a court-ordered sale of the community
property home of the second marriage to satisfy child support arrearages of the husband. After the order was
recorded, the husband attempted to avoid the sale by quitclaiming his interest to the second wife. Notwithstanding
the attempt, however, there remained substantial evidence of the community property determination, making the
property liable for past-due child support.
Note that Family Code § 915 equates child and spousal support liabilities, both as to property reachable and
reimbursement. Child support is not dependent on marriage, but rather on parentage.
§ 9:25 "Separate" and "community" debts
Under the traditional rules, contract debts, unlike tort debts, were not divided along the lines of a "benefit to the
community" test. Debt liability simply followed management and control. Under the debt allocation provisions of
Family Code § 2625, governing the court assignment of debts at dissolution, however, there is an express provision
that "all separate debts, including those debts incurred by a spouse during marriage and before the date of
separation that were not incurred for the benefit of the community, shall be confirmed without offset to the
spouse who incurred the debt." This statutory provision, which we will discuss later FN1 broadens the notion of a
separate debt, for the sole purpose of post-separation or dissolution assignment, to include contract obligations, as
well as tort liability.
The extension has been confirmed in several cases: In In re Marriage of Mahone, FN2 the husband's purchase
of an airplane, using a joint savings account as collateral, was held to be his "separate obligation," on default,
because he incurred the debt "in anticipation of separation." In re Marriage of Stitt, FN3 involved the wife's
contract obligations for attorney fees in connection with her conviction for embezzlement. The criminal activity
"culminated in financial consequences at the time the marriage was coming to an end." The court held the innocent
spouse should not be liable, even though the debt was contracted during marriage, because it was the wife's separate
obligation. The holding in Stitt was sharply contested in In re Marriage of Hirsch. FN4 In re Marriage of Lister,
FN5 followed Stitt's "equitable principles" to deny a husband's reimbursement for post-separation payment of a
second mortgage. Finally, In re Marriage of Munguia, FN6 involving a debt incurred by the husband in hiring a
private investigator to track down his wife and children in Germany, found the obligation belonged to the husband
alone, since it was incurred after separation and was "unrelated to the community." Thus, the new Family Code §
2625, referring to separate debts, seems to include not only separate tort liability under Family Code § 1000, but
also contract debts "not incurred for the benefit of the community."
The gambling debts of a husband, who had used credit card accounts to raise money to gamble, were assigned
to him to pay on dissolution under the Family Code § 2625 "separate debts" classification, in In re Marriage of
Cairo. FN7
§ 9:26 Conveyances in fraud of creditors
California marital property debtor-creditor law, just as express requirements under the formal transmutation
provisions [Family Code § 851], are subject to the overall rules of the Uniform Fraudulent Transfers Act [Civil
Code § § 3439 et seq.]. For example, husband and wife, after dissolution, had their decree modified to provide the
community property home would go entirely to the ex-wife in return for a promissory note secured by a deed of trust
in the amount of one-half its value. The husband's judgment creditor claimed the modification, which conveyed the
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house to the wife instead of leaving half-ownership in the husband, was a fraudulent conveyance. Reversing a
summary judgment, the Court of Appeal held the judgment creditor had a right to a trial on the issue of a fraudulent
conveyance under Civil Code § 3439.04, and may have the remedy of a constructive trust to redress the fraud. FN1
Also note that a homestead declared after a fraudulent conveyance may always be set aside by a creditor. A
fraudulent conveyance is void as against a grantor's creditors and leaves title in the grantor as though no conveyance
had been made. Therefore, a homestead claim fails when it is based on a fraudulent conveyance. FN2
For a case in which an oral transmutation of community property into the separate property of husband and wife
was held ineffective against the rights of the husband's creditors, see Wikes v. Smith. FN3
In an unusual case, the court found a fraudulent conveyance from one joint tenant to the other in fraud of the
first tenant's creditors. Instead of rescinding the entire conveyance so that on the death of the non-debtor joint tenant
the debtor would succeed to the whole, thus making the whole available to the creditor, the Court of Appeal held
that the fraudulent conveyance worked a severance of the tenancy. It terminated the debtor's right of survivorship,
but left him a tenant in common with the decedent. Thus, the creditor could only reach the one-half remaining with
the debtor. The other half passed through the decedent tenant's estate free of the creditor's claims. The fact that the
debtor's sons were the devisees failed to deter the court. FN4
The facts in this case illustrate the peril faced by a creditor who relies on joint tenancy property. The creditor
risks that his debtor may be the first to die, leaving the property free and clear of the obligation in the successor,
even without a fraudulent conveyance. FN5 With a fraudulent conveyance, severance of the joint tenancy gives him
a chance of getting one-half of the property.
