Community Property - Sinner

CP Outline - Sinner COMMUNITY PROPERTY OUTLINE (Popovich) – Fall 2005 General Information about Marriage and the 2 Types of Property Systems I. Marital Property – Overview A. CL Jurisdictions (Majority) a. Property remains separate, unless they affirmatively place it in both of their names (i.e. JT, TIC) i. ―What’s mine is mine‖ b. H had Management & Control of assets (pre-1975): Property brought in by W or H before or during the marriage was property of H. i. Married Woman’s Property Act – Gave parties true respective rights. W kept her own property held before marriage separately. Now all property is owned by the spouse who earned it. ii. Spousal Protection – Way to protect one spouse in the case of death or divorce. 1. Historically, there was none for W at death of/divorce from H c. Divorce or Dissolution = ―Equitable Distribution Doctrine‖ (usually ½) i. Generally 1. Gives courts authority to award property legally owned by one spouse to the other spouse during divorce proceeding 2. Permits a spouse who made marital contributions towards buying property held in title in other spouse’s name to claim an equitable interest 3. Basically, a ―deferred community property‖ approach to divorce ii. 2 Types 1. ―Do Equity‖ – Divide all property b/w spouses regardless of its source 2. ―Marital Property‖ – Divide only marital property a. Excludes gifts, inheritances, and pre-marital acquisitions d. Death = Forced/Elective Share (usually ½ or 1/3, OR the what was given under the will) i. If H dies 1st + is breadwinner – W will get ½ ii. If W dies 1st + did not earn anything – W CANNOT will away anything B. CP Jurisdictions and Death/Divorce (Minority & CA) a. Spouses own significant portion of their property jointly unless they have agreed to hold it separately i. ―What’s mine is ours‖ ii. All assets may be classified as CP or SP 1. You can change or modify this property by a transmutation. b. Equal Management & Control of assets by spouses (post 1975) c. Divorce or Dissolution i. CP: Each spouse keeps the ½ they already own (same as CL) ii. SP: all to the spouse whose SP it is unless they have agreement to the contrary. iii. Diff from CL – Each spouse already owns their ½ interest prior to divorce 1. Note: In CA – you can sue your spouse if you don’t approve of manner in which CP funds were spent d. Death i. Testate 1. CP: W can will away her ½ of CP, and H gets the other ½. a. Applies regardless of who ―earned it‖ or who died first. (diff from CL). 2. SP: all to the spouse whose SP it is unless they have agreement to the contrary. ii. Intestate 1. CP: All goes to Surviving Spouse 2. SP: gets divided according to statute: a. SS and 1 Kid = ½ each. b. SS and 2+ Kids = SS gets 1/3 and the kids split the rest. C. Example: W makes all the $$ a. CL Jx i. W’s earnings are her SP. She has management and control b/c she earned it. ii. Divorce: H will probably get ½ due to Equitable Distribution Doctrine. iii. W Death: W wills all her property to S. H will get either amount taken under the will OR ½-1/3 due to Forced/Elective Share. iv. H Death: H wills property to his sick Parents. W will keep everything and H’s Parents will get nothing b/c they do not qualify for Spousal Protection. v. Creditors: May or may not be able to go after the debts of the other spouse—depends on state. b. CP Jx i. W’s earnings are immediately CP due to CP presumption. 8/12/2008 Page 1 of 21 CP Outline - Sinner 1. W’s $1mil; H’s $1mil ii. Divorce: each spouse can will away their ½. iii. W Death: W wills all her property to S. S gets W’s ½ of the CP ($1mil) + all of W’s SP. iv. W Death Intestate: W’s ½ share of CP ($1mil) will go to H. v. H Death: H wills all his property to his sick Parents. Parents gets H’s ½ of the CP ($1mil) + all of H’s SP. D. Statutory Definitions for CP and SP a. CP Definition – CFC § 760 i. ―All property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in CA is CP‖ 1. Includes all property acquired by a married persons through the ―use of his/her time, energy, and skill‖ 2. ―Real or personal‖ – includes tangible + intangible property a. Intangible Property: Stocks, Bonds, Pension Plans, Life Insurance Proceeds, Education 3. ―Wherever situated‖ – property itself, can be outside CA, just has to be acquired while domiciled in CA 4. ―Domiciled‖ – place where you intend to stay a. Can only be domiciled in one state, although you can have multiple residents. b. But – Going to law school in CA w/ intent to go home is NOT domiciled ii. General CP Presumption – If property meets the above standard, it is presumed CP b. SP Definition – CFC § 770 i. (a) SP of a married person includes all of the following: 1. All property owned by a person before marriage; AND 2. All property acquired by the person during marriage by gift, bequest, devise or descent; AND 3. The rents, issues and profits from SP ii. (b) A married person can convey their SP w/out other spouse’s consent II. 3 Basic Principles of Community Property System A. Tracing Principle – Trace property back to source and classify accordingly. a. SP includes: i. Any SP assets you bring into the marriage remains SP (includes assets that generate income). 1. Ex1 – Profits during marriage from stock owned as SP by W before marriage are W’s SP. 2. But NOT a business owned as SP by H before marriage where H continues to wk during marriage b. CP includes i. Changes in form, such as proceeds from the sale or exchange of a SP asset; AND ii. The rents, profits or other forms of income derived from SP; AND iii. Any property that can be traced back to the use of a married person’s time, energy and skill iv. Ex1 – Property classified as CP used to purchase another acquisition (change in form) v. Ex2 – All rents, profits, income, increases in value from CP c. Example (George v. Ransom): H receives gift of $100K. This is H’s SP. H invests the $$ in stock and earns dividends. The dividends are H’s SP. i. What if H invests the $$ into property? Same result, proceeds from sale are H’s SP. ii. What if instead of $$, H receives an apartment building as a gift? Are the rents, issues and profits from this CP or SP?? Same result, H’s SP. d. Burden of Proof – On person seeking to trace e. Spreckels v. Spreckels – Rule from 1897 – 1876 i. Characteristics of existing property could not be changed by CP system amend. ii. New amendments only applied to new acquisitions B. Equality Principle – That CP is family property in which both spouses have equal interests a. CFC § 751 – CP; Interests of Parties i. From the moment you have CP, both spouses have an existing + equal interest in the property (each owns an undivided ½ interest) ii. Each spouse’s contribution is considered of equal value, so H+W’s interests are equal iii. Applies only to CP, and NOT to Q-CP. C. Principle of Contractual Modifications – Spouses may modify operation of CP system by inter-spousal agreements a. Antenuptial Agreements (Pre-Nups) – Prospective & Premarital Agreements i. Def: Completed prior to marriage + define the way property will be dealt w/ during the marriage (don’t have to worry about property earned before the marriage b/c that is SP). ii. Prior to 1/1/1986 – Could be oral***check***???? iii. CFC § 1615 – Unenforceable Agreements/ Unconscionability; Voluntariness 1. (a) Pre-nup is INVALID, if person against whom it’s enforced proves either: 8/12/2008 Page 2 of 21 CP Outline - Sinner b. (1) That they did not execute the agreement voluntarily; OR (2) The agreement was unconscionable when executed and, before execution, and all of following applied to that party: i. (A) – That party was not provided fair, rx, and full disclosure of property OR financial obligations of the other party. ii. (B) – That party did not voluntary and expressly waive, in writing, any right to disclosure of property OR financial obligations of the other party beyond the disclosure provided. iii. (C) – That party did not have, or rx could not have had, an adequate knowledge of the property or financial obligations of the other party. 