Divorce Decree Pa Sample by elr19293

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									                          COMMUNITY PROPERTY OUTLINE
                                   Debbie Ghodsian, Fall 2004
                         ―Depth of Knowledge and Spotting Issues‖

I.      Basic Definitions
     Introductory paragraph on exam:
     ―CA is a CP state. All prop acquired during the course of a marriage is
     presumed CP. All property acquired before marriage or after permanent
     separation is presumed to be SP. In addition, all prop acquired by gift,
     bequest, or devise is presumed to be SP. In order to determine the
     character of any asset, courts will trace back to the source of funds used to
     acquire the asset. A mere change in form of an asset does not change its
     characterization. With these principles in mind, we can now turn to the
     specific items of property involved in this problem.‖
     A. Community Property: Property acquired during the course of a marriage.
        1. Exceptions:
            a. Property received by gift, bequest, devise, or descent.
            b. The rents, issues, and profits of separate property.
            c. Property acquired in exchange for separate property.
     B. Separate Property: Property that’s acquired before marriage, after permanent
        separation or divorce, or property that’s acquired at any time by gift, devise, or bequest.
        In addition, all rents, income, and profits that were separate property remain separate
        property.
     C. Quasi-Community Property: Property acquired by the couple while they were
        domiciled in another jx, which would have been CP had they been domiciled in CA.
     D. Quasi-Marital Property:
        1. People who live together and have something like a marriage are labeled ―Putative
            spouses‖ and property acquired during the course of their relationship is called
            ―quasi-marital property.‖
        2. All that’s required for a putative spouse is for someone to have a good faith belief that
            she’s lawfully married.
        3. Putative spouses entitled to almost all the same rights as lawful spouses. For most
            purposes, treated like community property. NOT automatically entitled to benefits
            under private contracts. (Can’t get discounts/benefits that lawful spouses get- maybe
            in relation to a life insurance policy).
        4. Putative spouse entitled to same rights as legal spouse w/respect to administering
            estate and inheritance.
        5. Estate of Leslie: CA treats marriage as valid if it’s valid in the jx it was entered into.
     E. Tracing: Determining whether an asset is CP or SP is done by tracing back to the
        original source of funds used to acquire the asset. Because: A change in form of property
        doesn’t change its character.
        1. Family Expense Doctrine: When you pay family expenses out of a commingled
            account, it’s presumed that you drew down on the community funds first.
            a. If you used SP to pay community expenses, a gift is presumed.



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      b. No right of reimbursement unless you have an agreement for repayment.
      c. If the hospital bill was 20K, it is assumed that separate property made a gift to the
          community.
   2. Issue of Comingled Funds:
      a. General Rule: Comingling of funds does not necessarily change the character of a
          fund. However, the inability to demonstrate the origin of funds might b/c you
          have to show that you had SP and that you drew from the SP to make the
          purchase.
      b. Marriage of Frick: Assets purchased from a commingled account are presumed
          to be community property. Burden is on the party trying to prove its separate
          property.
      c. 2 ways to show that property is separate property:
          i.      The Exhaustion Method: Requires you to show that at the time of the
              purchase, all of the community funds in the account were exhausted b/c they
              were spent on the community.
          ii.     In-and-Out Method/Direct Tracing: (If Community funds are not
              exhausted) Requires you to show that at the time the asset was purchased,
              you kept track in your commingled account that you drew money from the
              separate property.
   3. Sees Case:
      a. Issue: Whether husband’s separate property was entitled to reimbursement from
          the community b/c it was used for excess expenses of the community?
      b. Rule: Ct said no reimbursement. Ct said that when you purchase out of a
          commingled account, must look at the account at the time that the purchase was
          made. Must look at each expenditure and each purchase as it takes place.
   4. Presumption that property in possession of couple during marriage is presumed to be
      acquired during the course of the marriage. (Policy of promoting CP)
      a. If marriage is less than 6 months, we don’t presume this.
      ―The statute was acquired shortly after the parties were married. Since it was
      acquired during marriage, it ordinarily would be presumed to be CP. Here,
      however, W can trace back to the source of funds used to acquire the statute and
      show that the source of funds was her SP savings account. Thus, the CP
      presumption is overcome and the asset will be characterized as W’s SP.‖
F. Community Property v. Common Law:
   1. Principle difference is how we treat assets earned during marriage:
      a. CL: person who earns it keeps it
      b. CP: anything earned by spouses during marriage belongs to the community.
   2. Common Law:
      a. Divorce: Marital property is divided upon divorce. Title doesn’t control.
      b. Management and control generally given to the spouse who holds title
      c. Death:
          i.      Testate: Surviving spouse can assert hi/her 1/3 interest (forced share).
          ii.     Intestate: Surviving spouse takes 1/3 to all of decedent’s property,
              depending on decedent’s issue.




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II.      When do the Community Property rules apply? Upon marriage!
      A. When does a marriage begin? Lawful marriage requires both legal capacity and the
         performance of formal legal procedures.
         1. Legal capacity:
             a. Competence
             b. Can’t already have existing marriage (bigamy)
             c. Can’t be too closely related (too great a possibility of birth defects)
             d. Must be of lawful age (usually 18, or else w/parental permission or emancipated
                 minor)
             e. Consent
             f. Can’t be coerced to marry
             g. Can’t be any fraud
             h. Must have sexual capacity
             i. Must be of the opposite sex (CA)
         2. Formal Legal procedures: Must have
             a. license; and
             b. witnessed ceremony; and
             c. recorded w/county clerk
         3. (Common law marriage): Living together for a long time and holding yourselves out
             as married couple.
             a. NOT RECOGNIZED IN CA. But Common Law marriage is valid in CA if
                 entered into in a state that recognizes CL marriage.
      B. When does a marriage end?
         1. Divorce
         2. Death of a spouse
      C. When does the economic community end? In CA, ends upon ―Permanent Separation.‖
         1. 2 Requirements:
             a. Parties are living apart (―actual physical separation‖) and
             b. One has communicated to the other an intent not to continue the marital
                 relationship
                 i.       Marriage of Baragry: One spouse’s unilateral intent not to resume is
                      sufficient as long as it’s been communicated to the other spouse. (Both parties
                      must realize that the economic community has come to an end.)
         2. Reconciliation: Many marital relationships will end after multiple separations. How
             does ct deal with that? CA S. Ct. has not dealt w/this. Most lower cts wait until the
             final break in the relationship, so everything up until the final break is considered part
             of the economic community.
      D. What happens when a marriage is invalid?
         1. If your marriage is invalid b/c one party already married or one party lacked capacity,
             etc., if one party had a good faith belief that s/he was lawfully married, they are titled
             ―putative spouses‖ and get the benefits of quasi-marital rule. Property acquired
             during course of putative marriage is called Q-M property. Spouse has same
             inheritance rights as CP spouse and ½ of assets upon divorce like CP spouse.