Bankruptcy will provide no shield against claims of fraud brought by creditors. FN6 Under 11 USCA §
524(a)(3) and 11 USCA § 524(b), the liability of after-acquired community property for prebankruptcy creditor
claims against a spouse who has not filed for bankruptcy turns on whether the filing spouse was discharged, or
whether the non-filing spouse would have been discharged if that spouse had filed a bankruptcy petition on the same
date as the filing spouse. Thus, in community property states, the intent of Congressional policy is that a spouse
guilty of fraud against creditors should not be able to hide behind an innocent spouse's discharge in bankruptcy.
Both spouses will suffer by reason of one spouse's prior "sins" insofar as after-acquired jointly owned community
property is concerned. Accordingly, the wife was a necessary party to her husband's bankruptcy action for the
purpose of hearing creditor's objections to the "hypothetical" discharge she would receive if the obligation to the
creditors were discharged in the husband's case.
§ 9:27 Necessaries of the family
2/24/2005
The separate property of a non-contracting spouse is liable for debts incurred in obtaining the necessaries of life
for his or her spouse and children. The doctrine of necessaries, derived from the general support obligations of
Family Code § § 3900 and 4300, includes food, clothing, shelter, medical expenses, and education,
but is limited to no set amount. In case law, what constitutes "necessaries" is often broadly interpreted. See In re
Marriage of Higgason, FN1 where "necessaries" may be measured by the income and life
circumstances of the family, including vacation, entertainment, etc. FN2
Max says: necessaries are determined by your STATION IN LIFE. But, COMMON NECESSARIES are those
needed to survive. Common necessaries are collectable from both spouses. See § 914.
In In re Reiter, FN3 the wife filed for bankruptcy under Chapter 13 after learning that the IRS intended to levy
on bank accounts for failure to pay personal income taxes. Because the petition was filed on an emergency basis,
and because of the husband's work schedule, only the wife could meet with the attorney. Accordingly, the filing only
covered her. The IRS then proceeded to levy on the husband's salary because of his joint liability for the tax. The
wife sought protection from this levy because it undermined the budget of her Chapter 13 plan, which provided that
all available family income, including the husband's salary, would be used for family living expenses and to pay off
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the IRS in less than two years. The wife could not be protected by the co-debtor stay provisions of 11 USCA §
1301(a), protecting non-debtors jointly liable with the debtor on a consumer debt, because a tax debt does not
qualify as consumer debt under the Bankruptcy Code [11 USCA § 10(7)]. However, the IRS levy was subject to
stay under 11 USCA § 362(a), because the husband's salary was property of the bankruptcy estate under 11 USCA
§ 541(a)(2)(B) pursuant to a broad interpretation of 11 USCA § 1306(a)(1), which allows the debtor to budget all
family income to work out the Chapter 13 plan under the protection of the automatic stay. Accordingly, the IRS was
directed to release its levy.
Debt Liability
This is creditor v. spouse; NOT spouse v. spouse
Example: husband borrows money on the basis of SP as collateral. H states accurately on the loan
application that there is no CP. The loan proceeds are SP, not CP b/c they were lent on the strength of H’s
SP. So, this overcomes the presumption of CP.
If the H defaults, bank can levy all the CP assets.
All this analysis goes in section 2 of your exam answer.
She might have a claim against the husband and that is discussed in section 3.
Only 3 kinds of property involved in debt liability:
a. CP of both spouses
b. SP of spouse who incurred the debt
c. SP of the other spouse.
************MAX’S EXAM FORMAT ********
Max says: the way to answer an exam question is to divide the answer into sections:
1. Is the property SP, CP, or QCP. Don‘t divide. Just determine status of the property.
2. Then if debts are involved, discuss each debt individually and apply the debt rules.
3. Then discuss division of property.
Max hates it when students identify the class of property (CP, SP, QCP) and then say how it will be divided
without going through the debt analysis first.
Max’s Debt Rules Thursday, February 24, 2005
A. Divide debts into 2 TIMING categories:
a. Debt incurred before the marriage ceremony
GR: Both spouses liable.
Example: § 902 I incurr $5k of eye doctor bills before marriage
If I default after marriage, my wife can lose her car. She is liable too.
Premarital Debt Liability: you are liable for property over which you have dominion and
control. So, CP + SP of spouse incurring the debt.
Constitutionality: When H gets sued, he gets sued in personem and as trustee for his
wife‘s half of the CP. So, it‘s as though the creditor is suing a trust.
§ 911A - earnings exception. Earnings of a married person during marriage are NOT
liable for a debt of the other spouse incurred before marriage.
