Community Property – Fall 2007 – Miller DEVELOPMENT OF THE CALIFORNIA COMMUNITY PROPERTY SYSTEM The Meaning of Marriage The legal concept of Marital Property presupposes the existence of marriage as a legal institution Maynard v. Hill US 1888 Husband left wife in Ohio with kids and no money. Marriage is more than a K. It is a great public institution. It is a civil K for certain purposes, but more than a K. Marital Property: An Overview Where does it come from? o Common law and Civil Law Common Law – 42 States H&W own all property individually but that which they expressly agree to hold jointly Not very generous to spouses What‘s marital and what‘s separate Equitable distribution, not equal Civil – 8 States Community Property It‘s the shit Community Property Concept o Based on the idea that portion of property held by a married person is dedicated to the economic security of the family. Remaining property is separate property. o Viewed marriage as an economic entity o Both had economic interest in property o Husband had control, though o Upon death or dissolution, 50/50 o Focus of class: What’s Community, and What’s Separate??? California CP system o Four Principles Spreckles Tracing Equality Contract o To be CP Have to be married Domiciled in CA Property can be anywhere in the world o To be Separate Property that a Married person owns before marriage Property acquired by gift, devise, bequest, or descent Rents, issues, and profits of separate property 1
Property acquired while couple is living separate and apart Property acquired after couple gotten legal separation o Spreckles: Character of property is determined at time of acquisition. No retroactive application o Tracing: Rents, issues, and profits of SP is SP Some states say it‘s community (not CA) o Equality: Old law took away woman‘s right to control property Modern Law: interests of both spouses is ―present, existing, and equal.‖ o Contract: Parties can modify CP system by contract Pre-marital agreement Opt out in prenup Give SP to spouse Give their half to the spouse Sell property to each other Two ways to dissolve: Divorce and Death
Development of the Tracing Principle California Family Code identifies separate property and then says everything else is community property o Earlier statute said rents, issues, and profits of separate were CP, but now it is separate o CP includes all property acquired by a married person through the use of his or her time, energy, or skill CP produces CP George v. Ransom CA 1860 W had stock with separate funds. Creditor of H wanted dividends. Court said fruits of property of wife shouldn‘t be taken from her and given to H‘s creditors. Tracing Principle in CA o The fruits of separate property are traced to the source and classified accordingly. Encompasses changes in form and rents, profits, etc.
Development of the Equality Principle Equality Principle – the idea that spouses have equal ownership interests in the community property o Interests: the respective interests in CP during continuance of marriage are present, existing, and equal Stewart v. Stewart CA 1926
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W brought action against H to quiet her title to ½ interest in real property. Trial court quieted title. Wife doesn‘t have vested interest, but more present and definite than an heir. She has rights therein that safeguard from fraud of H, but not present. Rev‘d. The Principle of Contractual Modification Contractual Modification o Spouses can determine how their property will be classified o Used to be informal o Now, after ‘85, must be in writing o Premarital agreements Basic rule: voluntary (free from fraud, coercion, undue influence, lack of capacity) o Uniform Premarital Agreement Act CA 1985 adopted Pre Marital Agreement Act Same in CA plus the anti-bonds shit o Writing signed by both o On or after 1/1/86 o Old Version 2 requirements for Pre-marital agreement Voluntary Not unconscionable o Spousal Support Waiver? Traditionally – NO UPMAA – yes CA – left it open If parties want to, have to have counsel Policy Considerations In Re Marriage of Noghrey Cal App 1985 H & W married 7 ½ months before divorce. W alleges existence of antenuptual agreement. Friend testifies H signed agreement she wrote before marriage giving ½ everything and house in Sunnyvale. Court held that antenuptual agreement encourages and promotes divorce, therefore is unenforceable. Didn‘t classify property, just gave money only in a divorce. It is contrary to public policy. In interspousal agreements, consideration is just mutual consent of the parties Marriage of Bonds CA 2000 H & W entered into prenup where each party waived any interest in the earnings and acquisitions of the other during marriage. Did W enter agreement voluntarily? Evidence of lack of capacity, duress, fraud and undue influence would be relevant in establishing involuntariness of the agreement. Burden of proof on the party seeking to challenge prenup. Not obtaining counsel is a factor, but not strict scrutiny applicable. (W sol) Bonds is still good law for pre-marital agreements prior to Bonds
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Formalities
Estate of Bibb Cal App 2001 FC §852(a): transmutation must be in writing and consented to by spouse whose interest it is against. Grant deed by H transferring his separate interest to H & W as JT express? DMV registration reregistered in both satisfy valid transmutation? §852(a) was intended to allow courts to be able to decide on the writing without extrinsic evidence. Court held 1) word ―grant‖ on deed express. 2) DMV doc for Rolls has no express or clear and unambiguous language, so no dice. W gets house but no Rolls. Marriage of Steinberger Cal App 2001 H & W married 9 yrs 7 mos. 1 son. Bought a diamond with community funds. H set in ring and gave to W for anniversary. Trial court gave W severace pay, stock options, and ring. H wants ring, says it is a gift of substantial value and needs transmutation to be separate. App Ct said gifts of most items like furnishings is community, but gifts of clothing and jewelry and personal items is separate unless large or substantial in value. Held ring was large and substantial and CP b/c no transmutation Pre-Marital Agreement o Need a signed writing o Must be voluntary o Has to be Voluntary in: spousal support – must be representation for person against whom provision will be enforced (NEW law after Bonds) o For waiver to be valid: Court must conclude and make a finding that the persona was fully informed of rights, proficient in language of agreement, signed separate doc, 7 day waiting period – no undue influences, fraud, or duress CA legislature – taken narrow view of unconscionable Married People can transfer property between each other sep-sep; sep-com; comsep. Oral transfers were valid pre 1/1/84. (lots of litigation) Changed to writing (express declaration). Does not apply to items of personal nature not of substantial value.
