Community Property Outline-Skippy-2007 I. Intro A. Community property states 1) CA, AZ, NM, TX, ID, WA B. Basic Principles of CA’s Community property system 1) Tracing Principle a. property acquisitions are traced back to their original source b. § 760-defines CP i. all property real or personal acquired by a married person while domiciled in this state c. § 770-defines SP i. all property owned by a person before marriage ii. all property after marriage acquired by: (a) Gift, bequest, devise, or descent iii. rent, issues and profits of SP (a) ex. If you own a horse before marriage, get married and that horse has a full, it’s SP (b) comes from George v. Ransom- fruits of separate property are traced to the source and classified accordingly (c) contrary example: -wife W owns farm as SP -H carries on farming operations which produce a crop & crop is sold -crops are CP-H did work to create profit 2) Equality of Interest a. CP is family property in which both spouses have equal interest b. Stewart v. Stewart-appellate court ruled W didn’t own half of the marital property in a quiet title action i. Legislature then enacted forerunner of CA family code §751 which states: (a) the respective interests of H&W in CP during the continuance of the marriage relation are present, existing and equal interests c. it wasn’t until 1975 that ownership itself was shared equally by both spouses 3) Transmutation/Inter-spousal agreements a. changing CP to SP and vice verse b. FC 850-transmutation by agreement or transfer (can be made w/ or w/out consideration) i. transmute CP to SP of either spouse ii. transmute SP of either spouse to CP iii. transmute SP of one spouse to SP to other spouse (a) says nothing @ requirement of a writing
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c. 852(a)-writing requirement i. January 1, 1985-law changed, writing required ii. express declaration, indicating an intent to transfer d. Want: i. agreement that is voluntary ii. does not encourage divorce e. No consideration needed for any enforceable marital contracts i. Borelli v. Brusseau-wife cares for husband while he is dying and promises to exchange property because of this but never does it before death (a) court won’t allow this, caring for a sick spouse is part of marital duty ii. can’t agree to raise a kid in certain faith-unenforceable f. Section 1615(c) i. it shall be deemed that a premarital agreement wasn’t executed voluntarily unless the court finds in writing or on the record: 1- party against whom enforcement s sought was represented by independent legal counsel at the time of signing 2-must give at least 7 days between agreement shown and signed 3-party against whom enforcement is sought, if not represented by legal counsel, must be fully informed and proficient in the language of the agreement g. can’t transfer assets to avoid creditors i. can’t use as a fraudulent conveyance h. Section 853-statement in the will cannot be used as to the classification of property before the person who wrote a will dies II. Classification of Property A. Acquisition During Marriage 1) General presumption is that property acquired during marriage is CP a. Even if title in one spouse’s name, as long as acquired during marriage, presumption of CP i. rebuttable presumption b. Estate of Jolly i. H& W married, H dies, and W lives for 12 more years ii. She lives off money they had acquired during marriage iii. When she died, since the assets were CP, 50% went to H’s heirs, and 50% went to W’s heirs 2) Rebuttal of the general presumption by tracing a. Freese v. Hibernia Savings and Loan
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i. the proceeds of the sales of the SP have been traced clearly enough to show that the $$ on deposit w/ defendant bank at the time of W’s death was her SP (1) presumption rebutted by clear tracing to SP 3) Common Statutory Presumptions respecting separate property a. rebutting of general presumption by direct or circumstantial evidence b. Family Code Section 802 i. the presumption that property acquired during marriage is CP does not apply to any property to which legal or equitable title is held by a person at the time of the person’s death if the marriage during which the property was acquired was terminated by dissolution of marriage more than 4 years before death c. Family code section 770 i. separate property of married person if: (1) acquired before marriage (2) during marriage, or by gift, bequest, devise or descent d. Family Code section 771 i. earnings and accumulations during period of separation (1) presumed SP when living separate or apart e. Property right takes on the character of the recipient’s status when the right was received i. Estate of Clark-right to challenge will came before he was married, even though settlement came while married…settlement is sp ii. Downer v. Bramet-H given ranch after divorce from employer, but because ranch was received for efforts/services rendered during marriage, there is a CP element…needs apportionment f. Test to establish date of separation (In re Marriage of Hardin) i. parting of ways ii. evidence of a complete break 4) Special Presumptions based on the form of title a. Acquisitions by a married woman i. Section 803-presumption that prior to Jan. 1, 1975, when a married woman takes property in her name, it’s separate property (a) even though no longer in effect, still need to know because there is still some property out there classified as SP for this reason (b) this is a rebuttable presumption (c) not a popular presumption, courts often would go out of their way to avoid the presumption b. Concurrent Estates
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i. FC 750- H&W can hold property as JT (or TIC) or CP (or CP w/ RoS) ii. Joint Tenancy (a) at death goes to other JT, avoid probate (b) trap-in JT, only stepped up as to half of the property…would then have to realize gain if sold of ½ the price of the property iii. Holding as community property (a) at death, when spouse dies (i) if will, half goes to the will (ii) if no will, all goes to surviving spouse (b) the surviving spouse gets a stepped up basis as to the entire amount of the property iv. Character of property set forth in the deed (JT or CP) (a) rebuttable presumption (b) must be rebutted by agreement v. Even where JT is intended and established, one joint tenant can effect a severance of the JT, resulting in a tenancy in common (a) can be accomplished by a direct testamentary stmt (will) (b) Requirements for severance in Civil Code Sec. 683.2 (c) same severance reqs now apply to the new CP w/ right of survivorship form of title vi. Marriage of Lucas, decision focused on application of: (a) Civil Code Sec. 5110-when property held by H&W during marriage as singe family resident, is presumed to be CP w/out regard to the form in the deed (i) this is a rebuttable presumption (ii) how can the presumption be rebutted-by an agreement, after 1985, must be in writing vi. Legislatures unhappy w/ result in Marriage of Lucas and came up w/ 3 new provisions to the family code (a) §2580-there is a compelling state interest to provide for a uniform treatment of property (b) § 2581-for purposes of division of property on dissolution of marriage, property acquired during marriage in joint form is presumed to be CP (i) changes 5110 used in Marriage of Lucas b/c is applies to all property, not just residences (ii) presumptions may be rebutted by (1) a clear statement in the deed (2) written agreement (c) § 2640(i) contributions to the acquisition of property include down payments, payments for improvements, and payments that reduce the principal of a loan