Max asks: how long are earnings considered earnings before they become part of the
estate? Answer: as long as uncommingled bank account over which other spouse has no
control.
b. Debt incurred after the marriage ceremony and before separation
B. Divide debts into classes by TYPE
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a. Debt incurred for NECESSARIES OF LIFE
b. Debt incurred for non-common necessaries of life
C. Separated by Agreement § 4302 - then no obligation
a. If H calls W bad names and gets her to leave, is she liable for necessaries of life? Is he?
Retzlaff 14 CalAPP 1013
1. General Rules and Definitions
§ 902: Debt is an obligation incurred by a married person before or during marriage, whether
based on
contract, tort, or otherwise (taxes, sanctions, government fees or fines).
§ 903: A debt is ―incurred;
(1) For contract, when the contract was made,
(2) For tort, when the tort occurred,
(3) For everything else, when the obligation arises
§ 910: ―During marriage‖ does not include the period where the spouses are living separate and
apart
§ 9105: ―Deposit Account‖: an account maintained with a bank, savings and loan association,
credit
union, etc. EXCEPT an account with a negotiable certificate of deposit
e. § 912: Quasi-Community Property is treated like CP for purpose of debt liability.
―Earnings‖: Compensation for personal services performed
Order creditors take: Creditors can take property in any order.
E.g.: If creditor has a right to take either parties‘ SP or the CP, it can take from the SP of the
spouse who DID NOT incur the obligation BEFORE taking from the other party‘s SP or from
the CP if it so elects. That party may, however, have a right of reimbursement.
2. Liability at division
Premarital Debt
(1) § 910: Community is liable for debts incurred by either spouse before or during
marriage
Hypo: If X sues H and W knows nothing about hit, W‘s CP share can be hit up
even if she knows nothing about it.
(2) § 911: Earnings of a married person during marriage are not liable for a debt incurred
by the spouse before marriage so long as:
(a) They remain in a deposit account where the spouse has no right of withdrawal,
(b) They are not commingled
(3) § 913: SP of a married person is liable for debt incurred by the person before or
during marriage 2/24/2005
(a) SP of a married person is NOT liable for debt incurred by the person‘s SPOUSE
before or during marriage
(b) Where a married person allows CP to be used as security for debt incurred by the
person‘s spouse, the married person IS NOT also subjecting to his/her SP for liability
for the debt.
Post-marital Debt
(4) § 914(a): A married person IS liable for the following debts incurred by the person‘s
SPOUSE during marriage:
(a) ―Necessaries of life‖ while living together,
―Necessaries‖ include rent, food, medical expenses, and clothing and takes
into account the spouse‘s social status. E.g.: One court found that keeping a
maid was a ―necessary‖ for a rich couple
(b) ―Common necessaries of life‖ while living separately
―Common necessaries‖ includes the above but only takes into account what is
necessary to preserve life
(2) § 914(b): If the SP of a married person is applied to (a) (above) and there is SP of the
spouse who
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incurred the debt or CP available, the SP of the married person in entitled to
reimbursement.
Note: Unlike §915(b), reimbursement is allowed where ―property‖ was
available even if there was no ―income‖
(3) § 4302: Exception to §914 is that while the parties are living apart ―by agreement,‖
the person
IS NOT liable for any debts incurred by person‘s spouse including common
necessaries.
(4) § 915:
(a) A spousal or child support debt incurred during marriage is to be treated as a debt
arising
BEFORE marriage,
(b) If CP is applied to a debt in (a) where nonexempt SEPARATE INCOME (NOT
SP like
§914(b)) was available, the community gets reimbursement
3. Liability after division
(a) After division of the property at dissolution:
The SP of a person who incurred a debt by the PERSON before or during marriage IS
LIABLE for the debt regardless of WHETHER OR NOT the debt was assigned to be
paid by the spouse in the dissolution package.
The SP of a person IS NOT LIABLE for a debt incurred by the PERSON‘S SPOUSE
before or during marriage UNLESS the debt was assigned to the person in the
dissolution package.
The SP of a person IS LIABLE for a debt incurred by the PERSON‘S SPOUSE before or
during marriage IF the debt was assigned to be paid by the person in the dissolution
package.