THE CLASSIFICATION OF PROPERTY AS COMMUNITY OR SEPARATE The Significance of Classification Community or Separate? o Falls in def. of separate = separate o Falls outside = community In marriage – presumed community o In marriage and by gift, inheritance, or trust = presumed separate Presumption is an inference that the law requires the trier-of-fact to make o May discard if evidence rebuts o CA general presumption: Property acquired during marriage is Community Property
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Person seeking benefit of presumption must prove certain threshold facts – date of acquisition – presumption arises o Burden then is on the person asserting separate property to rebut presumption o How do you rebut? Gift bequest, devise, or descent (proof) Form of tracing Property is rents, issues, and profits of SP o What happens then? Reimbursed for monies donated to community Might get interest as well (house) Money lost plus increase in property Indirect Tracing o Has benefit of specific presumption o If spouse seeking to show SP can prove no CP funds available at time of acquisition o Trier-of-fact presumes C expenses are paid first with CP then with SP funds. o Property taken in JT is not necessarily JT if it can be traced to SP. Have to then prove intent to make it JT. Character of property now is same as character of property used to acquire it then Living separate and apart – couple is living physically separate from each other, and one of them has formed an intention not to resume the marital relationship
Wilson v. Wilson Cal App 1946 Trial court said property in SF was community (H & W moved from NY) and gave ½ to W. House was purchased 7 years after marriage – title in H‘s name. Source of funds in dispute. W says $3500 – 4500 a month living expenses, H‘s salary $6k. H says more like $300 – 800. Court said enough evidence to infer Community funds were used to buy house. Burden is on the party asserting separate; presumption applies when one claiming community offers evidence that the property was acquired after marriage. Estate of Jolly CA 1925 H died in 1912. W died 1922 intestate. W bought property in 1918. was property separate of W going to W‘s heirs or Community going to both H and W‘s heirs? Court held W didn‘t have any income so property must have been bought with community funds. o Unusual method of rebutting general presumption is to trace the asset at issue back to a separate property source. Freese v. Hibernia Savings and Loan CA 1903 Admin of Ellen sued for 1k from Ds. Ellen had property before marriage and sold during marriage and opened 2 accounts, which she moved funds around but never depleted. Did lower court have enough evidence to support a finding that it was separate property? Yes. To overcome presumption of community property, must offer proof =
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preponderance of testimony under all facts & circumstances. Absolute certainty not required. Rev‘d. Tracing an asset back to a SP source may be accomplished by direct evidence or more indirectly by circumstantial evidence. The Common Statutory Presumptions Respecting Separate Property Nature of acquisition Time of acquisition o Before marriage o After separation or dissolution Estate of Clark Cal App 1928 Dad got 150k by devise while married. Died and his widow claimed CP. TC held SP. Did Dad offer CP for 150k or just get it? Consideration for 150k was withdrawing his contest. At his son‘s death dad had property interest. Property acquired by compromise is separate if compromise is separate. Affirmed Downer v. Bramet Cal App 1984 Former W appeals from judgment of nonsuit. Claims CP interest in H‘s ranch. M in ‘53, separated in ‘71. Dec ‘72, M settlement agreement. Aug ‘72 got ranch. Boss said it was a gift. But it was to H who worked for long time for Boss (while married). Evidence strong fro remuneratory gift in recognition of W‘s employment. Rev‘d. In Re Marriage of Hardin Cal App 1995 H & W eventually dissolved M, but took 14 years of separation. H argued sep started when he walked out in ‘69, W says 1983. W says standard used by TC error. App agreed. Date of separation occurs when party does not intend to resume and actions = finality. H & W saw each other regularly, economic relationship stayted same and acquired real property together. Rev‘d. Special Presumptions Based on the Form of Title Acquisitions by a married woman o FC §803 – separate property when acquired by a woman prior to 1975 Horsman v. Maden Cal App 1941 Executors of H sued W to quiet title of certain property. H & W separated but never divorced. H transferred house and secs. To W‘s name and gave her $100 per month. Died claiming all property to be CP and disposed of his ½ accordingly. Was transfer a gift? Look at intentions ―don‘t record it‖ Absence of evidence – reversed Concurrent Estates o JT is how most married people hold property – but it is CP o JT and CP are inconsistent o Laws enacted to ameliorate Presumption of single family residence held in JT is CP Amended to allow only written rebuttal evidence
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§2581 – all in JT presumed CP
Estate of Levine Cal App 1981 H & W married ‘74. Bought home in ‘75 in JT. H died ‘77. H‘s executor tried to get property as CP. Petition denied, home considered JT. App affirmed. H did not disclose to W intent to hold in CP. Wanted the best of JT and best of CP (CP to devise his ½), (JT to keep it all if W died). In Re Marriage of Lucas CA 1980 H & W married 1964. Separated ‘76. W beneficiary of a trust. ‘68, H & W bought house, 6k from trust, rest with loan as JT. 2k from trust for improvements. Remainder with community funds. Trial court gave W 75% of house. SC says no evidence of an agreement or understanding that W was to retain SP interest in house. Remanded in consideration to see if there was an agreement. Married Woman‘s Presumption o Former Law Husband has exclusive management and control Presumption before 1/1/75 Married woman acquires property – it‘s hers Title in her name = presumed hers no matter where it came from If she sells it – husband can‘t later claim CP and recapture Acquired by married woman and any other person – presumed tenancy in common unless explicit otherwise in instrument Property acquired by H & W by instrument in writing that names them H & W – presumed CP Not Rebuttable by Tracing Must show agreement to the contrary
