Community Property (Hickman)

Community Property – Class Outline (Hickman)

I. Development of the California Community Property System a. The Meaning of Marriage

i. Marriage is not like a regular contract. It is a social relation like that of parent and child, the obligations of which arise not from the consent of concurring minds, but are the creation of the law itself. It is subject to extensive government regulation. For these reasons, the rights of the parties in a marriage are not based on their contractual agreement but depend on the law of the state. Maynard v. Hill (1888) – page 4.

b. Three Underlying Principles of the California Community Property Systemi. The Tracing Principle

1. Community Property Defined – Family Code § 760a. Except as otherwise provided by statute, all property, real or

personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

2. Separate Property of Married Person - § 770a. Separate property of a married person includes all of the

following:i. All property owned by the person before marriage.

ii. All property acquired by the person after marriage by gift, bequest, devise, or descent.

iii. The rents, issues, and profits of the property described in this section.

iv. A married person may, without the consent of the person’s spouse, convey the person’s separate property.

3. Earnings and Accumulations During Separation - § 771

a. The earnings and accumulations of a spouse and the minor children living with, or in the custody of the spouse, while living separate and apart from the other spouse, are the separate property of the spouse.

4. Earnings or Accumulations After Entry of Judgment of Legal Separation - § 772.

a. After entry of a judgment of legal separation of the parties, the earnings or accumulations of each party are the separate property of the party acquiring the earnings or accumulations.

5. The fruits of separate property are traced to the source and classified accordingly. The creditor of the husband cannot subject the proceeds or dividends of the separate property of the wife to his claim. George v. Ransom (1860) – page 20.

ii. The Equality Principle1. Community Property; interests of parties - § 751

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a. The respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing, and equal interests.

2. The legislature has not clearly stated any purpose to create a vested interest in community property in the wife. The husband has discretionary powers relating to matters affecting the community property and the wife could only obtain such powers upon death of the husband or divorce.

3. During the marriage, the wife’s interests are protected against fraud and mismanagement. Stewart v. Stewart (1926) – page 24.

iii. The Principle of Contractual Modification1. Premarital Agreements

a. The parties have the ability to determine how their property will be classified. They may transmute separate property into community property by agreement.

b. The Uniform Premarital Agreement Act - § 1600i. Governs agreements between prospective spouses made

in contemplation of marriage and to be effective upon marriage.

ii. It applies to any agreement executed on or after January 1, 1986.

iii. With certain limited exceptions, the

2. Policy Limitations on the Ability to Modify Around the Community Property System.

a. Antinuptial agreements that encourage divorce are unenforceable on the grounds that they are contrary to public policy.

i. In Re Marriage of Noghrey (1985) – page 36.

b. Fiduciary Relationship - § 721i. A husband and wife are subject to the general rules

governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, including the following:

1. Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying.

2. Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.

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3. Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property.

c. No Fiduciary Duties Are Owed to One Another At the Time of a Premarital Agreement. Premarital agreements, where the less sophisticated party does not have independent counsel and has not waived counsel, should not be subject to strict scrutiny for voluntariness because the parties were not in a fiduciary relationship to one another. Marriage of Bonds (2000) – page 41.

d. Unenforceable Agreements - § 1615 (Reaction to Bonds)i. A premarital agreement is not enforceable if the party

against whom enforcement is sought proves either of the following:

1. Involuntariness. That party did not execute the agreement voluntarily.

2. Unconscionability. The agreement was unconscionable when it was executed and, before execution of the agreement, all of the following applied to that party:

a. Was not provided a fair, reasonable, and full disclosure of the property or financial obligations of the other party.

b. Did not voluntarily and expressly waive, in writing, any right to disclosure of the above.

c. Did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.

ii. It shall be deemed that a premarital agreement was not executed voluntarily unless the court finds in writing or on the record all of the following:

1. The party against whom enforcement is sought was represented by independent legal counsel at the time of signing the agreement or, after being advised to seek independent legal counsel, expressly waived, in a separate writing, representation by independent legal counsel.

2. The party against whom enforcement is sought had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.

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3. The party against whom enforcement is sought, if unrepresented by legal counsel, was fully informed of the terms and basic effect of the agreement as well as the rights and obligations he or she was giving up by signing the agreement, and was proficient in the language in which the explanation of the party's rights was conducted and in which the agreement was written. The explanation of the rights and obligations relinquished shall be memorialized in writing and delivered to the party prior to signing the agreement. The unrepresented party shall, on or before the signing of the premarital agreement, execute a document declaring that he or she received the information required by this paragraph and indicating who provided that information.

4. The agreement and the writings executed pursuant to paragraphs (1) and (3) were not executed under duress, fraud, or undue influence, and the parties did not lack capacity to enter into the agreement.

5. Any other factors the court deems relevant.

iv. Formalities1. A writing effecting a transmutation of property must contain on its face

a clear and unambiguous expression of intent to transfer an interest in the property, independent of extrinsic evidence. Estate of Bibb (2001) – page 55.

2. The general rule is that a transmutation of property is not valid unless

made in writing by an express declaration made by the spouse whose interest in the property is adversely affected. However, there is an exception for jewelry that is not substantial in value. Marriage of Steinberger (2001) – page 64.

a. § 852(c) there is an exception for jewelry that is not substantial in value

v. Hickman’s Transmutation Analysis – 4 steps.1. Scrutinize Family Code § 852 (Validity of Transmutations)

a. A Type of Statute of Frauds. A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.

b. This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.

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c. This section does not apply to or affect transmutations made before January 1, 1985.

2. No extrinsic evidence.3. Use MacDonald Language

a. In addition to the language requirement of § 852, there must be language that shows that the person knows that they are changing the character of the property.

4. Did anyone gain an advantage from the transmutation? a. Yes – then there is a presumption of undue influence per

Haines. This is difficult to overcome. i. It must be shown that the transmutation was free and

voluntary, with full knowledge and that the person completely understood its effect.