2. Also, need independent legal counsel at time of signing a. If no independent legal counsel – need to be fully informed + proficient in language + sign understanding of rights in writing 3. P. 54 n.2: A premarital agreement was not executed ―voluntarily‖ if the party against whom enforcement is sought was not represented by independent legal counsel at the time of signing the agreement or, after being advised to seek independent counsel, expressly waived in a separate writing such representation, AND there was at least a seven day reflection period b/w the time the party was advised to seek counsel and the signing of the agreement. Post-Nuptial Transmutations – During the marriage, where one party transfers ownership of either SP to CP, or CP to one spouse’s SP. --Note1: On Exam – analyze both ways if no date given!! --Note2: Dates are important here b/c some laws relate back, while others do not. i. Pre-1985 – Easy period of transmutation 1. In Writing OR Oral OR Implied In Fact Agreements Enforced a. Ex1 – Oral declaration + intent to change character of property = valid transmutation— do you need to have intent???? b. Ex2 – Implied In Fact: If one spouse frequently refers to the house as ―our‖ house, or car as ―our‖ car, then transmutation through conduct. 2. Oral agreement before marriage deemed executed by marriage itself (or act of ratification) a. Ex1 – H referring to SP as ―ours,‖ then gets married and never changes character ii. Post-1985 – Difficult period of transmutation b/c statutes VERY strictly construed 1. CFC § 850 – Transmutation by Agreement or Transfer a. Married people may, by agreement or transfer, with or without consideration, transmute i. CPSP of either spouse; ii. SP of either spouseCP iii. SP of one spouseSP of the other spouse. 2. CFC § 852 (CCC 5110.730) – Valid Transmutation Requirements Transmutation NOT valid unless: a. Made In Writing; AND i. Actual writing does not need to be signed by both parties. i. NOT a ―Writing‖ 1. Bibb a. H died intestate: If RR is H’s SP, then ½ to W and ½ to S. If RR is CP, then all to W (W gets her ½ and H’s ½). b. S claims there was a transmutation so it is H’s SP. c. Held: Change of title on car w/ written DMV form is not sufficient writing. b. By An Express Declaration; AND i. Requires – language EXPRESSLY stating that a change in the characterize/ownership of property is being made. ii. NOT Express Declaration: 1. MacDonald: W’s signing of an adoption agreement acknowledging that H did not pick her as beneficiary of pension fund was NOT an express declaration. 2. Barneson: Not an express declaration where H required written instructions to transfer stock into W’s name b/c it did not say that the character of the property was being changed. a. Transfer is NOT synomous w/ Transmutation, so a transfer of property b/w spouses is not automatic transmutation. b. Possession is NOT synomous w/ Ownership. Page 3 of 21 a. b. 8/12/2008 CP Outline - Sinner 2. 3. Ex – Birthday card from H to W reads ―Enjoy your new car.‖ This is not an absolutely clear express declaration. Car is CP. 4. But1 – Not if you consent to assignment of property 5. But3 – Mistaken classification of asset on loan application 6. But4 – Telegram telling W to buy right house w/ H’s SP 7. But5 – An anniversary card (Steinberger) 8. But6 – Engraving on back of necklace is a writing but not an ED iii. Key: Look to the nature of agreement signed c. That is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected i. No Signing Requirement – spouse must only join in/consent/accept 1. Nod of head could be enough—analyze the facts. ii. But1 – Not valid where W uses SP to improve house in reliance on H’s promise to put her name on title 1. Effect – Can’t argue promissory estoppel w/ transmutations a. Can you argue undue influence or breach of duty????? Benson case. § 852(c) – Transmutations N/A to Personal Gifts b/w Spouses If: a. Of personal nature i. Apparel, jewelry, tangible articles of personal nature b. Used solely by the spouse to whom gift is made c. That are NOT of substantial value i. Determined by taking into account circumstances of the marriage ii. ―Substantial Value‖ is determined by how rich the couple is. iii. Ex – H have W diamond ring bought w/ CP funds for anniversary. W claims gift, but the ring is of substantial value. Court said ―True Gift‖ does NOT exist. To be a valid gift, it must fit w/in § 852(c) or be an express declaration. 1. What if oral transmutation that ring is W’s SP? Depends on whether or not it is pre or post-1985. d. NOTE: Gifts of personal nature (jewelry) that ARE of substantial value + purchased w/ CP funds are CP i. Unless accompanied by an 1) express declaration 2) in writing 3) agreed to by purchasing spouse ii. Ex1– Expensive ring on wedding anniversary not SP § 852 Does Not Apply Retroactively (Does NOT Apply to Transmutations before 1985) a. Transmutations pre-1985 are governed by pre-1985 law. i. So oral, executed agreements are enforceable 3. III. Classification of Property as Either CP or SP A. 5 Step Classification Approach a. Are the parties w/in the CP system? i. Does it apply to them? Do they live in the right state? b. Is the property capable of being classified as CP? i. What is the asset you’re trying to classify? 1. Legal Education v. Real Property v. Value of Business (building/property + good will/company name) 2. Ex1 – Real property or bank account funds (Hibernia S&L Society) ii. When was it acquired? c. Is there a classification presumption applicable? i. General CP Presumption d. If there is a presumption that applies, can that presumption be rebutted? i. 3 Ways to Rebuts General CP Presumption 1. Tracing Back to SP Source 2. Transmutation: Express Declaration, OR § 852(c) Gift, OR Pre-1985 3. Premarital/Pre-Nuptial Agreement e. Is any apportionment appropriate? i. Do we have to split up the asset in some sort of way (some CP, some SP)? B. General CP Presumption – CFC § 760: Property acquired during marriage is CP a. For presumption to arise – must show the property at issue was acquired during the marriage (Fidelity and Casualty Co.)(Wilson)—this is wrong b/c it is presumed that if acquired during marriage that it is CP. 8/12/2008 Page 4 of 21 CP Outline - Sinner 1 – Is the property w/in the scope of the CP system? i. Property – must be acquired while domiciled in CA during the marriage c. 2 – When was it acquired–before or during marriage? i. For CP General Presumption to arise – 1st must show property was acquired during marriage 1. Burden of Proof = preponderance 2. Effect – If can show property acquired during marriage, then auto-presumed CP (Wilson) 3. But1 – duration of marriage does not matter in terms of actual classification a. E.g., Do not say asset should be classified as SP, taking into account short duration of marriage!! (Fidelity & Casualty Co.) 4. But2 – Title on property has no bearing on whether property is as CP or SP 5. Ex1 – H worked as conductor + was married for many years; dies w/ pocket watch he always wore. We don’t know how H acquired watch. Is it CP? a. Result – B/c W+H were poor before marriage + married for many yrs, probably CP C. 3 Ways to Rebuts General CP Presumption a. Tracing Back to SP Source i. Start w/ property you are trying to classify, not w/ the $$ that bought the property. ii. § 770 – SP Source If: 1. Purchased w/ Funds Acquired/Acquired by gift or inheritance a. Ex – H’s stock from uncle acquired during marriage is SP 2. Purchased/Acquired w/ spouse’s earnings prior to marriage a. Ex – While married, H buys art on way home from work, then gets in car accident and dies i. Result – Art = presumptively CP, but can be rebutted by showing it was purchased w/ stock H owned before marriage 3. Purchased/Acquired while spouses living separate + apart from each other (usually not legal separation) iii. Standard of Proof for Tracing = Preponderance of Evidence = More Likely Than Not (does not have to be exact, just close)—does this apply only to tracing or to transmutation and premarital also?? 1. Ex – W owns SP RE during marriage, sells it and opens bank acct in amount of sales price. a. Result: Bank account is presumptively CP; burden on W’s heirs to show by preponderance of the evidence that funds from bank account can be traced back to W’s SP prior to marriage (Hibernia S&L) i. Note: Matching amount of bank account funds to RE sales price doesn’t have to be exact ii. But1 – Art property bought by W+H days before H’s death is CP 2. Freese (p. 77): a case of tracing needing preponderance of the evidence (standard). Tracing does not have to be exact. iv. Can be done by direct or indirect evidence – does this apply only to tracing or to transmutation and premarital also?? 1. Ex1 Indirect – By showing that there were no CP funds available at time asset was acquired v. SP Examples 1. H got diamonds (For What???