CALIFORNIA COMMUNITY PROPERTY

CALIFORNIA COMMUNITY PROPERTY INTRODUCTOIN Common Law Husband and wife remain separate persons, and property belongs to each individually. This is the case unless there is some affirmative action, such as taking property as joint tenants. History of Common Law SystemHistorically-Husband had legal control all property. Upon marriage property that the wife brought into the marriage was owned by the husband. All property that the wife acquired or brought into the marriage was owned by the husband. Modern U.S./MWPA- Wife was able to own and control what she brought into the marriage, and what she acquired or earned during the marriage. However, wife generally did not work and so the husband owned and controlled most of the property. Equitable Distribution Doctrine/Spousal Protection Upon Divorce- Majority give the spouses ½ of property to each spouse. Upon DeathSurviving Spouse gets a forced/elective share gets the choice of either taking under the will, or taking their intestate share (which is a 3rd to ½). Non Surviving Spouse- Gets no protection, can only devise away their personal property. During Marriage- Each spouse retains management and control of their separate property. Community Property Views the marriage as a partnership and both partners bring something into the marriage and during the marriage both parties use their efforts and resources to make the marriage work. 2Generally- Establishes two types of marital property. H and W can hold property as community property (“CP”) or as separate property (“SP”). CP is all property acquired by marriage except by death, bequest or device. Immediately turns into community property. Each party owns the property equally (each party has 50/50 ownership) and has full management and control of that property. This ownership arises immediately when it is acquired. Historically- Husband had exlcusive control of all W’s separate property brought into the marriage and all community property. This did not change until 1975. At Divorce- Spousal Protections are built into the system. Each spouse gets one half of community property (each spouse acquires a vested interest in ½ of all property the instant the other acquires community property) At Death- Spouse is entitled to devise her share, i.e. 50% of community property. Spouse Dies Intestate- Community property goes to the surviving spouse. Property held as tenants in common hold by the spouses jointly with the right of survivorship as separate property. Property acquired during the marriage is deemed to be owned equally by the husband. That is because you can’t recognize the skills and resources that produced that property. There is also equal powers of management and control. Separate Property- All property acquired before the marriage, and all property acquired during the marriage by gift, death or devise. During Marriage- Both spouse have equal management and control of the community property. Cal. Famliy Code § 760- Community Property Defined Except as otherwise provided by statute, all real and personal property, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property. Creates Presumption – That all property acquired during marriage is community property, unless it can be shown that the property traces from some separate property. § 770- Separate Property(a) Separate Property (i) Property owned by the person before marriage (ii) All property acquired by the person during marriage by gift, bequest devise or decent (iii) rents, issues and profits of property of separate property. [tracing principal] Tracing Principal- All property is presumptively community property and is considered as such, unless it can be traced to some separate property. Income from separate property produces separate Income from community property produces community property § 751 Equity Principle- Interests are present equal and existing [vested and immediate upon acquisition] Does not apply to quasi-community property. CONTRACTUAL MODIFICATION Two Concepts (i) (ii) Prospective Spouses can change the effect of community property [pre-maritial agreements] Parties can change the form of the property during marriage [Transmutation] Pre-Marital Agreements- Parties can modify community property system January 1, 1986- All contracts must be in writing, does not apply retroactively § 1612 Subject Matter - Anything not in violation of public policy- [e.g., encourages divorce] - Can’t adversely affect child support - Spousal Support is enforceable i. Old law- Spousal support is technically community property and so is not covered ii. Violates public policy. § 1615- Prenuptial agreement will not be enforced if 1. it is not entered into voluntarily Subdivision (c) defines voluntary (i) Party must have been represented by independent counsel, or after having been advised of right to counsel, expressly waived in a separate writing party has at least 7 days between presented with the K [and advised of the right to counsel] and time it was signed party, if unrepresenting was advised of basic terms in writing and in the language that the party understands, and declaration that she resevide the information and stating who gave it to her. No fraud, duress or undue influence Any other issues that the court takes into