II. The Classification of Property as Community or Separate a. Significanceb. Presumptions

i. The General Presumption. Property acquired during marriage is community property.

ii. When Property is Acquired is a Question of Fact. When a litigant attempts to rebut the presumption that property is community property, the burden of proof is on the person asserting that the property is separate property.

iii. The burden of proof to overcome a presumption is a preponderance of the evidence.

1. Wilson v. Wilson (1946) – page 71.

iv. Circumstantially, the Court May Conclude That the Property Must Have Been Purchased with Community Funds. When there is no evidence of the character of property, it may be presumed to be community property if in possession of one of the spouses at the close of a long marriage. Estate of Jolly (1925) – page 73.

v. Rebuttal of the General Presumption by Tracing1. Rebuttal By “Clear and Satisfactory” Evidence. Although possession

of property by husband and wife is presumed to be community property, this presumption can be overcome by showing evidence sufficient for a reasonable person, considering all circumstances, to believe that the property was separate in character.

a. Freese v. Hibernia Savings & Loan Society (1903) – page 77.

2. Separate property of married person - § 770a. All property owned by the person before marriage.b. All property acquired by the person after marriage by gift,

bequest, devise, or descent.c. The fruit of separate property.

3. Earnings During Separation - § 771a. The earnings and accumulations of a spouse and the minor

children living with, or in the custody of the spouse, while

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living separate and apart from the other spouse, are the separate property of the spouse.

vi. Property acquired by compromise is separate property if the right compromised was separate property. Where a right to contest a will vests prior to marriage, property received in compromise of that right is separate in character.

1. Estate of Clark (1928) – page 82.

vii. Earnings of property attributable to or acquired as a result of labor, skill, and effort of a spouse during marriage are community property. Although gifts are generally construed as separate property, if the gift at issue is given as a remuneratory recognition of skill and labor performed during marriage, then it is community property.

1. Downer v. Bramet (1984) – page 85.

viii. Date of Separation. The date of separation occurs when either of the parties does not intend to resume the marriage and his or her actions “bespeak the finality of the marital relationship.” Legal separation requires intent by one of the parties to end the marital relationship and conduct evincing such intent. All factors bearing on a party’s intent should be considered by the courts. In Re Marriage of Hardin (1995) – page 88.

1. There can only be one Date of Separation (DOS). Thus, the married couple that technically separates for awhile, then gets back together, and then separates for good… there is only one DOS.

c. Special Presumptions Based on the Form of Titlei. Acquisitions by a Married Woman

1. Property Acquired by a Married Woman Before January 1, 1975a. Notwithstanding any other provision of this part, whenever any

real or personal property, or any interest therein or encumbrance thereon, was acquired before January 1, 1975, by a married woman by an instrument in writing, the following presumptions apply, and are conclusive in favor of any person dealing in good faith and for a valuable consideration with the married woman or her legal representatives or successors in interest, regardless of any change in her marital status after acquisition of the property:

i. If acquired by the married woman, the presumption is that the property is the married woman's separate property.

ii. If acquired by the married woman and any other person, the presumption is that the married woman takes the part acquired by her as tenant in common, unless a different intention is expressed in the instrument.

iii. If acquired by husband and wife by an instrument in which they are described as husband and wife, the presumption is that the property is the community property of the husband and wife, unless a different intention is expressed in the instrument.

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2. Although § 803 creates a presumption that property transferred to a married woman is separate in character, this is a presumption that can be rebutted.

3. A spouse’s intent is critical in determining whether a transaction changed the character of property from community to separate property. It is prejudicial error to exclude such evidence. Horsman v. Maden (1941) – page 96.

ii. The Separate Property Presumption. Property acquired by a married woman by written instrument prior to 1975 is presumed to be her separate property. However, this presumption may be rebutted by the husband on a showing of clear and convincing evidence.

1. In Re Marriage of Ashodian (1979) – page 99.

d. Concurrent Estatesi. Methods of Holding Property - § 750

1. A husband and wife may hold property as joint tenants or tenants in common, or as community property, or as community property with a right of survivorship.

ii. Owner of Legal Title is Owner of Beneficial Title – Evidence Code § 662. 1. The owner of the legal title to property is presumed to be the owner of

the full beneficial title. This presumption may be rebutted only by clear and convincing proof.

iii. The Presumption According to Deed. There is a presumption that property is held as described in the deed, but this may be overcome by showing that an agreement was made to the contrary. However, it isn’t enough to show the hidden intent of one spouse, undisclosed to the other spouse at the time of conveyance.

iv. The § 803 presumption only relates to dissolutions and legal separations, not deaths. Estate of Levine (1981) – page 108.

v. When Spouses Take Title In Joint and Equal Form But Contribute Disproportionately to the Purchase Price

1. The Lucas Gift Presumption. Because the act of taking title in joint and equal form is inconsistent with the claim that a separate interest is preserved, the court will presume that a gift has been made to the community unless there is an agreement or understanding between the parties that the contributing spouse would maintain a separate property interest. The presumption cannot be rebutted by mere tracing.

a. In Re Marriage of Lucas (1980) – page 112.

2. At Divorce of Legal Separation, Property Held in Joint Form is Presumed to be Community Property - § 2581

a. The presumption may be rebutted by either of the following:i. A clear statement in the deed or other documentary

evidence of title by which the property is acquired that the property is separate property and not community property.

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ii. Proof that the parties have made a written agreement that the property is separate property.

b. The Lucas Gift Presumption still controls when the marriage ends in death.

3. Separate Property Contributions to Property Acquisition - § 2640 (overturns Lucas)

a. Contributions to the acquisition of the property are reimbursed to the separate property contributor without interest or appreciation.

i. Applies to Improvements. This applies when separate property is used to improve community property.

b. In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party's contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source.

c. Important NOTE: Even if a person performs a transmutation removing her name from ownership of the property (changing the property from her separate property to his separate property), § 2640 still allows her to get her contribution back

i. Thus, even in a valid transmutation, separate property interests remain inside the property under § 2640

III. Limitations on the Classification Process a. Types of Property Within the System

i. The Value of An Education is Not Within the System. Education is an intangible property right that cannot be classified as community property, even if purchased with community funds. However, the value of a law practice at the time of dissolution, which was established as a result of such education, is community property.