(b) If a creditor hits up on the SP of a person under (a) for a debt that was assigned to be paid by
the spouse in
the dissolution package, the person‘s SP is entitled to:
Reimbursement,
Interest at the legal rate
Reasonable attorney‘s fees
4. General rules on reimbursement
(a) The right of reimbursement arises regardless of:
Which spouse put up property for the debt,
Whether the property was put up voluntarily or involuntarily,
Whether the debt is satisfied in whole or in part
(b) The measure of reimbursement is the value of the property at the time the right arises
(c) The right is to exercises at the earlier of:
Three years after the person learns that he/she had to use SP to satisfy the other bastard‘s
debt assignment,
The death of the spouse
III. Family Law Issues
A. Move-Away Cases:
1. Statutes
§ 7501: A parent entitled to the custody of a child may move away subject to the power of the
trial court to restrain a removal that would ―prejudice the rights or welfare of the child.‖
§ 3020(b): It is the public policy of the state that children have ―frequent and continuing
contact‖ with both parents and to encourage both to share the rights and responsibilities of
child rearing.‖
§ 3040: Order of preference for custody according to the child‘s best interest:
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(1) To both parents jointly or to either parent. The court must consider which parent is
more likely to allow the child contact with the other parent. The court may not
consider the gender of the parents.
(2) If not to either parent, then to someone in whose home the kid has been living in a
―wholesome and stable environment.‖
(3) If not to (1) or (2) then to anyone else the court believes can provide adequate care of
the kid
§ 3041: To grant custody to someone other than a parent without parental consent, the court must
show:
(4) Granting custody to a parent would be detrimental to the kid, AND
(5) Granting custody to a non-parent is in the kid‘s best interest.
2. Case Rules
Where the non-custodial parent requests a custody change when the custodial parent plans to move
away:
(1) The custodial parent must show a good faith reason for moving, She is not moving
for the purpose of depriving the non-custodial parent of his visitation rights.
(2) If the custodial parent meets this burden, the non-custodial must show that it is
essential or expedient for the welfare of the child that there be a change. (Burgess);
non custodial parent must show detriment to child.
i. Burgess: At dissolution, W wanted permanent physical custody of the 2 kids but expressed her
intention to
move 40 miles away. The trial court found it was in the best interest of the kids to move
away with W with H getting liberal visitation rights. The appellate court reversed saying
W bore the burden of proving that the move was ―necessary‖ for the custody request to
be granted and she failed to meet this burden.
Analysis: The standard of review for custody cases is abuse of discretion. Moreover, because we
are a mobile
society, and §7501 allows the parent with custody to move subject to the trial court‘s
discretion, W need not show the move was ―necessary.‖ The trial court must only
consider the effects of relocation on the ―best interests‖ of the kids. Furthermore, H bears
the burden of proving a change of custody is essential or expedient. Since W showed
that a move was better for her job, the kids would have better access to medical care,
extracurricular activities, private schools and day-care, and H admitted he visited there
often and offered no prove that W was moving just to ―harass‖ him, W met her burden
that the move was in good faith, and H failed to meet his burden. Previously, the
appellate courts were relying on FC § 3020 which required that public policy said there
had to be necessary. The effect would be to give one parent total custody.
Child’s Preference: Under § 3042 the Court can consider the child‘s preference if the
child is sufficiently is of sufficient age and capacity to reason so as to form an intelligent
preference as to custody.
Max Says: what if the parents had joint custody but they got into a pattern. Fn 12, p 180:
De Novo review if parents share joint physical custody.
Conclusion: Kids move with mama
ii. Edlund: W wanted to move to Indiana cuz cost of living was lower, school was better, more
family was
around, the home she could afford would be bigger (oh yeah…and her boyfriend had
moved there). The trial court found a change of custody was unwarranted cuz kids‘
relationship with ma was very strong, pa‘s day-to-day role in raising the kids was
minimal, pa‘s relationship with his girlfriend was shaky. This is despite a finding by a
child psychologist said that a non-move was in the kids‘ best interest and that it would be
detrimental for the kids to move.
Analysis: The trial court did not abuse its discretion in its findings.
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Conclusion: Kids move with mama
B. Move Away Case Rules
LaMusga - new case on move away. Cal Sup Ct. 32 Cal 4 th 1072
Lasich: International move away. Bond & internet to comply with Hague Convention; tougher for international
move away requrests.
In re Marriage of Moore
The principal issue to be decided in this case is the proper method of calculating the interest obtained by the
community as a result of payments made during marriage on the indebtedness secured by a deed of trust on a
residence which had been purchased by one of the parties before marriage.
The wife purchased a house in Menlo Park in April 1966, about eight months before the parties' marriage. The
purchase price was $56,640.57. She made a down payment of $16,640.57 and secured a loan for the balance of the
purchase price. She took title in her name alone as "Lydie S. Doak, a single woman." Prior to the marriage she made
seven monthly payments and reduced the principal loan balance by $245.18.
The parties lived in the house during their marriage and until their separation in June 1977. They made
payments during this time with community funds and reduced the loan principal by $5,986.20.