In Re Marriage of Ashodian Cal App 1979 Presumption will not arise unless you can show specific intent State of Title Historical Progression o Estate of Levine o Prior to ‘64 – applied to all property o Prevailed in Levine o Can‘t be hidden intent Single Family Residency Presumption o Everyone was taking in JT o Divorce didn‘t sever JT Had to file separate lawsuit o Legislation said – for purposes of dissolution of divorce, a single family residency acquired in JT, acquired by H & W, will be presumed CP Only applied in divorce NOT DEATH
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Issue as to what we do with SP contributions Man sells SP and buys new property in JT – court held that the tracing of the warehouse back to a separate property source and the husband’s testimony that he never intended to make a gift, although sufficient to rebut the general presumption, were not sufficient to rebut the special statutory presumption Both of these are applied retroactively after 1/1/84 regardless of when property was acquired: §2581 – All property taken by a couple in any joint form is considered (presumed) community property in a dissolution o Can be rebutted ONLY BY A WRITING §2640 – All separate property contributions to the acquisition of CP at time of dissolution will be reimbursed (No interest)
LIMITATIONS ON THE CLASSIFICATION PROCESS Property Within the System Todd v. Todd Cal App 1969 H got law degree during marriage. W supported H while getting degree. After start of practice, got successful. W claimed Education of H CP. Court said Ed is intangible property right – can‘t be divided. Ed did contribute to assets later acquired and those are split. In Re Marriage of Witt Cal App 1989 H going through Med school for entire duration of marriage. W wants to be a chef. TC found W contribution minimal. Appellate court held contribution not minimal and reimbursed her for spousal support during marriage. In Re Marriage of Lopez Cal App 1974 H & W married ‘57. H had a law practice with two others – he had 50% interest. Awarded as his SP: cash payments by 2 partners & 50% interest in firm. App said law biz substantial part of Community. The value of law practice was H‘s energy, skill, judgment –All CP. Goodwill towards law practice? What is Goodwill? Should be considered in dissolution. In Re Marriage of Spengler Cal App 1992 W got insurance from former husband. TC gave half to W and half to former W. Employment-related group term life ins policy CP subject to division in dissolution? Not CP asset beyond expiration of term acquired with Community efforts (unless becomes uninsurable during term, then right to renew becomes CP after expiration) Whole life ins policy – is there property? o YES (investment portion o Can be given a cash value o Dual character
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o Apportioned per CP funds Term Life Insurance o 2 CP issues Payout of Term life insurance CP even if person dies after marriage Payout can be traced to community assets Once term ends, community gets nothing No payout No CP to be divided Exception – right to renew for person that has become uninsurable is a property interest o Community Receives nothing unless policy holder dies o Proceeds go according to payment made during term o If policy holder does die and names beneficiary other than spouse, ½ goes to ben and ½ to former spouse during policy paid for o If term life is related to employment – right to renew not valuable Multiple – Character Insurance Policies o Term Life Ins will have multiple payments How do you tell how much is SP and CP? o How much they contributed (pro Rata) o Time during which policy was paid Three groups within CP system o Married Persons o Putative Spouses o Domestic Partners Issues of Capacity o Void Marriage – void from very beginning – anyone can bring Same sex, Incest, already married o Voidable Marriage – requires court action to be void – only partners can bring – unless dead and underage o Sometimes people don‘t realize they‘re still married! Putative Spouses o Anyone who has a good faith belief in the validity of their marriage o Usually involves void marriages o Usually when one is married to someone else o Bigamy Second marriage invalid o Most common – failure to get a final decree on divorce o May also get divorce in invalid jx (Mexico) o Either or both can be putative Quasi-Marital Property o Same a CP except it is property owned by putative spouses o Quasi-CP – couple from another state move to CA – we apply CP to them! o If both spouses are putative spouses, we treat their property as if it is CP o For the couple to have the benefit of Quasi-CP, only one spouse needs to be putative