1. Todd v. Todd (1969) – page 122.

2. Community Contributions to Education or Training - § 2641 (Reaction to Todd)

a. Reimbursementi. Upon dissolution the community shall be reimbursed

for community contributions to education or training of a party that substantially enhances the earning capacity of the party.

b. Loan Assignment. i. A loan incurred during marriage for the education or

training of a party shall not be included among the

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liabilities of the community for the purpose of division pursuant to this division but shall be assigned for payment by the party that received the education or training.

1. There is a rebuttable presumption that the community has substantially benefited from community contributions to the education or training made more than 10 years before the commencement of the proceeding.

ii. The education or training received by the party is offset by the education or training received by the other party for which community contributions have been made.

iii. The education or training enables the party receiving the education or training to engage in gainful employment that substantially reduces the need of the party for support that would otherwise be required.

c. Reimbursement for community contributions and assignment of loans pursuant to this section is the exclusive remedy of the community or a party for the education or training and any resulting enhancement of the earning capacity of a party. However, nothing in this subdivision limits consideration of the effect of the education, training, or enhancement, or the amount reimbursed pursuant to this section, on the circumstances of the parties for the purpose of an order for support pursuant to Section 4320.

d. This section is subject to an express written agreement of the parties to the contrary.

ii. Spousal Support1. The Fourteen Factors to Consider in Determining Spousal Support - §

4320. a. The extent to which the earning capacity of each party is

sufficient to maintain the standard of living established during the marriage, taking into account all of the following:

i. The marketable skills of the supported party; the job market for those skills; the time and expenses required for the supported party to acquire the appropriate education or training to develop those skills; and the possible need for retraining or education to acquire other, more marketable skills or employment.

ii. The extent to which the supported party's present or future earning capacity is impaired by periods of unemployment that were incurred during the marriage to permit the supported party to devote time to domestic duties.

b. The extent to which the supported party contributed to the attainment of an education, training, a career position, or a license by the supporting party.

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c. The ability of the supporting party to pay spousal support, taking into account the supporting party's earning capacity, earned and unearned income, assets, and standard of living.

d. The needs of each party based on the standard of living established during the marriage.

e. The obligations and assets, including the separate property, of each party.

f. The duration of the marriage.g. The ability of the supported party to engage in gainful

employment without unduly interfering with the interests of dependent children in the custody of the party.

h. The age and health of the parties.i. Documented evidence of any history of domestic violence, as

defined in Section 6211, between the parties, including, but not limited to, consideration of emotional distress resulting from domestic violence perpetrated against the supported party by the supporting party, and consideration of any history of violence against the supporting party by the supported party.

j. The immediate and specific tax consequences to each party.k. The balance of the hardships to each party.l. The goal that the supported party shall be self-supporting within

a reasonable period of time. Except in the case of a marriage of long duration as described in Section 4336, a "reasonable period of time" for purposes of this section generally shall be one-half the length of the marriage. However, nothing in this section is intended to limit the court's discretion to order support for a greater or lesser length of time, based on any of the other factors listed in this section, Section 4336, and the circumstances of the parties.

m. The criminal conviction of an abusive spouse shall be considered in making a reduction or elimination of a spousal support award in accordance with Section 4325.

n. Any other factors the court determines are just and equitable.

2. When awarding spousal support, a court must consider the totality of one spouse’s contribution to the other spouse’s attainment of a degree, including contributions for ordinary living expenses. In Re Marriage of Watt (1989) – page 130.

iii. Goodwill May Be Deemed A Community Asset. When a business started before marriage builds value during the marriage, the value of the business at the time of dissolution is community property. In determining whether or not goodwill exists, the expectancy of future earnings is a mere factor to consider.

1. The Excess Earnings Approach. a. In Re Marriage of Lopez (1974) – page 137.

i. There is no real definition for Goodwill: “It has been aptly stated: ‘Accountants, writers on accounting, economists, engineers, and courts, have all tried their hands at defining goodwill, at discussing its nature, and at proposing means of valuing it. The most striking characteristic of this immense amount of writing is the

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number and variety of disagreements reached.’” ~ In re Marriage of Lopez

2. Personal Goodwill is too inaccurate to determine to consider a community property asset.

a. Ex. A director becomes a star director from a small film, then gets divorced. His future earnings would be huge, but you cannot determine what his personal goodwill will be determined.

iv. An employment-related term life insurance policy is not a community property asset after expiration of the term acquired with community funds/efforts. Further, the right to renew the policy without proof of medical eligibility is not a property right because it is a mere expectancy, something that is not enforceable as a right. In Re Marriage of Spengler (1992) – page 146.

b. The Valid Marriage Requirementi. Same Sex Unions

1. There are no same sex marriages in California..2. The Domestic Partnership Act – Family Code § 297

a. They are treated as spouses for practical purposes.b. Requirements

i. Share a common residenceii. Both agree to be jointly responsible for each other’s

basic living expenses incurred during the domestic partnership.

iii. Neither person is married or a member of another domestic partnership.

iv. The two persons are not related by blood in a way that would prevent them from being married to each other in this state.

v. Both persons are at least 18 years of age.vi. Either

1. Both persons are members of the same sex. 2. One or both of the persons meet the eligibility

criteria under Title II of the Social Security Act for old age benefits.

vii. Both are capable of consenting to the domestic partnership.

ii. Putative Marriages1. A putative spouse is not legally married but has a good faith belief that

she is lawfully married. Once she learns that her marriage is invalid, she is no longer a putative spouse.

2. A putative spouse has almost the same property rights as the lawful spouse. All property that would have been community property or quasi-community property if the marriage had been lawful is treated as “quasi-marital property”.

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3. The putative spouse has the same rights in quasi-marital property that she would have in community property or quasi-community property. § 2251.

4. There is no such thing as a common law marriage in California.

5. Order for Support of Putative Spouse - § 2254a. The court may, during the pendency of a proceeding for nullity

of marriage or upon judgment of nullity of marriage, order a party to pay for the support of the other party in the same manner as if the marriage had not been void or voidable if the party for whose benefit the order is made is found to be a putative spouse.

