1 Bobby Ashrafi’s Community Property Outline TEST HINTS: -Even if transmutation fails under the tough transmutation period, look to see if the property was already transmuted by discussions, etc. before 1985!!! -If the couple divorce, and one spouse dies before the assets are divided, the divorce rules apply!!! INTRODUCTION Common law system (VAST MAJORITY): Husband and wife own all property individually except that which they expressly agree to hold jointly. History: Husband controlled pretty much all property—even that which the wife brought to the marriage. Then: the Married Woman’s Property Acts changed some of this. Spousal protection: All states have some protection for dissolution. However, note that it only protects the spouse—and not the devisees of the decedent. Equitable distribution doctrine: Protections were set up for death and divorce so one spouse is not precluded from getting some money. Divorce: Generally spouse gets ½. Death: Forced/Elective share (choosing either what is in the will or their forced share—probably somewhere beween ½ and 1/3 depending on the jurisdiction) Community property system (MINORITY): Husband and wife own significant portion of their property jointly unless they have agreed to hold it separately. Property obtained during marriage is presumed community property. Separate property: A married person may convey his separate property without consent of the spouse; including: all property owned before marriage. all property acquired after marriage by gift, bequest, devise, or descent, rents, issues and profits of separate property, all earnings and accumulations while living separate and apart from the other spouse Community property: Any other assets acquired during marriage, real or personal, while domiciled in California may be deemed community property, owned equally by both spouses. Equitable distribution: There is no real equitable distribution system anymore—it’s already built into the system because each gets their half the moment that one earns the money. Divorce: Each spouse gets his half of community property and keeps his personal property Death: Each is entitled to dispose of her share of community property. If no will, 100% of the community property goes to other spouse, then the separate property goes through intestate succession. Comparisons: During marriage: COMMON LAW: the person who earns the property has management and control over that property. COMMUNITY PROPERTY: Each spouse both spouses have equal management and control over all of the community property At divorce: COMMON LAW: Generally each spouse gets half COMMUNITY PROPERTY: Each spouse gets his half If spouse who earned property dies: COMMON LAW: Generally SS will end up with ½ (forced share), and decedent can devise his half COMMUNITY PROPERTY: Each spouse gets his half, and can devise his half. If spouse who did not earn property dies: COMMON LAW: If the spouse that did not earn the money dies, surviving spouse keeps all—decedent cannot devise anything because he had nothing!!! Heirs or devisees get nothing!!! COMMUNITY PROPERTY: If the spouse that did not earn the money dies, he can still devise his half 2 FUNDAMENTAL PRINCIPLES Community Property (CFC § 760): All assets acquired during marriage, real or personal, while domiciled in California is presumed community property, owned equally by both spouses. Separate Property (CFC § 770): 1. All property owned by the person before marriage 2. All property earned or acquired after marriage by gift, bequest, devise or descent 3. All rents, issues, and profits of separate property §770 [George v. Ransom] 4. All property acquired while living separate and apart Community property with right of survivorship: As of July 1 2001, if a husband and wife expressly declare property as community property with right of survivorship, writing, initialed, shall pass to survivor. The right of survivorship may be severed in the same way that joint tenancy may be severed. (if on exam property is titled this way before July 1, 2001, it is not really titled this way Equality Principle: Each spouse has present, existing and equal ownership interests and management rights in community property immediately on acquisition during continuance of marriage relation. 5 STEP CLASSIFICATION PROCESS: 1. ARE THE PARTIES WITHIN THE SYSTEM? (legally married, etc.) 2. IS THE PROPERTY CAPABLE OF CLASSIFICATION? (some are not—education, good will?) 3. IS THERE A CLASSIFICATION PRESUMPTION? (presumptions set who has the burden of proof) 4. CAN THE PRESUMPTION BE REBUTTED? (by tracing, transmutation, premarital agreement) 5. IS ANY APPORTIONMENT APPROPRIATE? (if community property was used to improve personal property, etc., apportionment may be appropriate) 3 1. ARE THE PARTIES WITHIN THE SYSTEM? Union Issues True community property: Legally married (recognized by California): NOTE: CA does not recognize common law marriage. But, if legally married (by common law, but not same-sex!) in another state, it is recognized in CA. Registered domestic partners: Same property rights, protections, benefits, rights upon death and divorce, putitive domestic partnerships, etc. Retroactivity: Although this was not law until 1/1/2005, this may be applied retroactively (controversially) to parties that have filed a Declaration of Domestic Partnership before then. Quasi-marital property: Putitive marriages [CFC § 2251]: Where at least one spouse enters into a marital relationship with reasonable good faith belief that a marriage existed, and it is later found to be void, the protections are the same. The property that would have been CP is called quasi-marital property and divided as if it were CP. What could void marriage: Lack of consent, under 18, incestuous marriage, bigamous and polygamous marriage, annulment [Coates v. Coates], etc. No tricks here on test. Rights of putitive marriage: Same as if they were legally married—for distribution of community and separate property and for division on death and divorce — all property purposes. [Estate of Leslie]. Good faith/common law marriage: There is no such thing as a good faith common law marriage! That would undermine the law, and hence is not a reasonable good faith belief. Can guilty spouse use this statute to his advantage? It is unclear, but most commentators think that it does not apply because it seems unfair. If there is both a putitive and a legal spouse: Determine from each point of view. If both are entitled to property, split it. Estate of Hafner: H and W1 were married with 3 kids. Then they separated and lived separate and apart. H then tells W2 that he is divorced and marries W2. Hence, W2 has reasonable good faith that she is married to H. H gets in accident and is awarded $1 million then dies intestate. The estate of H and W2 was worth $416,472.40. FROM W1’s POINT OF VIEW: Because W1 is still legal spouse, H’s marriage to W2 is not valid, and so all of the $416,000 is H’s separate property, and hence through intestate succession of separate property she would get 1/3, and kids would get 2/3. FROM W2’s POINT OF VIEW: Because