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unless there is a waiver, the party shall be reimbursed for the party’s contributions to the property to the extent the party traces the contributions to a separate property source vii. Civil Code Section §682.1(a)-hybrid of JT and CP (a) community property with the right of survivorship (b) get the same tax benefit of stepped up basis for both parts of the property (c) also, get to avoid probate like under joint tenancy III. Limitations on the Classification Process 1) Property within the system A. Things that are not CP in a marriage: i. value of professional education a. Why not treated as CP (Todd v. Todd): (1) giving future earnings (2) dissolution should have finality-if looking to post dissolution earnings, violates this (3) hard to determine-valuation too difficult ii. license to practice in a certain field iii. copyright that comes out of a work done during marriage is CP B. What is CP: i. value of your practice a. Marriage of Lopez-how do you value law practice (1) Most of the practice is good will, factors to consider: (i) look at the partnership agreementmostly based on good will & reputation Mr. Lopez built (ii) age, health, past earnings (2) what should not be considered (i) expectation of future earnings (a) reality-almost impossible not to look @ future earnings, esp. when a business is not being liquidated C. FC Section 2627 i. separate education during marriage gets benefit of education ii. but, upon dissolution, only that person is responsible for the loans resulting from that education D. FC Section 2641 i. the community shall be reimbursed for community contributions to education or training of a party that substantially enhances the earning capacity of the party
(ii)
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a. Marriage of Watt-can only be reimbursed for actual cost of education: tuition, supplies, books, etc…not the living expenses, would have had those anyways ii. this is the exclusive remedy for professional education or training iii. can be overridden by an express agreement of the parties E. Insurance i. Term life insurance a. if you die after term is up, you get no $$ b. usually paid for by employer c. don’t have to take a physical, etc. b/c all you have to do is be employed d. term life insurance policy is not a CP property asset after expiration of the term acquired w/ CP funds e. Spengler case (1) the renewal right aspect of an employment related group term life insurance policy is not property subject to division in marital dissolution where the employee has no enforceable right to renewal ii. Whole life insurance a. to the extent that CP funds are put into premiums, the cash surrender value that has accumulated is CP b. must be apportioned based on who pays premiums 2) Persons within the system A. Putative spouses i. FC 2251-a good faith belief in the validity of the marriage relationship is a requisite to the operation of the quasi marital property system a. Came out of Coats case b. One or both spouses believed in good faith they were married c. Quasi marital property is like CP (1) Estate of Leslie-putative spouses, married in Mx (2) a surviving pustative spouse is entitled to succeed to a share of his/her decedent spouse’s SP; same as if valid marriage ii. FC 300-marriage is a civil k between a man & a woman. Consent must be followed by the issuance of a license and solemnization. Equitable Estoppel a. Person estopped from asserting right as a legal spouse: (1) H&W married, never divorce, marry new people (2) New marriages are void
iii.
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(3) When original wife dies after her new void H, original H claims stake in her estate…he’s equitably estopped b/c he was in a new marriage ceremony iv. As between putative and legal spouse a. ½ goes to putative spouse and kids, other ½ to legal spouse and kids b. Estate of Hafner-left wife and kids in NY, no divorce & married new wife and had new family (1) ½ went to original wife & kids, & ½ to putative spouse v. No belief valid marriage/cohabitating partners a. Vallera v. Vallera-have an agreement to act as husband and wife and cohabitate and share earnings and accumulations (1) since no agreement to property rights, Marian does not have a right by agreement or as a good faith putative spouse b. Marvin v. Marvin-oral agreement to share earnings during time together and acted as husband and wife (1) there can be an oral agreement (2) there can be an implied agreement by cohabitating partners (3) can’t bring a Marvin type action for an implied in fact contract w/out cohabitation vi. Limits on cohabitating partners a. surviving cohabitating partner cannot be a wrongful death action on behalf of deceased b. if one cohabitating partner is hurt, can NOT bring an action for loss of consortium vii. Important dates for cohabitating partners a. 1/01/2000-date when domestic partners could register their partnership w/ the state (1) before this Marvin controlled (2) didn’t give property rights to the other party’s property b. 1/01/2000-1/01/2005 (1) gave hospital visitation rights (2) gave shared medical insurance rights c. 7/01/2003-1/01/2005 (1) gave property rights to registered domestic partners (i) only took effect upon death of domestic partner (2) gave surviving domestic partner same rights in the separate property of the domestic partner who died intestate (i) separate property only exists in a married CP situation, so this must mean SP that would have been if there was a marriage
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d. Post 1/01/05 (1) domestic partners have the same rights as married couples have under the CP system (2) problem of retroactivity-legislature didn’t know if it should be applied prospectively or retroactively (3) EX. P1 puts $100k as a down payment received from inheritance, partners split in 2007, house for $1M (i) if legislation applied retroactively: property is treated as it would have been treated under CP system in effect at that time (ii) case of Lucas, legislature response to this p. 118; no statement in deed except want to take property as JT (iii) look to 2640-the party shall be reimbursed for the party’s contributions to the property to the extent the party traces the contributions to a separate property source (the inheritance) (iv) this would mean P1 gets 100k + 450k=550k, P2 gets 450k (v) if not retroactive, because they are in JT, would be split equally B. The Domicile Requirement 1) law of the property of the married couple is based on where the couple was domiciled when the land was acquired a. Rozan v. Rozan- acquired property in ND after becoming domiciled in CA; money earned for property while domiciled in CA, thus CP b. FC 2660-treis to get the courts to avoid changing title of out of state title holdings when dividing property and quasi CP b. Grappo v. Coventry Financial-wife acquired property as SP in 1977, and in 1977 they were CA domiciliaries, so CA law controls…it was properly her SP 3) Constitutional Limitations A. Due Process and Privileges and Immunities Clauses 1) Non retroactivity is the standard; though this has wavered over time a. Estate of Thorton-famous for striking down initial quasi CP statute in the state i. rules that the law was unconstitutional ii. moving across the state line and becoming a domiciliary changed the character of property iii. this would be a retroactive application of the law b. Addison v. Addison-saved up to 140k in Illinois and moved to CA; Leona files for divorce & wants her share of marital property