6. The Equitable Community Doctrine. Although there is no community property where there is no valid marriage, if a spouse believed in good faith that the marriage was valid, the courts may divide property according to equitable principles.

7. Putative Spouse Gets Half of QMP At Annulment. Upon annulment, property, even though it is no longer community, should be divided as community property would have been upon a dissolution of the marriage by divorce or death.

a. Coats v. Coats (1911) – page 161.

b. 6 Causes for Annulment - § 2210i.  A marriage is voidable and may be adjudged a nullity

if any of the following conditions existed at the time of the marriage:

1. The party who commences the proceeding or on whose behalf the proceeding is commenced was without the capability of consenting to the marriage as provided in Section 301 or 302, unless, after attaining the age of consent, the party for any time freely cohabited with the other as husband and wife.

2. The husband or wife of either party was living but either missing for 5 years or generally believed to be dead.

3. Either party was of unsound mind.4. The consent of either party was obtained by

fraud.5. The consent of either party was obtained by

force.6. Either party was, at the time of marriage,

physically incapable of entering into the marriage state, and that incapacity continues, and appears to be incurable.

8. Upon Death of Spouse, Surviving Putative Spouse Has Same Intestate Rights in Quasi-Marital Property As She Would in Community Property. Denying a putative spouse the status of a surviving spouse

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for the purposes of succeeding to a share of the decedent’s separate property would lead to anomalous and unjust results.

a. Estate of Leslie (1984) – page 165.

9. Equity Controls Division As Between Putative Spouse and Lawful Spouse. In the case of a void or voidable marriage, as between a putative spouse and the legal spouse, or as between the putative spouse and the heirs of his or her decedent spouse other than the legal spouse, the putative spouse is entitled to share in the property accumulated by the partners during their void marriage. It shall be divided equally between the parties.

a. Estate of Hafner (1986) – page 172.

iii. Unmarried Cohabitants1. Unmarried cohabitants are people who live together in a marriage-like

relationship, but who are not lawful spouses or putative spouses.

2. The Community Property System Does Not Apply To Unmarried Cohabitants. Where a live-in girlfriend has no good faith belief that she is part of a valid marriage, she is not entitled to inherit an interest in property merely as a result of her cohabitation. Vallera v. Vallera (1943) – page 187.

3. Contracts Between Nonmarital Partners Are Enforceable Unless Founded on the Consideration of Meretricious Sexual Services. In the absence of an express contract, the courts should inquire into the conduct of the parties to determine whether that conduct demonstrates an implied contract or tacit understanding between the parties. Marvin v. Marvin (1976) – page 189.

c. The Domicile Requirementi. Marital property rights are controlled by the law of the domicile of the

married persons at the time of the acquisition of wealth. Property acquired while domiciled in California as the result of a spouse’s work, efforts, ability, and skills is community property. Rozan v. Rozan (1957) – page 207.

ii. The general rule is that questions relating to interests in real property are determined by the law where the property is located. However, this rule doesn’t apply where the funds used to purchase the property were acquired by spouses while domiciled in another state. Grappo v. Coventry Financial Corp. (1991) – page 210.

iii. Quasi-Community Property1. Quasi-community property is property acquired by either spouse that

would have been community property had the spouse been domiciled in California at the time of acquisition.

2. At divorce, quasi-community property is treated exactly as though it were community property.

d. Constitutional Limitationsi. Due Process and Privileges and Immunities Clauses

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1. Quasi Community Property – § 125a. Property acquired by either spouse while domiciled elsewhere

which would have been community property if the spouse who acquired the property had been domiciled in this state at the time of its acquisition.

b. Property acquired in exchange for real or personal property, wherever situated, which would have been community property if the spouse who acquired the property so exchanged had been domiciled in this state at the time of its acquisition.

2. Quasi Community Property – Probate Code § 101a. Upon the death of a married person domiciled in this state, one-

half of the decedent’s quasi-community property belongs to the surviving spouse and the other half belongs to the decedent.

3. Quasi community property legislation does not violate the due process clause or the privileges and immunities clauses. The concept of quasi-community property, which is applicable only if a divorce or separate maintenance action is filed after the parties have become domiciled in California, does not abridge privileges and immunities of national citizenship because valid independent reasons bearing a close relation to the resultant discrimination exist in its support. Addison v. Addison (1965) – page 215.

4. Addison held that the quasi-community property statute could be applied without violating the constitution to cases if two criteria were satisfied. First, both parties have changed their domicile to California. Second, subsequent to the change of domicile the spouses sought in a California court legal alteration of their marital status.

a. In Re Marriage of Roesch (1978) – page 221.

ii. Retroactivity Problems1. Vested Property Rights May Be Impaired By Retroactive Legislation.

Although there is a general presumption that statutes are not to be applied retroactively, this presumption can be rebutted by evidence of legislative intent.

a. In Re Marriage of Bouquet (1976) – page 224.

2. Reimbursing a husband for a separate property contribution made in 1976 to property divided as community property in 1992 would violate the wife’s due process rights. In Re Marriage of Heikes (1995) – page 229.

iii. The Supremacy Clause and Federal Preemption.1. An Act of Congress that permits an insured to designate the beneficiary

of an insurance policy preempts any claim that the proceeds of such a policy are community funds. Wissner v. Wissner (1950) – page 241.

2. ERISA pre-empts state law where it interferes with the right of a surviving spouse to receive benefits of her deceased spouse’s annuity.

a. Boggs v. Boggs (1997) – page 248.

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IV. Selected Problems in Classification a. Commingled Funds

i. Property acquired by purchase during a marriage is presumed to be community property. The spouse asserting that it is his separate property may overcome this presumption by showing evidence that community expenses exceeded community income at the time of acquisition. See v. See (1966) – page 261.

ii. There are two methods of tracing: 1. Direct Tracing.

a. The separate property proponent must show that separate property funds were in the account and that he intended to use those funds to acquire the property in question.

i. Duty to Keep Adequate Financial Records. The proponent must show that the funds were used to acquire the property…not merely that adequate funds existed.