consideration. (ii) (iii) (iv) (v) Transmutation Pre-January 1, 1985- Easy transmutation period. Law still applies to transmutations that predate this date. Transmutations Allowed (i) (ii) Oral Transmutations Implied in fact exutory transmutation (a) Stating to third parties that the property is “ours” i. This executory and implied from the way that the spouse treated the property. § 852 Tough Transmutation- [852(e) does not apply retroactively] [852 was formerly CCC § 5110.730] (b) Transmutation is not valid unless i. It is in writing [Test Note- Look to things such as cards, notes, inscriptions- likely not sufficient, but raise it anyway] ii. With an express declaration iii. Made, joined,in, consented to or accepted by the spouse adversely affected [no requirements that the individual signed the transmutation] Express Declaration- Estate of McDonald There must be an express change of the characterization of the property [transmutation] in the writing itself, no extrinsic evidence is allowed. e.g., consent declaration that H’s kinds were the beneficiary of an IRA was tangential to the characterization of the property. Note- look to see if the language of the writing does not go specifically to the nature of the property [e.g. I give my interest in X] Requires clear and unambiguous expression of intent to transfer an interest in the property, independent of extrinsic evidence. [must be really clear]. Forms- DMV forms that state the title of the property and forms transferring stock into a bank account are insufficient to meet the express declaration requirement of section 852. Equitable Exceptions to Statute of Frauds- Do not apply as substitutes to a written express declaration of a transmutation agreement.[e.g., part performance and estoppel] Bensen- No reliance on part-performance as a substitute to a section 852 writing. However, where there is an otherwise valid transmutation, you may be able to void it for fraud, duress or undue influence. § 852(c)-[Gift Exception] This section [writing requirement] does not apply to a gift between spouses f clothing, wearing apparel, jewelry, or other tangible articles of personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value in taking into account the circumstances. Requirements (i) (ii) (iii) Must be a gift [donative intent and delivery] Of Tangible articles of personal nature, used primarily by one spouse and It is not substantial in value a. This is required notwithstanding an otherwise valid gift i. [Marriage of Steinbreger, no true gift exception] b. Look to the facts and circumstances of the marriage. CLASSIFICATION OF PROPERTY AS COMMUNITY OR SEPARATE 5 Step Classification Process(i) (ii) (iii) (iv) (v) PRESUMPTIONS Cal. Fam. Code § 760- General Presumption- All property [real and personal], where ever located, acquired by a married person during marriage, while domiciled in CA it is presumed to be community property. Are Parties Within The System Is The Property Capable of Classification Is There a Classification Presumption If there is a Presumption, can it be Rebutted Is any apportionment appropriate Acquired During Marriage- Presumption does not attach unless there is a showing that the property was acquired during marriage- [showing may be made by ruling out sources of separate property and it’s a long marriage, this may raise an inference that property was acquired during marriage.] [e.g., husband worked and wife did not, and there is no source of separate funds and the couple was married during along time, may raise an inference that property was acquired during marriage with community funds]. Jolly Property In Possession At Dissolution/Death- General presumption does not attach to this property. A showing that property was acquired during marriage is still required. Presumption is on the one claiming the property is separate in nature, when that property was acquired during marriage. Analysis- Start with the property, not the proceeds used to purchase that property. Length of the Relationship- Means nothing under the presumption. But it might be easier to rebut it because separate property is more readily identifiable. Domicile- Where you reside, and where you intend to reside. Rebutting The General Community Property (i) (ii) Transmutation Tracing- Start with the property that we are trying to classify and move backwards. a. Standard of Proof- Does not need to be exact to rebut the presumption, i. Likely-preponderance of the evidence. But there is some authority that clear and convincing evidence is required [likely an outgrowth of result orientation of the courts] Pre-Nup (iii) § 770 Separate Property- Includes all of the following (i) All property own by the person before marriage (ii) All property acquired by person after marriage by gift, bequest or device or decent [includes settlements on will challenges] a. You cannot call something a gift in order to avoid community property [e.g., giving a gift in lieu of a pension is not a gift simply due to the label given it by the parties, and even though legally it is a gift] (iii) The rents, issues, and profits of property described. Relation to General Presumption- Start with a statement of the general presumption and then say it can be rebutted if the property fall under the definition of separate