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i. Law: the concept of quasi CP is applicable only if a divorce or separate maintenance action is filed here after the parties have become domiciled in this state. (a) these acts or events are not necessarily connected to a change of domicile at all ii. the divorce in this case is what changed it to quasi CP 2) FC 125-tells us what quasi community property is: a. property acquired out of state, who after the acquisition of the property move to CA and become CA domiciliaries b. property which would have been CP had they been CA domiciliaries at the time of the acquisition B. Retroactivity Problems 1) Marriage of Bouqueta. separate on 3/2/69 and marriage dissolved on May 26, 1972 b. today’s law-FC 771-after separation all earnings are SP, this amendment made on 3/4/72 c. prior to this amendment-when there as a separation-earnings of the wife were her SP, though earnings of the husband remained CP until divorce d. this amendment calls for retroactive application i. why-due process, inherently unfair f. when determining whether a retroactive law breaches the due process clause, look to the following factors: i. the significance of the state interest served by the law ii. the importance of the retroactive application of the law to the effectuation of that interest iii. the extent of action taken on the basis of that reliance iv. the extent to which the retroactive application of the new law would disrupt those actions 2) FC 2640-if SP used for down payment, at dissolution when property sold will be reimbursed the actual amount put in, available after 1984 a. In re Marriage of Heikes-2640 not applied retroactively b. acquisition before amendment, will be treated as if party contributing SP made a gift to the community c. Buol case-sup. crt rejected retroactive application of FC 2581 d. legislature passed urgency legislation that was found unconstitutional in Heikes; no retroactive application allowed C. The Supremacy Clause-article 6 in Constitution 1) Wissner v. Wissner a. Major Wissner bought Nat’l life insurance plan and though married, he was separated and named mom as beneficiary b. He never gets divorced, wife claims CP interest in the claim c. supreme court rules in Mom’s favor: i. inured has a right to designate beneficiary ii. the federal right supercedes property right of any state 2) Wissner was such a jolt to CP, that CA reacted with statute:
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a. That if sufficient community assets exist aside from the policy, the trial court may award the other spouse an amount there from equivalent to his or her community interest in the policy 3) Then came ERISA-employee retirement security act a. amendment-QDRO-qualified domestic relation orders-are not preempted by ERISA 4) Boggs v. Boggs a. W1 and H marry, have son, W1 dies, H married W2 b. H retires, has lump savings plan which he rolls into an IRA, gets 1700 a month in penchant c. H dies, leaving everything to W2 d. W2 seeks a declaratory judgment that the preemption of ERISA will cut off the son’s property claim…W2 wins IV. Selected Problems in Classification A. Commingled Funds 1) Presumption that property during marriage is CP a. See v. See-H tried to use exhaustion method to prove that funds in bank account were SP (community expenses >comm. Income) i. party trying to prove SP during marriage has the burden of proof…H lost in this case, funds were CP b. exhaustion method can also be applied to termination of marriage by death c. In re Marriage of Mix i. commingled bank accounts, divorce, use tracing method ii. W introduced a schedule itemizing SP pruchsages and funds and $$ remaining iii. court found schedule insufficient, but W testified that the schedules were accurate, so W won, carried her burden d. Marriage of Frick i. used comm.. funds to reduce mortgage on SP hotel ii. commingling was the mortgage payments were made from an account w/ commingled funds iii. H loses-community funds of the bank account e. Courts decline to apply general presumption when commingling was minimal during life…doesn’t count f. Gambling winning during marriage=CP B. Business Profits -2 ways of determining what is CP and what is CP 1) Pereira-1909 (see steps under hypo) a. when to use this i. if increase due to separate property capital ii. reasonable return on investment b. 15,500 SP initial investment 6,012.70 (entitled to reasonable return on investment, ie 7%) __________ 21,5720 is SP of the 40k of business profits
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40,000-21,5720.70=18,487.30 is CP to be divided 2) Van Camp-1921 a. attach a reasonable value to the H or W’s service during marriage and that becomes the CP component during the marriage b. when to use this method i. was the increase due to the spouse’s efforts 3) Hypo a. H& W marry in 1955 b. put 100k into business in 1995 c. in 2000 H&W separate, still worth 100k-W is the operator d. Business worth 500k in 2007 when they divorce e. How will the 500k be split up? i. will use Van Kamp or Periera in reverse ii. was it something W did as the operator or something traced back to the community while they were married f. Periera is the one that fits, in a reverse way-reasonable return on investment i. the initial 100k was sp (50k belonged to W, 50k to H) g. Apply Periera in reverse because business started w/ CP funds h. Steps to take for Periera i. establish capital account based on initial investment (50k invested initially by each party) ii. value a reasonable return on the initial investment to account for time value of $ and risk (ie 10% compound) iii. add that to each party’s initial capital account iv. for the operators, value their labor contribution per what the market bears over the term of the biz until divorce v. add that to each individual’s capital account vi. subtract capital accounts from the total valuation at the time of divorce and the remaining net is CP and split vii. each party gets an amount= to capital acct +their portion of CP 4) Imperato case a. value of the business not at time of sep, but time of divorce b. this is a reverse situation from Periera and Van Camp, not a business starting off as SP, we have a business starting off as CP, then look at the different elements C. Installment and Credit Acquisitions 1) Acquisitions in Installment Transactions a. HYPO: W buys a property worth 200k i. W puts 40k down of SP, then gets married ii. H&W payoff the remaining 160k iii. property worth 500k at time of divorce iv. how does money get divided