1. Marriage of Frick .

2. Indirect Tracing.a. If at the time of acquisition, all community property income

was exhausted by family expenses, then the property must have been purchased with separate property funds.

iii. If funds used for acquisitions during marriage cannot otherwise be traced to their source and the husband who has commingled property is unable to establish that there was a deficit in the community accounts when the assets were purchased, the presumption controls that property acquired by purchase during marriage is community property.

1. In re Marriage of Mix (1975) – page 265.a. In this case, Esther sufficiently traced and identified the source

and funds of her separate property.

iv. Where funds are paid from a commingled account, the presumption is that the funds are community funds. The exact amount of money allocable to separate property and the exact amount of money allocable to community property must be ascertained before it can be said the money allocable to separate property is not so commingled that all funds in the account are community property.

v. The Credibility Test (fn. 5). 1. In re Marriage of Frick (1986) – page 268.

a. In this case, Jerome failed to sufficiently trace the payments to his separate property. He failed the credibility test.

b. When Community Funds or Labor Increase the Value of Separate Property: Apportioning Business Profits

i. The Pereira Test (favors community property)1. This is used when the spouse’s management was the primary cause of

the growth of the business.

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2. The separate property portion of the business is equal to the initial separate property capital contribution plus a reasonable rate of return. The remainder is community property. Pereira v. Pereira (1909) – page 273.

3. Example:a. A separate capital contribution of $100,000 and a 10% rate of

return for 10 years. The separate property portion of the business is $200,000 and the remainder is community property.

ii. The Van Camp Test (favors separate property). 1. This is used when the manager’s labor was ordinary and the character of

the separate business is responsible for its growth.

2. The community portion of the business is equal to the value of the manager’s services at market salary rate subtracted by the amount of family expenses that were paid from such earnings. The rest of the business is separate property.

3. Example:a. H owns business before marriage worth $100,000 with a salary

of $30,000. He divorces 10 years later and the business is worth $400,000. There are $20,000 of family expenses. The community portion is $100,000 ($300,000 - $200,000) and the remainder (of growth and value at marriage) is separate property.

iii. The mere incorporation of a business does not change its character. § 2640 does not apply to separate property businesses and is inherently not applicable to businesses.

1. Marriage of Koester (1999) – page 275.

iv. The Court is Free to Choose Either Approach In Order To Achieve Substantial Justice Between the Parties. Two approaches are available to a court for the allocation of earnings from a separate property business between separate and community property:

1. Compute interest on the capital investment in such business and allocate that amount to separate property (Pereira) or

2. Compute the reasonable value of the spouse’s services to his separate property and allocate that amount to community property, and the court is free to choose whichever formula will achieve substantial justice between the parties.

a. Tassi v. Tassi (1958) – page 281.

v. Reverse Pereira/Van Camp1. If a community business increases in value after the date of separation,

the courts use the reverse Pereira/Van Camp test. If the increase is attributed to the spouse’s efforts during separation, then the increase in value is separate property. If the increase is attributed to other factors, then the increase in value is considered community property.

a. In re Marriage of Imperato (1975) – page 285.

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c. When Community Funds or Labor Increase the Value of Separate Property: Community Payments that Pay Off Purchase Price of Separate Property

i. Where community contributions are made to separate property, the community establishes a proportional ownership interest to the extent that the mortgage payments reduce the principal debt. Thus, the numerator is the amount of principal debt reduction and the denominator is the purchase price of the home.

1. Payments for taxes and insurance are excluded. 2. In Re Marriage of Moore (1980) – page 306.

a. Cf. Marsden.

ii. The community and separate property’s respective interest should be based on the ratio of capital contribution to purchase price of property acquired before and during marriage. In Re Marriage of Frick (1986) – page 310.

iii. A Party May Trace Their Separate Property Through Successive Purchases. A party’s entitlement to a separate property contribution reimbursement is not limited to the original community property to which the contribution was made and, when that original property is refinanced and the proceeds used in part to purchase or pay down the indebtedness on the original and other assets, the contributing spouse can trace the contribution to, and be reimbursed from, those assets. Marriage of Walrath (1998) – page 314.

d. Acquisitions in Installment Transactionsi. Where a spouse purchases property before marriage with separate funds, but

then pays the balance with community funds, it is deemed to be community property in the proportion that the purchase price is contributed by the community. Vieux v. Vieux (1926) – page 291.

e. Credit Acquisitionsi. Property Acquired on Credit During Marriage is Presumed to Be Community

Property. There is a rebuttable presumption that property acquired on credit during marriage is community property. To overcome this presumption, it is necessary to use the intent of the lender test, and adduce evidence that the sale or loan was granted solely on the basis of the spouse’s separate property and credit.

1. Gudelj v. Gudelj (1953) – page 295.

ii. Loan proceeds acquired during marriage are presumptively community property; however, this presumption may be overcome by showing the lender intended to rely solely on a spouse’s separate property and did in fact do so.

1. In Re Marriage of Grinus (1985) – page 299.

f. Improvementsi. Separate Property to Improve Other Spouse’s Separate Property – Gift

Presumption1. When one spouse uses separate property funds to improve the other

spouse’s separate property, that contribution is presumed to be a gift.

ii. Community Property to Improve Own Separate Property – No Gift

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1. When one spouse uses community assets to improve his own separate property, the other spouse is entitled to a reimbursement unless she consented to the improvement.

iii. Community Property to Improve Other Spouse’s Separate Property – Gift Presumption

1. When one spouse uses community assets to improve the other spouse’s separate property, the contribution is presumed to be a gift unless there is an agreement to reimburse. However, more recently cases such as Marriage of Wolfe indicate that the community is entitled to a reimbursement under these circumstances.

g. Personal Injury Causes of Action/Damage Awardsi. Community Property If Action Arose During Marriage - § 780

ii. Separate Property If Action Arises After Separation - § 781

iii. At Divorce, Award Assigned to Injured Spouse - § 26031. At divorce, community personal injury damages shall be assigned to

the party who suffered the injuries unless the court determines that the interests of justice require another disposition.

a. At least one-half of the damages shall be assigned to the party who suffered the injuries.