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E. What rights do unmarried cohabitants have?
   1. Contract Principles apply b/w cohabitants: Express agreement or agreement
      that’s Implied-in-fact. A partnership agreement. Or a contract re property bought
      together.
      a. Marvin v. Marvin: (Landmark Case) CA does not apply its CP or family law to
          person who never showed any intention to enter into lawful marriage. Instead,
          CA applies general contract principles. Cts should enforce express contracts b/w
          nonmarital partners (except to the extent that such contracts are explicitly founded
          on consideration of sexual services (i.e. for prostitution). If there is no express
          contract, a party may prove a contract implied by the behavior of the parties, or an
          agreement of partnership or joint venture. Up until this time, many cts said that
          the only agreement a non-married couple could have was an express agreement;
          Marvin decision was instrumental in recognizing that non-married couples could
          enter into an implied-in-fact agreement.
   2. Claims against Third Parties and Government- No Marital Status Rights: Marvin
      only regulates the parties’ claims against e/o. With respect to claims against third
      parties (ex- wrongful death) and the government (ex- social security), cohabitants
      have no legal basis for asserting rights that flow from marital status. Cohabitant
      claims have only been successful when they were not based on marital status (ex-
      claiming worker’s comp as the worker’s ―dependent‖ rather than as his ―spouse.‖ Yet
      even when marital status is not necessarily involved, the CA S. Ct. has been unwilling
      to recognize cohabitant claims.
   3. Cohabitants Not Living Together Full-Time: For purposes of Marvin claims, persons
      may be found to be cohabitants even though they do not live together on a full-time
      basis.
   4. Cohabitants who Later Marry: Many persons who eventually marry first live together
      as cohabitants. If they later divorce, only property acquired during marriage is
      distributed according to CP rules. Prop acquired during cohabitation is treated
      according to Marvin contract rules. In other words, premarital cohabitation may not
      be tacked onto the marriage. (Marriage of Bukaty)
   5. Adult adoption: Used in gay community a lot. One partner would adopt the other as
      a child, securing certain inheritance benefits, other rights toward the person like
      medical decisions, etc. Does not require any age differential. Some limitations on
      this and some of these are invalidated when the true relationship is discovered.
   6. Recognition of a couple for certain purposes/some rights: Right to sue for wrongful
      death or right to file for work-comp benefits or to inherit. Fairly limited and on a
      case-by-case basis. Recognition of more benefits for domestic partners, esp. medical
      benefits.
   7. Domestic partnership benefits in CA have been expanded greatly: Legislative
      expansions: On 1/1/05, DP authorized to be treated like spouses for all purposes
      except taxation. Eligible for spousal support, to have property divided in same
      way, inheritance, etc.
      b. A few issues: The law tries to be retroactive  If you entered into this
          relationship before, applies to you, but it has an opt out provision. But this isn’t
          consistent w/S. Ct. decision. Interferes w/vested property rights.




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          8. Civil Unions: All same benefits and responsibilities as married couples, but no right
             to SS or federal benefits, or right to file taxes jointly, or benefit of estate tax.
             a. Hawaii Law: Prohibiting same-sex marriage violates the state’s own equal
                 protection clause, so they came up w/the reciprocal benefit program. Gives some
                 benefits of marriage, but not all.
             c. Most extensive reform efforts:
                 i.      Vermont
                 ii.     California
                 iii.    Massachusetts

III.      Assets Acquired with Community and Separate Funds
       ―When CP and SP funds are used to purchase an asset, the CP and SP acquire a pro
       rata ownership interest in the asset. To determine the respective shares of ownership,
       you start by figuring out the percentage that each contributed to the purchase price.
       Each estate is given its contributions to the equity plus a proportional share of any
       appreciation. If the property was acquired on credit, the credit is treated as a
       contribution toward the purchase price and either the CP or SP will be given credit for
       the loan depending on what property the lender relied upon when making the loan.‖

       A. Proportional Ownership under Marriage of Moore
          1. Applies when:
             a. Untitled property w/both SP and CP contributions
             b. Property titled in one spouse’s name w/both SP and CP contributions
             c. Jointly titled property where there is an enforceable agreement to preserve a
                 SP share of ownership.
          2. Rule: Each estate gets its actual contribution plus a proportionate share (%age)
             of appreciation. No credit is given for payments for taxes or insurance—only
             payments that reduce the principal count for reimbursement.
          3. Formulas:
                                       SP down payment + (SP loan amt. – CP payments)
             a. SP % interest =                       Purchase Price

Then,       SP amount= SP down payment + SP payments + (% interest x appreciation amt.)

Each estate gets its DP plus the mortage if it obtained it, then from the mortgage, deduct
any payments made on the mortgage by the other estate; divided by purchase price

              b. CP % interest =      CP down payment + (CP loan amt. – SP payments)
                                                  Purchase Price

Then,       CP amount= CP down payment + CP payments + (% interest x appreciation amt.)


          4. Example #1: 20K down is H’s SP. 80K loan is CP (only SP if he demonstrates that
             intent of the lender was to rely on his separate property.) Total purchase price is
             100,000. Appreciates to 300K. Principal debt reduced to 48K. (Means that CP


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   payments were 32k.): (If a SP inheritance used to pay off mortgage, then would
   deduct that from the CP interest.)

   Step 1: SP % interest = 20k / 100k
                        = 20%

   Step 2: CP % interest = 80k / 100k
                        = 80%

   Step 3: SP amount = 20,000 + (.2 x 200,000)
                      = 60,000

   Step 4: CP amount = 32,000 + (.8 x 200,000)
                     = 192,000

   Step 5: Check that SP amount and CP amount (plus any outstanding loan) equal the
current value. Here, 192,000 + 60,000 + 48,000 = 300,000

5. Example #2: 20k down is W’s SP. 80k loan- SP of Wife. Purchase price is 100,000.
   Appreciates to 400k. Principal debt reduced to 48k during marriage. (Means that CP
   payments were 32k). (CP paying off SP LOAN)

   Step 1: SP % interest = [20,000 + (80,000 – 32,000)] / 100,000
                         = 68%

   Step 2: CP % interest = 32k / 100k = 32%

   Step 3: SP amount = 20,000 + 0 + (.68 x 300,000)
                     = 224,000

   Step 4: CP amount = 32,000 + (.32 x 300,000)
                     = 128,000

  Step 5: Check that SP amount and CP amount (plus any outstanding loan) equal the
current value. Here, 224,000 + 128,000 + 48,000 = 400,000

Review: Initial contribution to purchase price then characterize mortgage and give that
estate entire mortgage unless the other state contributed. Divided by purchase price.

6. Example #3: Contributions from both spouses’ SP during the marriage. H puts 20K
   down (SP) and community takes an 80K mortgage for a 100K house. W pays 30K
   SP on loan. Community pays 10K on loan. The house appreciates. 40k left in debt.