property. Analytical Note- If something is acquired during marriage start there, and then say that the general presumption is rebutted by section 770. Estate of Clark- Could have been decided two ways Chose in Action- Is a vested property right, and the property right arises when it arises. Determine its status at the time Any settlement or consideration for transferring that right is traced Settlement of A Right To a Device- Settlement of a right to devise is acquiring property through device and therefore is separate property. § 771-Earnings and accumulations of a spouse while living separate and apart from the other spouse, are the separate property of the spouse SeparationRequires (i) Physical Separation- this alone is insufficient And (ii) (iii) Intent not To Resume a Normal Marital Relationship- Typically it requires some form of communication, but passage of time is sufficient. a. Mutual Intent is not required, only one spouse need to have the intent. But in that case it needs to be communicated i. Period of Separation- If you meet the requirements for a separation and you get back together [change your intent], the property accumulated during that time is separate property Acts consistent with the fact that parties intend not to resume the relationship a. E.g., objective manifestation of subjective intent b. Filing for Divorce- May be a good indicator of the date of living separate and apart, i. However, it may be a “reality check” used to shock the other party used as a tool to work things out. § 803- Married Woman’s Special Presumption (“MWSP”)- Overrides the general community property presumption and is the wife’s separate property (i) (ii) Titled Property- Must be in a written instrument [both real and property] Acquired Before JANUARY 1, 1975 a. After this date, Married women were given equal management control over marital property and so the presumption was no longer needed. i. Thus, because the H had sole management and control, he could title any way he wanted, and he would not have titled the property in her name unless he intended a gift to his wife. In the name of married womana. Title acquired in the name of a married man does not have a similar presumption [no general state of title presumption here] But it may be an implied transmutation in the easy transmutation period. (iii) Rebutting the Presumption-If rebutted the general community property presumption comes back into play and it becomes community property (i) Presenting Evidence of a Lack of Intent to Make W’s Separate Property a. E.g. for ease [W can’t get the H physically there to sign], attempt to hide property from creditiors b. Tracing is insufficient. c. Unilateral Act By Wife Without H’s Knowledge Pre 1975- Prima facia the presumption applies, but H can rebut it by stating he did not know i. H Learns of W’s transfer in between 1975 and 1985- By not saying anything it may be a transmutation, but it most likely require further actions ii. H Learns about it post 1985 and does nothingNo transmutation without express declaration. H has some knowledge, and admits that he did not get involved- H may abandon his right to rebut the property [marriage of ashodian] Addition of “as her separate property”- Semi-Conclusive /Super Rebuttable Presumption- Only rebutted by fraud, duress or undue influence, showing of lack of intent is insufficient. The fact that H also had it titled as “her separate property” shows he intended it to be title. because the parol evidence rule because he is contradicting the express term of the K. a. Additional Requirements For Super-Presumption to Attach i. Knowledge that Property is titled as her separate property 1. e.g., if he says title in your name, and the H puts it her name as her separate property without his knowledge, the general MWSP applies not the super presumption. ii. Direct it, or does the title himself 1. Can’t be done without his knowledge (ii) (iii) Standard of Proof To Rebut the Presumption- Cases are mixed [may be some higher degree, it is not clear and convincing] § 803(a)- If Acquired by W with another person- and title is in W’s name and someone else It is presumed that W takes as tenant in common and owns that interest as her separate property. §803(b)- If the H and W take property, with title naming them as husband and wife then there is a presumption that property is community property. “Wilma Jones and Hank Jones as husband and wife” If W takes title with a H2 who is married, the presumption of separate property attaches to W’s interest but not H2 – there is not state of title presumption or married man’s special presumption. 