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o Concept of putative spouse is purely state law o Fed has refused to recognize it Persons Within the System Coats v. Coats CA 1911 H & W married 1887 annulled 1906. (Physical incapacity of W). Operated farm together. Woman who in good faith married which may be avoided by other party, entitled to property accumulated? No CP per se, but equity considerations say should be divided as CP. Aff‘d—W gets $10,000. Estate of Leslie CA 1984 Surviving putative spouse entitled to succeed to a share of his or her decedent‘s separate property under probate code? Yes. ‘72, H & W married in Tijuana. Never recorded. W died intestate in ‘81. Survived by son, H, and 3 adult children of prior marriage. TC found H putative, and denied all acquisitions of W‘s separate property. Strong precedent for putative spouse entitled to succeed to a share of his or her decedent‘s SP. Vallera v. Vallera CA 1943 H & W never attempted to get married. H actually was married while W living w/ him. She had no genuine belief that she was legally married. If a man and woman live together as H & W under an agreement to pool earnings & share equally in joint accumulations, equity will protect the interest of each in such property. No evidence parties made such an agreement. No dice for W. In Re Marriage of Kerry Couple living together 14 years. 2 kids. H breadwinner. Under Vallera – W gets nothing. Court said where couples lvie in long-term relationship, even though they know they‘re not married, CP system will be applied. Other courts refused to apply, big split, SC gets issue in Marvin. Marvin v. Marvin CA 1976 P & D lived together 7 years. All property acquired taken in D‘s name. TC denied P claim to property based on K. SC rev‘d, saying lots of stuff about precedent, implied K, but bottom line is courts may look to a variety of remedies in order to protect the parties‘ lawful expectations (absent express agreement) i.e., conduct, tacit understanding, etc. Constitutional Limitations The Due Process and Privileges and Immunities Clauses Addison v. Addison CA 1965 H & W married Ill, moved to CA, then D‘d. W requested equitable division based on oral transmutation and quasi-CP. TC found no oral transmutation and quasi-CP unconstitutional. SC said quasi-CP is applicable only if get a D after moving to CA.
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Quasi-CP constitutional. Where innocent party would otherwise be left unprotected – equitable distribution. Held for W. In Re Marriage of Roesch Cal App 1978 Dude moved to CA and filed for D there. TC held quasi-CP and divided accordingly. W says improper. App says both parties must move to CA and then file for D. Quasi-CP improper, but no mod of judgment is necessary. In Re Marriage of Bouquet CA 1976 H & W married 1941, separated ‘69. W petitioned for D ‘71. Court entered interlocutory judgment ‘72. Before judgment, new law came into effect, saying earnings and accumulations of both spouses while they live apart is SP. TC rejected H argument that all his earnings after separation were SP, saying only earnings after new law took effect were SP. Retroactive application of new amendment? SC says yes. In Re Marriage of Heikes CA 1995 New code section now provides that when CP divided upon D, either spouse reimbursed for contributions of SP unless waived right in writing. SC held previously that it is not retroactive to property acquired before statute. Legislature amended to say it is. Court now decides whether constitution permits reimbursement to H for contributions made to CP in ‘76 divided in ‘92. Answer = no. The Supremacy Clause o Federal Preemption State laws must yield to any conflicting federal law when Congress has expressly or impliedly sought federal supremacy. Retirement benefits, life insurance, and social security benefits, are precluded from classification and division as CP by virtue of federal preemption.
Wissner v. Wissner US 1950 Dude died in India in ‘45. ‘43 he subscribed to National Service Life insurance policy for $10k. W and dude were estranged at the time he entered into army. Later he wanted divorce. Named parents on life ins. ‘47 W brought action to get life insurance (1/2 under CA law). TC found proceeds of insurance were and are CP. App affirmed. SC disagrees. Fed ins. Doesn‘t give any vested right. Rev‘d – W gets jack. ERISA o Silence of Fed statute means does not apply o Does allow division of CP pensions that are governed by ERISA 2 ways Buy out or trade off of pension Give her hers and me mine o Any distribution that affects pension itself – controlled by ERISA o Qualified Domestic Relation Order
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Boggs v. Boggs US 1997 H worked for southern bell from ‘49-‘85. First W married when he began work and remained H & W till W died in ‘79. Had 3 sons. H and 2W married ‘80. H died ‘89. Lots of retirement benefits. Kids of 1st marriage and 2W dispute benefits. 1st wife devised her ½ of ben? ERISA pre-empts? Yes. CA State Law – upon divorce – statemtns of pension beneficiaries are automatically revoked. o Preempted by Fed law when pension governed by ERISA – no revocation o Bankruptcy preempts CP laws Exclusion for child and spousal support
SELECTED PROBLEMS IN CLASSIFICATION Commingled Funds Spouse seeking to establish the separate character of a portion of the funds may rebut the general presumption by directly tracing that portion of the funds to a separate property source Married people aren‘t looking ahead to divorce – routinely commingle SP and CP. Concerned with 2 kinds of property o Proceeds in a bank account o Property purchased from proceeds in a bank account Married person has separate bank account, puts paycheck in o =commingled funds o We then assume everything in account is CP. Small exception = de minimus Testimony as to character of each deposit and withdrawal Court must believe intention Family Expense presumption o CP used first to pay family expenses See v. See CA 1966 H & W married ‘41, separated ‘62. H worked for See‘s candies. Had an account on the books and deposited his checks into it and paid family expense with it. Sometimes added money from account in 1st national security bank. Bank account funds were H‘s SP (mostly). Trial court followed theory that excess of CP expense over CP income during marriage means no acquisition of funds during marriage. SC did not like this. Changes W‘s interest from present, existing, & equal to a future interest realizable only on dissolution. H has to prove money came from Separate funds. If he can‘t, then total community expenses and community income throughout marriage will be used to find the character of the property. Finding for W. When records have been destroyed through no fault of the person seeking separate interest