2. In Re Marriage of Devlin (1982) – page 346.

iv. Personal injury recovery against the other spouse is always the separate property of the injured spouse.

h. Employment Related Benefitsi. Generally. If the benefit represents deferred compensation for services rendered

during marriage by the employee spouse, it is probably community property. On the other hand, if the benefit represents compensation for post-separation services rendered by the employee, it is probably the employee’s separate property.

ii. Retirement Benefits1. Terminology

a. Defined Contribution Plani. The employer and employee contributions are allocated

to an account on behalf of each individual participating employee. The participant’s account is increased each year with his or her allocable share contributions and earnings.

ii. Easy to trace because there is a specific account for each employee.

b. Defined Benefit Plani. Doesn’t having an individual account. It promises the

employee that upon a stated retirement age, the plan will have sufficient funds to pay the employee a specified monthly pension for life.

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c. Vested Pension Rightsi. The pension right will survive the discharge or

voluntary termination of the employee.

d. Matured Pension Rightsi. All conditions precedent have taken place or are within

the control of the employee.

iii. Retirement benefits are treated as community property to the extent that the right to benefits was earned during marriage. That the benefits are actually received after separation is immaterial.

iv. French v. French is overruled. A non-vested pension right is a contractual right and a property right. It is more than a mere expectancy. A spouse should be granted a contingent interest in a non-vested pension which, if vested, would be deemed community property.

v. The argument that any unfairness in depriving a spouse of a community interest can be remedied by awarding alimony has no merit. A spouse should not depend on the trial court for exercising discretion when her request is hers as a matter of absolute right.

vi. The Time Rule Method of Apportionment is Used When The Benefit is Community and Separate

1. Multiply the Value of the Benefit by a Fraction Representing the Community Interest

a. Numerator – number of years/months of employment while married.

b. Denominator – number of years/months of total employment. i. In Re Marriage of Brown (1976) – page 355.

vii. The Qualified Domestic Relations Order (“QDRO”)1. A separate document, made part of the court’s judgment, that tells the

plan administrator how to divide up the benefit. 2. You have to join the plan administrator to ensure that the court has

jurisdiction.

viii. Trial Court Has Broad Discretion to Divide Community Property. Upon dissolution of a marriage, the trial court has broad discretion in the division of the community property interest in a spouse’s pension rights and can exercise its discretion in that division as it sees fit.

1. Division in Kind – The community interest is divided between the parties, and the plan, when benefits become payable, usually makes separate payment to each according to their proportionate interest.

2. Cash Out Method – The entire community interest at its present value is awarded to the employee spouse with offsetting assets awarded to the employee spouse to accomplish an equal division.

a. Determining present value is difficult and often puts the recipient at a disadvantage because they might die earlier.

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ix. No Indefinite Jurisdiction. The Court does not have the power to retain jurisdiction over the division of a community asset indefinitely. In Re Marriage of Bergman (1985) – page 363.

x. Retirement benefits earned by a spouse during marriage are community property, subject to equal division upon the dissolution of the marriage.

xi. A unilateral choice to postpone retirement cannot be manipulated so as to impair a spouse’s interest in those retirement benefits. If a non-employee spouse demands her share of a retirement benefit that is both vested and matured, she may obtain it. The employee spouse is free to continue working (it won’t force him into retirement), but he must reimburse his spouse for the share of the community that she loses as a result of that decision. In Re Marriage of Gillmore (1981) – page 377.

xii. Enhanced Benefits Are Community Assets. A nonemployee spouse who owns a community property interest in an employee spouse’s retirement benefits under a defined benefit retirement plan owns a community property interest in the retirement benefits as enhanced.

xiii. Characterization Turns on Employer Intent. In determining how to characterize an employment benefit, the courts will often look to the employer’s intent in providing it.

1. Marriage of Lehman (1998) – page 388.

xiv. Characterization Turns on Employer Intent. No single characterization can be given to employee stock options, and whether they can be characterized as compensation for future services, for past services, or for both depends upon the circumstances involved in the grant of the employee stock option. In determining the community and separate interests in stock options, the employer’s intent governs (is the benefit a bonus for work already performed, or for future services?).

1. In Re Marriage of Hug (1984) – page 404.

i. Disability Benefitsi. Disability benefits are characterized according to what the disability benefits

replace. If they are intended to replace marital earnings, the disability pay is community property. If they are intended to replace separate earnings, it is separate property.

ii. If the insured spouse does not become disabled during the last policy term before the parties’ separation, the community will have no interest in benefits produced by renewals of the policy for subsequent terms because the renewal premium will not have been paid during the marriage with community funds and with the intent of providing community retirement income. Marriage of Elfmont (1995) – page 413.

j. Termination and Other Employment Related Benefitsi. If an early retirement benefit is a form of deferred compensation for services

rendered, then it is a community asset. If it is a present compensation for present loss of earnings, then it is the earning spouse’s separate property. Marriage of Gram (1994) – page 431.

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V. Spousal Management and Creditors’ Rights a. Spousal Management

i. Separate Property. Each spouse has the exclusive management and control of his separate property.

ii. Community Property. Each spouse has equal management and control of community property. This means that either spouse may buy or sell community property, or contract debt without the other spouse’s consent. However, the spouses are still bound by their fiduciary relationship (§ 721) and the various subduties that it comprises.

1. Community Personal Property; Management and Control - § 1100a. No Gifts Without Written Consent. A spouse may not make a

gift of community personal property, or dispose of community personal property for less than fair and reasonable value, without the written consent of the other spouse.