—what if he gave the diamonds to his w for an anniversary gift???—presumed CP b/c during marriage, so H would have to show by preponderance that diamonds were his SP—but, is this a gift? b/c diamonds were substantial, would it presumably to CP????) by trading in his watch. H bought the watch from stock dividends. H got the stock as a gift from uncle. T/f trace SP funds from diamonds to stock, so diamonds are H’s SP. 2. H and W married in 2001. H bought stock from $$ he got from selling boat. H bought boat in 2000. SP b/c boat was his SP b/c he bought it before the marriage. vi. CP Example 1. H bought boat during marriage. Title to boat was H and X, as JT’s. H’s ½ interest in the boat is CP, so H and W both have ¼, ¼ (X has the other ½ interest). b. Transmutation i. Express Declaration (Written?); OR ii. § 852(c) Gift; OR iii. Pre-1985 c. Premarital/Pre-Nuptial Agreement D. Common SP Statutory Presumptions a. General CP presumption is easily rebuttable by finding that the property is w/in SP definition. b. CFC § 770 – SP of a Married Person i. Includes: b. 8/12/2008 Page 5 of 21 CP Outline - Sinner All property owned before marriage All property acquired during marriage by gift, bequest, devise or descent a. Usually involves Tracing Back. 3. The rents, issues and profits of any SP 4. SP can be conveyed w/ or w/out consent of other spouse ii. Also includes: 1. Property right from settlement resulting from will contest prior to marriage (Estate of Clark) a. Note: If will contest won, it is clearly SP b/c would have come to person as inheritance. b. If will contest after marriage, then different result—would it be CP??? iii. Does not include: 1. Gift (ranch) in lieu of pension from employer—this would be CP a. Even if: Couple separates at time of ―gift‖, b/c it’s in recognition of services rendered during the marriage (Downer v. Bramet). b. This applies to all situations where something is couched as a gift. Here, we know if is for his services rendered during the marriage, and H did not have a personal friendship w/ his boss. So, no other reasons boss would give H the ranch other than as his pension in lieu of his services rendered. c. CFC § 771 – Earnings and Accumulations during Period of ―Separation‖ i. While separated, the earnings of the spouse + minor children are SP d. CFC § 772 – Earnings and Accumulations after Judgment of ―Legal Separation‖ i. ―Legal Separation‖: Court adjudicated separation; dissolution w/out the ―divorce‖ label. 1. After ―separation,‖ earnings of each spouse are SP e. When is a couple ―SEPARATED?‖ i. Must have: 1. Physical separation; AND a. Same house or separate and apart? b. What is the difference b/w this and #4: living separately? c. Physical separation not sufficient on its own. 2. Communicative intent not to resume a normal marital relationship a. Only 1 spouse has to have it b. Ex1 – Filing for divorce is usually sufficient, BUT make sure they are not filing to shock the other spouse into coming back. c. But1 – Spouse says this isn’t working, we need time to see what to do i. Effect – No separation b/c no communication of clear intention d. But2 – 1 spouse doesn’t have courage to tell other that it’s over, so tells other 6 months after moving out i. Effect – Separation takes place 6 months later at point of telling ii. But – At some point the sheer amount of time where they don’t see each other makes it obvious that they are separated. Need to be careful w/ this b/c time is vague (1 year or 10 years??). 3. Conduct of the spouses must be consistent w/ this intent a. KEY – Look to conduct of the couple. Speech should = Conduct. i. Bargagry: Even w/ statement, ―from this point on we are separated,‖ can have no separation if conduct is inconsistent b. But1 – Couple living separately + filed for divorced NOT separated when W testified she didn’t want a divorce 4. Couple must live separately ii. If couple gets back together – Property is considered CP again E. Married Woman’s Special Presumption (MWSP) – CFC § 803 a. CFC § 803 – Property Acquired by Married Woman BEFORE 1/1/1975 i. MWSP: real or personal property acquired prior to 1/1/1975 in writing in married woman’s name is presumptively W’s SP. 1. Note: Only applies to titled property (e.g., real estate, stocks, bonds or car, but not furniture) 2. Ex1 – Deed in married woman’s name prior to 1975 a. Effect – MWSP overrides general CP presumption. So, W’s SP and burden on H to rebut this MWSP. 3. But1 – Deed, in H’s name and W is married to him a. Effect – MWSP does NOT apply to married men. So general CP presumption applies. 4. If acquired by married woman + another person – presumption is that she is a TIC a. Ex1 – W1 + W2 property as TIC 8/12/2008 Page 6 of 21 1. 2. CP Outline - Sinner i. Effect – Presumption is that W1+ W2 each own SP as TICs 1. Unless – different intention is expressed b. Ex2 – W1+ H2 property as TIC i. Effect – Presumption that W1 owns ½ of property as TIC and it is her SP, BUT H2’s ½ of property is CP. 5. If acquired by H+W and titled ―H & W as husband and wife‖ – presumption is that it’s CP a. BUT if deed just says ―H & W‖ and doesn’t describe them as husband and wife: i. W gets ¾ = (her ½ as SP) + (¼ from ½ of H’s CP interest) ii. H gets ¼ = (½ of his CP interest = ¼ total property) ii. Super MWSP 1. If acquired by H & W and titled ―for W as her SP‖ – kicks in Super MWSP a. Requires that H knew about it, directed it, or did it himself. i. Is H’s knowledge actual or can it be implied??? 2. Property is conveyed by 3rd party to W***only as SP?***???? + H expressly***can it be implied***??? consents a. But1 – H+W communicating by phone about buying property and H says for W to just buy it + put her name on the title, and she does as SP i. Effect – No Super-Presumption b/c H did not say for W to take the property as SP ii. But note – If W told H she put title in her name as SP, and H said okay, then Super-Presumption would arise iii. Rx + Rational for MWSP 1. Pre-1975, H had management and control of all property. So, we assume that if H titled the property in W’s name, then H must have meant to make this her SP b/c otherwise W would have no authority over the property. 2. Post-1975, MWSP is no longer needed b/c W was granted equal management and control of property. iv. Ways to Rebut MWSP 1. Burden of Proof on H. 2. H must provide sufficient evidence that a. H did not “intend” to make gift/transmutation to W; OR i. Ex1 – H+W buy a car together, but H is sick and can’t make it dealership so W signs the deed. H can rebut by showing that it was only done this was for convenience sake. ii. Ex2 – H titled property in W’s name so that creditors can’t come after him. H can rebut MWSP by saying he intended to defraud creditors, not to give the property to W iii. Horsman: Pre-1975, H and W acquired a number of stocks as CP, but all in H’s name. H was having affair. W threatened that she would go public w/ the affair unless H deeded some things solely in her name. 1. Analysis: Stock acquired during marriage so CP Presumption applies. Stock in W’s name—pre-1975? Yes. MWSP overrides CP Presumption. But, H can override MWSP if he can show that he did not intend for the stock to be W’s SP. a. Here, H’s intent is questionable b/c W forced him to title stocks in her name or she would cause a scandal. H probably rebutted. iv. But1 – H cannot rebut where he knows W has investments in houses, makes affirmative statement saying he wants nothing to do w/ it, and signs papers. H’s disavowal = a gift and he abandoned his rights to rebut MWSP. (Shodian). This case is suspect! b. H “did not know” that W took CP and bought property i. H can rebut by showing that b/c he did not have knowledge, he did not have any intent. ii. Some courts will not even apply the presumption in this situation iii. Ex1 – What if H finds out about property pre-1975, but remains silent and does not do anything about it? MWSP applies. H can maybe rebut, but his silence and failure to do anything about it could make it an effective transmutation (implied-in-fact ok pre-1985). 8/12/2008 Page 7 of 21 CP Outline - Sinner F. iv. Ex2 – What if H finds out about property post-1975 but pre-1985, but remains silent and does not do anything about it? Same result as above. v. Ex3 – What if H finds out about property post-1985, but remains silent and does not do anything about it? MWSP applies. H probably cannot rebut b/c in order to override the MWSP, there needs to be a transmutation requiring an express declaration in writing. c. Property is conveyed by 3rd party to W + H does not consent i. No H intent, so MWSP is reputable. 