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N 1 p 265: See rule requiring adequate record keeping should apply with the same force in a case where the marriage was terminated by death. ―Legatees are bound by the consequences of his failure to do so.‖ N 2 – exception to non-reimbursement rule in See o If parties are separated (in cont. of divorce) and one person uses SP to pay for family expenses – may bet reimbursement from community
In Re Marriage of Mix CA 1975 During marriage, W commingled funds and used them to purchase rental properties. Character of properties? Start with presumption. Direct tracing or consideration of family expenses. DT = LIFO. Consideration = time of acquisition of disputed property – shown all community income exhausted, then all separate funds were used. W uses tracing – court finds inadequate, but there is substantial evidence that trial court found she traced and identified. In Re Marriage of Frick Cal App 1986 H had hotel prior to marriage. Used community funds to pay down balance of principal. H says used separate funds. Payments made contemporaneously w/deposit of community funds. H commingled rent w/CP. Also deposited salary into same account. Presumption. Direct Tracing – LIFO – not enough evidence (just his testimony). Court ―left in the dark‖ as to actual amount of CP & SP in account. H did not meet burden. Find for W.
Business Profits The problem is essentially one of tracing the gains and profits back to the source How do we divide up biz right now? o Only 2 factors: SP contribution CP contribution Figure out one, everything else is the other o Commonly known as Pereira/Van Camp – see handout Pereira Rule Value of business at time of marriage = SP Then – what is a fair return? Subtract from value = CP Van Camp Rule Look at CP investment Reasonable value of services (who operates) Deduct draw Take that from value of biz = SP Pereira v. Pereira CA 1909 TC gave W 3/5 of CP, custody, no allowance was made in favor of H‘s SP invested in biz upon marriage. SC says ―in the absence of circumstances showing a different result, it is to be presumed that some of the profits were justly due to the capital 13
invested. Rev‘d. H asked to just get interest (7%) on amount he invested in his business (15,500) and W agreed to this. So court modified judgment to end the litigation **H didn’t offer evidence of inflation or capital returns in his business or other economic factors. That is why the court properly held 7% interest*** Marriage of Koester Cal App 1999 ―A community does not ‗acquire‘ a SP business merely because it is incorporated during the marriage.‖ H owned a sole proprietorship prior to marriage. 3 years after M, H incorporated it. TC ruled incorporation made biz CP (rejected Pereira). App says should have applied Pereira b/c: 1) §2640 was never designed to apply to SP biz and is not applicable to biz. 2) The mere incorporation of a biz is not a change to its character. Attorney – very sharp – says ―legislature just said separate contributions to acquireing of CP merely gets reimbursement‖ Court said d/n/a to biz
Tassi v. Tassi Cal App 1958 W appeals from judgment that held 73% of property was H‘s SP at time of transfers. Allocation of earnings: 2 approaches: 1) allow interest on the capital investment of the biz, allocate such interest as SP and treat the balance as CP earnings attributable to efforts of H (Pereira). 2) determine reasonable value of the H‘s services in the biz, allocate that amount as CP, and treat the balance as SP attributable to the normal earnings of the biz. TC found general manager of meat-packing would make around 15,000. Attributed this to H. Court may select whatever formula will achieve justice. TC finding affirmed. In Re Marriage of Imperato Cal App 1975 H & W married ‘59 in AZ. Moved to CA until ‘71 when they separated. ‘69, PDD was incorporated (extension of partnership b/t H and father). On separation, PDD had worth of 1600. ‘73, PDD = 17,000. TC ruled CP valued at ‘73. Gave W ½ interest in Biz. Court ruled should be valued at date of trial, but separate earnings of spouse if attributed to increase value of community asset should be taken into account. Earnings = profits? No. Alter ego theory – if H & W sole owners of corp then don‘t treat corp as separate entity and court can disregard incorporation. Rev‘d to sort that shit out. Installment and Credit Acquisitions CA courts – developed several allocation principles for classification No totally satisfactory rule or formula has been devised Acquisition in Installment Transactions o Asset acquired by installment payments should be apportioned on the basis of C and S contributions to the total purchase price and classified accordingly. Vieux v. Vieux Cal App 1926 P & D purchased lot b4 marriage. P made original payment (280) after marriage 553 in payments were made. TC said lot P‘s SP. App said P & D bought for community
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purposes. Status may be changed from C to S and vice versa. Part of property may be regarding and community and part separate based on manner payments were made. Therefore – rights of parties should be measured by the direct contributions made by the respective parties to the purchase price. Borrowed funds and credit acquisitions o When an item of SP is used as the primary security for a loan, the money so produced – the loan proceeds – may be classified as SP