   Step 1: H’s SP % interest = 20K / 100k
                            = 20%




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         Step 2: W’s SP % interest = 30K / 100
                                   = 30%


      7. Premarital Appreciation: Any appreciation that occurs prior to marriage must be
         credited to the separate estate. In Marriage of Moore formula, give the SP its actual
         cash contributions and all of the appreciation before marriage and its percentage of
         the appreciation during marriage.
      8. Improvements:
         a. Using SP to improve CP: Any SP contributed to a CP asset entitles the Separate
             estate to reimbursement. Limited to the value of the property- if significant
             depreciation, just get the value of the property.
         b. Using CP to improve your own SP: CP gets reimbursed the amount spent or the
             increase in value to your SP, whichever is greater.
             i.      Policy here: People discouraged from using CP to benefit own SP.
         c. Using CP to improve your spouse’s SP: It used to be that a gift to the spouse’s SP
             was presumed. More recent cases have undermined that view. The more recent
             cases indicate that when CP is used to improve your spouse’s SP, a transmutation
             has occurred and it will be invalid unless there is a writing signed by the person
             whose interest is adversely affected, here, the spouse who used the CP.

IV.   The Effect of Title
  A. Ways Married Couples can Hold Title
     1. Community Property: ―To H and W as Comm. Prop.‖ or ―To Mr. and Mrs. John
        Smith‖ or ―To John Smith and Kerry Smith, a married couple.‖
        a. Each spouse has undivided ½ interest in whole property.
        b. Management/control by both
        c. Protection at death
        d. Can NOT be severed
     2. Joint Tenancy: Deed would have to say, ―To H and W as joint tenants‖ or ―To H and
        W in joint tenancy‖ or ―To H and W as joint tenants with rights of survivorship.‖
        a. Each spouse has undivided ½ interest in whole property.
        b. Right of survivorship: Survivor takes all.
        c. Generally disfavored. Must specify you want it or else CP.
        d. Severable: Becomes Tenancy in Common.
        e. Shindler Rule: If you took title as JTs the presumption was that the property was
            titled as joint tenancy.
        f. Bowman Exception: Can rebut the JT presumption and show that the property is
            CP with evidence (written or oral) indicating that the couple intended the property
            to be CP.
        g. The joint tenancy presumption is less effective today in light of Lucas and Anti-
            Lucas legislation.
     3. Tenancy in Common:
        a. Can have unequal shares
        b. No right of survivorship
        c. Default assumption that an unmarried couple has TIC if nothing else specified.


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   4. Tenancy by the Entirety: (Not recognized in CA- a common law form of title that
      allows a married couple to take property as marital property.)
      a. Form of common ownership of marital property
      b. Rights of survivorship
   5. Joint Tenancy Community Property: New way. Giving couples benefits of
      management/control rule of CP, but automatic survivorship benefits of Joint Tenancy.
      Can NOT be severed.
B. Married Woman’s Special Presumption
   ―The MWSP applies to prop taken in the married woman’s name alone prior to
   1975. According to the presumption, prop taken in the name of a married woman
   prior to 1975 is presumed to be her SP. The presumption is based on the fact that
   prior to 1975, the husband was given sole management and control of the
   community assets and thus, any property in the woman’s name was presumed to
   have been a gift to her.‖
   1. Overview: In general, title does not matter. What’s important are the funds used to
      purchase the property. An exception is the Married Women’s Special Presumption.
   2. MWSP: When a married woman acquired property prior to January 1, 1975,
      and title was in her name alone, the property is presumed to be the woman’s SP.
      a. Rationale: Prior to 1975, H had power to manage and control the woman’s SP, so
           if H allowed her to have title in her name, then he must have intended some kind
           of gift.
   3. (Exceptions) Rebuttable if: (Meaning the property is CP)
      a. Can show some other reason title was in W’s name (reason other than gift), like
           to avoid creditors, or
      b. If W already had management and control power pre-1975: The woman was
           the party responsible for how title was taken b/c she controlled the transaction or
           had management and control of the community assets at the time the transaction
           occurred.
      ―In this case, the property was acquired by W in 1974 and title was taken in her
      name. However, the facts indicate that W had management and control of the
      CP at that time and controlled how title was taken. As such, the MWSP is
      rebutted and the prop will be treated as ordinary CP.‖
   4. Irrebuttable if a 3rd party good-faith-purchaser has relied on the property as SP
      and has purchased it.
   5. Example: Prior to 1975, W and H, a married couple, acquire a vacation home in
      Palm Springs. Title is taken in the W’s name alone even though the property is
      purchased w/community funds. The MWSP applies. The property is presumed to be
      W’s SP.
   6. Example: Prior to 1975, W and H, a married couple, acquire a beach front home in
      Malibu. H is heavily indebted to loan sharks as a result of gambling debts. The
      couple decide to put title in W’s name alone to avoid H’s creditors and to avoid
      detection from associates of the loan sharks. The MWSP would appear to apply since
      title is in W’s name alone. Here, however, the MWSP could be rebutted by showing
      an intent other than a gift to the W. Tile was taken in W’s name to avoid creditors
      and avoid detection. Thus, the MWSP is rebutted and the property would be




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       characterized according to the normal rules by tracing to the source of funds used to
       acquire the asset.
C. Joint Title—Lucas and anti-Lucas Legislation
   ―Prior to 1984, when a couple took title to an asset in joint and equal form, any SP
   used to purchase the property was presumed to be a gift. The SP was not entitled to
   a separate ownership interest in the prop unless there was an oral or written
   agreement. In additional, the SP was not entitled to even reimbursement unless
   there was an oral or written agreement for reimbursement. When a married couple
   took title to an asset in joint tenancy between 1984 and 1987, the asset is presumed
   to be CP for purposes of divorce unless there is a writing to the contrary. Any SP
   used to purchase the asset is reimbursed to the SP contributor w/o interest.
   Beginning in 1987, this rule was extended to all jointly-titled assets.‖

     Lucas and Anti-Lucas deal with what to do when a couple takes title in joint form, but
      one spouse claims that some or all of the property is the spouse’s SP.
    Applies to all jointly held property except jointly held bank accounts
    ―Ownership agreement‖ will get you a proportional share of the appreciation
    ―Reimbursement‖ is reimbursement of original contribution; no appreciation and no
      interest
   1. Divorce
      a. Pre-1984 transactions—Lucas applies
           Rationale for Lucas: CA S.Ct. concluded that taking title to property in joint
               and equal form was inconsistent w/maintaining a SP ownership interest.
          i.       JT is presumed CP and any SP contribution to jointly held property is
               presumptively a gift.
          ii.      SP is only entitled to reimbursement or ownership interest if there’s a
               written or oral agreement
               a) Reimbursement is without interest and without share of appreciation
          iii.     (In many instances, cts would find an implied agreement b/w the spouses)
      b. 1984-1987 transactions—First version of statute applies
           Rationale for Anti-Lucas: Legislature did not like the result in Lucas,
               especially the possibility of endless battles over oral agreements. Also, the
               result in Lucas seemed harsh given the fact that Mrs. Lucas contributed a
               significant amount of the funds used to acquire the property.
          i.       JT is presumed CP
               a) Exception: If there’s a written agreement or some documentary
                   evidence in the title to indicate a contrary intent.
          ii.      Automatic Reimbursement: No need to prove agreement—SP
               contribution is entitled to reimbursement (only of contribution), (unless
               waived by agreement).
               a) No reimbursement of taxes, interest, or insurance
          iii.     Separate estate allowed reimbursement for SP contributions to
               improvements to CP.
               a) Limited to the net value of the asset, so if the reimbursable SP
                   contribution exceeds the current market value of the asset, the SP only
                   gets reimbursed up to that amount.