W2 is putative spouse, the $416,000 is quasi-marital property, and W2 has her half, and by intestate succession W2 get’s H’s ½. Hence, both W1 (W1 entitled to 1/3 and kids together are entitled to 2/3) and W2 are entitled to 100%. Hence, because both had legal rights, the court divided the estate. W1 got 1/6, the kids in the aggregate got 2/6, and W2 got 50%. EXAMPLE: If H would have died with a will, W1 (and kids) would not have received anything because they would not be entitled to any separate property. W2 would have gotten her ½, and H could devise his ½. EXAMPLE: If W2 had “divorced” H, W2 would get ½, and H would get his ½ because W1 (and kids) would not be entitled to any separate property upon divorce—only at death. Estate of Vargas: H is married to W1. At same time, H marries W2, not valid. This continues for 24 years, and H has 3 kids with W1 and 4 kids from W2. H dies. The court divided equally because each were entitled to 100% under intestate succession. So both W1 and W2 got ½. EXAMPLE: If H gets divorced from both W1 and W2, then H would get 1/3, W1 would get 1/3, and W2 would get 1/3. 4 Maritritious marriage: Vallera v. Vallera: When neither spouse has good faith belief that marriage existed, NO. CP protections do not apply. There are no marital property rights. Implied contract between non-married partners: Marvin v. Marvin: However, there may be an implied contract for services (but not sexual services), and court could award quantum meruit recovery for the services performed. Jurisdiction Issues “All property, real or personal, wherever situated, acquired by a married person, during the marriage, while domiciled (reside with intent to stay) in this state is TRUE community property.” CFC § 760. Spouses domiciled in California purchase land in another state: Note that California does not have inrre jurisdiction over the property. However, they still have in personam jurisdiction. [Rozan v. Rozan]. Dissolution CFC § 2660: If possible to divide property without changing nature of property: Do it. If not: Court may require parties to execute conveyances with respect to property, sell share of property to other spouse, give money —find other ways to divide. EXAMPLE: H and W live in CA, buy home 1 in North Dakota worth $100 (in H’s name) and home 2 in Kansas worth $100 (in wife’s name), both with husband’s earnings while married and domiciled in CA (so, community property). H and W divorce. First, it is true Community Property. To divide: Because each property is worth same, it is possible to divide without changing nature of property by giving each one of the properties. If it were not possible however, find other ways. Death: Here CA does not have in personam jurisdiction either because he’s dead or in rem. So, while CA deals with the probate issues, they must initiate an ancillary probate proceeding in the other state. Choice of law issue: MAJ: Most states will apply the law of the state of the decedent’s domicile. MIN: Choice of law where property sits. In this case, it will be decided under its own rules, such as common law, and not community property system. Couples migrating into California: Quasi-community property: How the system applies to couples migrating into California: The reason we treat the property like community property is because common law jurisdiction, money earned during the marriage is separate property of the spouse who earned it. If they moved to California, upon death or divorce, there would be no spousal protection because the property is separate property. However, we cannot call it community property or treat it as such until spousal protection is necessary because the person who earned the money would automatically be deprived of his separate property rights, which is unconstitutional. So, we don’t take it away from them until divorce, or the death of the person who earned the property, because only then is there a sufficient state interest to protect the spouse. Remember, real community property means both spouses have present, existing, equal ownership and management rights of the property immediately upon acquisition. However, quasi-community property is only treated as community property at the end of marriage. Dissolution CFC § 125: All property that was acquired in a non-community property state that would otherwise be classified as community property if domiciled in a community property state at the time of acquisition. Upon divorce, Cal has in personam jurisdiction over the parties. 5 Death CPC § 66: All personal property wherever situated and all real property in this state acquired by decedent while domiciled elsewhere that would have been CP of decedent and surviving spouse if decedent had been domiciled in this state at the time of acquisition. Upon death, Cal has neither in personam jurisdiction over the decedent or in rem jurisdiction over the property. So real property purchased out of state is not QCP and cannot be distributed by the California courts. Under CPC § 101 upon death of a married person domiciled in CA, ½ of decedent’s QCP belongs to surviving spouse and other ½ belongs to decedent. WAGE EARNER DIES: If the property would have been community property (or traced to community property) if acquired while domiciled in California, it is quasi-community property OTHER PERSON DIES: It is still separate property of surviving spouse. It would be unconstitutional to take separate property away. No estate protection. LOOK WHO IS DYING!!! EXAMPLE: H and W come from Ohio, W earned the money. NOTE: Even if they purchased the property in CA, if it was acquired while domiciled in Ohio, it is W’s separate property. W dies, leaving everything in will to A. Because this property would have been community property had it been obtained while domiciled in California, W gets half, and A gets half. EXAMPLE: Same as above, except H dies, and leaves everything in will to A. A gets nothing, all belongs to W. This will be on exam. Don’t forget who is dying! EXAMPLE TRICK QUESTION: So, during time between the time the couple became domiciled in California and divorce, that money is community property. Hence, there will be both community property and quasi-community property involved. EXAMPLE FRAUDULENT CONVEYANCE: If a spouse gives property away before a divorce to keep the property from becoming quasi-community property, it is like a fraudulent conveyance and is recaptured and distributed as quasi-community-property. 