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(a) under Vieux case (b) she gets 20% of the total value + CP interest (c) 20% of the entire value is 100k, so CP is 400k (d) 400k gets split, H gets 200k, W gets 300k b. Vieux v. Vieux i. court took into consideration the interest payments made ii. payment of taxes and interest paid included in case was disapproved in CA for purposes of apportionment of proceeds 2) Borrowed Funds and Credit Acquisitions a. Gudelj v. Gudelj i. one word change betw. this case and Grinius below ii. issue: was the lender lending to one spouse (thus SP) or to the community, which would make it CP iii. presumption: property acquired on credit during marriage is CP; to overcome the presumption you have to prove that the seller primarily relied on the purchaser’s separate property b. Grinius i. changes Gudelj-presumption may be overcome by showing a lender was relying solely on the one spouse’s sp in repaying the loan and did do so (a) this means the presumption will never be overcome ii. stakes higher in this case, H is trying to est as SP & fails c. Bank of CA v. Connolly i. Mr. Latimer and Kelber owned ton of property in Ontario ii. agreement between Latimer & Kelber w/ Connolly & Seward to share profits iii. widow of Connolly comes in-claiming property was CP iv. widow wins-lenders were making loans to community c. Moore case i. Moore buys house as her SP for 56k, loan is her SP ii. makes a few payments on mortgage then gets married iii. Gets married, make payments together for 11 years iv. separate, W is making payments w/ SP v. at time of divorce, property valued @ 160, 104k increase vi. apportionment used by the supreme court: CP interest=amount of reduction in the mortgage attributable to CP payments *called the principle only reduction (doesn’t include taxes or interest) CP=Reduction of principle = 6,000 = about 10% Purchase price 56,000 CP interest= 10% x equity (160,000-34,000) + reduction in principle 10% x 126,000= 12,600+6000=18,600
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Wife SP
Ex 1995 100,000 PP 20,000 down 80,000 mortgage 2000 200,000 FMV 70,000 mortgage 2007 500,000 FMV 50,000 mortgage
Marries H
Divorce
CP Interest= 20,000 ---------- = 20% 100,000 there is no right to premarital appreciation, so use post marital appreciation 20% x 300,000=60,000+20,000(amt principal paid down)=80k d. In Frick i. Mr. Frick wanted to the value at the time of marriage to be used instead of the purchase price ii. Frick want CP interest = 20,000 200k iii. court say NO way e. Marriage of Walrath i. Gilbert owned house in Lucerne as sp, got married, then changed title to JT, took out a second loan of 180k, went into other props ii. tracing authorized here by the majority is the percentage in the initial property applied to other properties iii. 2460(b) allows tracing to go into properties that have been purchased as a result of the SP D. The Classification of Improvements -Classified in 2 separate ways: 1-CP used to improve SP (more traditional) 2-SP used to improve CP, if after 1984, apply 2640 1) Improvements to Separate Property a. Marriage of Wolfe, p. 330 i. H had to reimburse wife on improvements from cp funds for sp (a) didn’t have to reimburse for taxes for sp ii. because improvements on sp are reimbursable, get any appreciation b. Allen case note-split n district courts whether use of community funds for pay taxes does or does not result in a reimbursement i. Allen does have to reimburse wife for her share of the taxes 2) Improvements to Community Property
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a. In re Marriage of Smith i. W inherits money-uses for down payment & builds a pool @ family house ii. while she’s out of town, H uses some $$ to buy cutter for fam. business for 19k iii. b/c these dates were before 1984, 2640 didn’t apply yet (a) if it was post 2640-Mrs. Smith would have been reimbu. E. Personal Injury Damage Awards 1) Family code Section 780a. money received in satisfaction of a judgment or pursuant to an agreement to settle is CP if cause for action arose during marriage i. in re Marriage of Devlin-H got in accident while married and won a suit for 175k; this counts as CP b/c they are married ii. the 175k went to paying for a mobile home to be equipped w/ things needed for someone who is a paraplegic only awarded to Mr. Devlin b. upon dissolution, damages are subject to separate assignment-see 2603 2) Section 781 a. is considered sp f the cause of action arises after the entry of a judgment b. considered sp if living separate 3) Section 2603 a. when dissolution occurs, this controls, considered sp b. (b) community estate personal injury damages shall be assigned to the party who suffered the injured unless the court determines the interest of justice requires another disposition F. Employment Related Benefits 1) Retirement Benefits a. HYPO: H&W-1985 get married 1990 H goes to work for company XYZ 1995 penchant vests 2007 dissolution and penchant is worth 500k i. What are W’s rights in the penchant? ii. because the penchant was due to work entirely earned during the marriage & b/c it is vested and has an actual known numerical amount of 500k, W has a CP 50% interest iii. penchant has not matured until you start drawing on it, after you retire b. Defined contribution plan v. defined benefit plan i. defined contribution plans are easier to value b/c the plan keeps track of your contribution c. Hypo 2: 1995 marriage 2002 XYZ corporation 2006 dissolution-penchant has not yet vested i. harder situation, since the penchant has not vested
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ii. French v. French-from 1941-1976-non-vested penchant rights are a mere expectancy and not a property right to be divided at dissolution iii. Brown case-overturned French case-pension rights constitute property…non-vested penchant plans are a contingent interest in property d. Marriage of Bergman i. H unhappy because he wanted penchant divided in kind, though it was awarded cash-out ii. cash out-the entire community interest at its present value is awarded to the employee spouse with offsetting assets awarded to the other spouse to accomplish an equal division iii. in-kind- the community interest is divided between the parties and the plan, when benefits become payable, usually makes separate payments to each according to their proportionate interest e. court has discretion in which way to divide assets i. the abuse of discretion standard is used on appeal f. In re Marriage of Gilmore i. a unilateral choice to postpone retirement cannot be manipulated as to impair a spouse’s interest in retirement benefits ii. federal spousal support can be adjusted to make up for the penchant paid early iii. non-employee spouse’s share of penchant is fixed once the employee spouse reaches retirement age, except for an increase in living costs g. Wait v. Wait i. terminable interest rule-when you die, surviving spouse got your share under the theory that the penchant was for support ii. legislature changed this rule: h. FC 2610-Retirement plans: orders to ensure benefits i. order the disposition of payments in a manner consistent w/ 2550 ii. this means the penchant goes to the deceased spouse’s estate once the employee spouse dies (not automatically to spouse) i. Marriage of Lehman i. H&W married, H starts working for company, H&W split &W keeps working for company ii. W is offered early retirement package (a) Majority: not a new benefit, just a modification of an exiting benefit (b) Dissent: the early retirement package was a separate contract where an offer was made & accepted after marriage was over iii. a non-employee spouse owns a CP interest in an employee spouse’s retirement benefits under such a plan owns a CP interest in the latter’s retirement benefits as enhanced