The trial court concluded that the residence was Lydie's separate property but that the community had an
interest in it by virtue of the community property payments made during the course of the parties' marriage. The trial
court further concluded that the community interest was to be determined according to the ratio that the reduction of
principal resulting from community funds bears to the reduction of principal from separate funds. No credit was
given for the amount paid for interest, taxes and insurance.
The Supreme Court affirmed:
Where community funds are used to make payments on property purchased by one of the spouses before
marriage "the rule developed through decisions in California gives to the community a pro tanto community
property interest in such property in the ratio that the payments on the purchase price with community funds
bear to the payments made with separate funds." (Forbes v. Forbes, supra, 118 Cal.App.2d 324, 325; see also
Bare v. Bare, 256 Cal.App.2d 684, 690, 64 Cal.Rptr. 335 (1967); In re Marriage of Jafeman, 29 Cal.App.3d
244, 257, 105 Cal.Rptr. 483 (1972); Estate of Neilson, 57 Cal.2d 733, 744, 22 Cal.Rptr. 1, 371 P.2d 745
(1962).) This rule has been commonly understood as excluding payments for interest and taxes. For example in
Bare v. Bare, the Court of Appeal directed the trial court to determine the increase in equity in the house during
marriage and the fair market value of it before and after the marriage, stating: "the community is entitled to a
minimum interest in the property represented by the ratio of the community investment to the total separate and
community investment in the property. In the event the fair market value has increased disproportionately to the
increase in equity the wife is entitled to participate in that increment in a similar proportion." (256 Cal.App.2d
at p. 690; accord In re Marriage of Jafeman, supra, 29 Cal.App.3d at pp. 256 to 257.)
Appellant argues, however, that interest and taxes should be included in the computation because they often
represent a substantial part of current home purchase payments. We do not agree. Since such expenditures do
not increase the equity value of the property they should not be considered in its division upon dissolution of
marriage. The value of real property is generally represented by the owners' equity in it, and the equity value
does not include finance charges or other expenses incurred to maintain the investment. Amounts paid for
interest, taxes and insurance do not contribute to the capital investment and are not considered part of it. A
variety of expenses may be incurred in the maintenance of investment property, but such expenses are not
considered in the valuation of the property except to the extent they may be relevant in determining its market
value from which in turn the owners' equity is derived by subtracting the outstanding obligation. Upon
dissolution, it is the court's duty to account for and divide the assets and the debts of the community. Payments
previously made for interest, taxes and insurance are neither. Moreover, if these items were considered to be
part of the community's interest, fairness would also require that the community be charged for its use of the
property.
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In summary, we find no basis for departing from the present rule which excludes amounts paid for interest,
taxes, and insurance from the calculation of the respective separate and community interests. We turn to that
calculation in this case.
Although many formulas have been suggested, we are not persuaded that any of them would be an
improvement over a formula based on the reasoning of In re Marriage of Aufmuth, 89 Cal.App.3d 446, 152
Cal.Rptr. 668 (1979), which was approved in In re Marriage of Lucas, 27 Cal.3d 808, 166 Cal.Rptr. 853, 614
P.2d 285 (1980). We were there concerned with determining the respective community and separate interests in
a residence purchased during marriage with a combination of community and separate funds where the
community contributed the loan and subsequent payments on it and there was an agreement or understanding
that the party contributing the separate property down payment was to retain a pro rata separate property interest
(Id. at pp. 816 to 817). The formula we used there recognized the economic value of the loan taken to purchase
the property. In the formula postulated in Lucas the proceeds of the loan were treated as a community property
contribution on the assumption that the loan was made on the strength of the community assets (Id. at pp. 816 to
817, fn. 3).
In the present situation, the loan was based on separate assets and was thus a separate property
contribution; the down payment was also a separate property contribution. Therefore under the Lucas/Aufmuth
formula the proceeds of the loan must be treated as a separate property contribution. Accordingly, the formula
would be applied as follows: The separate property percentage interest is determined by crediting the separate
property with the down payment and the full amount of the loan less the amount by which the community
property payments reduced the principal balance of the loan ($16,640.57 plus ($40,000 minus $5,986.20) equals
$50,654.37). This sum is divided by the purchase price for the separate property percentage share ($50,654.37
divided by $56,640.57 equals 89.43 percent). The separate property interest would be $109,901.16, which
represents the amount of capital appreciation attributable to the separate funds (89.43 percent of $103,359.43)
added to the amount of equity paid by separate funds ($17,466.82). The community property percentage interest
is found by dividing the amount by which community property payments reduced the principal by the purchase
price ($5,986.20 divided by $56,640.57 equals 10.57 percent). The community property share would be
$16,911.29, which represents the amount of capital appreciation attributable to community funds (10.57 percent
of $103,359.43) added to the amount of equity paid by community funds ($5,986.20).