6 2. IS THE PROPERTY CAPABLE OF BEING CLASIFIED AS COMMUNITY PROPERTY? Education [CFC § 2641]: NO. Education is not classified as Community Property. This was the ruling in Todd v. Todd. EXAMPLE: W gets education with community funds. After graduation, W divorces H. However, the legislature decided that the ruling wasn’t entirely fair and offered relief in the form of CFC § 2641. Applied only to divorce and not death. Reimbursement upon dissolution only: Absent written K to the contrary, contributions to education, training or student loan payments (not living expenses—only tuition, books, etc.) from CP must be reimbursed: (1) To the community, (2) With interest at legal rate, if it (3) Substantially enhances the earning capacity (regardless of whether the party takes advantage of the enhanced earning capacity, though in such a situation the court may reduce amount—see below) (4) The amount can be reduced (cannot be increased) if necessary, such as if other party has also received contributions for education, or has substantially benefited from the contributions There is a rebuttable presumption that the community has not substantially benefited from the contributions if it has been less than 10 years since education. There is also a rebuttable presumption that the community has substantially benefited from the contributions if it has been more than 10 years since education. NOTE: An outstanding student loan is assigned to the student spouse upon dissolution In re Marriage of Watt: H and W married. H went to school for 9 years and became a doctor. He took out loans to cover his tuition and their living expenses. W was working throughout the whole marriage and paying living expenses. She wanted those reimbursed to the community. Court said no. Education expenses are direct education expenses. Court assigned full amount of loan to H. This was probably a mistake because the loan proceeds were used to pay living expenses such as rent. Only the portion of the loan for his tuition/books should be assigned to H. Goodwill: YES. Name recognition, reputation, continued patronage—greater than the value than the some of its parts. Companies are worth more than just its tangible assets. Get appraiser to determine how much. EXAMPLE: H grew his partnership while married to W. Company assets not worth much, but its goodwill was worth a lot. H sold his interest for $100,000. That gives good idea how much goodwill is worth here. Todd v. Todd: Legal practice was a business and capable of be valued. In re Marriage of Lopez: Professional goodwill may be deemed a community asset. Life insurance coverage: YES. Apportionment on death: Depends on type of life insurance. NOTE: If the type of insurance (term or whole life) is not specified on the exam, talk about both! Term life insurance: Last payment rule: Apportionment is proportionate to amount of community contribution on last term only. EXAMPLE: H obtains term life policy payable to O without W’s consent (written consent required after 1985—tough transmutation period). 8 years paid with H separate property, last 2 years with community property. H dies, $100 payout. O gets $50, W gets $50. The last payment was community property. Uninsurability: However, if the person becomes uninsurable, i.e. sick, the previous term payments that kept the policy renewable are now worth something, and should be apportioned! EXAMPLE: H & W1 marry, H obtains term life insurance policy. H then gets cancer, then divorces W1. He remarries W2 then dies. The last term paid by community property of H & 7 W2. W1 would be entitled to some apportionment for the period when the policy was kept renewable with community funds. EXAMPLE: Same as above, except H did not buy his own policy, but the policy was provided by his employer, and therefore the policy is contingent on employment. He doesn’t have the right of renewable alone—it is up to his employer. The benefit (policy) was earned during the last term. Here W1 is be entitled to anything. [In re Marriage of Spengler] Whole life insurance: This also accrues value—kind of like a bank account, and can be redeemed before death. Upon death, the apportionment is proportionate to the amount of the community contribution. EXAMPLE: H obtains whole life policy payable to O without W’s consent (written consent required after 1985—tough transmutation period). 8 years paid with H separate property, last 2 years with community property. H dies, $100 payout. O gets $80 + ½ of community contributions, so O gets $90. W gets $10. Apportionment for dissolution: Term life insurance: If dissolution occurs in middle of a term that has already been paid for with community funds. Spouse will get reimbursed for half of the unused portion of policy payment. Very little. Whole life insurance: Apportionment is proportionate to amount of community contribution. Here you are dividing the cash surrender value. 8 3. IS THERE A CLASSIFICATION PRESUMPTION? 4. CAN THE PRESUMPTION BE REBUTTED? General Community Property Presumption: All property (capable of classification) is presumed community property if: 1. Acquired by a married person 2. During marriage (may be inferred by circumstances when cannot be shown when property was acquired) 3. While domiciled in this state (where you intend to stay) Wilson v. Wilson: H bought a house during the marriage with what he claimed was his SP. He could not prove that the house was paid by only his SP. CP presumption prevails Estate of Jolly: H dies intestate. W gets H’s half of the CP. W dies and court says that all wife’s property was SP so it goes to her heirs. H’s parents say no, it was all CP and should be recaptured. W earned nothing after H’s death, received no gifts, and brought nothing into the marriage. Therefore, CP presumption prevails. Rebuttals: Once the 3 elements are met (pretty easy), the property is presumed community property and the other party has the burden to rebut. Contractual Modification: Operation of the system may be modified or limited by agreement between the spouses. They can agree how property will be classified. Premarital agreement: The property rights of husband and wife prescribed by statute may be altered by a premarital agreement or other marital property agreement. Writing: Premarital agreements executed on or after January 1, 1986 must be in writing Child support: The right to child support may not be adversely affected by a premarital agreement (public policy) Spousal support: The right to spousal support may be adversely affected so long as it is fair (normal contract stuff) Effect of a void marriage on agreement: If a marriage is determined void, the premarital agreement is only enforceable to extent necessary to avoid an inequitable result. Avoiding a premarital agreement: Pursuant to Marriage of Bonds and CFC § 1615, a premarital agreement is voidable either if: 1. One party did not voluntarily consent to the agreement. It is presumed that it was not voluntary unless: a. The party had independent legal counsel or expressly waived representation b. The party had at least 7 calendar days between receiving agreement and signing the agreement c. The party, if not represented by independent counsel, was fully informed of the terms and effect of the agreement, was proficient in the language in which the explanation of the party’s rights was conducted and in which the agreement was written 2. Unconscionable AND a. the party did not have a fair, reasonable and full disclosure of the property or financial obligations of the other party AND b. that party did not expressly waive in writing any right to disclosure AND c. that party could not have had an adequate knowledge of the property or financial obligations of the other party Transmutation: Statutory property rights of spouses may be altered by agreement. No consideration needed. Critical date: January 1, 1985. (LOOK FOR THIS ON EXAM! Analyze under both!) Easy transmutation period (before January/1/1985): Oral transmutations were the rule of the day. This is still good law for any transmutations made before January 1, 1985. Marriage of Schoettgen is the authority for this. 9 NOTE: It was a bit more difficult to transfer community property to separate property than from separate property to community property, but both were easy. “This is ours” is enough. Tough transmutation period (after January 1, 1985): Pursuant to CFC § 852(a) a transmutation of real or personal property is not valid unless: 1. It is in writing (statute of frauds exceptions such as part performance, etc. do not apply—absolutely must be in writing!) (NOTE: Titling property in JT is enough) 2. Express declaration: Expressly states that the characterization of property is being changed/relinquishing all interest in the property. (No extrinsic evidence is permitted) 3. That was made, joined in, consented to or accepted by spouse whose property is adversely affected. (NOTE: This does not necessarily require a signature) In re Barneson: Stock was changed into W’s name but no express declaration stating change of characterization of property. Estate of Bibb: DMV docs not enough to show that character of property was changed Marriage of Beneson: House for pension swap between H and W. H had a writing changing character, but W never created a writing and the only evidence their deal was an oral agreement. Court said that as to W, the property was still CP. In Re Estate of McDonald: Change beneficiaries on a pension is not enough to change character of property. Gift exception CFC § 852(c): These tough transmutation period requirements do not apply to gifts between spouses that are (must meet these requirements—no such thing as a “true gift”): 1. Tangible personal articles (clothing, jewelry, etc.); and 2. Used exclusively or principally by the spouse; and 3. Is not substantial in value taking into account the circumstances of the marriage. Marriage of Steinberger: Ring given to W by H was of substantial value and therefore does not meet the gift exception Gift, bequest, devise or descent [CFC § 770]: Property acquired during marriage was a gift, bequest, devise or descent Downer v. Bramet: After separation, H is given a ranch by employer as a “gift.” W says that the ranch is CP and H says (1) it is a gift, and (2) it was given to him after separation. Court said that this was really compensation (like a pension) and thus was at least partially CP because part of it was earned during marriage. Must apportion. Tracing: [CFC § 770] The property acquired during marriage was acquired using separate property: 1. All property owned by the person before marriage 2. All property earned or acquired after marriage by gift, bequest, devise or descent 3. All rents, issues, and profits of separate property Giving up rights [Estate of Clark: A settlement is the exchange of a right for money. If the right was a vested right prior to marriage, then the right is SP. When SP is used as consideration for making an exchange, that exchanged property is also SP. Therefore, property acquired by compromise of a party’s right (such as a chose in action resulting in a settlement) is separate property if the right that the party compromised was solely his SP. Standard of burden: Preponderance of the evidence. However, courts are not consistent. Some use clear and convincing, some make up their own standard somewhere above preponderance. 10 Freese v. Hibernia Savings and Loan Society: W’s SP real estate was sold for $2000 and she places $1800 in bank account. Then another SP real estate was sold on Friday and on Monday, proceeds from sale deposited to bank account. Bank operated on the CP assumption because money was acquired during marriage. However, W was able to trace back by a preponderance of the evidence (sale proceeds do not have to equal exactly the deposit amount) and so court classified the bank account as SP. Separation: Property earned by spouses during period of separation is separate property [CFC § 771; For legal separation use CFC § 772]. In order to qualify as separation for this rule: 1. Physical separation 2. At least one spouse has no intent to ever resume normal marital relationship (demonstrated by actions and circumstances—no inconsistent actions) Only one spouse wants to end: Only one spouse must intend to end permanently. We’re usually looking for some expression of intent to end permanently w/no inconsistent actions). Changing mind: Of course spouses can change their mind, but the property acquired during period when there was an intent to end permanently is separate property. However, the more that one spouse says “it’s over,” the less indicative it is of an intent to end permanently. Filing for divorce/court adjudicated separation: This is separation. However, might be just reality check—to shock other spouse, and no intent to end permanently. Look for facts on this point. Marriage of Baragry: H left house and moved in with his secretary. He claimed that his earnings were SP starting when he moved out. Court said his actions were not consistent with having no intent to ever resume normal marital relationship because he went over for dinner, laundry, and had family vacations. Married Woman Special Presumption [CFC § 803]: If these elements are met, the property is presumed wife’s separate property 1. Acquisition of titled property (only the woman’s name is on title) 2. By a married woman 3. In writing 4. Before January 1, 1975 (because prior to this year the management and control rights were in the husband, so it is assumed that H intended the transmutation.) Rebuttal: Lack of intent to transmute (title in wife’s name for convenience, to avoid credit problems, etc.) Standard of proof required: Courts are all over the place here. Probably higher than preponderance. Horsman v. Maden: H transfers property to W so that W would not go public with a scandal. General CP presumption is rebutted by MWSP. H rebuts the MWSP by claiming there was never any intent to make the property her SP, it was done because she blackmailed him. Extrinsic evidence is permissible to show no intent to transmute because this was pre-1985. Court rules that it was CP. In re Marriage of Ashodian: H deed real property to W, and W continued to buy real property and titled in her name only. Court said the H could not rebut the MWSP because he wanted nothing to do with W’s transactions. He abandoned the ability to show lack of intent. NOTE: Tracing does not rebut this. The presumption assumes that the husband intended for the property to be separate property of the wife. 11 EXAMPLE: H and W Married . . . H goes on business trip and while he is away, W takes community funds and buys property and puts it in her name only. H never knew about. CP presumption applies; W would rebut with MWSP; H can easily rebut this presumption because H did not have intent and