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the community owns all such rights attributable to employment during marriage before separation j. Does non-employee spouse have an interest in a severance allowance received upon employee spouse being laid off? i. No-In re Marriage of Lawson-it’s the employee spouse’s SP b/c separate contractual dealing k. In re Marriage of Hug i. H offered major stock options to leave & work for new company (a) H starts working at the company 2 years before stock actually granted ii. on dissolution, how are stock options allocated? (a) trial court started the running of the CP rights of the stock when he started working at the company b/c looked at the purpose of the company granting him the stock l. Ex: If H gets a bonus on Dec. 24th and H&W separate on Dec. 25th, the bonus would count as (look at purpose for awarding bonus): i. CP if a reward for prior service ii. SP if used to try to keep him for next week 2) Disability Benefits a. Elfmont and Saslow cases i. both involved doctors buying disability insurance ii. both started buying insurance while married, paid w/ CP funds iii. both term policies, lapse every 3 months w/ right to renew iv. multiple renewals in both cases v. Dr. Saslaw-became disabled while still married (a) all disability was paid w/ CP, then got separated (b) how do you apportion the proceeds for future, CP&SP (c) look at the intent of the policies, what are they protecting against: (1) in lieu of retirement benefits (2) in lieu of earnings (d) so in Saslow, S. Crt held that to the extent the proceeds were retirement benefits=CP, & to the extent post separation earnings=SP vi. How does Elfmont eiffer (a) disability occurs after sep., some prems not paid w/ CP (b) Elfmont had 3 separate policies (c) Elfmont appealed after a lower court decision that some of proceeds were CP, he won, all of the policies were for after marriage, Elfmont gets everything (1) concurring-Saslaw shouldn’t be accepted, plans are only to protect future earnings, not retirement (2) dissent-only right of renewal came from the time when he was married, he would have never been able to get the same type of disability insurance
iv.
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V. Spousal Management and Creditors Rights A. Spousal Management 1) CA Family code § 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 therefore if the marriage did not exist b. The liability of a married person for death or injury to a person or property shall be satisfied as follows: i. 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 SP of the married person ii. 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 the community, the liability shall first be satisfied from the SP of the married person and 2nd fro 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 SP. 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 2) FC Section 721-Contracts w/ each other & third parties; fiduciary reltsp a. spouses can enter into transactions regarding property they would have been able to if unmarried b. H&W are subject to fiduciary relationship, same right & duties as to nonmarital business partners. This confid. relationship of marriage requires highest good faith and fair dealing i. provide access to spouse at all times ii. rendering upon request full info on anythng affecting CP iii. accounting to the spouse as a trust any benefit or profit 3) CA Family Code 1100-Management & control of community assets a. general rule: either party has the same absolute power of disposition, other than testamentary, over CP as they do over SP, except: i. no gifting ii. no selling for less than fair and reasonable value iii. without written consent of spouse b. No selling or encumbering community personal property used as the family dwelling or clothing or apparel of spouse c. Spouse managing a business that it all or substantially all community personal property has the primary management and control of the business. Managing spouse may act alone, but
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must give prior written notice to the other spouse of disposition of all or substantially all of the business 4) CA Family Code Sec. 1101-Calim for breach of fiduciary duty; court ordered accounting; addition of name of spouse to CP; limitations of action; consent of spouse not required; remedies a. claim by spouse to transaction(s) that has or will cause a detrimental impact to the claimant spouse’s undivided one-half interest in the community estate b. a court may order an accounting of assets and obligations c. a court may order the name of spouse be added to CP except: i. a partnership interest held as a general partnership ii. an interest in professional corp or prof. association iii. an unincorporated biz. if spouse only partner iv. any other property that could affect 3rd party d. an action under (a) must be commenced w/in three years of the claimant spouse having actual knowledge of event/transaction 5) Tyre v. Aetna Life Insurance a. Rule: a policy of insurance on the husband’s life is community property when the premiums have been paid w/ community funds b. Rule: if the primary beneficiary of a life insurance policy disqualifies himself, the proceeds are payable to the alternate named beneficiary and not to the insured estate event though the alternate beneficiary’s interest was conditioned upon surviving the primary beneficiary as well as the insured 6) Marriage of Stitt a. Issue: is the community responsible for attorney’s fees that one spouse incurs in their own defense b. Rule: a married person is generally not liable for the damages cause by a tortfeasor spouse FC 1000 c. Sub-rule: creditors must first satisfy against SP, then creditors may step into the shoes of spouse and take control of CP interest d. Held: individual spouse solely responsible, but has both SP & CP assets 7) Weinberg v. Weinberg (p. 455) a. husband must pay alimony to first wife out of community property in second marriage 8) Duffy Case p. 456 a. issue of whether H breached his fiduciary duty, under 721 i. trial court said yes, judgment reversed on appeal b. H says evidence insufficient to show breach of fiduciary duty of full disclosure c. second part is about duty of care i. there was no duty of care ii. husband has a self interest iii. b/c H has a financial stake in what is being managed, should not be held to the same standard as a trustee