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           c. Post-1987 transactions—Second version of statute applies
               Rationale for further changes: First version of statute was problematic b/c it
                   applied only to joint tenancies and did not cover situations where the spouses
                   had acquired the property as tenants in common or as CP.
              i.       All property acquired in joint form during marriage by the spouses
                   would be presumed to be CP. Applied to joint tenancies, tenancy in
                   common, CP, and tenancy by the entirety.
                   a) Exception: If there’s a written agreement or some documentary
                       evidence in the title to indicate a contrary intent.
              ii.      Automatic Reimbursement: No need to prove agreement—SP
                   contribution is entitled to reimbursement (only of contribution), (unless
                   waived by agreement).
                   a) No reimbursement of taxes, interest, or insurance
              iii.     Separate estate allowed reimbursement for SP contributions to
                   improvements to CP.
                   a) Limited to the net value of the asset, so if the reimbursable SP
                       contribution exceeds the current market value of the asset, the SP only
                       gets reimbursed up to that amount.
           d. Retroactivity:
              i.       Marriage of Buol: Look at when transaction occurred b/c the legislation
                   cannot be applied retroactively. Otherwise, would deprive parties of vested
                   property rights in violation of the Constitution.
              ii.      Marriage of Fabian: CA S.Ct. concluded that retroactive application of
                   rules would violate the Constitution.
              iii.     Current law: Current statutes can be applied retroactively in divorce
                   cases only in those limited situations where the person’s property rights
                   had not vested at the time the statutes were enacted.
        2. Death, Creditor’s Rights
           a. Lucas applies
              i.       JT is presumed CP and any SP contribution to jointly held property is
                   presumptively a gift.
              ii.      SP is only entitled to reimbursement or ownership interest if there’s a
                   written or oral agreement
                   a) Reimbursement is without interest and without share of appreciation
              iii.     (In many instances, cts would find an implied agreement b/w the spouses)

V.      Special Classifications
     A. Personal Injury Awards
        ―Personal injury awards and settlements are CP if the cause of action arose during
        marriage. If the cause of action arose before marriage or after permanent
        separation, the award or settlement is SP. Personal injury awards against the other
        spouse are always the SP of the injured spouse. Upon divorce, CP PI awards are
        assigned entirely to the injured spouse so long as they have not been commingled
        with other CP funds and so long as the interests of justice do not require otherwise.‖
        1. Characterization as CP or SP depends on when the cause of action arose (when
            injury occurred)- when payment received is irrelevant.


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       a. If cause of action arises during marriage, proceeds are CP.
       b. If cause of action arises before marriage or after permanent separation, proceeds
           are SP.
   2. One exception: Personal injury recoveries against the other spouse are always the
       injured spouse’s SP.
   3. Upon divorce, CP PI awards are assigned entirely to the injured spouse so long
       as they have not been commingled w/other CP funds and so long as the interests
       of justice do not require otherwise.
   4. For purposes of creditors’ rights, CP PI awards are still CP.
B. Retirement Benefits
   ―Retirement benefits are CP if earned during the course of the marriage. When
   pensions and other retirement benefits are earned both before marriage and during
   marriage, cts use the time rule to determine how much of the pension is attributable
   to community labor and how much is attributable to separate labor. The
   community’s share is calculated by determining the number of years the pension
   was earned while married and dividing that number by the total number of years
   the pension was earned. Upon divorce, a pension may be difficult to divide b/c of
   the uncertainty associated w/the exact date of retirement. Cts can do several things
   upon divorce to divide a pension:
           1. The court can assign the entire pension to the earning spouse and another
   community asset of equal value to the non-earning spouse;
           2. The court can adopt a wait-and-see attitude by dividing the other
   community assets and reserving jx over the pension until the age of retirement; or
           3. Calculate the community’s share of the pension, and order the pension
   plan administrator to make payments of one-half of the community’s interest
   directly to the non-earning spouse when the age of retirement is reached.


   1. Marriage of Brown: Whether vested or unvested, pension is a property right.
      Characterized as CP if earned during marriage.
   2. Time Rule: When earned both before marriage and during marriage, cts use the Time
      Rule to determine how much of the pension is attributable to community labor and
      how much is attributable to separate labor.
      a. The community’s share is calculated by determining the number of years the
         pension was earned while married (ends at separation) and dividing that number
         by the total number of years the pension was earned.
                           # yrs. pension earned while married
      Community share =            # yrs. pension earned

   3. Division of pension upon divorce: Upon divorce, a pension may be difficult to
      divide b/c of the uncertainty associated w/the exact date of retirement. Cts can do
      several things upon divorce to divide a pension:
      a. 1) The ct can deviate from equal division and assign the entire pension to the
          earning spouse and another community asset of equal value to the non-earning
          spouse;




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           i.      If not yet vested: Marriage of Brown: Ct (w/aid of expert) can assign a
               cash value to the pension. There’s risk that the pension won’t vest- or you
               won’t reach the age of retirement, won’t stay at that employer, etc. So ct will
               determine its value and give it to the working spouse, then other spouse gets
               something else of that value of the CP. Then, don’t have to worry about
               whether it vests in the future. Popular for marriages of short duration
       b. 2) The ―Wait and See Approach‖: Divide the other community assets and
           reserve jurisdiction over the pension until the age of retirement. Most
           appropriate when there’s a spouse who’s about to retire (older). Don’t know
           when he’s going to stop working, but it’s pretty soon;
       c. 3) ―QDRO‖ or Qualified Domestic Relations Order: Calculate the
           community’s share of the pension, and order the pension plan administrator to
           make payments of one-half of the community’s interest directly to the non-
           earning spouse when the age of retirement is reached.
   4. Right to reinstate pension is a community right (Lucero Case). Check formula on
       p.346. Community gets to participate in the enhanced benefit and must pay the
       reinstating amount: Half the number of months pension earned during marriage
       divided by number of months worked total. Then that percentage of the reinstatement
       amount must be paid by the community.
C. Disability Benefits and Worker’s Compensation
   ―Disability benefits, including workers’ compensation benefits, are characterized as
   CP or SP depending on the wages they are designed to replace. Payments received
   during marriage are CP b/c they are designed to replace marital earnings.
   Likewise, payments received before marriage or after permanent separation are SP
   b/c they are designed to replace separate earnings. In this case $1 in disability
   benefits were received by H prior to permanent separation. Since these benefits
   were replacing H’s wages during marriage, they will be treated as CP. H also
   received $1 in disability pay after permanent separation. These funds were
   replacing H’s post-separation wages and will be characterized as his SP.‖