2. Exceptions (Unequal management and control permissible):a. The Business Exception

i. A spouse who is operating or managing a business that is all or substantially all community personal property has the primary management and control of the business. This means that the managing spouse may act alone in all transactions but shall give prior written notice to the other spouse of any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the personal property used in the operation of the business, whether or not title to that property is held in the name of only one spouse.

ii. The § 721 Fiduciary Relationship Section may arise in these circumstances.

b. The Personal Belongings Exceptionc. Conveyances of Community Property Real Property Exceptiond. Family Law Attorney Lien Exception - § 2033

i. Either party may encumber his or her interest in community real property to pay reasonable attorney's fees in order to retain or maintain legal counsel in a proceeding for dissolution of marriage, for nullity of marriage, or for legal separation of the parties.

iii. If an insurance contract provides that the insured husband has the right to change the beneficiary without the wife’s consent when she is named as such, any such change of beneficiary without her consent and without valuable consideration other than substitution of beneficiaries is voidable, and after the death of the husband the wife may maintain an action for her community share in the proceeds of the policy.

iv. Election. When the husband attempts to dispose of his wife’s share of the community property as well as his own, naming her as one of the takers, she must elect between her community rights and her husband’s gift. Tyre v. Aetna Life Insurance Co (1960) – page 445.

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b. Mismanagement of Community Assets By Tortfeasor Spouse. The tortfeasor spouse and not the community, is solely responsible for paying attorneys’ fees incurred by the spouse who committed the tort/crime. Marriage of Stitt (1983) – page 450.

i. The innocent spouse has a right of reimbursement against the tortfeasor spouse if community assets were used to pay a debt arising from the acts of the tortious spouse. Marriage of Beltran (1986) – page 453.

c. Mismanagement by Failing to Provide Info Upon Request. A managing spouse breaches his fiduciary duty of full disclosure if the other spouse requests information about the investments and the managing spouse failed or refused to provide such information.

d. Spouses Not Bound By the Prudent Investor Rule. There is no duty of care in the fiduciary duty owed by a spouse in managing community assets. Marriage of Duffy (2001) – page 456. However, the spouses may breach their fiduciary duties of good faith by withholding information.

i. D. Case - (updated law!): Marriage of Walker and the new § 721 adds the Duty of Care, Duty of Loyalty, and the Duty of Good Faith & Fair Dealing

e. A Spouse’s Management Rights Are Violated When The Other Spouse Hides Community Assets. Wilcox v. Wilcox (1971) – page 469.

f. Recapture and Reimbursement Proceedingsi. Under Family Code §§ 1100 and 1102, either spouse has the right to manage

and control community assets, but neither may make a gift of community property without the consent of the other.

ii. During the marriage, the injured spouse can set aside the transfer and bring the property back into the community estate.

1. During Marriage Wife May Revoke Husband’s Gratuitous Transfer. The Section 172 right of a husband to gratuitously transfer community property at any time is subject to the right of the wife to revoke such transfers within the statutory period. But the right of revocation of the gift does not prevent their immediate vesting in the donee.

2. Non-Transferring Spouse May Ratify. Later acts of ratification by the non-transferring spouse may constitute consent to such a transfer and bar the non-transferring spouse from recovering half of the property.

a. Spreckles v. Spreckles (1916) – page 473.

iii. After the termination of the marriage, the injured spouse can recapture only one half of the property, on the theory that the injured spouse can trace his or her half interest into the hands of the third person and recapture it as separate property.

1. If a spouse after the death of the decedent proves a lack of consent to a gift, it will be avoided to the extent of the non-consenting spouse’s one-half interest in community property transferred. When evaluating the community property, each spouse has a half interest in each community asset rather than the community as a whole. Estate of Wilson (1986) – page 480.

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iv. No Encumbrance of Real Property For Atty Fee Without Both Spouses Signature. Both spouses, either personally or by duly authorized agent, must join in executing any instrument by which community real property or any interest therein is sold, conveyed, or encumbered.

1. BAD LAW - Droeger v. Friedman, Sloan & Ross (1991) – page 484. a. Encumbrance Now Okay. § 2033 of the Family Code now

permits either spouse to encumber real property in order to pay for a family law attorney.

v. A creditor who previously forfeited a security interest in community real property under § 5127 is placed in the position of any other unsecured creditor entitled to seek a judgment against a debtor spouse and to enforce its money judgment against the community property estate.

1. Lezine v. Security Pacific Financial Services, Inc. (1996) – page 500.

g. Creditors’ Rightsi. A creditor may reach any property over which the debtor has the legal right of

management and control. 1. Necessities. When one spouse incurs debt for necessities during

marriage, the other spouse is personally liable for the debt, and after separation personal liabilities for necessities remain.

2. Torts. A spouse is not liable for the other spouse’s torts except where she would have been liable if the marriage did not exist. Community property is subject to tort liability of either spouse.

a. Tort For Benefit of Community – liability will be satisfied from community property first, then from separate property.

b. Tort Not For Benefit of Community – liability will be satisfied from separate property first, then from community property.

ii. All community property, whenever acquired, is liable for the satisfaction of the husband’s debts including a judgment against the husband for his tort. Because the husband has the power of management and control of the community, he also may subject the community to liability for his tort. Grolemund v. Cafferata (1941) – page 518.

iii. A debt is characterized based on when it was incurred or made. iv. The burden of proving intentional conduct of the spouse not benefiting the

community falls on the aggrieved spouse. Marriage of Feldner (1995) – page 522.

v. After the execution of a valid marital settlement agreement, negotiated at arm’s length and providing a community business is transferred to the spouse who had been exclusively operating it as his separate property, all obligations of the business incurred thereafter are the sole obligation of the recipient spouse, even though incurred before entry of an interlocutory judgment of dissolution of the marriage incorporating the marital settlement agreement. American Olean Tile Co. v. Schultze (1985) – page 528.

vi. Property received by a nondebtor spouse in a marital dissolution is not liable for a debt incurred by the persons’ spouse before or during marriage, and the person

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is not personally liable for the debt unless the debt was assigned for payment by the person in the division of property. In Re Marriage of Braendle (1996) – page 532.