did not even know about the transaction. EXAMPLE: What if H found out about it and did nothing? Pre-1985, by not saying anything H has effectively transmuted the property under the SMWSP. Post-1985, W loses because transmutation requires express declaration of change of characterization from CP to SP. It is the date you find out that matters because silence is ratification in the easy transmutation period. Other rules: If acquired by the married woman and any other person, the property is presumed to be owned as tenants in common unless a different intention is expressed in the instrument. If acquired by husband and wife and in title are described as husband and wife, the property is presumed community property unless a different intention is expressed in the instrument EXAMPLE: Title reads: “W Smith and H Jones.” W owns ½ as separate property because the married woman’s special presumption applies. H owns ½ as community property with his wife, because the General Community Property Presumption applies, and there is no Special Married Man’s Special Presumption. W ends up with ¾ and H with ¼. EXAMPLE: Title reads: “W Jones and H Jones as husband and wife.” H and W each own ½ as community property. Super Married Woman Special Presumption (semi-conclusive): If the above elements are met, AND: 1. Title reads “In W’s name as her separate property” 2. Husband knows about it, directs it, or does the titling himself. Rebuttal: This super presumption is semi-conclusive and can only be rebutted by showing duress, fraud, mistake, etc. Donze v. Donze: Community funds used to purchase real property and titled in W’s name as her SP. Regardless of whether paid for by H’s SP or CP, the fact that the house was titled in her name and H knew about it means the SMWSP prevails and can only be rebutted through a showing of duress, fraud, or mistake. Titling Property in Joint Tenancy: Husband and wife title property in Joint Tenancy. Is it really Joint Tenancy or is it Community Property? Or something else? What happens at divorce and death? Why it matters: Most people put property in joint tenancy—each spouse owns half as separate property with right of survivorship. But, there are tax benefits to holding property as community property. Divorce (overrides any transmutation rules that may apply): a Pre 1984 agreement Approach when one spouse claims a greater share is hers or her SP i Common Law Approach with CP Presumption: (A) CP Presumption is the general presumption (B) The CP Presumption is rebutted and overridden by what property is titled as (i.e., JT), so now the property is presumed JT. (C) The presumption of JT is now able to rebutted. An implied or express agreement or understanding between the spouses that the property was to be CP or SP will rebut the JT presumption. 12 (a.) Implied agreement can be that a spouse was ignorant as to what JT was and the property was traced back to a CP sources (implied agreement by ignorance and tracing – Lovetro v. Steers) (b.) Agreement must be between the spouses. An agreement between a spouse and 3rd parties (such as kids) will not suffice – Estate of Levine. (i.) Agreement can be oral or written ii Single Family Residence Presumption SFRP 1965-1983 (A) CP Presumption is the general presumption. (B) Single family residence is acquired by spouses during marriage as joint tenants. For purposes of divorce, presumption continues that the home is CP. (C) This can be rebutted back to JT or SP by an agreement or understanding. (a.) It can be oral or written. (D) Estate of Lucas b Post 1984 agreement Approach i 2581 CP presumption for property held in joint form (A) CP is the general presumption (B) CP presumption is confirmed regardless of how property is titled. Titling as JT has no effect. (C) It may be rebutted (making it JT or SP of one of the spouses )by either of the following: (1) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property. (It can’t just say JT, must say NOT CP!) (2) Proof that the parties have made a written agreement that the property is separate property, JT, etc. (D) Law is retroactive but cannot be applied retroactively to vested property. If spouse claims it was her separate property, then it is vested and the law cannot be applied. But if the spouse claims it is a true JT, the property right is not vested and the law would be retroactive. (1) Marriage of Buol: W purchased property in 1963 (common law approach applied) with her SP and the parties had an oral agreement that it would be her SP. This satisfies the CL test and the SFRP. However, § 2581 was passed with retroactive effect adding the writing requirement. W argued that this was totally unfair. Court agreed with W and held that 2581 cannot be applied to vested property rights. Here, W purchased home, during trial and when trial court entered judgment for W, proof of oral agreement was all that was needed. Thus, her property right was vested. A SP property right is vested when it is SP. (2) In re Marriage of Heikes: H and W purchase property as JT in 1969. They had an oral agreement that the property would be JT. They file for divorce which is granted in 1989 but property is not yet divided. W dies before property rights are established. H says the house was JT because of oral agreement and because 2581 cannot be applied retroactively to his “vested” interest. W’s heirs say the house was CP because of the 2581. Court rules for W’s heirs saying that H’s interest was not vested and therefore 2581 can be applied retroactively. For JTs, a property right is vested only when one party dies. (E) If divorce and then death before separation of property, divorce rules stand Death: Titling property in joint tenancy rebuts the General Community Property Presumption and the property becomes Joint Tenancy. NOTE: Titling property in joint tenancy after 1/1/1985 is a valid transmutation under from Community Property to Joint Tenancy under CFC §852, and this is confirmed by Estate of Bibb. a Pre 1985 purchase and title. i Common Law approach under Estate of Blair/Lezine: (A) CP presumed. 13 (B) Titling in JT counters presumption and makes a presumption of JT (C) To rebut the presumption of JT back to CP or SP (this is a transmutation): (1) Agreements before 1985 (easy transmutation period): (a.) Rebuttal back to CP or SP with any understanding, agreement, oral or written. Agreement can be express or implied. (Rebuttal is a transmutation so the pre-1985 transmutation rules apply.) (b.) Implied agreement by ignorance and tracing will work to rebut. (2) Agreements after 1985 (tough transmutation period): (a.) Rebuttal back to CP or SP is a transmutation, thus must be express and in writing and declaration of intent to change character accepted by party adversely affected. (i.) Titling in JT is express enough to count as a transmutation. Estate of Bibb. b Post 1985 purchase and title i Common Law approach: Same as above, except transmutation will always have to be express and in writing 14 5. IS APPORTIONMENT APPROPRIATE? Comingled funds: Separate property and community property have been combined into one account. How to determine the classification of withdrawals used to purchase other property. Direct tracing [In re Marriage of Mix]: To rebut the general community property presumption that the property was acquired with separate property, and not community property, the other party must show: 1. Specific schedule showing adequate separate funds (deposits, withdrawals, etc.