3. Cannot be rebutted by – tracing back the property to H’s SP 4. Type of Evidence: Can just be H’s word v. Ways to Rebut Super MWSP 1. Must Show: Fraud, Undue Influence, Mistake, Duress, Etc. 2. Intent is NOT enough b/c property tiled ―W as W’s SP‖ is semi-conclusive and show s that H really wanted this as her SP. Concurrent Estates (See Chart & Problems) a. Situation: H & W title property (does not have to be real estate) acquired during marriage: ―H & W, as JT’s‖ i. Effect of JT: Each JT has a ½ undivided interest w/ROS. SO, if one dies, then the remainder of the property goes to the surviving co-tenant. This applies even if decedent willed all his property to S. b. Issue: Is it really JT, or not w/standing the title, is it really something else? i. If JT, one party can sever JT and unilaterally partition. Each person’s ½ interest is SP. ii. If CP, both parties must sever???? iii. Example: H & W use CP to buy a home titled in JT. 1. Divorce JT: House divided in ½. 2. Divorce CP: House divided in ½. a. If some SP contribution, then it will matter if CP or JT. 3. Death JT: H wills ½ to S. S gets nothing b/c W has ROS. 4. Death CP: H wills ½ to S. S gets H’s ½. c. Analysis: i. DIVORCE 1. CFC §§ 2580-81 a. CP via General CP PresumptionCP b/c CFC § 2581 confirms CP status of property notwithstanding JT titleSTOP i. If 1 Spouse claiming a greater share or that all property is his SP, AND they had a pre-1984 agreement to this effect, then: 1. SFRP (Houses JT 1965-1983) a. CP b/c SFRP confirms CP status of property notwithstanding JT titleAgreement Rebutting CP i. pre-1985Oral, written, or implied (by ignorance + tracing) agreement or understanding that property is CP or SP of one spouse. 2. CL Approach a. JT b/c title rebuts General CP PresumptionAgreement Rebutting JT i. pre-1985Oral, written, or implied (by ignorance + tracing) agreement or understanding that property is CP or SP of one spouse. ii. If NOT, then: 1. Agreement Rebutting back to JT must meet CFC § 2581 requirements: EITHER a. Clear statement in deed that it is JT and not CP; OR b. Written agreement that it is JT 2. CFC § 2581 applied retroactively if spouse is trying to rebut to JT rather than claiming a greater share or that it is all his SP a. Retroactively applied if one spouse is trying to show that property is in JT b. Not retroactively applied if one spouse it trying to show that property is in SP 3. Did one spouse die after Divorce granted, but property issues remain at issue (as in Hilke)? Apply CPC § 5601. 2. Short Version Page 8 of 21 8/12/2008 CP Outline - Sinner a. CPCP i. Claiming SP & Pre-1984 Agreement 1. SFRP = CP; or 2. CL Approach = JT a. Both rebutted to SP by oral or written or implied agreement or understanding ii. Rebutting to JT 1. Clear statement in deed that JT, not CP; or 2. Written agreement that its JT iii. If divorce granted, but spouse dies before property divided, presumption that JT or CP w/ ROS changes to TIC w/o ROS. d. e. ii. DEATH 1. Property Purchased BEFORE 1/1/1985 & Titled in JT – CL Approach a. CP via General CP PresumptionJT b/c title rebuts General CP PresumptionAgreement Rebutting JT i. pre-1985Oral, written, or implied (by ignorance + tracing) agreement or understanding that property is CP or SP of one spouse. ii. post-1985Valid transmutation (CFC § 852) requires an express declaration in writing that property is CP or SP of one spouse. 2. Property Purchased AFTER 1/1/1985 & Titled in JT – Modified CL Approach a. CP via General CP PresumptionJT b/c title rebuts General CP Presumption – Title in JT is a valid transmutation to JT under CFC § 852Agreement Rebutting JT i. post-1985Valid transmutation (CFC § 852) requires an express declaration in writing that property is CP or SP of one spouse. 3. Note: We don’t care WHAT property is for DEATH purposes (SFRP N/A) 4. Exam Hypo: Stock acquired in ’82 titled in JT but H+W are ignorant to legal ramifications. Finally realizes legal effect and makes oral agreement saying stock is really CP. W dies leaving stock to sister. a. Effect – Oral agreement post-1985 is invalid; BUT – implied agreement that stock is CP still valid b/c pre-1985 5. Short Version: a. CPJTpre-1985 = oral or written or implied; post-1985 = express written declaration. CL Approach – Divorce OR Death i. Acquired During Marriage = General CP Presumption ii. Titled in JT = State of Title Presumption: Act of JT titling overrides General CP Presumption and makes it JT iii. To Rebut Back to CP or SP = Need 1. Written, Oral, OR Implied agreement or understanding that it is something other than JT a. Implied Requires Ignorance + Tracing. Tracing Back ALONE will NOT work. i. Ex (Lovetro): Determined to be CP where W did not know what JT was, and she traced it back to CP source. b. Presumption may NOT be overcome by Hidden Intent i. Ex (Levine): Agreement must be b/w H+W, can’t use hidden intent, or intent expressed to child, or intent express to banker to rebut presumption of JT (i.e. transmute it back to CP). Property remains JT. Single Family Residence Presumption (SFRP) – Divorce ONLY i. Acquired During Marriage = General CP Presumption ii. Single Family Residence Titled in JT b/w 1965-1983 = SFRP: Confirms CP status of property notwithstanding JT Title. iii. To Rebut to SP = Need (same as CL Approach) 1. Written, Oral, OR Implied agreement or understanding that it is something other than CP 2. Must show – H+W know that statute says CP, but they really want J/T a. Ex1 – Marital home 1) title taken in J/T, 2) no communication of intent that house was to be CP, 3) no understanding or agreement that property was other than J/T, is J/T b. Ex2 – H+W buy house taking title as J/T in ’81; orally agree house is really H’s SP. This is sufficient to rebut the presumption. i. Effect at divorce today – Cannot apply § 2580 constitutionally b/c of H’s vested property right; Use SFRP so property presumptively = CP; oral agreement is sufficient to rebut so house = 100% H’s SP Page 9 of 21 8/12/2008 CP Outline - Sinner f. ii. Note: Analysis is the same regardless of property type (SFRP N/A to death) iv. Cannot be rebutted by Tracing 1. Ex1 – W’s contribution of SP funds to purchase of house during marriage + while H and W living together, considered to be gift to the community (in absence of agreement) (Lucas) CFC §§ 2580, 2581 Approach (AKA Old CCC 4800.1) – Divorce ONLY i. Acquired During Marriage = General CP Presumption ii. All Property Acquired During Marriage Titled in ANY Form AFTER 1/1/1984 = CFC §§ 2580, 2581: Confirms General CP Presumption for Property Held in JT (ignores JT Title). iii. To Rebut to SP = Need Either 1. A clear statement in the deed that property is SP, and not CP a. ―This is JT and NOT CP.‖ Just saying this is JT is NOT enough; OR i. Ex1 – Title in deed as J/T is enough – this is a valid transmutation (comes up w/ death scenario) 2. Other documentary evidence of title showing property is SP; OR 3. Proof that parties made written agreement that property is SP or JT a. Key: MUST BE WRITTEN!! i. Ex1 – Couple takes title in JT after 1/1/84, and orally agrees it’s JT. This does NOT rebut the CP Presumption. Oral agreement is NOT enough. ii. Ex2 – H+W buy home in ’74 taking title as J/T w/ oral agreement of J/T 1. Effect at divorce – Arguing for J/T so apply § 2580 retroactively b/c no vested right in rt of survivorship; property is presumptively CP; oral agree insufficient to rebut; so property = CP; § 5601 N/A iv. Retroactive Application of § 2581 1. DOES IT MATTER WHEN AGREEMENT/UNDERSTANDING WAS MADE OR WHETHER THEY WANT IT TO BE JT OR SP????? 2. Retroactively Applied If you have a pre-1984 acquisition w/ an agreement that it was just JT b/c you are NOT taking away any vested property rights. a. Look for fact pattern where one spouse is trying to get more. b. Hilke: 1969 purchased home titled ―H & W, as JT‖ and they had oral agreement that it was JT. Dissolution in 1989. i. Analysis: CP Presumption upheld by SFRP, but SFRP rebutted by oral agreement. BUT, b/c H did not have a vested interest, we apply § 2581 retroactively, which means that an oral agreement is not sufficient. Rather, H and W needed a clear statement in the deed OR a written