   1. Characterized as CP or SP depending on the wages they are designed to replace.
      (Very inconsistent w/retirement benefits b/c w/retirement what matters is when
      benefits earned and with disability what matters is when benefits received.)
      Doesn’t matter which estate paid for the policy.
      a. Payments received during marriage are CP b/c they are designed to replace
         marital earnings.
      b. Payments received before marriage or after permanent separation are SP b/c they
         are designed to replace separate earnings.
   2. Exception: To the extent that disability payments are replacing retirement
      benefits, payments after retirement are CP. (Marriage of Stenquist)
      a. Ex: 1000/month before separation is CP. 1000/month after separation is SP. At
         age of retirement, can either receive disability at 1000/month or retirement at
         800/month. Will choose the 1000. But 800 of that 1000 is like retirement benefit
         and is treated like ordinary pension and the community will divide equally. So
         ex-W gets 400 and H gets 600.




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   3. Marriage of Lehman: Enhanced retirement benefits as an inducement to retire earlier.
       Ex: We’ll add 3 yrs. or 10K if you retire now. Community gets to share in this
       enhancement, even when it occurs after separation.
D. Severance Pay
   ―There is no fixed rule w/respect to severance pay. Cts will look to the facts and
   circumstances of each case to determine how to characterize severance pay. To the
   extent that the severance pay looks like a benefit which was earned during the
   course of the marriage, cts are likely to treat it as CP just like other forms of
   deferred compensation. However, in a few cases, cts have treated severance pay as
   equivalent to post-separation earnings and have therefore characterized the pay as
   SP. (In this case, the severance pay was part of W’s compensation package when
   she began working for the corporation. As such, the pay appears to be a form of
   deferred compensation for labor during the course of the marriage. Thus, it should
   be characterized as CP and divided equally.‖

   1. There is no fixed rule w/respect to severance pay. Treated on a case-by-case basis.
       Cts will look to the facts and circumstances of each case to determine how to
       characterize severance pay.
       a. To the extent that the severance pay looks like a benefit which was earned
            during the course of the marriage, cts are likely to treat it as CP just like other
            forms of deferred compensation and apply the time rule. However, in a few
            cases, cts have treated severance pay as equivalent to post-separation earnings
            and have therefore characterized the pay as SP.
       b. Rule of Thumb: If the severance pay was part of W’s compensation package
            when she began working or somehow contractually based, the pay is a form of
            deferred compensation for labor during the course of the marriage  CP to be
            divided equally.
E. Bonuses
   ―Bonuses are treated as CP or SP depending on the facts and circumstances of the
   case. Bonuses in many cases will be CP b/c hey are a form of compensation for the
   spouse’s labor during the marriage. In some cases, however, an employee bonus is
   more analogous to a personal gift from the employer to employee. In these cases,
   the bonus is more properly considered SP of the recipient. Likewise, where an
   incentive bonus is paid to an employee for work after separation, the incentive
   bonus should be characterized as SP.‖
   1. Treated on a case-by-case basis. Treated as CP or SP depending on the facts and
       circumstances of the case. Issue: Was the bonus earned or was it a gift? Almost
       always treated as earnings. Most employers don’t give gifts to employees. If all
       employees are getting it, more likely to be earnings. If IRS treats it as compensation,
       it’s earnings. Bonuses received after permanent separation is SP.
       a. Bonuses in many cases will be CP b/c they are a form of compensation for the
            spouse’s labor during the marriage. In some cases, however, an employee bonus
            is more analogous to a personal gift from the employer to employee. In these
            cases, the bonus is more properly considered SP of the recipient. Likewise, where
            an incentive bonus is paid to an employee for work after separation, the incentive
            bonus should be considered SP.



                                                                                            13
F. Stock Options
   1. ―A form of compensation. To the extent stock options are earned during the
      course of the marriage, the community has the right to share in their value.‖
   2. Ex: 1990, H goes to work for Disney. In 1994, given right to exercise stock option.
      Exercisable in 1998, provided still w/company. Issue: Is he being compensated for
      1990 to 1994 (past work), or 1994 to 1998 (future work), or both? Typically both.
      Also, Ct applies Time Rule: how many of those years were marital years? If
      permanent separation in 1996, and it was compensation for the entire period, then
      community will benefit for 6/8 years.
G. Education and Training
   1. ―Education and training received during a marriage are not CP assets subject to
      division. However, the community may be entitled to reimbursement when
      community funds were used to pay for the education or training of a spouse and
      that education or training substantially enhanced the earning capacity of the
      spouse. This right to reimbursement is the exclusive remedy for the community.
      a. Reimbursement is with interest.
   2. The right to reimbursement is not absolute. Reimbursement will be reduced or
      denied in three situations:
      a. 1) Where the other spouse has received comparable community-funded
          education during the marriage;
      b. 2) Where the education or training has reduced the need for spousal support
          for the educated spouse; or
          i.      Ex: W gets college degree and begins making good money. Separate a
              few years later. She won’t need spousal support and won’t be eligible for it
              b/c she can support herself. Here, no reimbursement b/c the community (H) is
              already getting the benefit of education/training b/c W is not eligible for SS.
      c. 3) Where the community has already benefited from the education or
          training. If more than 10 yrs have passed since the education or training, it
          is presumed that the community has already benefited from the education or
          training.‖ Opposite presumption if less than 10 yrs. Rebuttable presumptions.
   3. Student Loans
      a. Community reimbursed for contributions to student loans from community. (CP
          has no interest in the degree, sole remedy is reimbursement for contribution).
      b. ―Student loans upon divorce are entirely assigned to the educated spouse w/o
          offset.‖
   4. Education and Training include expenditures for tuition, books, supplies, etc., but not
      payments toward ordinary living expenses like food or rent. These are the
      responsibility of the community.
H. Life Insurance: Who paid the premium?
   1. Whole Life
      a. ―The community has an interest in whole-life insurance policy to the extent
          that the community paid the premiums. (Use time rule.)
      b. If a spouse has a community-funded life insurance policy and does not name
          the other spouse as the beneficiary, the other spouse can claim a ½ interest in
          the benefits after the death of the covered spouse.‖
   2. Term Life



                                                                                          14
         a. ―For term-life insurance, cts look at which estate paid the premium for the
             latest term (term that the spouse dies). If the community paid the premium,
             the community is entitled to the benefits of the policy.
         b. As with whole-life insurance, a spouse may not defeat the other spouse’s ½
             interest in a life insurance policy by naming some other party as beneficiary
             of the policy.‖
         c. Exception: If the insured spouse becomes uninsurable during the insurance
             and the policy is renewed, then it’s treated as if it’s a whole life policy.
             i.      Ex: In 3rd year (paid w/CP), H becomes uninsurable. Term life gives right
                 to renew and SP used to pay renewal.
  I. Insurance on Property: Proceeds characterized based on the property that’s insured- if
     the property was CP, anything paid for damage/destruction will also be CP. Payments
     will be of same character as property insured. Who made the payments is irrelevant.
  J. Game Show Winnings: Can argue that it’s a prize/gift and SP. But game show
     winnings require you to do something, so it should be treated as earnings.
  K. Lottery: CP if the funds used to purchase the winnings were CP. If received ticket as
     gift, should be SP.