IV. Questions:
(1) Does it take a writing to overcome the Moore/Marsden presumption?
(2) What‘s the deal with Financial Code §852 (99)?
(3) Do I need to use the factors in Buol (p 110) to look for a violation of Due Process or does the rank
injustice issue even extend beyond §4800?
(4) My notes say: ―The law today re: anti-Lucas legislation is that courts look to the date of the Trax (date
property was acquired) and NOT the date of separation, trial, or law was applied, etc
(5) What‘s the deal with the unimproved parcel in Heikes? It says §4800.1 was retroactively applied
because H had no vested interest since he acquired the property in joint tenancy. How is this different from
the other §4800.1 cases?
(6) § 910: The COMMUNITY is liable for debts incurred by either spouse BEFORE or during marriage
BUT
§ 911: The EARNINGS of a married person during marriage are not liable for a debt incurred by the
spouse BEFORE marriage
(7) What does § 125(b) mean? (the ―exchange‖ method of getting QCP)
(8) What the hell is the difference between the Probate Code and the Family Code re: QCP again?
(9) Does the Addison rule still apply to the QCP statute?
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A. Termination of the Estate by Death
QCP --> property of decedent (look to earnings of decedant)
CP --> property of either spouse
If decedant attempts to dispose of more than his ½, then the survivor has the survivor’s election:
they can take under the will or
take against the will.
o If so, the forfeit all gifts
o Example: H owns:
Bldg -- CP
Stock -- SP
Will leaves all CP to his children from a former marriage and the stock to his wife
Hypo #1 - Taking Against the Will
Bldg is worth $150k
Stock is worth $60k
According to his will he has given away more than 50% of the CP; the stock is his SP
Wife will elect to take half the CP; so she gets half the CP ($75k) but she forfeits the stock of $60k by taking against
the will.
Hypo #2 - Taking Under the Will
Bldg is worth $60k
Stock is worth $150k
If W exercises the election, she takes $30k and forfeits $150k. So, she should take under the will. So the children
will get 100% of the community property but she gets more value in the SP.
Max says: H has been given ability to give away more than 50% of the community
This is all Court made law
Today, the harsh penalty can be avoided by a petition to determine heirship before making the election.
Thursday, March 17, 2005
V. Review
General Presumption: property acquired during marriage is presumed to be CP. Jolly
Borrowed Money: depends on the intent of the lender. Grinius. SP requires exclusive intent to rely on one spouse.
Can‘t show form of mortgage as sole method of establishing SP. Ford p. 11. Loans made on personal credit w/o
collateral - proceeds are CP.
Transmutation: change in status of property. CP SP. § 852: writing is required. No history of the section is
required. Focus only on the current law. Must have an express declaration and spousal consent. This is different
from SOF. This doesn‘t necessarily require the signature of the party to be charged. If a person accepts the writing
it is enough. No others matter. Does not apply to de minimis gifts between spouses.
Peirara, See, Van Kamp, Lucas: know the case names.
Safe Deposit Boxes: P. 21 § 683.1 Civil Code. Safe deposit box agreement doesn‘t affect the contents of the safe
box. Contract for rental of box cannot change nature of property contained therein.
Anti-Lucas Exceptions: § 2581 & § 2640 Division of property on dissolution: if acquired in joint form, including
JT, TIC, etc. is presumed to be CP. Only applies on dissolution or separation. Does not apply to determination
upon death. To rebut: clear statement in document of title or other document. § 2640: Contributions to the
acquisition of the property. Contributions of SP to the acquisition of CP. Down payments, improvements, principal
payments. No tax, interest. Written waive required to rebut presumption of right to reimbursement, subject to
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tracing proof of contribution. No inflation factor. Amount of reimbursement is capped at net value of property at
time of division. If spouse owns property before marriage it‘s SP. If a spouse wants to execute a deed gifting the
property to both spouses as JT‘s, upon dissolution or legal separation, there must be a reimbursement for
contributions. So, husband is entitled to be reimbursed for his contribution to the community estate. So if he gifts
the $100k property and it‘s now worth $100k, he gets the $100k and she gets nothing. You have to take the value at
the time he gifted the property. Unless the property has gone up in value or increase in equity, the spouse usually
gets nothing. If the property value drops, no impact.
Commingling: presumed to be CP. De minimis applies.