—must be VERY specific! Once commingled, very rarely can you show that the property was acquired with separate funds) 2. Intent to use separate funds (by testimony, writing “from separate property funds” on check, closeness in time or similar amounts between deposit and withdrawal of separate funds, etc.—jury decides) EXAMPLE: H and W deposit $5000 of community property and $5000 of H’s separate property. The $10,000 is presumed CP because the account was acquired during marriage. H took out $3000 to invest in a boat now worth $1 million. The boat is presumed community property because it is acquired during marriage, but can H trace it back to his separate property? Only if he shows that the separate property is still there, and that he intended to use separate funds. EXAMPLE [In re Marriage of Frick]: H had a hotel which was his separate property. During marriage, he uses funds to reduce principal owed on the hotel mortgage. He made those payments 3 days after he received his income checks from the hotel rental (separate property). Though he showed closeness in time, he did not adequately show that separate property funds were there by specific accurate accounting. He likely needed also to show that no other withdrawals occurred between the time he deposited his separate funds and the time he made his withdrawal. Indirect tracing/exhausted tracing [See v. See]: Based on the family expense presumption, if you can show that you exhausted all community deposits, by elimination, the withdrawal must have been separate property. So if direct tracing doesn’t work, you can use this method. You still need to come up with an accurate accounting show that community funds were exhausted at the time of the withdrawal was made. There is no need to show intent. Family expenses presumption: For purposes of indirect tracing of a commingled account, there is a presumption that family expenses (rent, food, etc.) were acquired with community funds first. Once CP is exhausted, separate funds are presumed to be used for family expenses. De minimus principle: If extremely little commingling has occurred, such as an account contains almost all CP or almost all SP, the de minimus amount deposited will not affect the character of the account. The de minimus contribution will be reimbursed with interest. [Estate of Cudworth – All SP; Shelton – All CP] Business profits: When a business was started with separate property and then gets married, and the business grows, how is the growth classified (NOTE: Some growth is attributable to the market (SP), and some to community efforts (CP)). 2 Methods for valuing the CP and SP portions of the business: Pereira method (efforts): Start with known separate property. Assume it would earn 10% simple interest per year. The additional growth is attributable to community efforts and is community property. This results in a larger community share because the assumption is that community efforts had a lot to do with the growth. Salary withdrawal: If one spouse withdraws a salary, the business is already worth less, so no change in the analysis. Van Camp method (market): Determine a fair salary for a comparable person in another business doing the same type of work. That amount is owed to the community (and hence is split). 15 Salary withdrawals: If one spouse withdraws a salary, subtract that from the fair salary amount that would be owed to the community. The rationale is that the community has already benefited from the salary and the business is worth less because of those salary withdrawals. EXAMPLE: H purchases business with SP ($10,000). H gets married to W, and at marriage the business is worth $50,000. After 5 years, marriage ends (death or divorce), and business is worth $500,000. Under Pereira method, start with $50,000. Add 10% per year $75,000 total separate. The rest of the growth ($425,000) is attributable to efforts and hence is community property. SP = $75,000. -If spouse had taken out $20,000 per year during that time, the business is already worth less, so no change in analysis. In this example, business would only have been worth $400,000. Under Van Camp method, assuming a fair salary is $30,000, five years = $150,000 which is CP, each spouse gets half, and the rest ($300,000) of the growth is separate property. SP= $350,000. -If spouse had taken out $20,000 per year during that time, subtract that from the the fair market salary of 30K owed to the community. This means that 10K is still owed to the community for 5 years. 50K would be CP; the difference of 350K would be SP (400K-50K). How to determine which one to use [Tassi v. Tassi]: Depends somewhat on the type of business. If it is a personal service business, such as a law firm, the efforts are likely the chief contributing factor, and hence, use Pereira, because it results in a higher community share. If the business is more dependant on the market such as McDonalds franchise, etc., use Van Camp because it results in a smaller community share. However—Note that courts are not bound by either of these methods! Courts may use something else if they want! Also, some courts have rarely used compound interest, or less than legal interest if interest rates are low, etc. EXAMPLE: Person didn’t know much about business, and it grew a lot—like an espresso business. Goodwill? Be careful—goodwill can greatly increase by efforts. Reverse situation example: H starts a business after marriage using CP funds. H and W separate. Business is worth $10.000 at separation. 4 years later when they get divorced, the business is worth $40,000. Use Pereira and Van Camp in reverse. Under Pereira method (efforts, community entitled to its investment), the value of the CP at point of separation was 10K. Community is entitled to interest of 10% for 4 years (4K). CP= 14K. SP=26K. Under Van Camp method (market, SP is only the reasonable compensation for the working spouse), the value of the CP at point of separation is not relevant. Reasonable compensation (7K per year) for the 4 year period in between separation and divorce should be SP. Therefore 28K is SP. The difference of 12K is CP. Motion to value at separation: A party may rarely move to value the property at separation instead of divorce (i.e. when ALL growth is attributable to efforts), in which case no apportionment is necessary. Contributions: include down payments, payments to principal, improvements but NOT taxes, interest, etc. Separate property contributions to Community Property. First classify the property (if determined JT, then it may be CP contributions to SP). Then do the following apportionment: At divorce: Before 1/1/1984: (Lucas) Absent agreement or understanding (oral or written) the contribution of SP to CP is deemed a gift. (Titling property in joint form inconsistent with intent to keep SP separate) NOTE: Be careful! There may be post-1984 SP contributions to loan principal, in which case CFC 2640 applies. 