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9) Reaction to Duffy a. Legislature unhappy w/ result, and therefore changed Sec. 721 b. amended it to include language: “included but not limited to the following” before the 3 standards of 721, so that if this situation happens again, the managing spouse will have duties beyond those just enumerated in section 721 10) Wilcox v. Wilcox a. wife hiding $$ from H ; H claims he has a right to manage b. Section 1101-remedies available to a spouse who is being deprived from a cp right i. right to have that cp right litigated w/out having your marriage dissolved ii. he has a right to get an accounting 11) Marriage of Reuling- p. 469 a. H managing spouse, stock took a major dip, H had inside info b. Securities law transcends CP law, so H is exonerated from having to let wife in on what inside info is going on B. Recapture and Reimbursement Proceedings 1) Spreckles case a. Spreckles very rich & gave millions to his youngest son Rudy b. statute: managing spouse can only give a gift w/ consent of other spouse c. H dies, wife contests gifts to Rudy but looses, why: -these gift w/out consent of the managing spouse are not void, but voidable -W had knowledge that the gifts had been made-so her SOL started running d. court concludes that she did have knowledge b/c she left her son out of her will and the will was made a few months after her son received the gift 2) court in Spreckles left open whether the cause of action survives the non-consenting spouse a. later case decided that the cause of action by non-managing spouse survives that individual 3) Today, written consent is required from non-managing spouse in order to give a gift of CP by the managing spouse 4) Estate of Wilson a. H had many children & W did not find out he had trust set up for each of them until he died & she opened the safe b. kids claim that under 201, W is entitled to ½ of all of the CP c. This is not the correct reading of 201, the spouse has a ½ interest in each asset of CP d. Probate Code 100 and 520 amended after Wilson i. PC 100-H&W may agree in writing to a pro rata division.
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ii. PC 5020-a non-probate transfer of CP on death that is executed w/out a spouse’s written consent is not effective as to the non consenting spouse 5) Dreger v. Friedman, Sloan and Ross a. Issue: whether a security interest in CP given by one spouse to secure attny fees during pending marital dissolution proceeding is valid under CC 5127 (now FC 1102) b. Rule: the statute requires that both spouses join in executing any instrument conveying any interest in the community’s real property c. Rule: CP principles of equal management and shared responsibility mandate that the non-consenting spouse is entitled to invalidate in its entirety the other spouse’s transfer of community real property d. why can the non-consenting spouse invalidate the encumbrance (etc) in its entirety? i. don’t want to non-consenting spouse to become TIC w/ stranger 6) Response to Droeger, p. 695 a. FC 1102(e)-nothing in this section precludes either spouse from encumbering his/her interest in the community real property, as provided in 2033 b. FC 2033-allows either spouse to encumber property to maintain legal counsel in a dissolution of marriage i. encumbrance only attaches to the interest of the encumbering party 7) Hypo: H&W own property, it’s CP but in H’s name alone a. buyer meets H and doesn’t know he’ in debt b. buys and H takes $$ and goes to South America c. W realizes what happened and tries to get property back How does court resolve this? 2 statutes in conflict: d. 1102 (a)-both spouses must join in executing any interest for cp when there is a lease for more than a year, for a sale, or encumbrances e. 1102(c)(2)-p. 475-the sole lease, k, mortgage or deed of either spouse, holding record title to community real property to a lessee, purchaser, or encumbrancer, in good faith w/out knowledge of the marriage relation are presumed to be valid if executed on or after 1/1/75 8) Lezine v. Security Specific Financial, p. 500 a. innocent spouse, H forged W’s signature & got a corrupt notary b. H takes out loans w/ security w/out W’s knowledge i. one loan partially used for CP purposes c. civil code 5127=FC 1102 i. CC 5127-does not deny the fact the underlying debt still remains ii. the creditor’s rights override the rights of the betrayed sp
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e. Section 901(a)-one spouse can create the debt and the community can be liable for it f. Droeger-encumbrance can be invalidated when one of the spouses did not consent, but Lezine says that’s right; the deed gets set aside, but that does not affect the underlying debt…its still exists as a community debt and community real property can be used to discharge that debt g. the rule of Lezine still stands C. Creditors’ Rights 1) FC 911-earnings of a married spouse during marriage are not liable for a debt incurred by the person’s spouse before marriage 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 2) FC 913- separate property of a married person are liable for that person’s premarital debts, but is not liable for debts of the other spouse that are incurred before marriage 3) FC 914- married person is personally liable for the following debts incurred by the person’s spouse during marriage a. a debt incurred for the necessaries of life of the person’s spouse while the spouses are living together b. a debt incurred for common necessary of life of the person’s spouse while the spouses are living separately i. maid considered a necessary of life 4) Grolemund v. Caffereta a. Issue: whether CP may be subjected to the satisfaction of a judgment against the H for his tort? b. CP is responsible for H’s debt i. reason: so that property is available for creditors to reach, otherwise would have to go after SP, which is probably less c. law: FC 910-community is liable for the debts of either spouse i. this rule has been modified since 1975 ii. pre 1975-H had mangmt 7 control over CP, and therefore the judgment should be paid w/ $$ he had control over iii. now either party can have management and control over CP 5) Marriage of Feldner-p. 522 a. separated after 35 years of marriage b. H is a contractor and got a judgment decided against him i. because the community gets the benefit if H would have performed, the community is liable if it goes the other way c. FC 903-debt is incurred at the time the k was made i. since the k was made prior to separation, the community is responsible