VI.   Business Interests
  ―When community labor is used to enhance the value of a SP business, the community
  is entitled to share in the increased value. Courts use one of two formulas for
  calculating the community’s interest in the increased value of a SP business. Pereira is
  used when the increase in value of a SP business is primarily the result of community
  labor. Using Pereira, you determine the value of the SP at the beginning of the
  marriage and give it a fair rate of return over the course of the marriage. Normally,
  this is the legal interest rate calculated annually. The SP is awarded the initial value
  plus the fair return. The remainder is community. In this case, (apply to facts). Van
  Camp is used when the increase in value of a business is primarily the result of the
  unique nature of the SP asset. Using VC, you determine what a fair salary would be for
  the community labor. You subtract any salary already received and any amounts paid
  out of the business for community expenses. You multiply that by the yrs of the
  marriage. The result is your community property share. The rest is SP. In this case,
  (apply to facts).‖
  A. Community Labor Enhancing a Separate Property Business
      1. General: Income from a SP business should be characterized as SP, but if the spouse
           contributes his labor to it, then the community should be entitled to a share of the SP.
           How to calculate the community’s share: 2 formulas- Pereira and Van Camp. Trial
           Cts have discretion to use whichever formula best suits the facts and circumstances of
           the case.
           a. ―Business‖ includes not only the traditional business, but also anything you spend
               a significant amount of time working at, like a coin collection.
      2. Hypo: 100K SP business at the time of marriage in 1990. H owns and continues to
           work at the business during the marriage. Permanent separation in 2000 when
           business is worth 800K. How much of 700K should go to community and how much
           to H? (Community gets a share b/c H has contributed his labor.)
      3. Pereira Formula


                                                                                                15
       a. Maximizes the Community. Used when the primary reason for the increase is the
            labor of the spouse.
       b. SP gets SP initial value plus a reasonable rate of return. SP gets SP initial value
            plus a reasonable rate of return, generally the legal interest rate of 10%, multiplied
            by the number of years business operated during marriage. SP= initial value +
            (initial value)(interest rate)(# yrs business operated during marriage)
            i.       100K + (100K x .1 x 10) = 200K
       c. Community gets the remainder.
            i.       800K-200K=600K
    4. Van Camp Formula
       a. Used when primary reason for the increase is the SP itself, not the labor. Need to
            give the community a fair salary for the labor of the spouse. Determined by
            looking at the marketplace.
       b. What would the spouse ordinarily have made in the open market. Deduct from
            this salary already taken. Also deduct any CP expenses paid out of the business
            (like taking salary).
            i.       So CP = (Fair salary – salary taken)(# yrs. business during marriage) – CP
                 expenses paid out of the business
            ii.      SP = remainder
            iii.     Ex: Fair salary= 80k/yr. But he only took 50k/yr. Paid tuition for child
                 out of the business 10k. So CP = (80k x 10) – 50k – 10k = 200K. SP = 800K
                 – 200K = 600K
B. Separate Labor Enhancing a Community Property Business
―When labor after separation is used to enhance the value of a CP business, the
separate estate is entitled to share in the increased value. Courts use one of two
formulas to determine the SP’s share: Reverse-Pereira and Reverse-Van Camp.
Reverse-Pereira gives the community a fair rate of return for the period after
separation, the remainder of the increase belongs to the separate estate. Reverse-Van
Camp assigns a fair salary to the separate estate and deducts any salary already taken
by the spouse after separation and any separate expenses paid out of the business. The
remainder belongs to the community.‖
    1. General: Contributing separate labor to a community business. For example, when
       you work at a community property business after permanent separation.
    2. Reverse-Pereira
       a. CP = initial value of the CP (value at the time of separation) (100K) + 10% of the
            100K x 6 (for 6 years) = 160K. Separate property gets the remainder: 600K –
            160K = 440K
    3. Reverse-Van Camp (slight preference for this formula- maximizes the CP)
       a. SP = Fair salary – any salary taken during the 6 yrs. – CP expenses
       b. Community gets the remainder
C. Business and Professional Goodwill
    1. Rule: In CA, subject to division. Valued at the time of separation. Reason is
       that post-separation, any good will should all belong to separate estate.
    2. Business good will is the difference b/w the value of a business and the value of
       its tangible assets. This intangible asset is the amount attributable to repeat
       patronage.



                                                                                               16
     3. Professional good will is the likelihood that clients will return and will refer
        others.
     4. A court can use any of the following methods to value and divide:
        a. Market Valuation: The amount someone would be wiling to pay for a
           business beyond the value of its tangible assets.
           i.       Most likely used for business good will, not professional good will.
           ii.      If business is CP, at divorce, must divide the total business, including the
                good will.
           iii.     If there’s a spouse who is primarily running the business, the other spouse
                will get a CP asset of equal worth and the first spouse keeps the business.
        b. Capitalization of Past Excess Earnings: The amount of profit a business of
           that nature would ordinarily earn annually as testified by an expert. Must
           also take into account the likely life of the business.
           i.       Usually gives a higher value to the good will.
           ii.      Ex: Average restaurant earns 100K per year. This restaurant earns 150K
                per year. 50K excess earnings are due to good will. Likely life of the
                restaurant is 10 years. So figure out a dollar amount today that would
                generate 50K/yr. for the next 10 years. Not just 50K times 10 b/c with
                interest, that would be too much. Must discount to present value, which
                would render an amount like 300K.
        c. Buy-Out Agreement: Agreement b/w partners to buy each other out can give
           an indication as to how much the value of the business is. Look at how much
           the other partner would have to be paid to leave the partnership to
           determine the value of the good will.
           i.       Does not give a high value to good will.
        d. Jury Question: Jury decides the value of the good will.

VII. Getting Out of the Community Property System
  A. By Agreement
     1. Antenuptial or Pre-marital Agreements
        a. Requirements:
           i.      Enforceable
           ii.     No consideration
           iii.    In writing
                a) Exceptions
                   i)      If the oral agreement has been fully executed. You’ve done
                       everything that you’re supposed to do. Gives sufficient proof that an
                       agreement existed, so writing unnecessary.
                   ii)     Estoppel: H may be estopped b/c W has relied to her detriment on
                       H’s promise.
           iv.     Both parties represented by independent counsel or a party waives
                independent counsel in writing after being informed of his/her rights.
           v.      Must have 7 days to look over agreement
        b. Limitations
           i.      Unenforceable if promotes divorce. Ex: Financial windfall results from
                divorce.