Gudelj v. Gudelj CA 1953 H & W married ‘38. H was owner of Cleaners. Continued until ‘43. ‘46, H & W operated Owl Cleaners partnered with G. Partnership dissolved ‘47. H purchased ¼ interest in HF Cleaners. TC found ¼ interest in HF Cleaners was SP of H. H paid 1500 for ¼ interest with 10000 note. 1500 – where did it come from? SC says sufficient evidence to show came from H SP. However, Rebuttable presumption when getting something on credit for CP. Bank of CA v. Connolly Cal App 1973 Dude purchased properties during marriage, presumed community, burden rested with Connolly and Seward. On e property community – bank loan signed by dude and Kelber. Made of credit of Dude and Kelber. Other – financed by loan – proceeds community. Community = all property. In Re Marriage of Grinius Cal App 1985 H & W married and signed prenup listing SP w/6 year limit. Went into business together running a restaurant. H‘s name on title. TC gave restaurant real property to H. App says restaurant acquired shortly after marriage and presumed CP. BUT, character of credit acquisition determined by intent of lender to rely on SP of purchaser or upon a community asset. Solely relied on spouse‘s SP. H gave no direct evidence of lender intent and just gave circumstantial. Presumption not rebutted. Rest CP. **Under Grinius standard, nearly impossible to rebut presumption – lenders rarely rely solely on one spouse’s SP **
In Re Marriage of Lucas CA 1980 H & W married 1964. Separated ‘76. W beneficiary of a trust. ‘68, H & W bought house, 6k from trust, rest with loan as JT. 2k from trust for improvements. Remainder with community funds. Trial court gave W 75% of house. SC says no evidence of an agreement or understanding that W was to retain SP interest in house. Remanded in consideration to see if there was an agreement. Even though presumed gift when SP used as DP, parties may have oral agreement to have separate property remain so. If there is an agreement, then separate interest have pro rata share. o Reimbursement/Apportionment – see handout
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In Re Marriage of Moore CA 1980 W purchased house ‘66 8 months before marriage. Down payment of 16,000. Title in her name. Before marriage made 7 payments and reduced principal by 245. H & W lived in house until ‘77 separation. Made payments with community funds and reduced principal by 6,000. W lived in house and continued paying, reducing by 580. At trial: total paid: 23,000; balance owing: 33,100; market value of house: 160,000; equity: 126,800. TC said house was W‘s but community had interest – according to ratio that reduction of principal resulting from community funds bears to reduction from separate funds. Equity value x ratio. SC says SP interest % determined by crediting SP w/ down payment and the full amount of loan less amount by which CP payments reduced principal. This is divided by purchase price for SP percentage share. ( H gets less, so no reversal) 2 big calculations you need to know: Lucas & Moore o L: SP contributed to CP house o M: SP house on which CP contribution made 2 approaches SP CP o Before 1/1/84: Lucas apportionment o After 1/1/84: SP reimbursement
In Re Marriage of Frick Cal App 1986 H owned SP before marriage and operated Mikado Hotel & Restaurant. TC applied formula in Moore. H wants pre-marriage appreciation and wants appreciation factored when determining respective interests in property. App says no. Marriage of Walrath CA 1998 H & W married ‘92, separated 3 years later. H owned house before marriage. After marriage, deeded to himself and W as JT. Property had 228k FMV, 82k mortgage, 146k equity. W later contributed 20k from her SP to mortgage principal. ‘93, FMV of 240k. Borrowed 180k against house – 60k paid down mortgage, 62k to pay off house in NV, 42k to acquire property in Utah. SC says Gilbert entitled to reimbursement of SP contribution. Calculate ratio of G‘s SP contribution to total equity at time of refinancing = portion of loan proceeds represent Hs SP contribution traceable to 3 different properties. Remaining loan obligation community indebtedness. Classification of Improvements Improvements to SP Marriage of Wolfe Cal App 2001 H & W separated in ‘94 after 11-year marriage. At sep, CP family home in Newcastle and Vineyard in Fesno. H owned property near Vineyard. H & W got 60k LOC for pool. In ‘94 – owed more than 44k on loan. 1 month before dissolution, W paid it off with SP. Lots of shit – see handout. In Re Marriage of Smith Cal App 1978
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H & W married 19 years. Separated ‘75. 2 sons 19 and 20. Owned and operated sign – making business. Owned house and several rental properties. H given exclusive ownership of biz and joint occupancy of home. Later gave biz to H and Home to W. One rental property ordered sold and used for community debts. W used SP to improve, but lower court gave it all to community. Got gift of 14k from unle. Put in pool, down on property, and cutter for biz. Finding of separate or community by trial court if supported by substantial evidence. TC found community gift by W. Aff‘d. Personal Injury Damage Awards Sometimes wholly community, sometimes wholly separate 1957 – amended statutes – damages in PI separate property of injured spouse – bad tax consequences – 1968/69 – back to CP COA arose: o After dissolution or before M – SP o During Marriage – CP o After dissolution – not subject to ½ split – may be in the interests of justice In Re Marriage of Devlin Cal App 1982 H & W married ‘75, separated ‘77, got back together, divorced ‘81. Before separation – H accident. After back together – received damages. At trial – money spent – all property purchased with PI money. TC gave all to H. App says all PI damages arising from COA