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d. Emotional distress damages-liability is incurred at the time the tort occurs i. if the emotional injury is treated as tortous conduct rather than breach of k, then H would be liable on his own 6) American Olean Tile Company v. Schultz a. pre-separation H was getting tile from Am. Olean & owed 13k b. betw. time of separation & dissolution H executed promissory note to the tile company c. the company tries to reach Ws property b/c ex-H is MIA i. tile company gets nothing against W, why? ii. assets of the marriage had already been divided d. FC 916-p. 534-the former CP received by the non-debtor spouse @ dissolution will be liable only if the non-debtor spouse was assigned the debt the debt in the division of the proceeds 7) Marriage of Braendale a. W awarded large amt of stock in divorce proceedings to equalize the division of assets b. H owes debt to A. Overseas, which tries to satisfy the debt owned by the stock c. W allowed to keep the stock, she had a right to them as decided under the dissolution proceedings under FC 916 8) FC 910(b)-marriage does NOT include time when spouses are living separate, so can’t look to community for debt entered into after separation, must look to SP of debtor spouse 9) FC 915-present CP to pay spousal & child support of earlier marriage a. spousal or child support from a prior marriage is treated as a debt incurred before marriage (which under 910 means it’s a debt of the community) b. if the payments are made from community funds, but they could have been paid w/ separate funds, the community is entitled to reimbursement 10) general rule: policy is making property available so creditors get obligations satisfied VI. Division of Community Property 1) In general a. Methods of dissolution i. property settlement agreement ii. litigation b. In CA, no fault divorce i. rationale: fault divorce was promoting additional bitterness between the parties and had a deleterious impact on their children ii. effect: created an impoverished class of divorced women & kids b/c they get only ½ no matter what c. Now only 2 causes of action: i. irreconcilable differences ii. incurable insanity
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A. Division by property settlement agreement 1) Issues at dissolution a. property b. spousal support c. child support 2) Advantages of agreements a. more freedom among former spouses b. note: fiduciary duty continues until property has been divided up 3) enforcement and modification a. court approves agreement b. agreement merges in dissolution judgment 4) In re Marriage of Hufford, p. 548 a. Issue: does judicial modification trump boilerplate language in marital settlement agreement? b. Agreement: H pay W $1200/month for the first 2 months following dissolution. After that, $600/month until death or W remarries. H wanted modification because he got remarried and had to support new wife and 5 kids. Also, said that W had reduced need c. General rule: subject to modification by court unless there is an express written agreement prohibiting judicial modification d. Held: a general release of rights is not enough to protect from judicial modification. No magic words are required but some specific unequivocal language is needed. Can’t infer from general provisions. Basically, agreement is modifiable unless something specific says it’s not. B. Division by Court Order (1) Statutes 1) FC 2501-a community estate is both community and quasi community assets and liabilities 2) FC 2550-tells the court that it’s their responsibility to divide the community estate of the parties equally 3) FC 2551-court shall characterize as sep. or comm.. and assign to parties 4) FC 2552-valuing assets and liabilities as near as practicable to time of trial 5) FC 2554-if you have a small estate of 50k or less and parties can’t agree how to divide it, it will go to arbitration 6) Section 2010(e)-courts can settle the property rights of the parties 7) Gionis v. Superior Court a. H wanted dissolution of marriage to be bifurcated from the other issues regarding child custody b. allowed, reasoning: doesn’t take much for the party who wants to bifurcate it, but takes a lot for the person opposing it to get their way c. favors no fault marriage (2) Jurisdiction to Divide property 1) Robinson v. Robinson a. court’s jurisdiction is limited to disposing of cp and doesn’t have the jurisdiction to grant the ex-wife an interest into what was his property b. some provisions that followed from this
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i. 2550 (above) ii. look to response to Lucas case-FC 2581 and 2640 iii. 2650 2) Muckle v. Superior court a. issue of personal jurisdiction, wife filed action in CA, H lives in GA b. 4 ways for personal jurisdiction i. personal service w/in border state ii. domiciled in that state iii. minimum contacts iv. in rem jurisdiction c. since H had contacts in the past w/ CA but not at time of the litigation, doesn’t count, H wins d. H as been domiciled in GA for past years, never came back 3) FC 580-whent here is a default, the court may NOT grant what has not been asked for a. In re Marriage of Andreson (3) The Equal Division Requirement 1) Marriage of Stalworth, p. 583 a. Issue: who keeps the house when there are kids? b. kid has mental disabilities don’t want to disrupt him c. a lot of equity in the house, W doesn’t work, H makes 50k/yr 2) Notes from p. 588 a. FC 3800(b)-“deferred sale of home order” means and order that temporarily delays the sale and awards the family home to custodial parent of a minor child in order to minimize the adverse impact of the dissolution b. FC 3802(b)-in exercising its discretion to grant or deny a deferred sale of home order, the court shall consider all of the following: i. the length of time kid has resided in ho ii. the child’s placement or grade in school iii. he accessibility & convenience to child’s school & day care, etc iv. whether home has been modified to meet disability of kid v. the emotional detriment of child associated w/ change vi. location of home permits resident parent to continue employmt vii. the financing ability of each parent to obtain suitable housing viii. the tax consequence to the parents xi. the economic detriment to non resident parent if a deferred sale x. any other factors the court deems equitable c. FC 3807-a deferred sale of home order may be modified or terminated at any time at the discretion of he court 3) In re Marriage of Tammen, p. 590 a. House awarded to wife & has to give and equalizing payment of a promissory note to H not due for 10 years b. H-the worth of the note is substantially less than its face value c. discounting the note was not appropriate, lace instead house in TIC 4) Assets and liabilities need to be divided equally a. Marriage of Eastis, p. 593