                                                                                             17
           ii.      Unenforceable if unconscionable. Harmed party didn’t know of the
                other person’s wealth when agreement signed and the result is
                unconscionable. (Difficult to prove b/c both sides will have counsel and
                disclosure before agreement.)
           iii.     Not allowed to contract out of duty to support spouse DURING marriage.
           iv.      Unenforceable if party waives spousal support without counsel
                a) Allowed to waive if represented by counsel. Also must have time to
                    review.
   2. Transmutations
       ―A transmutation is an agreement by the spouses during marriage to alter the
       character of property.‖
       a. Before 1985
       ―Prior to 1985, transmutations were liberally allowed.‖
       b. After 1/1/85
       ―After 1985, in order for a transmutation to be valid, it must be in writing signed
       by the person whose interest is adversely affected. No writing is required for
       interspousal gifts of a personal nature which are relatively insignificant in
       value.‖
           i. Will is not valid as evidence of a transmutation.
       Ex: ―In this case, H told W in 1990 that his SP business would be CP. However, H
       never signed a writing demonstrating this transmutation. As a result, it is not valid
       and the business will remain SP of H.‖
B. By Preemption
   ―Under the Supremacy Clause, federal law preempts inconsistent state laws. Even
   though marital relations are ordinarily the exclusive province of stat law, in some
   instances, federal law preempts CA from applying CP concepts to certain assets.‖
   1. Social Security Benefits: Spouse cannot claim interest in your SS benefits: b/c SS
       law already provides benefits for spouses.
   2. Military Benefits: Military life-insurance policies of service members are an
       inducement for person to stay in military- granting spouse a ½ interest is inconsistent
       w/purpose of the policy.
   3. ERISA: If you attempt to transfer or convey an interest in a pension. Either the
       employee or the spouse, no one else.
   4. US Savings Bonds: One of the attractive features of savings bonds is that they allow
       you to designate a joint owner. Co-owner has right to bond and not the spouse.
       a. Exception: BUT…if it’s clear that the purchaser was trying to defraud spouse of
           CP interest, then we can invalidate the transaction.
       ―The asset in question is a U.S. Savings Bond purchased by H with CP funds. H
       designated his son S as the co-owner of the bond in the event of H’s death.
       Although W will want to assert that the bond is CP and she is entitled to one half
       of the value, her claim is preempted by the federal law which governs U.S.
       Savings Bonds.‖
   5. Few areas where there was preemption, but was overturned
       a. Military retirement benefits; military pension; railroad employee benefits
           i.       Spouse can claim ½ interest
       b. Copyrights, trademarks: Regulated by federal intellectual property law.



                                                                                           18
VIII. Quasi-Community Property
  A. Definition: Property acquired by the couple while they were domiciled in another jx,
     which would have been CP had they been domiciled in CA.
     1. Example: In Iowa, H takes his earnings and buys a condo- it’s his SP b/c he has title.
        Then they move to CA- the condo is QCP.
     2. It’s about where the couple was domiciled at the time of acquisition, not about where
        the asset is located.
  B. Treatment at Divorce: QCP is treated as CP at divorce, so it is divided equally.
     1. But ct doesn’t have jurisdiction to deal with division of out-of-state realty, so ct has a
        few options:
        a. Ct can order the parties to make the necessary changes. For example, ct can use
             its in personam jx over H and order him to sign documents and transfer ½ of his
             condo to his W.
        b. Ct can give W a money judgment, awarding ½ of interest in condo. Can attach
             the judgment on the property in Iowa.
        c. Can divide up the CP and QCP estates in such a way that it isn’t necessary to
             change title. W would get something of equal value.
  C. Treatment at Death: Depends on whether spouse dies testate or intestate
     1. Intestacy: W/o a will, QCP treated as CP. All passes to survivor.
        a. Problem: If real property located outside of jx, will get probated in the state
             where it’s located and that state’s law will get applied.
     2. Testacy: W/ a will. Each spouse has testamentary control over all of his SP, ½ of the
        QCP titled in his name, and ½ of the CP. (Surviving spouse gets to keep the other
        half of decedent’s QCP, plus all of his/her own QCP)

IX.   Distribution at Divorce
  A. Equal Division of Assets: ―At divorce, each spouse is given one-half of each CP
     asset, unless some special rule requires deviation from the equal division
     requirement.‖ In practice, doesn’t always work this way and spouses will work it out
     among themselves. ―You keep the artwork, I’ll take the stock.‖ If spouses can’t reach
     agreement, then ct will order assets sold and proceeds will be divided.
  B. Equal Division of Debts: Debts incurred during marriage by either spouse are to be
     divided equally, regardless of which spouse incurred the debt. Premarital debt is
     assigned to the incurring spouse without offset. Debts after separation are assigned
     to the spouse who incurred the debt—however, debts incurred for the necessaries of
     life are assigned to both spouses. When the SP of the non-incurring spouse is used to
     pay for necessary or common necessaries of life, when CP funds were available or the
     incurring spouse’s SP was available, then the SP of the non-incurring spouse is
     reimbursed. If liabilities exceed assets, then can deviate from equal division to assign
     greater portion to the spouse who’s better able to pay.
  C. Exceptions to Equal Division
     1. When asset is such that it cannot be divided w/o interfering with or reducing its
          value in some way.




                                                                                               19
            Ex: If community owns 51% of shares of a company; if divided, neither spouse has
                controlling share of the company. Deviating from equal division appropriate here
                b/c otherwise, the value greatly diminished.
         3. Student loans assigned entirely to educated spouse w/o offset. Not divided equally.
         4. ―Deferred sale of family home award‖: CP house. W has custody of 3 minor
            children. Could force sale of house and give each spouse ½, but code has provision
            for deferred sale of home to not interrupt the lives and the educations of the children.
         5. Where there’s been a breach of fiduciary duty: Acting in a way that puts the CP at
            risk. Court has authority to deviate from equal division and compensate the innocent
            spouse by giving him/her more than half (and up to all) of the CP.
         6. PI awards if not commingled.
         7. Tort Liability- assigned to person who incurred if not engaged in activity to
            benefit community.
      D. Valuation of Assets
         1. Determined at time of Divorce trial.
            a. Exceptions:
                i.        Good will gets valued at the time of separation: Post-separation
                     enhancement should be to the benefit of the SP.
                ii.       Businesses where there’s a community interest in the SP business- valued
                     at the time of separation. (Same reason as above).
                iii.      Assets not contained within the final judgment: Rule is that any assets not
                     divided in the divorce decree- spouses become co-owners as tenants-in-
                     common, awaiting some division.