agreement that it is JT. c. §2581 IS APPLIED retroactively for claims that property acquired before 1/1/1984 is JT i. Effect – Need written agreement or statement in deed to get it to be considered JT ii. Ex1 – W said it was her SP. H said they had an oral agreement that it was JT. 1. Effect at divorce – Property is CP b/c H has a continuing interest in ROS. 3. Not Retroactively Applied If you have a pre-1984 acquisition (house or non-house), w/ an oral agreement (not written) that property is all one spouse’s SP. Then, under any law you look at (CL or SFRP), their oral agreement would have been effective. a. Look for fact pattern where one spouse is losing something. b. §2581 IS NOT APPLIED retroactively to claims that property acquired before 1/1/1984 is SP b/c it would be taking away spouse’s vested property right (Boul) i. Ex1 Stocks – H & W buy stock in ’81 taking title as JT, but orally agree stock is H’s SP 1. Effect of divorce today – Titling asset in JT gets you to CP presumption; H had vested rights so § 2581 not retroactive and oral agreement is enforceable under CL; stock = H’s SP 2. Note: SFRP N/A to stock ii. Only comes up when – 1 spouse tries to claim all (or greater share of prop is his SP) v. CFC § 5601 – Effect of Divorce on Property Classification at Former Spouse’s Death 1. If divorce granted, but spouse dies before property divided, presumption that JT or CP w/ ROS changes to TIC w/o ROS. a. Requires Legal Divorce: Judgment of legal separation does not sever JT Unless: Page 10 of 21 8/12/2008 CP Outline - Sinner g. i. Clear and convincing evidence that decedent intended to preserve JT in favor of the former spouse ii. Subsequent purchaser takes w/out knowledge, for value in good faith CCC § 682.1 – Community Property w/ Right of Survivorship (p. 107) i. Became effective – 7/01/2001, for instruments created on or after this date ii. At death – property passes automatically to surviving spouse w/out probate like JT iii. Severed – Same way property held in JT can be severed: unilaterally by either person, in which case it just becomes CP. iv. N/A to – Joint Bank Accounts****check***??? v. Favorable Tax Consequences at Death of Spouse 1. Ex – H+W buy house for $200k; At H’s death house valued at $1mil a. Effect under CP or J/T – W’s basis = stepped-up basis for H’s ½, which is FMV at H’s death + her original basis = $500k + $100k = $600k; so W taxed on $400k gain at sale b. Effect under CP w/ ROS – W gets stepped up basis at to whole house; so her basis = FMV of entire house at H’s death = $1mm; W not taxed on any gain at sale IV. Limitations on the Classification Process A. Property NOT w/in the CP System a. Professional Degree – or increased earnings capacity (Todd v. Todd – law degree) i. 3 Primary Reasons 1. Does not fit w/in traditional conceptions of property 2. Valuation is too difficult – too many variables 3. Contrary to notion of clean break b. Right to practice a particular profession (E.g., medicine or law) B. Property w/in the CP System a. Professional Education or Training (CFC § 2641 = CCC § 4800.3) i. Professional Education (and Increased Earning Capacity) ARE NOT capable of being classified w/in the CP system. (Marriage of Watt). ii. What it does: 1. Reimburses the community for ―community contributions to edu/training‖ of a spouse that ―substantially enhances the earning capacity of that spouse‖ a. Basically – Provides for reimbursement of edu expenses w/ interest at legal rate, but does NOT classify the asset as CP. i. Legal Rate of Interest: included in the statute (maybe 10% for CA). b. Rx – Enacted to provide some reimbursement for CP Contributions to Education or Training b/c a Professional Education (including increased earning capacity) is NOT capable of being classified or valued w/in the CP system. iii. ―Community contributions to Edu/Training‖ Def: 1. Education Expenses = Direct Education Expenses: Tuition, Fees, and Books, but NOT Room and Board. a. Rx – Living expenses while spouse is in school will be incurred regardless of edu/training. i. But1 – Could have living expenses counted if spouse is a ♥ geologist ♥ or archeologist working in the field ☺ 2. Means payment made w/ CP or Quasi-CP for edu/training or for repayment of loan used for edu/training a. Includes: i. Payments made while spouses were residents of another state ii. All edu costs paid w/ CP funds, even if edu occurred before marriage iv. Edu/training that ―substantially increases the earning capacity of the spouse‖ = 1. General Rule: Court has discretion to reduce reimbursement amount (but cannot increase or require more) a. Must be significant or high edu/training b. Whether person actually takes advantage of degree – Irrelevant i. Ex – H goes into Public Interest Law where his earning capacity is not enhance. Reimbursement is still necessary here b/c this person could change to Corporate Law and make a ton of $$. 8/12/2008 Page 11 of 21 CP Outline - Sinner c. d. v. Applies: ii. But If - Spouse was already making a lot of $$ before she went back to school, then more edu/training will not increase her earning potential. iii. Although – B/c the court has discretion to decide how much is owed, they may adjust down if they believe that H will ALWAYS stay a Public Interest Lawyer. iv. What if H Lied – See rebuttable presumption below. Rebuttable presumption – based on length of marriage i. CP contributions to edu/training made LESS than 10 years ago 1. That community HAS NOT substantially benefited a. Presumptively full reimbursement ii. CP contributions to edu/training made MORE than 10 years ago 1. That community HAS substantially benefited a. Presumptively $0 reimbursement Reimbursement may be offset by i. Edu/training of other spouse ii. Gainful employment that substantially reduces the need for support b. c. 1. ONLY to Divorce and Legal Separations, but NOT to Death 2. Retroactively for Divorces after 1/1/1985 (we won’t get a question before this) vi. Outstanding Loans For Direct Education Expenses Are NOT Included Among the Liabilities of the Community – They are assigned to spouse who rec’d the education. 1. The balance of all other loans (e.g. loans for living expenses) should be split w/in the community. 2. Important b/c liabilities acquired during marriage are also CP. vii. Parties may opt out of this § – by express, written agreement (oral waivers do NOT count). Professional Practice (E.g., law firm) i. Proceeds from the sale of a Professional Practice ARE capable of being classified as CP. (Marriage of Lopez). ii. Valuation of Professional Practice Includes = Goodwill + Tangible Assets 1. Goodwill Value = Amount paid over book value to acquire a business; Value associated w/ the business. Includes: Name recognition, Value of continued patronage. Requires getting an appraiser. 2. Tangible Assets = Annual Earnings, Desks, Chairs, etc. Life Insurance – issues only come up when beneficiary is not the surviving spouse i. IS capable of being classified as CP. ii. 2 Types 1. Term (like auto insurance) a. You pay for coverage during ―a term‖ b. Should you die during the ―term,‖ you are covered c. If you don’t renew, you are no longer covered at all d. Right to renew at end of year even if you get sick i. Rx policy becomes valuable if you get a disease – b/c suddenly you are uninsurable anywhere else ii. If you get this as SP before marriage (and become uninsurable before married), you are bringing value into a marriage. 2. Whole Life (Traditional) a. Combo of insurance policy + savings account b. Premiums stay the same iii. Apportionment at Death 1. Ex1 – H takes out $1mil policy before he is married and names children from 1st marriage as beneficiaries. H pays 8 out of 10 annual payments of $1000 before marriage w/ SP and then 2 payments during marriage w/ CP. H dies leaving everything to kids from 1st marriage. a. Term Result i. Last Payment Rule 1. If Last Payment made from SP, entire policy is SP a. Kids get it all 2. If Last Payment made from CP (HERE), entire policy is CP a. Spouse gets her ½ interest of CP Page 12 of 21 8/12/2008 CP Outline - Sinner b. i. Note: Rule benefits W in this scenario ii. Rx: W did not give her permission to name H’s kids from 1st marriage as beneficiaries. Kids get H’s ½ interest b. Whole Life Result i. Requires Apportionment of Premiums 1. SP Premiums Paid – 8/10 ($800k or 80%) of proceeds go to kids 2. CP Premiums Paid – 2/10 ($200k or 20%) of proceeds a. W gets her ½ interest in CP asset 1/2 x $200k = $100k Total b. Kids get H’s ½ CP interest + All SP interest $100k + $800k = $900k Total i. Isn’t the result different if 2+ kids????? ii. Note: If H had W’s permission to name someone other than spouse as the beneficiary (e.g. kids from 1st marriage as beneficiaries), then all $$ would go to kids. iii. Note: If H and W had an agreement that this policy was SP, …WHICH IS IT???? 1. Remember: Post-1985 Agreement must be in writing. 