803(c)- Comes up when- “H and W take” and it does not state they are husband and wife W gets ½ of separate property, W and H get ½ as community property [at death or dissolution each party gets ½ of this ½ interest] Therefore- W gets ¾ H gets ¼ at Death or Dissolution CONCURRENT ESTATES When Husband and Wife take property as Joint Tenants Love-Tro/C/L: (i) (ii) (iii) General Presumption applies to all property acquired during the marriage Rebutted/Destroyed- By taking title as J/T Rebutted to C/P or S/P by a. Agreement or Understanding i. Oral or Written ii. No Seceret Understandings of one spouse [party seeking to enforce may not use a secret understanding, other party must also have it] b. Implied- Through ignorance +tracing Single Family Residence Presumption- 1965 through 1983 [only comes up for the purposes of rebutting if one spouse claims a greater than 50% interest as S/P in a home purchased between 65 and 83 to rebut retroactivity of section 2580] (i) (ii) General Presumption applies Confirmed by statute- When H and W take property in J/T and it is for a single family residence a. AT DISSOLUTION ONLY- At death it will be J/T Rebutted by a. Understanding or agreement i. Same as C/L, but no tracing + ignorance presumption (iii) Section 2850- 1/1/84- and Retro-Active unless one Spouse claims Greater than 50% as S/P (i) (ii) (iii) General Presumption Applies- it is C/P Confirmed by Statutea. AT DISSOLUTION ONLY Rebutted by a. Clear Statement in the Deed b. Writing § 682.1Community Property with Right of Survivorship- [Effective on July 1, 2001] Hybrid concept that gives “best of both worlds” – right of survivorship with double step up Must be expressed in the transfer document Terminated- May be terminated before death in the same manner that you can terminate a J/T IS THE PROPERTY CAPABLE OF BEING DETERMINED AS COMMUNITY PROPERTY Professional Degrees [Todd v. Todd]- It is not capable of being determined as community property. § 2641 CFC (formerly CCC4800.3) Community Contributions to Education or Training Applies only at Divorce [since its not community property it does not make sense at death] A. Must be community contributions to (i) Payment of funds for education OR (ii) B. C. Payment of Loans Community shall be reimbursed by enhanced spouse [not the individual spouse] Spouse must have substantially enhanced earning capacity [e.g., weekly seminars do not count] Test: Look to what the spouse was doing before [s]he went to school, and determine if the spouse has a greater earning capacity. Spouse takes lower paying job- This will not defeat contribution because spouse could later take the job. [but look to (c) below D. E. Any loans are assigned to the spouse with increased earnings capacity. (c) Reimbursement and Assignment may be reduced by equitable principals if 1. Community has substantially benefited Rebuttable Presumption- That community has benefited if the education is more than ten years in the past, AND That the community has not substantially benefited if the education is less than ten years in the past. F. Reimbursement is self executing- unless there is a WRITTEN AGREEMENT [oral agreements are insufficient] What Constitutes a Reimbursable Expense or Assignable Loan [same test for both] Must be for an expense directly related to the education experience, [e.g., books, tuition and expenses] not living expenses. Professional Practice- It is community property that can be valued. Goodwill- Is also community property that can be valued. Life InsuranceAt Death- General fact pattern is where one spouse dies and has named some on else as a beneficiary- If it is community property, then surviving spouse gets ½ Insurance policy is community property and the spouse must be named as the beneficiary unless she waives this- Waiver must be in accordance with statute and it is a form of a transmutation Classification Whole Life- Payments made during the marriage are community property. You apportion the insurance according to the payments made with community funds and separate funds. Term-Last Payment Rule- Look to the last payment of the funds, if it is made with community property, then it is community property, if it is made with separate property, then it is not community property. Deceased Becomes Insurable- The right to renew has value that you must give the surviving spouse any value given to the term during the marriage. Spengler- H had policy through employment, became uninsurable, then got married, then died. Beneficiary was his sister, wife claims that the policy was community. Held- Policy was community property because the H never controlled the right to renew, and thus his work in consideration for the policy did not purchase this benefit. Because he was employed when last payment was made, last payment rule applied {note- Spengler does not stand for the proposition that the right to renew does not have value} At Dissolution Whole Life- Apportion the cash surrender value of the policy based on contributions. Term- Only would come up if divorce took place during the year for which last premium was paid, and then you would apportion the amount of the premium paid for the remaining duration of that term- very litte. ARE THE PARTIES WITHIN THE SYSTEM I. Does The System Apply to Spouses Who are Not Legally Married? Rule- To have true C/P couple must be legally married in a marriage recognized by CA, or, you the couple has to have registered as domestic partners. CA recognizes all marriages that are legal in another state [e.g., common law marriages from a state that recognizes such marriage] Not Legally Married- 2 kinds (i) Putative Marriage- Where at least one spouse has a reasonable good faith belief that the spouses are married. [belief that you have a CL marriage in CA is not a reasonable good faith belief] Quasi-Marital Property- Upon dissolution the property will be treated as if it were community property § 2251 Cal. Fam. Code- Property acquired