II.      Distribution at Death
      A. Decedent Dies with a Will
         1. ―If the spouse dies with a will, the decedent is entitled to dispose of all of his or
            her separate property and one half of the CP.‖
      B. Decedent Dies Without a Will
         1. ―If a spouse dies without a will, all of the CP passes to the surviving spouse.
            Between one third to all of the SP of the decedent will also pass to the surviving
            spouse depending on whether the decedent left issue or parents surviving.‖
      C. How to NOT leave CP assets to your spouse, like if you want to leave your business to
         someone else: A few options—
         1. During lifetime, reach an agreement w/spouse that the asset will be transmuted to
            your SP in exchange for another asset going to your spouse.
         2. Make a gift (while both still alive) that the asset will get transferred to a trust for
            someone else. Get spouse’s consent.
         3. ―Survivor’s Election‖: Provides some protection to the remaining spouse when other
            spouse tries to leave more than ½. Force spouse to an election: In will, H would
            leave the entire business to his partner, $25K to wife, and house to W. Here, he’s
            attempted to leave more than his share of the CP- entirety of business. This forces the
            W to an election- she’s required to either take (what she gets) under the will or to
            assert her ½ interest in the CP. (She can decide b/w the house and the business.)
                    a) 2 ways it comes up:




                                                                                                  20
                          i)      1) If H knows that it’s CP and wants the entirety to go to one
                              person. Wants to force the wife to an election- can put this clause in
                              will explicitly requiring spouse to elect.
                          ii)     2) If H mistakenly believes that a CP is his own SP and therefore
                              leaves it all. This would force an election even though it wasn’t his
                              intent.

III.      Management and Control of the Community Property
       A. Basic Rule: During marriage, both spouses are given equal management and
          control of the community assets.
       B. Exceptions:
          1. Gifts: Not allowed to make a gift of CP w/o spouse’s consent. Also applies to
             transfers of CP for substantially less than its worth. Consent doesn’t have to be
             before the gift is made- spouse can agree after the fact or ratify the gift after the fact.
             Unauthorized gifts are voidable.
             a. During donor spouse’s lifetime, gift can be set aside in its entirety. After donor
             spouse’s death, surviving spouse can revoke only up to ½ of the gift (b/c dead spouse
             has testamentary control over his ½ interest in that gift.)
          2. Real Property: Both spouses must join in decisions to transfer/encumber/lease real
             property. Must join in this transaction in writing.
             a. If property is titled in one spouse’s name- problem b/c he can sell that prop to a
                 BFP who isn’t aware that it’s CP. 1 yr. SOL for non-consenting spouse to set
                 aside that transaction.
          3. Household furnishings or clothing of the spouse: Spouse cannot
             sell/convey/encumber CP personal property that is used as clothing of minor children
             or spouse, furnishings, or personal property used as a dwelling (trailer home or non-
             realty used as a dwelling). Non-consenting spouse can set aside this transfer in its
             entirety anytime during or after the marriage.
          4. Spouse managing a CP business is given primary management and control: That
             spouse has the right to make the day-to-day decisions w/respect to that business.
             a. Limitation: Managing spouse must give prior written notice to other spouse
                 before selling, leasing, encumbering, or disposing all or substantially all of the
                 personal property used in the business.

IV.       Creditors’ Rights
       ―In general, the CP is liable for both spouses’ premarital debts and all debts incurred
       by either spouse during the marriage. Each spouse’s SP is liable for his/her own debts
       no matter when they are incurred.‖
       -- CP includes QCP.
       A. Pre-marital debts of either spouse
           1. Community estate liable for all debts of either spouse, even those incurred before
               marriage.
               a. Exception: Creditors can’t reach SP or non-debtor spouse if it is kept separate
                  and is not commingled. Rationale is that we don’t want to discourage people
                  from getting married.



                                                                                                     21
B. Debts incurred during marriage
―In this case, the debt was incurred by H during the marriage. As such, the community is
liable for the debt. In addition, since H incurred the debt, his SP is also liable for it.‖
    1. Community estate liable for all debts of either spouse.
    2. Creditors can go after debtor spouse’s SP.
    3. Creditors can go after non-debtor spouse’s SP if it’s been commingled w/the CP.
        a. BUT, non-debtor spouse is responsible for debts of incurring spouse for the
             ―necessaries of life‖ (those costs consistent w/the spouses’ economic and social
             position).
C. Debts incurred after permanent separation
    1. Spouses must still support e/o. Debts incurred for the necessaries of life are liabilities
        of both spouses.
    2. When the SP of the non-incurring spouse is used to pay for necessary or common
        necessaries of life, if the SP was used when CP funds were available or the incurring
        spouse’s SP was available, then the SP of the non-incurring spouse is reimbursed. (Is
        this true for after permanent separation, during marriage, premarital debt, or all?)
D. After Separation/Dissolution: After CP is divided and liabilities are divided each ex-
    spouse’s SP and any CP assigned to that person is liable for debts incurred by that person.
    Regardless of what the divorce ct says, you are still liable and your SP can still be
    reached by that creditor. You incurred the debt.
E. Child or Spousal Support (Not of this relationship)
    1. These are treated as pre-marital debt. This means that the obligated spouse’s SP can
    be reached and all of the CP can be reached (with the exception of the other spouse’s
    earnings as long as they’re kept separate.) Also, if CP is used when the incurring
    spouse’s SP is available, the community gets reimbursed.
F. Tort Liability
    1. Spouses are not liable for torts of the other spouse. (Unless the H or W would be
        liable irrespective of the marital relationship, like if H works for W and commits he
        tort under employment, then W liable under respondiat superior.)
    2. Order of Priority: If there’s insurance, then that is pursued first. First, creditors
        go after the Community if the tort was committed while the spouse was engaged in an
        activity for the benefit of the community. Then, spouse will go after the tortfeasor’s
        SP. BUT, if tortfeasor engaged in activity to benefit separate estate, judgment is
        taken first from that spouse’s separate estate, then from CP.

                              Incurred Before          Incurred during           After sep, before
                                                                                 divorce
       Contract debt          CP is liable (except     CP is liable, including   Same as 
                              earnings of non-         earnings of non-
                              incurring spouse);       incurring spouse.

                              SP of incurring spouse   SP of incurring spouse
                              is liable;               is liable.

                              [SP of non-incurring     [SP of non-incurring
                              spouse not liable.]      spouse is not liable.]
       Debt for               Same as ↑                CP is liable.             Same as 
       necessaries


                                                                                                     22
                                          SP of incurring spouse
                                          is liable.

                                          SP of non-incurring
                                          spouse is liable (right
                                          of reimbursement if CP
                                          available and SP of
                                          non-incurring used
                                          instead.)
Child or spousal   Same as ↑              Same as                  Same as 
support
(not of this       Also,
relationship)      If CP funds are used
                   when SP available,
                   community gets
                   reimbursed.




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