2. Uninsurability (only an issue w/ term insurance) a. Ex2 – H gets married. H gets Term policy and pays premiums w/ CP funds. End of year 3, H becomes uninsurable, but continues to pay premiums w/ CP funds until year 5. At the end of year 5, H gets divorced. H pays premiums after marriage w/ SP funds for 2 more years. H dies. i. Term Result – Impacting Last Payment Rule 1. Go back to point of uninsurability 2. Beneficiary should argue that if partly paid w/ CP (or SP) funds after point of uninsurability, ―some value‖ of the policy is attributable to the Community. ―But‖ for the premiums prior to the illness (applies the same to either SP or CP), the policy would not be enforce and t/f some of this should be CP (or SP) a. ―some value‖ – we don’t know exactly how much, so bring in expert appraiser. b. Uninsurability NOT an issue w/ Term policy when it is NOT the individual’s right to renew i. Rx we ignore uninsurability: (usually employer/employee situation) 1. Employment, not uninsurability, determines whether policy kept 2. Right to renew is that of the employer, not employee 3. Policy comes from employee’s wages, which are CP in nature 4. Viewed as employment benefit (Spengler) ii. Spengler: H married to W1. Employer provided Term LI policy to H. H developed cancer and became uninsurable. H and W1 separated and then divorced. H remarried W2. H died. 1. Here, we don’t look at insurability as a factor b/c whether or not to keep the policy was w/in the discretion of H’s employer, not of H. Term LI policy was tied to H’s employment. 2. Did H or his employer make the payments? Does it matter—of course? Can an employer provide the policy and insurability or is this only the case if the employer provides the policy but wont be the case if the individual buys the policy???? Apportionment at Divorce 1. Whole Life a. Requires Apportionment of Premiums (Same as Death) i. If acquired during marriage – Divide cash surrender value 50/50 ii. If acquired before marriage – Apportion based on Amt of premiums paid from SP and CP funds 2. Term insurance Page 13 of 21 iv. 8/12/2008 CP Outline - Sinner a. No Cash Surrender Value = Nothing to Divide i. Typically nothing to divide b/c term is over ii. Exception: Community reimbursed for portion of premium paid for that specific term (e.g. if divorced during term). iii. What happens to insurability????? v. Apportionment at Separation 1. Ex – H gets married, then insured, then separated, then dies. H had insurance for 9 years during marriage and died 1 year after separation. H named S as beneficiary. 2. Post-Separation = SP a. Term: All SP b. Whole Life: 90% CP and 10% SP. c. Does it need to be a legal separation? 3. What if W was named beneficiary? Would she get the proceeds even if H died intestate? C. Persons w/in the CP System a. What does it take to be ―MARRIED?‖ i. On Exam – we will be told definitively whether or not the parties are married ii. Marriages from Other States 1. CA will recognize Traditional and CL – even though CA doesn’t have CL 2. CA will NOT recognize Same Sex Marriage or Domestic Partnerships – even if ok in another state. Why if they have a domestic partnership law?????? Is this changing???????? iii. Domestic Partnerships – CA DP Rights & Responsibilities Act – CFC § 297 1. Takes effect – 01/01/2005 2. What it does a. CA domestic partners will be considered MARRIED for property purposes b. Divorce AND Death rules apply to DPs i. Note: DPs will have to get divorced (no more unilateral termination) c. Does NOT apply and is not recognized by Federal law. 3. Domestic Partner Requirements (7) a. 2 adults in intimate committed relationship of mutual caring i. Members of same sex; OR ii. Members of opp sex w/ 1 person 62 + and qualify for social security Title VII benefits b. Must not be in DP w/ someone else and must not be married or have a putative spouse. c. Persons must share common residence d. Can’t be related by blood e. Both persons must be at least 18 years old f. Both persons must be capable of consenting to DP (capacity) g. Must file Declaration of Domestic Partnership w/ Secretary of State 4. On Exam – If 2 people will qualify as DPs, analyze exactly like a marriage 5. Retroactive Application – Originally it was prospective only. Now, we do not know. –know how to apply this retroactively if you have to!!!! a. Not really of concern pre-1985 b/c there was no such thing as registered DPs until about 2001. b. Putative Spouses i. Requires – at least 1 spouse has a ―Rx, good-faith belief in the validity of the marriage‖ 1. But – Belief that you have CL marriage in CA is NOT considered a ―rx good faith belief‖ 2. Putative DPs: If one DP has rx good faith belief that they are DP. ii. 2 Fact Patterns 1. Easy – M & W think they are married, but are not b/c for some reason marriage is not valid (i.e. filed the wrong documents). They get divorced/1 dies. 2. Hard – M was married, thinks he got a divorce, but did not; Gets ―remarried‖, but new marriage is not valid; we have a putative spouse and a real spouse. iii. CFC § 2251 – Quasi-Marital Property (Q-MP) 1. Definition a. Property that would have been CP had the parties actually been married. 8/12/2008 Page 14 of 21 CP Outline - Sinner b. Based on equitable reason that fairness should dictate it be treated like CP if rx good faith 2. 3. belief that married. Compare Quasi-Community Property (Q-CP) Use it when a. Marriage is void (or annulled – Coats). Does it matter why—Coats b/c she couldn’t have kids. b. On spouse had rx good-faith belief in validity of the marriage. i. Ex: M knows that they are not married, but W has rx good faith belief that they are. 1. If H makes all the $$ and H dies, W will get ½. 2. If W makes all the $$ and W dies, H will NOT get (or probably will not get) ½. What it does a. Divides the property acquired during the union as if it were CP or Q-CP Applicable to: a. Divorce only – by statute b. Death also – by courts Intestacy Example – Estate of Leslie a. H2 and W married, but invalid b/c never recorded. H had rx good faith belief that they were married. W died intestate. The house had been purchased by W, H1 and S1. W was survived by H2, S1 and 3 kids from prior marriage. Assuming H1 is dead???? i. Basic Rules of Intestate Succession 1. CP/Q-CP/Q-MP: W and H are Putative Spouses, and all property acquired during marriage is Q-CP/Q-MP. a. When W dies intestate, her ½ goes to her surviving spouse. (Putative Spouses are treated the same as Real Spouses and Domestic Partners w/ regards to intestate succession). i. SO, H2 gets 100% of Q-CP (W could have willed away her ½ of Q-CP). ii. Same result if H1 was still alive??? What if they were separated???? 2. SP: Here, the house is W’s SP. a. H and 1 kid = ½ to H and ½ to kid b. H and 2+ kids – 1/3 to H and 2/3 split b/w kids. Putative Spouse AND Legal Spouse – Multi-Party Situations a. Equitable Rule – Look at it from each parties perspective and give parties ½ of what they would have received b. Scenario – H marries W1, has 2 kids, doesn’t get a valid divorce, then marries W2 and makes $300k. New marriage is not valid and W2 is putative spouse. H dies intestate. W1+W2+kids have conflicting property interests. i. How Property distributed Equitably in Intestacy 1. From W2’s Prospective – $300k = Q-MP (acquired during ―marriage‖ or while putative spouses) a. Entitled to H’s ½ Q-MP though intestacy + owns ½ share of Q-MP. 2. From W1’s Prospective – $300k = SP (acquired after separation) a. W1 entitled to 1/3 interest in SP b. W1’s kids entitled to divide 2/3 of aggregate SP 3. Court’s Equitable Solution—everyone gets ½ of what they what they thought they would get. a. W2 – Gets ½ of H’s ½ interest in the QMP ½ ($150k +$150k) = ½($300k) = $150k Total b. W1 – Gets 1/6 of SP ½ (1/3 x $300k) = 1/6($300k) = $50k Total c. W1’s Kids – Get to divide 1/3 of aggregate of SP ½ (2/3 x $300k) = 1/3($300k) = $100k Total Page 15 of 21 4. 5. 6. 7. 