16 After 1/1/1984: (Anti-Lucas statute : CFC 2640). Absent a written waiver, separate property contributions are automatically reimbursed (without interest, no appreciation—just reimbursement) NOTE: Although this statute tries to apply itself retroactively, it may not do so because it would take away a vested right. Hence, there is the other rule above. At death: (Any date): (Lucas) Absent an agreement (oral or written—even if after 1985!) or understanding to the contrary, contribution of separate property to community property is deemed a gift. Pro-Rata apportionment agreement: If there is an agreement requiring pro-rata apportionment, spouse gets an apportioned share proportionate to contribution Divorce: 1. Pre 1/1/84 – agreement can be in any form [oral or written] 2. On/After 1/1/84 – Written agreement needed. Death: Lucas controls and any agreement that it will be pro rata – oral or written – will suffice to apportion pro-rata Community property contributions to Separate Property: Absent agreement or understanding (oral or written) Community gets automatic buy in—is entitled an apportioned share proportionate to contribution. This is called the Moore/Marsden approach which was applied in Vieux v. Vieux. Marsden Addition: Contributing spouse should not be entitled to any pre-marriage appreciation. One spouse owned the property for a while and it appreciated a lot prior to marriage. Then get married and CP contributions are made. The other spouse should get what they paid + a reasonable share of appreciated. NOTE: Here the loan balance will likely be attributable to the separate property—not to the community To calculate: Community gets what is put in to the investment back + its buy-in % of the appreciation. The buy-in % = community contributions /original purchase price. Separate property contributions to separate property of other spouse: CFC 2640 was amended in 1/7/2004 to include SP contributions to SP of other spouse. Absent a written waiver, SP contributions are automatically reimbursed (no interest, no appreciation—just reimbursement). This is only for divorce. Again, the statute tries to apply itself retroactively, but the parties will argue that it may not do so because it would take away a vested right. Improvements: 1. SP used to improve CP a. Death/Divorce through 1/1/84 deemed gift to community b. On After 1/1/84 straight reimbursement of SP paid absent a waiver to contrary [§ 2640] c. Same as acquisition rules 2. SP used to improve other spouse’s SP – i.e., spouse got inheritance during marriage and improved a. old law gift b. New law § 2640(c) H entitled to reimbursement and probably no retroactivity d. Only divorce. c. Same as acquisition rules d. At death Lucas controls so absent an agreement, it is a gift. 3. CP used to improve SP a. Death and Divorce: Community gets reimbursed unless agreement to the contrary b. After 1/1/84, § 2640 requires written waiver to forego reimbursement 17 Borrowed funds: 1. First must classify the loan proceeds. If H gets loan before marriage, it is SP. If H is married and gets loan, it is presumed CP as per General Community Property Presumption. Must be rebutted. Intent of the lender test: If he’s looking at community earnings to determine eligibility, loan is a community loan (most common). It is rare that the lender will rely solely on SP to expect repayment. 2. Award each spouse their share of value equity and value of loan outstanding EXAMPLE: H puts down $20,000 separate property down payment on a house before 1984, and obtains a loan for $180,000. There is $100,000 left on the loan, house is now worth $400,000 the rest was paid off with community funds. Because the $20,000 SP contribution was made before 1984 for divorce, or for death, no reimbursement to SP. There is $300,000 equity, all CP, split in half. What if all of this happened after 1/1/84, and we’re talking about divorce? H will get back his $20,000, there is $280,000 left in equity that is CP. Personal Injury Awards & Damages §§ 780, 781 and 2603 exception: 1. If the cause of action arose during the marriage, then CP. §780 2. There are some exception in § 781 (pg.345) a. Expenses paid by the community or by the SP of the non-injured spouse are reimbursed of the award was SP under § 780. b. Living separate 3. Court ultimately decides who to award personal injury awards based on equity. § 2603 and the Devlin. Pensions 1. Non vested and non matured pension rights are a contingent property interest, and the court must choose to split it using a cash out method or an in kind method. This decision is not retroactive for those pension rights that have already been determined. Brown. 2. For unvested and unmatured pensions the court cannot retain jurisdiction until the pension matures and then decide how to split it up. If they can’t decide how to figure out a cash value, then they can opt for an in kind division (which is really retaining jurisdiction over supervision). But the decision is up to the court. 3. Two options a) cash out – lump sum; or b) in kind – give ½ of each payment as they are paid. 4. Time Rule: Time in marriage while working/Time needed for the pension to vest 5. Gillmore: If there is an early mature date and a later mature date, the non pensioned spouse can choose which date to use. 6. Early retirement package is treated like a regular pension. Lehman 7. Severance allowance is not CP, because it is salary for period after separation/divorce. Stock Options: 1. Use the time rule: Time at company while married/Time options can be exercised 2. If options are given a few years into the employment, Hug said that you have to take into account in determining the denominator of the time rule whether the options were in lieu of compensation for past employment or were they an incentive to remain at the company in the future. Disability Benefits: 1. If disability occurs during the marriage, the question becomes whether the policy was purchased as a source of retirement income or in lieu of compensation. If retirement income, then it would be CP. If in lieu of compensation, then SP. Saslow. 2. If disability occurs after separation, the question to ask is with what money was the premium of the policy that ultimately paid benefits paid for. Was it paid for by SP in which case the benefits are all SP. OR was it paid for by CP, in which case the benefits are CP. The dissent argued that that the right of renewal was worth something and since the policy was started when they were married, the community should get something in return. Elfmont. 