Living Expense Presumption: See v. See: recapitulation theory. Living expense presumption withdrawal from
a CP account to pay living expenses is presumed to be living expenses. So, if you have a $2k account which was
funded w/ half CP, when the rent of $700 is paid, it is presumed that the $700 living expense comes out of the CP
half. So you get a $1300 account balance, only $300 of which is CP.
All withdrawals from a commingled account are presumed to be CP as long as the account has CP in it. The
exchange rule says that property acquired in an exchange assumes the same form as the consideration. So if you use
CP to buy property, the property is CP. If you acquire property therefore it is presumed that you acquired it with
CP. So now all withdrawals are presumed CP to the limit of CP available. Upon exhaustion only is it SP.
In See, the H and his accountant argued the recapitulation theory. They recapped all the community living expenses
during the marriage. They recapped all the community income during the marriage. They spent more than they
took in. So the H argued that since there has been an excess of C expenses over C income, it must mean that the C
is exhausted. Traynor said that this doesn‘t work. He said you have to look at the withdrawal as of the time it was
made. So, if the withdrawal was made during a time that there was no CP, it works. But you can‘t just add it all up
at the end of the marriage.
Epstein exception to See. After the parties separated, the pediatrician demanded payment or he would not treat the
kid anymore and he would sue for the amount owed. So, H paid the pediatrician out of earnings during separation
(SP). At time of trial H asks for reimbursement. W argues that SP expenditures for CP is gift under See. But H
argues that they were living apart and therefore the case was distinguishable from See. So, the Court agreed that the
general rule of See disallowing reimbursement for SP spent on CP is applicable only to parties living together.
Separated parties give rise to a presumption that the SP contributor is entitled to reimbursement, subject to 4
exceptions: (1) unilateral gift; (2) agreement w/ spouse; (3) person making payment had exclusive use of an
encumbered asset and amounts paid on that asset ≈ rental value; (4) payment is an aspect of support (look to the
support agreement)
Direct - Indirect Tracing: See v. See dealt only with living expense presumption. Mix cited See and said there are
2 permissible methods of tracing commingled funds. One method is the living expense doctrine (indirect tracing).
The other is direct tracing which is based on the intent of the withdrawer. No requirement that intent be
communicated to the other spouse. In Mix, W owned real estate prior to marriage; she continually traded in realty.
H wanted it as CP b/c acquired during marriage. But, Court held that W could not rely on inadequate written
records. However, W testified as to her intent and the COA said that the trial Court was entitled to believe her. She
never bought realty until she had sold realty. So, it was evident that she planned to trade in realty and that was good
support for her contention.
Goodwill: part of the value of a business. Cases have held, based on a statement in Fortier, you cannot value
goodwill of a professional practice based on the professional‘s earnings b/c such earnings may depend on the efforts
of the spouse. Efforts after dissolution are SP. You cannot value goodwill based on future expected earnings. P.
49, Foster, says that any legitimate manner which measures PV using past results is OK. So, only past history
counts.
Methods of Valuing Goodwill: (1) excess earnings approach what would this litigant earn compared to an
average person in his capacity. If he earned more than the market average salary would be, then he has excess
earnings to be capitalized; (2) rule of thumb multiplier of earnings. Excess earnings is used most often. 3
months net or 6 months gross is the normal heuristic.
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Reimbursement vs. Apportionment: Reimbursement means $-$; allocation is pro-rated. If property doubles in
value and you use pro-rating method, your portion rises and falls with the market. Reimbursement is a fixed
amount. If SP is used, then § 2640 kicks in and requires reimbursement (capped at net value of property). If SP is
used for the benefit of separate use of the other spouse or for the community, Bono (p. 83) would apply.
Bono says $-$ unless it is proved that the property increased in value, then there is a right to participate in the
increased value. So, if you contribute $25k of SP to the C, and the property goes up to $30k, then you get the $30k.
So, it‘s the amount contributed or market value, whichever is higher. Allocation (proration) is used if CP is
advanced for the necessity of SP, there is now a C interest in the SP up to the prorated contribution. So, if you use
SP to pay off 25% of the mortgage of SP, the C now owns 25% of the SP.
Education Expenses: C entitled to reimbursement of education expenses subject to the 10 year rule (>10 years,
presume C already benefited and vice versa). Only include direct education expenses. Can be considered for
spousal support calculations. Earnings after separation are SP. Not all $ coming in after separation is SP; it must be
earned after separation. So if the transaction is substantially complete prior to separation, then it‘s still CP. If you
are the holder of a note and you are receiving monthly payments; and you use the proceeds to pay C expenses, the
amounts are CP. Must be earned after separation to be SP.