8/12/2008 CP Outline - Sinner ii. How Property distributed Equitably pursuant to will – same scenario, but H leaves all property (the $300k earned during marriage) to F, a friend 1. Court’s Equitable Solution a. F – Gets H’s ½ Q-MP interest $200k Total b. W2 – Has her ½ interest in the Q-MP $200k Total c. W1 – Gets nothing b/c H’s interest is willed away d. Kids – Get nothing b/c H’s interest is willed away iii. How Property distributed if Divorce – same scenario, but H divorces W1 and splits w/ W2 1. Court’s Equitable Solution a. H – Gets ½ Q-MP b. W2 – Gets ½ Q-MP c. W1 – Gets nothing b/c it is H’s SP. d. Kids – Get nothing b/c they are not entitled to any SP in a divorce. Bigamous Relationship i. Intestacy 1. Treat property as CP for BOTH spouses 2. Look at what each spouse would have gotten, and divide in ½ ii. W/ a will – We’re not sure what would happen 1. Each party (W1, W2, other) might get 1/3 (even though H knew he wasn’t married) D. Persons NOT w/in the CP System a. Meretricious Spouses (Vallera) i. Applies when – neither spouse has a rx good-faith belief in the validity of the marriage 1. Ex1 – Spouses who think they are married at CL fall into this category ii. Effect – No CP interest (no statutory property rights); all SP iii. Only potential recovery – Through quatum meruit or for services rendered pursuant to actual K (a/l/a services are NOT sex)! 1. K could be implied—does pre/post 1985 depend on whether it must be oral or written???? Is this Marvin v. Marvin? E. CA’s Reach to Out-of-State Property a. In General: i. CP Definition – CFC § 760 1. All property (real or personal), wherever situated, acquired while domiciled in CA ii. Domiciled: Residence w/ intent to stay. You can be temporarily absent as long as you intend to return. iii. Situation: CA domiciliaries acquire out of state property (e.g. Car in Nevada, Cabin in Missouri). b. DIVORCE – CPC § 2660. Division of Real Property Situated in another State i. Problem – No in rem jurisdiction over the RE. ii. BUT – CA does have in personam jx over the parties to make them do something. iii. What it doesn’t do: 1. Does not allow CA to force another state to retitle property according to CA order. 2. Does not allow CA to force spouses to change title on RE in other states a. Ex1 – If H owns SP RE in OH and W owns SP RE in RI, CA court cannot order H/W to split OH and RI property 50/50 for each—I though you could force a spouse to give a ½ interest in the property????? b. NEED TO LOOK UP STATUE IN BOOK!!!!!!!! iv. What it does do: 1. If possible, keep nature of RE interest the same: a. CA should divide the RE in such a way 2. If not possible to keep nature of RE interest the same: a. CA can force spouse to execute a deed for the out of state property giving part of it to the other spouse b. CA can divide up the RE, giving spouse appropriate cash value he’s entitled to (§ 2660(b)). i. Cash Value based on property value, NOT purchase price. 8/12/2008 Page 16 of 21 c. CP Outline - Sinner c. CA can give Property 1 to one spouse and Property 2 to the other spouse (assuming that they are of equal value) (§ 2660(a)). DEATH – No comparable statute to CFC § 2660 i. Problem – No in personam or in rem jurisdiction over the property. 1. What if the property is titled in the surviving spouses name??? ii. State’s ―Choice of Law Rules‖ determines how property is treated: 1. Majority & CA– use law in state of decedent’s domicile a. Applies to – people domiciled in other states who own RE in CA; or to people who live in CA and have RE in another state. 2. Minority: use law in state where property is located. 3. Ex1 – W dies 1st w/ SP RE acquired during marriage in her name alone, in RI, a. In CA – RE in RI is considered CP b. BUT – Must look to RI’s choice of law rules to see if we use RI’s rules or rules of state of decedent’s domicile Quasi-Community Property (Q-CP) a. Quasi-Community Property – CFC § 125 i. Def: All real + personal property, wherever situated, acquired by either spouse while domiciled in another state, that would have been CP had the spouse been domiciled in CA at the time of acquisition ii. Compare Q-MP: see above. b. Migrating Couples i. Scenario – H+W live in NE (CL state) their whole lives w/ no kids. H is an at-home husband. W earns $10mm as a professional in NE. W retires and the couple moves to CA. Death or Divorce. 1. Property does not automatically change as soon as they get to CA. 2. In state w/ no spousal protection – $10mm is 100% W’s SP; no spousal protection for H at W’s death or at divorce 3. Under CA Quasi-CP Scheme: CFC § 125 a. At DIVORCE i. When couple crosses the border – $10mm stays W’s SP ii. At moment of divorce – Property becomes Quasi-CP 1. Effect: $10mm distributed exactly as if it were CP a. W gets $5mm; H gets $5mm iii. Note: as to SP in NE – W could have SP in NE acquired by gift, devise or inheritance that would stay SP and not become QCP upon divorce b. At Rich Spouse’s DEATH i. When couple crosses the border – $10mm stays W’s SP ii. At moment of W’s death – Property becomes Quasi-CP 1. Effect: $10mm distributed as if it were CP a. H gets his ½ of the QCP b. W can will away her ½ QCP to whoever she wants ii. Note: At Death ONLY Decedent’s Property becomes QCP!!!—if this is the case, then Divorce problem just above is wrong. 1. Ex1 – H dies first in above ―scenario.‖ a. Effect: H can’t will away ½ of W’s $10mm. H has $0 SP. H may will away ½ of $0 b. On Exam – W/ Death + migrating couple: Pay attn to which spouse is dying!! 2. Ex2 – Same scenario above; both spouses are currently alive, but H has terminal illness; W needs advice as to whether she should divorce H now or let him die a. If divorce – $10mm split as evenly b/w H+W as QCP b. If death – $10mm remains all of W’s SP iii. To Avoid Quasi-Community Property Rules Altogether 1. Migrating couple can do a transmutation to keep the property SP at divorce/death c. F. 8/12/2008 Page 17 of 21 CP Outline - Sinner V. Selected Problems in Classification A. Co-Mingled Funds? – At Death or Divorce a. What they are – Funds comprised of a combo of CP and SP i. Ex1 – Bank accounts; amounts used to pay down loans; stock b. If Funds Cannot Be Un-Commingled – General CP presumption applies and total account deemed CP c. 2 Ways to Un-Commingle Funds – But either way rarely works b/c of lack of accurate records i. Direct Tracing 1. 2 Requirements: a. 1 – Need accurate + exact accounting schedule that shows: i. What deposits were made ii. That there was ―enough SP at the time‖ in order to buy the property b. 2 – Spouse claiming it is SP must show s/he had ―INTENT‖ to purchase the property w/ SP i. Evidence of intent 1. Writing SP on check w/ which item purchased 2. Contemporaneous withdrawals 2. Marriage of Mix 3. Marriage of Frick ii. Indirect Tracing – Exhaustive Tracing – can use this if spouse fails w/ direct tracing (still requires an accurate accounting). 1. Idea – All that is left in account by default, is SP 2. Family Expense Presumption a. Community expenses are deemed to be paid – w/ CP funds first b. Then, if CP funds are exhausted – CP funds are paid w/ SP funds. c. Any balance left over must be SP 3. Key – Must show that ―AT THE TIME‖ the withdrawal for asset was made, CP funds were exhausted a. Effect – totals of CP v. SP during the entire marriage mean nothing b. Note – If SP used to pay Community expenses, spouse not necessarily entitled to reimbursement at divorce***how/when which concept r u referring to***??? d. De Minimus Rule i. Account that is mostly SP w/ small contribution of CP, considered to be 100% SP b/c it is SUCH a small contribution it is considered insignificant. 