VI. Division of Community Property at Dissolution a. We have a no-fault system of divorce in California. But fault is still considered by the

courts to some extent (in custody, attorneys’ fees, or spousal support for instance).

b. Under Family Code § 2310, there are two grounds for dissolution:i. Incurable insanity.

ii. Irreconcilable differences.

c. Division by Property Settlement Agreementi. Scope and Validity

ii. Enforcement and Modification1. Modification. There is a general policy favoring the ability of the

parties and the court to modify a property settlement agreement in the event of changed circumstances such as inability to pay. Although agreeing that the settlement agreement is nonmodifiable is not void against public policy, the parties must use specific language to show their intent.

a. In Re Marriage of Hufford (1984) – page 548.

d. Division by Court Orderi. Jurisdiction to Divide Property

1. Bifurcation. Only slight evidence is necessary to obtain birfucation and resolution of marital status, while a spouse opposing bifurcation must present compelling reasons for denial. Gionis v. Superior Court (1988) – page 565.

2. No Jurisdiction to Dispose Separate Property. The power of the court in disposing of the property of the parties in a divorce action is limited to their community property. It cannot dispose of one party’s separate property.

a. Robinson v. Robinson (1944) – page 567.

3. Jurisdiction Over the Parties/Property. In general, jurisdiction to adjudicate matters in a marital case involves three requirements:

a. Subject matter jurisdiction.b. In rem jurisdiction.c. Personal jurisdiction.

4. When determining whether the court has personal jurisdiction over an individual who is domiciled in another state, the court looks at the individual’s contacts with the forum state at the time of the proceeding, not at past contacts, and at whether it would be reasonable to exercise jurisdiction.

a. Muckle v. Superior Court (2002) – page 568.

5. Default Judgments and Due Process. Due process is satisfied and sufficient notice is given for section 580 purposes in marital dissolution actions by the petitioner’s act of checking the boxes and inserting the

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information called for on the standard form dissolution petition which correspond or relate to the allegations made and the relief sought by the petitioner.

a. In Re Marriage of Andresen (1994) – page 576.

ii. The Equal Division Requirement1. With limited exceptions (sums deliberately misappropriated, the small

community property estate, and personal injury damage awards), the court is required to divide the community and quasi-community property of the parties equally.

2. Court Has Broad Discretion to Award Family Home. The trial court has broad discretion to determine which party should be able to reside in the family home, however, the court must also consider relevant evidence in determining the duration of the award. Facts for the court to consider include economic impact on the noncustodial parent, emotional and social impacts on the minor, and tax impacts. In Re Marriage of Stallworth (1987) – page 583.

a. A Duke Order: The Court allows the parent and child to remain in the home, and defers the sale of the family home until a stated condition occurs.

3. Offset Required Where Major Undivisible Asset Awarded. Where a major item of community not reasonably subject to division is awarded to one party, the other shall be compensated in some manner so as to maintain the required equal division of community property. In Re Marriage of Tammen (1976) – page 590.

4. Debts Are Not Divided Equally, They Are Divided As the Court Sees Fit. If there are no assets to divide, only debts, or after the equal division of the assets there remain debts to be disposed of, the court has the discretion to order the payment of such debts in a manner that is just and equitable, depending on the respective earning capacities of the spouse and other relevant factors. In Re Marriage of Eastis (1975) – page 593.

iii. Valuation1. Assets and liabilities must be valued as near as practicable to the time of

trial, unless one party shows good cause why a different date for valuation should be used. § 2552.

2. Complex Valuation Questions. To divide community property equally, the court must make specific findings concerning the nature and value of all community assets of the parties unless property is divided in kind.

3. The trial court’s determination of the value of a particular asset is a factual one which will be upheld on appeal if supported by substantial evidence.

4. A court faced with a valuation problem must consider each factor which might have a bearing on the value of the property.

a. In Re Marriage of Micalizio (1988) – page 595.

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iv. Tax Consequences of Division1. Capital Gains. Each party alone is liable for his or her capital gains

taxes after division of the community property. 2. Once having divided the community property equally, the court is not

required to speculate concerning what either party may do with his or her share, thereby incurring recognition of tax liability because the possibility of tax deferral depends on a variety of factors unrelated to the division of the parties’ community property. In Re Marriage of Harrington (1992) – page 602.

e. Post Dissolution Remediesi. There are 5 grounds for setting aside a judgment under Family Code § 2122:

1. Actual (extrinsic) fraud within one year.2. Perjury within one year.3. Duress within 2 years.

a. Any wrongful act or threat which overcomes the free will of a party constitutes duress.

4. Mental incapacity within 2 years.5. Mistake within 1 year.

ii. The Family Code § 2121 Hurdle1. There shall be no set aside unless the court find that the facts alleged as

grounds for relief materially affected the original outcome and the moving party would materially benefit from the granting of relief.

a. This means that even if a party shows duress or one of the other grounds for relief, that party may still not get the judgment set aside if he fails this test.

iii. Failure to Disclose Existence or Value of Community Asset Constitutes a “Mistake”. A judgment of dissolution based on a stipulation of the parties dividing the community property, will be set aside when one party fails to disclose to the other party the extent or the value of the community property at the time that party signed the stipulation.

iv. The failure of a spouse to disclose the existence or the value of a community asset constitutes a basis for setting aside a judgment on the grounds of mistake under § 2122.

v. Extrinsic Fraud (a valid ground for setting aside a judgment)1. The party is deprived of an opportunity to present his claim or defense

to the court. vi. Intrinsic Fraud (not a valid ground for setting aside a judgment)

1. The party has been given notice of the action and has had an opportunity to present his case.

a. Marriage of Varner (1997) – page 608.

vii. Concealment of Community Property Assets1. If a spouse conceals assets from the other spouse in a marital dissolution

action in breach of fiduciary duty, then the innocent spouse may be awarded 100% of the concealed asset. Marriage of Rossi (2001) – page 621.

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viii. Assets that are Omitted in the Pleadings are Subject to Future Litigation.1. Property which is not mentioned in the pleadings as community

property is left unadjudicated by decree of divorce, and is subject to future litigation, the parties being tenants in common meanwhile. Henn v. Henn (1980) – page 628.

2. An Attorney that Fails to Claim a Community Property Interest in an Asset May Be Liable For Legal Malpractice. An attorney assumes an obligation to his client to undertake reasonable research in an effort to ascertain relevant legal principles and to make an informed decision as to a course of conduct based upon intelligent assessment of the problem. Aloy v. Mash (1985) – page 634.

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