by parties to a putitive marriage which would have been community or quasicommunity property had the marriage not been void or voidable is known as Quasi-Marital Property. Surviving Spouses Right to Separate Property- Putitive spouse has the same rights in intestacy. Two Situationsa. Both Spouses are Putitive- e.g. defective marriage process Property will be divided as community property would be divided. b. One Legal Spouse [still married to a 3rd party] and One Putitive spouse- Likely that the statute applies to the a spouse without a reasonable good faith belief. Fact Patterns I. Hafner- H has one legal spouse from whom he has separated at time of acquisition of property and one putitive spouse and dies intestate. Legal Wife- From her perspective it is S/P, and her and her children [i.e., from decedeased] are entitled to it all under intestate succession. Putitive Spouse- From her perspective it is quasimarital property. She gets ½ as her QMP and ½ of deceased QMP Court Remedy- Split the property and give half to each. II. Hafner But H Dies IntestateWills All Property to Putitive Spouse- The property is all hers because property acquired after separation is S/P, which he can will away. Wills Property to Legal Spouse or 3rd Party- Putitive spouse gets ½ as QMP III. Hafner but Divorce- ½ to H as QMP, ½ to putitive spouse as QMP, nothing to legal wife because it is separate property. III. Vargas- H lives a double life and dies intestate, this presents a different problem because the property is community property of the legal spouse and QMP of the putitive spouse. Court- Used equity to split the estate equally. IV. Vargas But Divorce- Give 1/3 to each party. (ii) Meritorious- Neither Spouse has a good faith belief that couple is married They are not within the system. There may be an agreement that property acquired while living together is held in J/T, may be implied. Domestic Partnerships CFC § 297, 297.5: Effective 1/1/05, gives domestic partners identical rights as married partners in C/P. § 297 Definition of Domestic Partnership- Must be (i) Adults, (ii) must file a declaration, (iii) have a common residents (iv) neither partner can be married or have another partner AND (v) must be a. couple of the same sex, OR b. same sex and one spouse is over 65. § 297.5 Rights of Domestic Partners(a) Gives every single right to Domestic Partners as applies to married couples (b) Dissolution- Same rules apply, i.e., property is divided according to the C/P system a. Requires a Proceeding, Same as a Divorce b. Putitive Spouses- Rules likely apply to the m (c) Death- Same rules, C/P, intestacy and J/T rules. (d) Retroactivity- Statue applies to Domestic Partnerships filed before 2005, and partnership dates back to the date of the original filing. [ripe for constitutional problems, but CA purported to send notice to filed spouses] Spouses Domiciled in CA Purchase Out of State Real Property- CA lacks in rem jurisdiction over the property and cannot force another state to change title according to a CA court’s resolution Dissolution- CA has personal jurisdiction over the parties and can force them to comply with court orders. § 2660 Cal. Fam. Code(a) Court must dissolve property such that title does not change if that is possible [e.g., H and W own multiple pieces of real estate of equal value] Or court may require the execution of conveyances. Force one spouse to pay value of reality (b) (c) Death- CA has no in personam jurisdiction over a dead person, and no in rem jurisdiciotn Procedure- You must go to the state and open up an ancillary Probate proceeding. Choice of Law Issue- Forum state must then decide which law applies Majority- Law of the domicle of the decedent [i.e., they would apply CA community property law] Minority- Apply law of the citus of the real estate § 28 Cal. Probate Code- Definition of Community Property All personal property wherever located, but only real property in this state. [Statute merely recognizes CA inherent jurisdiction problem, but does not say that it is not community property] Migrating SpousesConstitutional Problems- Originally the property was converted upon the spouse entering the state, but this had the effect of divesting a party of a vested property right without a compelling state interest. §125 Cal. Fam. Code- Quasi-Community Property- All real or personal property wherever situated acquired by either spouse while domiciled elsewhere that would have been community property had that spouse been domiciled in CA, will be treated as Quasi-Community Property at divorce. § 66 Cal Prob. Code Quasi-Community Property- All personal property where ever located, and all real property in this state [simply recognizing jurisdiction problem, see above] acquired by either spouse while domiciled in another state that would have been community property if the spouse was domiciled in CA will be treated as community property. § 101 Cal. Prob. Code- Upon the death of a married person domiciled in CA, one-half of the decedents property belongs to the surviving spouse. Rule- Dying spouse cannot will away ½ of surviving spouses separate property [Test Note: With migrating couples look to who is dying to see if the other spouse gets an interest] Paley v. B of A- H acquired property in another state