during marriage CP, unless court determines interests of justice require another disposition. W says property purchased with CP PI damages. Took title in JT – must be treated as ordinary CP. Also, SP used to buy residence and title taken in JT assumed CP without agreement to the contrary. Court said transmutation d/n/a to CP personal injury damages. Generally, CP PI damages lose character is when ―commingled‖. Here, no commingling. Affirmed. Employment Related Benefits CP or SP? During Marriage or after Dissolution? Apportionment? Non-employed spouse? Retirement benefits o Pensions = CP Even non-vested pension rights o Lots of types, but all = deferred compensation o Defined contribution and defined benefit DC: (individual account) = employer and employee contributions allocated to an account on behalf of each employee. Always has ascertainable cash value DB: does not keep individual account b/c amount of employee pension not dependent on contributions – promises to pay average salary on reaching retirement age Hard to value for CP interest b/c so many variables 17
Vested v. Matured Vested = pension right will survive discharge or termination Matured = all condictions precedent have taken place or are within control of employee May vest after term of employment but may not mature until retirement age. Division Matured and Paying o Court may order ½ paid to other spouse as payments are received Matured and Joined o Court may order plan to pay portion directly to nonemployee spouse Not yet matured o Court may place present value, award to employee spouse, and give other spouse community assets of equal value o Dude may die and not mature, so court may award future benefit payments to each spouse
In Re Marriage of Brown CA 1976 Issue of division of nonvested pension rights upon dissolution of Marriage. Overrule old rule in French that says non-vested pension are not property, but mere expectancy and thus not community asset. No expectancy but contingent interest in property. H & W married ‘50 D‘d ‘73. H‘s pension would not vest ‘78 – 310 a month. Goes until age 63 – 485 a month. TC said no vested so no property. SC said no. will not apply retroactively if already final adjudication or dissolution. Rev‘d. In Re Marriage of Bergman Cal App 1985 H & W married ‘59 separated ‘80. H employed in federal civil service ‘61-‘76. Prior to marriage H served 2 years in military – counted toward longevity retirement. In ‘76 H became permanently disabled. Has been receiving disability – in ‘97 benefits will be recomputed as longevity retirement. W worked several jobs during marriage. School teacher at time of separation and made contributions to retirement for 8 years. H says TC erred in determinging cash value of pension and crediting community. Court says health is but one of many factors to be considered by a judge. Court may exercise discretion. H didn‘t like court ordering an open ended reservation of jx over CP interest in W‘s pension plan. Court agreed kind of. Courts have 2 options: Cash out and award or divide in kind. As to W‘s pension – should be # of months of marriage over # of months of service times benefit paid under plan is CP interest and ½ goes to each party. LC affirmed mostly. In Re Marriage of Hug Cal App 1984 H & W married ‘56 separated ‘76. ‘72 H left IBM to begin at Amdahl. Granted stock options at Amdahl. Options were exercisable in yearly increments of 30%, 25%, 25%, and 20%. TC sought to allocate portions to reflect relationship b/t periods of CP
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contribution in comparison to overall contribution. (prior to and after date of separation). H wants time apportionment to start at date option awarded, not from beginning of employment, and each year‘s option should only be for that year. App says no single characterization can be given to stock options. (may be past, present, or future services) Depends on circumstances – trial court properly exercised discretion – Affirmed. Disability Benefits Marriage of Elfont CA 1995 Disability term Insurance for H purchased w/ C funds during marriage, but payment of benefits – 32 mos. After separation – H paid renewal payments out of SP to keep ins. Evidence H wouldn‘t have gotten renewal without auto renewal purchased by CP. TC characterized proceeds as CP. App rev‘d. SC affirmed. Intent to provide retirement income – during M. No intent to provide community retirement income when H renewed w/ SP. Post-separation disability ben – may be treated as CP only to the extent they were purchased by C funds. Benefits did not become payable during terms of coverage for which premiums had been paid out of C funds. H became entitled only after renew with SP – all proceeds H‘s. SPOUSAL MANAGEMENT AND CREDITORS’ RIGHTS Spousal management o Used to be H until ‗51 o ‘75 – equal management o Right to control and manage never unqualified o Legitimate act of management is for beneficiary of family o CP biz under control of one = exception Tyre v. Aetna Life Insurance Co CA 1960 Widow and 3 adult daughters of insured are Ps. W & H married LA ‘17. H died ‘57. D issued 20k ‘26. Premiums paid CP. Original ben Tyre CO. H retired and changed ben to W lump sum then to annuity based on life expectancy. Court said she can elect – rev‘d. Creditor’s Rights o Co-extensive w/management and control rights o All CP liable for debts incurred by either spouse during marriage o Certain situations where one spouse has management and control Biz Bank account Grolemund v. Cafferata CA 1941 Judgment for damages arising out of car accident against H. H & W sued to enjoin sale of CP. Court said all CP liable for satisfaction of Hs debts. Wouldn‘t be fair if CP never liable, b/c you‘d never have to pay your debts Marriage of Feldner Cal App 1995