18 6. SPOUSAL MANAGEMENT & CREDITOR’S RIGHTS Spousal Management 1. Post 1975 – Equal management and control for both spouses 2. Pre 1975 – H had control and management over all CP during life, but could only control ½ of the CP at death. H only has testamentary power over his ½. Tyre v. Aetna Life Ins Co. 3. Attorney’s fees can be paid from CP under FC § 910. However, upon dissolution, the mere fact of marriage should not change the rule of personal responsibility for the consequences of a criminal tortuous activity. FC § 1000. Therefore, W’s CP should be reduced by the amount of attorney’s fees. Marriage of Stitt. a. If the crime or tort benefits the community, any judgment is satisfied FIRST with CP assets and THEN with the tortfeasor’s SP. Maybe even no reimbursement would be necessary. Marriage of Bell. b. If the crime or tort does not benefit the community, the judgment is FIRST satisfied with SP and THEN from the CP. 4. If a pension is lost due to the crime of one spouse, that spouse will have to reimburse the community for the share of the pension lost. Marriage of Beltran. 5. Under Duffy, there was no duty of care between for a managing spouse who is managing CP. The legislature did not like this outcome and so they amended CFC § 721 to make a managing spouse have a duty of care. 6. You can litigate a CP right (if your wife is hiding money from you) before getting a divorce. Wilcox Recapture and Reimbursement 1. Pre-1891 consent of the non-managing spouse was not required in order to make a gift of CP. 2. Now written consent is required under CFC § 1100 and knowledge/silence will not work to ratify a gift. 3. The CP interest that must be recaptured is ½ of each item that was improperly given away not half of the value of all items given away. Estate of Wilson. 4. Under Droeger and FC § 1102(a), because both spouses must consent to encumbering CP, the entire encumbrance must be removed. The Cal legislature responded with FC § 2033 which allows a spouse to encumber his/her share of the CP in order to pay attorney’s fees related to dissolution of the marraige. The next is what happens to a general creditor who is forced to remove an encumbrance? Can they attach a judgment lien to the same community property of the defendant in which the original encumbrance was removed? This question was answered in Lezine. 5. Under Lezine, the creditor now becomes a general unsecured creditor with the same rights as other unsecured creditors. Cal law today is based on 910(a) which says that either spouse can take on debt and the community will be responsible. While the underlying encumbrances are extinguished under Droeger, because the creditor is an unsecured creditor of the community, the creditor can record abstracts of any judgment on all the CP and SP of the at fault spouse. The press met this decision with a lot of criticism because the non-consenting spouse is still left unprotected. Creditor’s Rights 1. Responsibilities for debts (pg. 514) § 910 and Grolemunnd – Community is liable for debts of either spouse before or during marriage, except as otherwise expressly provided by statute. §911— CP of non-debtor spouse cant be used to pay debts of the debtor spouse that were accumulated before marriage so long as those CP post marriage earnings are kept in a separate account. §913 – SP of a married person pays that person’s premarital debts. That SP is not liable for the debts of the other spouse that are incurred before marriage. 19 §914 – Married person is personally liable for debts incurred by a spouse if the debt was incurred for the necessaries of life while the spouses are living together or incurred for common necessaries of life while they were living separate. 2. Damages – Feldner 1. A debt of contract damages is incurred when the K is made 2. A debt for tort is incurred when the tort is committed. 3. After final dissolution by the court and division of CP, former CP will only be liable if the non-debtor spouse was assigned the debt (business) in the division proceedings. American Olean Tile Co. 4. A non-debtor spouse who has a lien on her ex-spouse’s property takes priority over any other creditor. In re Marriage of Braendle. 5. Child Support for a child from a previous marriage: a. FC §915 – this is simply treated as a debt incurred before marriage. b. Under FC § 910, debts incurred before marriage are the responsibility of the CP. c. However, under FC § 915(b), if the payments could have been made out of SP, but rather were made out of CP, then the community is entitled to a reimbursement. 20 7. DIVISION AT DISSOLUTION Settlement Contracts 1. A settlement contract must be specific as to who may or may not modify a settlement contract. In the In re Marriage of Hufford case, the settlement K said “we may not modify this K unless both parties consent. The court felt that it had the power to modify since the K did not specifically say that the court could not. The language was ambiguous. Division By Court Order Jurisdiction to divide 1. It doesn’t take much to bifurcate issues between dissolution and custody/division in order to get the divorce done quickly. Gionis 2. The court only has the power to dispose of CP, and not SP. Robinson v. Robinson 3. The court must have personal jurisdiction over the defendant – SMC. Muckel 4. Due process is satisfied when notice is given and petitioner checks off the correct boxes on the dissolution form. The court is free to determine property rights in the event of a default judgment. In re Marriage of Andresen. Equal Division Requirement 1. Court takes into account the children in deciding when to divide up a family home – usually wait till child turns 18. If there is a lot of equity in the home, the court may decide to reduce that age. Courts should also permit refinancing as a way to take out cash. In re Marriage of Stallworth. 2. When one party gives another party a promissory note for his share of the CP, must take into account present value. In re Marriage of Tammen. 3. Assets are to be divided 50-50. Debts are to be divided based on the respective earning capacities of the spouses. Eastis and § 2550. Valuation 1. In valuing stock in a close corporation, must take into account many other facts than simply it’s worth in dollars. In re Marriage of Micalizio. Post Dissolution Remedies Relief From Fraud or Mistake 1. FC § 2122 allows for setting aside judgments/settlements in dissolution that are based on mistake, regardless of whether the mistake is made by the court or party. Marriage of Varner. Concealment of CP Assets 1. Where one party conceals community assets, the court must order the party with unclean hands to turn over 100% of any undisclosed asset. FC § 1101(h). This is the penalty. It must be at least 100%, but it can be more. Marriage of Rossi. Omission of Assets 1. Whenever an asset has not been reviewed by the court, and is later presented to the court for division, the court will have jurisdiction to do it. It does not matter that the party had the opportunity to present the asset to the court a long time ago, or even that she knew about it a long time ago. The doctrine of collateral estoppel will not prevent the court from reviewing and dividing the asset. Henn v. Henn. 2. A lawyer may be sued for malpractice for not including in the assets to be divided a certain asset in which it is ambiguous as to whether or not it is CP or SP, even if it turns out that he was right. Aloy v. Mash.