Retroactivity: The enactment of a statute or an amendment which affects CP rights. GR no retroactivity. A law
cannot impair a vested right without due process. So, with due process, a party can be deprived of a right. The
doctrine against retroactivity is that statutes are not intended to be retroactive. Two key factors: (1) Intent of
Legislature (did they want retroactivity); and (2) If yes, did the Legislature have the constitutional power to do so?
Cases have held that a vested interest can be impaired if it‘s under the police power of the state. If it‘s necessary to
protect health, safety, welfare or general morals of the state or to further a sufficiently important state interest. i.e. to
cure a rank injustice in the law. To the extent impaired, how much reliance was placed on the old law and was it
reasonable? Used to be that the post-separation earnings of the W were SP but H‘s were CP. Then the statute was
amended to say that either spouse‘s earnings during separation are SP. State interest was equitibale division of the
community under the equitable distribution mandate. This was a rank injustice (W getting to keep SP but not H.)
The big fights in retroactivity involved the anti-Lucas statutes. The Court held that those statutes did not cure a rank
injustice. Cairo held that the compelling state interest claimed by the legislature still did not cure a rank injustice.
Saying so doesn‘t make it so.
Foreign Property: Purchasing out of state realty in title states with CP. Problems with enforcing CP judgments in
non-CP (title) states. Full faith and credit clause cannot function to undermine the laws of another state. North
Dakota Supreme Court held that North Dakota is bound by the full faith and credit clause to recognize the CP. The
key is the domicile of the purchaser at the time of the purchase. So, if you‘re domiciled in California and you buy
land in ND, it‘s CP. So, ND said that the property should be divided as CP, but they split it in half. They wouldn‘t
allow California law to determine the amount of division; just the fact that it had to be divided.
Division of Real Property Located In Another State: Statute passed after the ND case. If possible, divide so as
to not deal with foreign property, if possible. Just pay off the spouse with the foreign land out of other assets so that
you don‘t have to deal with other state laws, if possible. If not possible, the Court may: (a) require the parties to
execute conveyances (entitled to full faith & credit only if it‘s a mandatory injunction for specific performance); (b)
award to the party who would have been benefited by the conveyance, the $ value of the conveyance. P. 149.
Pereira and Van Camp
Increase of SP Business Due to Efforts During Marriage: Has been held appliable only to businesses. Rents,
issues and profits of SP are SP. But increases in value due to C efforts are CP. In Pereira the Court said that even if
he owned the business before the marriage, they would apportion the increase in value. Increase = SP + SP.
I - SP = CP Van Camp
I - CP = SP Pereira
Van Camp I = reasonable value of his services. The rest is just math.
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Pereira at least the annual rate of return. So take annual rate of return x # of years of marriage. Court determines
the amount of the increase (I) and the SP. The CP is just the residue, an arithmetic calculation.
Choosing between Van Camp and Pereira: choose based on interests of justice. Trial Courts always upheld.
Remember that a transmutation changes the character of the community. Here we are only talking about the
increase in value of the business. Don‘t use if value decreases.
Supremacy Clause: Article VI provides that where federal law is inconsistent with state law, federal law is
supreme. This can be waived. The federal government is allowed to state that it does not intend to preempt a field;
then jurisdiction would be concurrent. But Congress hasn‘t said whether or not they plan to preempt the field so we
have a lot of cases on this issue. As it stands now, military pensions are exclusively SP of the person who rendered
the service. GI insurance as well. Social Security as well (Cal. Ct. App.). Federal copyright act says that the
originator of the idea owns the copyright. But, some California cases say it‘s CP. Worth. Involved the game
―trivial pursuit.‖ Because copyrights are transferrable property, the Court held that it should be treated like all other
community property.
Quasi-CP: Addison p. 5 of second file. QCP held to be constitutional. Property acquired while domiciled
elsewhere which would have been CP if acquired in while the person who acquired it was domiciled in California.
Roche held that both spouses must move to California in order for the QCP law to be valid. In Roche H & W were
living in Pennsylvania. H moved to California. He sued for divorce in California. Court held that the property was
not QCP because both spouses had not moved to California. § 125 defines QCP for property acquired by both
spouses. Probate Code § 66 defines QCP for property acquired by only the decedant.
Liability For Debt: MUST KNOW FOR EXAM
Quasi Marital Property: QMP arises from a good faith belief in the validity of the marriage. Good faith is an
honest belief which is objectively reasonable in a valid California marriage. Vryonis held that a good faith belief in
a Muslim marriage was ineffective because the statute requires belief in a valid marriage under California law.
Marvin: p. 59 Family law act provisions do not govern property acquired outside of marriage. Such co-habitation
cases must be determined by the Courts under general contract law unless the contract is an illegal contract for sex.
Court must look at the mutual intent of the parties.
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