with his earnings, thus it was S/P. H and W came to CA and W died devising ½ of H’s property with his earnings. This would be unconstitutional as it would divest him of property rights. Control of S/P before death or Divorce- Property remains separate property until death or dissolution. Recapture Powers- If on spouse has S/P and sees impending divorce and deeds property away to an insider, there are similar recapture powers as to fraudulent transfer powers. COMINGLED FUNDS Commingled Bank Accounts- When used to purchase an asset that is then being distributed and one spouse wants to claim separate property. Direct Tracing/Marriage of Mix Burden on the Party to Show (i) Accurate/Exact Accounting Demonstrating that there were sufficient community funds a. Exact- Must detail every transaction that occurred in the account Proof of intent to use separate funds a. Proof of Intenti. Memo on the fact of the check ii. Proximity of deposit and purchase [however mere proximity does not get you past the need for an accurate accounting] (ii) Indirect Tracing- If you can show that all community funds were exhausted at the time of the transaction, you get the property. There is no intent requirement. Family Expense Presumption[case law presumption] From a commingled account Available community funds are presumed to pay community expenses S/p is presumed to be used only when community funds are exhausted Indirect Tracing- Must show An accurate accounting that all community funds were exhausted when at the time of the transaction. [not at the time of dissolution see See v. See] Exception to Tracing- Where contribution is de minimus Community Funds Contributed to a lot of S/P- Commingled tracing rules do not apply and the community gets reimbursed the value of the contribution and interest Where S/P is given to a C/P fund- Give the spouse back his S/P contribution APPORTINING BUSINESS PROFITS Business Purchased Before the Marriage 50K 500K I-------------------------I-----------------------I Business purchased Marriage D or d 5 Year Perrera [Solve for CP]- Gives the Spouse their initial investment + yearly simple interest at 10% Calculation- 50K * 10% * 5 = 25K-S/P then divide 475K ½ Interest Rate- May be able to give some expert testimony regarding the interest rate, may be 30 year gov’t bond rate [generally it is the 10% rate on money judgments] Van Kamp[Solve for S/P]- Give the community the reasonable value of the party’s salary Test: What would a similarly employed individual have earned as a fair salary Take the reasonable yearly value and subtract it from the value of the business, the balance is separate property e.g. 30K rzb salary * 5 = 150K: 150K is C/P Business Purchased After the Marriage/Imperato 1K 10K 40K I-------------------I------------------------------I------------------------I Marriage Business Started Separation D or d 4 years Use Perrara/Van Kamp in Reverse- {here you are valuing the increase after separation} Perrara- Give the community initial investment of 10K + 10% return- so community gets 10K + (10% for four years is 4K)= 14K Separate property is 26K Van Kamp- Rzb Salary of 7K per year after separation is sS/P. 28K separate property 12K community property Marriage of Dunkin- Ct just valued the property at the time of separation under section 2552 ApportionmentContext 1- Where separate funds are used to purchase a community assets Lucas- H put 20K S/P down to purchase a community asset, it appreciated in value. Marriage dissolves Issue- How is the property to be divided Option 1- Reimburse H for contribution Option 2- Give him pro-rata share [i.e., purchase price of 100K, H put in 20K, give 20% ownership, and allow him a pro-rata share of property] Option 3- Presume it was a gift to the estate and classify all property as CP Held-Taking title in any joint title, S/P contribution is a presumed gift to the community, absent some agreement to the contrary- agreement can be oral or written [i.e., option 3] 1/1/84 Cal. Fam. Code § 2640 [anti-Lucas Statute]- Absent a written waiver S/P contributions to C/P asset is automatically reimbursed [no pro-rata share Does not apply to community contributions to S/P Applicable only at divorce Retroactivity- Purports to be retroactive, but because the under the law of Lucas pre-1984 vested a then existing ½ interested in the non-investing spouse, this took away a vested property right. But there was no compelling state interest i. CFC § 2640 is applied on a Prospective Basis only Classification at Death- Apply Lucas Allows oral waiver, It is not a transmutation i. Moreover Transmutation section § 852 does not apply to commingled funds. Context 2- C/P Contributions to S/P Across the Board [all contexts] Community gets and automatic buy in of a pro-rata share, no agreement is required. [recall full life insurance policies] Borrowed Funds Step 1 Classify the PropertyIntent of the Lender Test- What is the primary intent of the lender; i.e. who is he looking to for repayment? Typically he looks to the spouses earnings which is C/P and the funds are community property. If lender takes a security interest, this will generally not change the analysis because lender is not in the repossession business But if lender looks to rents, and profits of S/P the loan is separate.