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5) FC 2627-Deals w/ educational loans a. the person who got the education is responsible for the payment 6) In re Micalizo, p. 596 a. in detailed cases-sometimes will need an expert to evaluate assets C. Post Dissolution Remedies 1) Marriage of Varner, p. 608 a. got married when she was 17, have 5 kids together…dissolution b. after a bad settlement agreement for W when she had no counsel, she moves to set aside the judgment c. FC 2122-new provision for specifically setting aside judgments in dissolution situation, offers ground for relief when there has been an inequitable dissolution agreement b/c of nondisclosure or other misconduct of one of the parties i. court finds it was a mistake instead of fraud b/c only grounds that can be used as to a stipulated judgment is mistake ii. can only use 2122(e) for stipulated juddgments 2) FC 2123-restictions on grounds for relief; inequitable judgments, p. 608 3) Marriage of Rossi, p. 621 a. wife intentionally lies about lottery winnings in divorce proceedings b. W claims H beat her and has a gambling problem c. court had to weigh the evidence d. court uses 1101(h)-for malice, fraud & oppression i. remedies for the breach of the fiduciary duty by one spouse, as set forth in section 721 and 1100, when the breach falls within the ambit of section of…shall include, but not be limited to, an award to the other spouse of 100%, or an amount equal to 100%,, of any asset undisclosed or transferred in breach of the fiduciary duty 4) Henn v. Henn, p. 628 a. in dissolution case, resolution w/out talking about H’s vested retirement funds b. wife gets share in what was clearly Cp…equity triumphs c. res judicata not available, more narrow defn. in CA 5) FC 2556-in a proceeding for dissolution or nullity of marriage, court that had jurisdiction in the original proceeding still has jurisdiction to award community estate assets or community estate liabilities to the parties that has not been previously adjudicated by a judgment in the proceeding a. case law says that if you check there is no CP to be divided, leaves it available for future dealings w/ CP b. omission of assets at the time of dissolution that are known to exist and the court is willing to divide later 6) Alloy v. Mash, p. 634 a. suing attorney for malpractice b. Smith modified rule so that even w/ regard to an unsettled are of law an attorney is obligated to undertake reasonable research in an effort to ascertain relevant legal principles and to make an informed decision VII. Distribution of Community Property at Death
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A. Statutes 1) PC 100-on death of a married person, ½ of the CP goes to the surviving spouse, half to the decedent spouse’s estate 2) PC 101-quasi CP treated same as CP 3) PC 6101-what can a testator dispose of by way of a will a. his/her entire amount of SP b. ½ of community property 4) PC 6401-if you dies w/out a will, what happens to your P (a) surviving spouse ends up with all the CP (1/2 is her own, ½ is from decedent spouse) (b) same result for quasi CP as regular CP (c) what about the SP: 1-if no kids, parents, or siblings nor an issue of siblings surviving, all goes to surviving spouse 2-if deceased spouse is survived by surviving spouse and 1 child or the issue of a deceased spouse, the deceased spouse gets ½ of the SP & the other ½ goes to surviving child or issue of that child 3-if the deceased spouse is survived by surviving spouse and 2 or more children or issue of deceased children, then 1/3 goes to surviving spouse and 2/3 gets split among living children or issue of children B. Cases 1) Dawes v. Rich, p. 657 a. H owned a mobile home park, H & W put their assets in an intervivos trust (to avoid probate and estate planning tax) b. W dies, and tenants won judgments against the partnership owning the mobile home park, try to come after assets in the trust i. the action was contract that arose during marriage, so CP c. the legislature has considered the situation where the surviving spouse is responsible for the debts of the deceased spouse, but here the issue is in reverse…the court is being asked to consider whether the property of the deceased spouse should be responsible for the debts of the surviving spouse? The court said the answer is yes i. but tenants did not end up getting to collect because the SOL is only 1 year and it had already passed…this SOL applies to claims against a decedent’s estate 2) Collection Bureau of San Jose v. Rumsey a. surviving H left w/ 100k of debt from wife when she had cancer i. debt transfers to surviving spouse b. Mr. R wins b/c the proper SOL is 1 year 3) Estate of Prager, p. 677 a. property outside of LA is CP and left to H’s bro& nieces, prop in La left to wife, 1 of nieces tries to put widow to election
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c. court does not allow an election because it would have specifically had to said so in the will…Ms. Prager prevails Practice Exam In 1998, H and W, residents of California, married. H had purchased shares of stock before marriage and kept these shares in his brokerage account. The shares in the account paid him an annual cash dividend of $3,000. H deposited this income in a savings account held in his name alone. In 1999, W was hired by Tech Co. W was induced to work for Tech Co. bby the representation that successful employees would receive bonuses of company stock options. Later that year, W was given options on 1,000 shares of Tech Co. stock. These stock options are exercisable in 2006, as long as W is still working for Tech Co. In 2003, because of marital difficulties, W moved out of the home she has shared with H. Nevertheless, the couple continued to attend marriage counseling sessions that they had been attending for several months. Later that year, H was injured in an automobile accident. Afterwards, H and W discontinued marriage counseling and filed for dissolution of marriage. In 2004, H settled his PI claim from the automobile accident for $20,000. The settlement included reimbursement for $5,000 of medical expenses that had been paid with community funds. H had a child by a prior marriage and, over the course of his marriage to W, had paid out of community funds a total of $18,000 as child support. 1. When making the final property division in H and W’s dissolution proceeding, how should the court characterize the following items: a. Henry’s savings account? Discuss i. Savings account cam from stock purchased BEFORE marriage. Clearly SP. Dividend from the stock is also SP. 1. support: FC § 770(a)(3) 2. facts: kept $ in a separate account b. Henry’s personal injury settlement? Discuss i. COA occurred during the marriage. Proceeds should be CP. They were still married; still attending marriage counseling. ii. Look at Devlin Case, § 2603 iii. PI proceeds are CP at the time while married. At dissolution, §2603(b): community estate damages should be assigned to the party that suffered the injury unless the court looks at the specific situation and determines that the interest of justice requires a different outcome. c. Wilma’s stock options? Discuss.
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i. Stock option was treated as compensation. CP during period of marriage, SP for period after the marriage. Time rule is fairly straightforward 1. time rule a. community property = 4/7 b. top: length of time between granting of option in 1999 and the termination of the marriage = 4 c. bottom: length of option (granted in 1999, exercisable in 2006) = 7 d. separate property = 3/7
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