1. Ex1 – H makes many SP deposits + 1 CP deposit a. Result – Money in account = SP; but community gets CP amount back which was deposited (probably w/ interest) B. Business Profits a. Classic Business started w/ SP Scenario – W has business started before marriage w/ $10K SP. W+H marry; at this time W’s business is worth $50k. W continues to work at business during the marriage. At divorce, 5 years later, business is worth $500k. b. 2 Methods to split up business and determine amount of SP v. CP funds i. Pereira Method 1. Generally: a. Solves for – SP; the balance left over is CP b. Lion’s Share = CP (opposite in Imparato situation) c. Use when – Chief contributing factor is spouse’s working efforts i. Classic Ex – Service Business 1. Rx – Growth mostly attributable to spouse’s efforts 2. How it works: a. 1 – Determine value of the SP interest at the time marriage occurred i. Here, = $50k b. 2 – Apply fair rate of return non-compounded (the legal rate = 10%) to that amount to determine $$ amount/year of growth i. Here, $50k x .10 = $5,000/year of growth c. 3 – Multiply growth per year by the number of years spouse worked to determine total SP interest in business during the marriage i. Here, $5,000 x 5 = $25,000 d. 4 – Add total $$ SP during marriage to total $$ SP at time marriage occurred i. Here, $25,000 + $50,000 = $75,000 = Total SP of business 1. Total CP of business = $425 (each spouse gets ½ of this) 8/12/2008 Page 18 of 21 CP Outline - Sinner 3. When spouse takes out a salary every year – Works the same***check***??? ii. Van Camp Method: 1. Generally: a. Solves for – CP; the balance left over is SP b. Lion’s Share = SP c. Use when – Chief contributing factor is underlying asset i. Classic Ex – Fast Food Franchise 1. Rx – Growth mostly attributable to name/trademark 2. How it works: a. 1 – Determine what spouse’s efforts during marriage are worth i. How – Determine fair salary for spouse’s efforts 1. Given OR have to estimate based on comparable position ii. Here, assume W’s efforts are worth $30k/year b. 2 – Multiple salary/year by number of years worked to determine total CP i. Here, $30,000 x 5 = $150,000 = Total $$ CP 1. Each spouse gets ½ x $150k = $75k 2. Total SP of business = $350k 3. How it works when spouse took out a salary every year a. 1 – Determine what spouse’s efforts during marriage are worth (fair salary) b. 2 – Subtract amount of salary spouse gave self from fair salary i. Here, if W took out $20k/year then, $30k - $20k = $10k ii. Note: During time married, the Community has already been compensated for the amount of CP efforts w/drawn (salary) 1. Applies when a. Spouse takes out total fair salary amount b. Spouse takes out more than total fair salary amount c. 3 – Multiply the difference by number of years worked to determine Total CP that Community has not yet been compensated for i. Here, $10k x 5 = $50k = Total CP 1. Total SP = $450k c. Business started w/ CP Scenario w/ Separation + Divorce – H+W marry; then H starts business w/ $1,000 of CP funds and works there. At time of couple’s separation business is worth $10k. When couple gets divorced 4 years later, business is worth $40k. This is a CP business to which SP efforts have been added i. Under Pereira – opposite so solving for underlying CP 1. 1 – Determine CP value of business at point of separation a. Here, = $10k 2. 2 – Apply fair rate of return to CP value multiplied by # of years H worked b/w separation + divorce a. Here, $10k x .10 x 4yrs = total growth = $4,000 i. Total CP = $10k + $4k = $14k ii. Total SP = $40k - $14k = $26k ii. Under Van Camp – opposite so solving for SP efforts 1. 1 – Determine fair salary/year for H’s efforts a. Here, fair salary is $7k/yr 2. 2 – Multiple fair salary times # of years worked for total SP value a. Here, $7k x 4 = $28k = Total SP i. Total CP = $12k iii. When Some Courts DO NOT use Pareira/Van Camp AT ALL!!! 1. When: We have a personal service business (e.g., law practice) started during marriage w/ CP and a short period b/w separation + divorce: a. Court says - $$$ value of business deemed to be CP = FMV of business at time of separation i. Any $$$ growth b/w separation + divorce = 100% SP b. Rx - Business growth IS 100% entirely due to spouse’s efforts i. Underlying asset has no value apart from spouse’s service 2. But N/A to – SP business, w/ spouse continuing to wk during marriage, then divorcing\ a. Must be – Above exact situation!! C. SP Contributions in Acquisition of a CP Asset a. Scenario 1 – H+W buy $100k house, titled jointly, for all cash in 2000. $80k comes from CP funds and $20k comes from W’s SP funds. In 2004, couple gets divorced, and house is worth $500k 8/12/2008 Page 19 of 21 CP Outline - Sinner i. At DIVORCE 1. Lucas Rule – When W makes contribution to asset she knows is titled jointly (J/T or CP), it is automatically deemed a gift to the Community a. To avoid – Must have agree/some understanding to the contrary (written or oral) i. If agreement to contrary exists – Use Apportionment 1. Ex1 – W gets .20 x $500k = $100k as SP 2. CFC § 2640: SP Contributions to Property Acquisition (Anti-Lucas Provision) a. Date of enactment: 1/1/1984 b. Only applies to: i. Classifying property at Divorce ii. SP contributions to CP asset (N/A to CP contributions of SP asset) c. Contributions to Property Def: i. Down-PMT, improvements, to reduce loan principal balance, ii. But not – PMTs for maintenance, on interest of loans, insurance or property tax d. How Reimbursement for Contributions Occurs i. Reimbursement w/out interest, not to exceed property value, for amount of purchase price that can be traced to SP funds ii. Unless 1. Party has signed written waiver of right to reimbursement 2. Written agree to do otherwise has effect of valid waiver a. Usually will be to apportion as pro-rata share e. § 2640 Not Retroactively Applied i. Rx – B/c would be taking away a vested property right (Hikus) 1. B/c – Lucas was law at time property bought; since no agreement to contrary at that time, property becomes CP immediately as soon as SP put in a. Effect – spouse who did not contribute any SP now has vested rights in the CP property ii. Effect: 1. Pre-1984 a. SP Contribution – deemed gift b. With oral/written agree/understand – do that 2. Post-1984 a. SP Contribution – auto reimbursement for amt b. W/ written agreement – must be in writing; do that ii. At DEATH 1. Use Lucas Rule – b/c no other applicable statute a. Effect – SP contribution to CP asset, absent agreement to contrary, deemed gift i. Agreement to contrary – can be oral, written, an understanding 2. Transmutations a. Expressly N/A to Co-Mingled SP + CP – CFC § 852(d) D. Installment & Credit Acquisitions a. Acquisitions in Installment Transactions i. General Rule – When we have a CP contribution to an SP asset, the Community gets its share of the original purchase price 1. Applies at death + divorce 2. Don’t worry about dates ii. Loans acquired during marriage = presumptively CP, via General CP Presumption 1. To rebut to SP – Can use: a. Transmutation b. Intent of Lender Test i. What it is – If lender relied on spouse’s SP for loan repayment when deciding whether to make the loan, presumption rebutted so it’s SP ii. How it’s done – Subpoena lender and ask him what he relied on iii. But1: Personal Credit is CP, not SP – B/c personal credit consists of your earnings/earnings ability during marriage which is CP iv. But2: Relying on 1 Spouse’s Earnings is CP – even if H goes to bank w/out W’s knowledge, banker knows H is married and H offers W’s financial information and banker declines it 8/12/2008 Page 20 of 21 CP Outline - Sinner But not – If 1 spouse’s income flow is profits/rents from extensive portfolio of SP real estate iii. Scenario A – H + W buy an asset in 1981 for $200k during their marriage. H uses $20k of SP for down PMT. H + W take out loan for $180k. H+W are getting a divorce and asset is worth $400. At divorce, loan balance is $300k paid down w/ CP. Therefore we know H+W’s equity is $300k 1. If the couple had no agreement as to the SP: a. H’s SP contribution deemed a gift to the Community under Lucas i. H + W each get = ½ their CP equity = $150k 1. OR (1/2 x 400k=$200k) – (1/2 x loan balance=$50k) = $150k 2. If the couple bought the asset after 1/1/1984: a. § 2640 provides auto-reimburs. for H’s SP contribution absent written waiver b. H gets = (SP reimbursement = $20k) + (1/2 balance of CP=1/2 x 380k) – (1/2 loan balance=$50k) = $160k 3. Missing fact pattern***??? iv. Scenario B – H + W buy an asset in 1981 for $200k during their marriage. H uses $20k of SP for down PMT. H + W take out loan for $180k. H+W are getting a divorce and asset is worth $400. At divorce, loan balance is $300k. $40k of loan balance paid w/ CP funds and $40k paid w/ H’s SP ($30k paid before 1/1/1984 and $10k post-1984. Therefore we know H+W’s equity is $300k 1. Couple has no agreement as to SP: a. H’s $20k SP down payment – deemed gift to Community under Lucas b. H’s $40k SP used to pay down loan principal balance i. If SP PMTs made before 1/1/1984 – SP payments deemed gift under Lucas absent an agreement/understanding ii. If SP PMTs made after 1/1/1984 – Auto-reimbursement under § 2640 1. 8/12/2008 Page 21 of 21