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H & W married ‘54 sep ‘89. Trial ‘92 on how to characterize lawsuite against H. TC found C obligation. W says b/c H quit after sep = separate. Court says debt incurred when K made. B/c H made K during M and breached after, = C obligation DIVISION AT DISSOLUTION Division By Court Order The Equal Division Requirement o Dissolution court required to divide the community and quasi-community property of the parties equally. o Various methods Division in kind Undivided one-half interest One spouse certain items, other items of equal value Sell asset and divide proceeds o Statutory exceptions Sums deliberately misappropriated CP less than 5k, one party can‘t be located – all to other spouse Personal Injury awards PI damages recovered by a spouse during M – CP On dissolution – injured spouse (unless justice – otherwise) In Re Marriage of Stallworth Cal App 1987 H and W married 14 ½ years – one son, Robert. Separated 1983 (Robert 7). H filed for D 1984. Trial 1985. Family home CP. FMV of 138k, loan balance of 16k, equity of 122k. Court gave to W to live in with son until son 18, title remained in JT w/ H, and W pays all house costs. Robert retarded. Not enough evidence to show Robert can‘t handle move. Defer sale of family home equitable? H might not be able to find home close b/c of cost and can‘t visit kid. Lack of evidence to be able to weigh whether or not defer of sale proper, so reversed for new trial. Insurance w/ H named as coinsured, improvements to house, maintenance of property, share monthly payments, all should be considered in new trial. In Re Marriage of Tammen Cal App 1976 CP awarded to W – 79%. W ordered to execute to H promissory note for 19k, interest of 7%, secured by 2nd trust deed on major item of CP, family res, payable in 10 years, W‘s remarriage, sale, refinancing, moving, death, whichever comes first. H says unfair, value of note far less than CP W got. App agrees. Fam Code says divide equally. In order to divide equally, court needs to make findings of fact as to nature and value of the specific items of CP. Court says note discounted by inferiority of its security (second trust), long and uncertain deferment of enjoyment, probable effect of inflation, and concerns of its ownership. Finds that CP of parties not divided equally. Rev‘d. In Re Marriage of Eastis Cal App 1975 W filed for Dissolution after 3 years of childless marriage. W waived spousal support. C assets of 5k and liabilities of 6k. W awarded C assets of 3.5k and ordered to pay 1k to C obligations. (Net 2.5k to W). H awarded C assets of 1.7k and ordered to pay
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5.4k. (H net deficit of 3.7k). H appeals. App says obvious error in division. H contends should be equal division of obligations b/c of general philosophy of equality b/t spouses in Family Law Act. App says goes too far in equality and pragmatic considerations take over. Obligations not property. Look to fair division. Who makes more? They get more debt. Judgment reversed only as to division of CP. Division of Obligations stands. Valuation o Statute requires that the valuation of the assets and liabilities of the parties be determined as near as practicable to the time of trial. o FMV
DISTRIBUTION OF PROPERTY AT DEATH Dawes v. Rich Cal App 1997 Liability for debts continues after death? If so, time limited to assert liability by Legislature? Both YES. Dawes and Schwab owned Western. Got sued by tenants 198082. ‘83, Dawes and W transferred CP into inter vivos trust providing CP for spouses lives, then upon death, 3 trusts. One for surviving spouse (1/2 CP), 1 for maximum allowable marital deduction funded from decedent‘s ½ share of CP, and 1 for residue of decedent‘s ½ share of CP. 2nd and 3rd trusts irrevocable. Upon survivor‘s death, corpus transferred to children and grandchildren. Trustees 2 surviving children, defendants in this case. W died 1990. 1992, tenants won suit against Dawes. ‘93 and ‘96 additional judgments in tenants favor entered against company. Dawes filed bankruptcy after first judgment. Bankruptcy court did not have jurisdiction over 2nd and 3rd trusts. Tenants sued trustees. Trustees filed petition in probate court seeking determination of trust assets were not subject to tenants judgment. Probate court entered judgment in favor of trustees. Said lost their CP character and liability for Dawes‘ debts. Also time barred. Trial court sustained demurrers and said time barred. Tenants appealed from both judgments, consolidated here. Judgments affirmed. Collection Bureau of San Jose v. Rumsey CA 2000 Which SOL governs action by collection agency against surviving souse for recovery of hospital and medical expenses of deceased spouse‘s last illness? Civ Pro limited to 1 year. Probate Code says same SOL as if spouse was alive, and also says Civ Pro 1 year applicable. Trial court found these controlling and that collection agency too late. App reversed, saying Fam Code says liable for ―necessaries of life‖ and Civ Pro 4 year SOL for open books applies. SC says Probate Code controls, expressly making it 1 year SOL. App rev‘d. Estate of Prager CA 1913 Charles died 1911. Total value of estate 630k. Property outside of LA 179k. All CP. Widow claimed ½. All devisees conceded. Fannie did not. Fannie says Widow elected to forego the benefits given to her by the will by electing forced share. Court says no provision in the will for elected share. Testator presumed to have made will w/ knowledge of Wife‘s interest in CP. Presumption further that he did not intend to devise ½ of W. In the absence of contrary intent in will, testamentary dispositions must be
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understood as intended to cover only prop which testator had right to devise. Will stands. Fannie loses.
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