I. Basic Rules of CA CP Law
o Because California is a CP state, all prop acquired during Marriage is CP. Assets acquired before Marriage or after permanent separation, by gift, inheritance, descent, or devise and the rents, profits, and issues gained are SP.
o The characterization of an asset as CP or SP depends on source of the item, actions of the parties, and statutory presumptions.
o Absent a showing of the parties’ agreement or that title was taken in a form that overcomes the community P(x), the burden of proof is on the SP proponent.
A. Quasi CP/MP
1. Out of state: Property acquired while a married couple is domiciled in a non-CP state becomes QCP when the couple moves to CA so long as it would have been CP if acquired while domiciled in CA.
a. At divorce, QCP is treated exactly as if it were CP.
i. If real prop in another state is involved, CA ct can:
A) award “foreign” real prop to H & other assets of equal value to W; OR
B) require H to execute any conveyances that are necessary by relying on ct’s PJ over H
b. At death, survivor has 1/2 interest in decedent’s QCP, but decedent has no rights in the survivor’s QCP.
i. For pers prop, operates the same as CP. Thus, if H bequeaths “all my prop” to daughter, daughter gets 1/2, & W takes other 1/2 as QCP.
ii. For “foreign” real prop, foreign state’s law controls, & entire real prop passes under will (no PJ b/c CA does not have PJ & does not have in rem jxn over prop in other state).
iii. Non-acquiring spouse who dies has no power of disposition over QCP.
c. Creditor’s claims are treated the same as true CP.
2. “Putative Spouse”
a. NO CL Marriage: CA does NOT recognize CL marriage.
b. Unmarried Cohabitants
i. Property relations b/w unmarried cohabs governed by contract law (as long as not solely based on sexual services).
ii. K can be express or implied.
iii. Courts treat as partnership or joint venture.
c. Putative Spouse
i. PS is not lawfully married, but has a good faith and objectively reasonable belief that she is lawfully married.
A) Assets acquired are called quasi-marital property.
B) At divorce, divided just like CP.
ii. If aware that they were not lawfully married, then relationship is characterized as unmarried cohabs, and absent a Marvin agreement, each keeps everything as SP.
iii. If couple pays for living expenses with H’s earnings and invest W’s earnings, is H entitled to 1/2 of assets acquired from W’s earnings? SPLIT.
A) Even if party was at fault in inducing other to believe they were married, award H 1/2 of assets.
B) Remedy given only to innocent party.
3. Moving from 1 CP State to Another
a. CP remains CP.
b. For real prop in other state, ct has PJ over spouse & can award other CP of equal value or compel spouse to execute necessary conveyances.
B. “Marriage”
1. End of Economic community
a. Living separate & apart (question of fact)
i. Permanent physical separation, &
ii. Intent not to resume the marital relation.
b. Upon dissolution or legal separation
2. Registered domestic partners: CP system applies to retroactively to the date registered as a domestic partner
C. Division of CP Upon...
1. Divorce
a. Each & every community asset (and liability) must be divided equally. Each spouse ends up w/ 50% of all CP in terms of total economic value.
b. Unless economic circumstances warrant otherwise:
i. Family residence & loss of family home would uproot minor children;
ii. Shares of a closely held corporation where spouse is CEO;
iii. Pension.
c. Statutory exceptions where 1 spouse gets more than 50% in total value:
i. Spouse misappropriates CP before or during divorce;
ii. Educational debts of 1 spouse (treat as separately incurred debt);
iii. Tort liability not based on activity for benefit of community;
iv. Pers injury award is given to injured spouse (unless interests of justice require otherwise);
v. Community liabilities exceed assets (ct considers spouses’ relative ability to pay to ensure that creditors get paid).
d. If CP not divided at divorce, ct retains continuing jxn to award CP & on motion the CP will be divided 50/50 unless interests of justice require an unequal division.
2. Death: Lifetime & Testamentary Gifts of CP
a. Written consent of other spouse is required to make a gift of CP
b. Remedy of other spouse is to:
i. set aside the gift in its entirety, OR
ii. offset CP assets at divorce, OR
iii. set aside the gift as to her 1/2 CP & recover from either donee or decedent spouse’s estate at death.
A) Applies to life insurance policy where there’s a 3d party beneficiary.
3. Federal bonds: If decedent spouse named 3d party as POD beneficiary, surviving spouse CANNOT recover 1/2 CP interest in bonds b/c of federal preemption, UNLESS purchase of bonds was
a. fraud or
b. breach of trust.
4. Power of testamentary disposition: Each spouse has power of testamentary disposition over all his or her SP, but over only ½ of the CP. If spouse seeks to imroperly devise ALL CP, surviving spouse (SS) is put to an election:
a. Take under the will (e.g., residuary clause), testamentary disposition of entire CP is valid.
b. Take against the will, SS must give up testamentary gifts in her favor & only take ½ CP.
D. Acquisitions on Credit During Marriage
1. Presumed CP (even if title taken only in 1 spouse),
2. “Primary intent” of the lender classifies the debt/acquisition. If the creditor was primarily looking at one spouse’s
a. Creditworthiness & general standing in community, this is considered a community asset, so debt would be CP.
b. SP Assets, obligation is likely SP
3. Pro-ration or buy–in may result where CP funds are used to pay off SP obligations.
E. Fiduciary Duty of Good Faith & Fair Dealing is owed between spouses arising from their confidential rship.
1. If one spouse gains an adv from a transaction,, a P(x) of Undue Influence arises & that spouse has burden to show it was not a breach of fiduciary duty.
2. Grossly negligent or reckless investment of community funds is a breach of fiduciary duty.
II. Altering the Character of Assets by Agreement
A. Generally
1. Parties can opt out of CP system by agreement as to particular assets or all acquisitions before or during marriage
2. Transmutation can be by gift or by agreement.
3. No consideration is required for either premarital or transmutation agreements.
B. Premarital Agreements
1. SOF requires a Writing, signed by both parties unless
a. Full performance
b. Detrimental Reliance
2. Scope
a. So long as it does not violate public policy : May limit or waive prop rights & can deal w/ any other matter so long as it does not violate public policy.
i. Child Support: may NOT limit obligations
ii. Spousal Support limitation not enforceable if
A) Unrep’d by ILC when agreement signed OR
B) Unconscionable at time of enforcement
3. Defenses: Unenforceable if: (3 situations)
a. Promotes divorce: positive incentive to divorce
b. Involuntary; an agreement was not executed vol’y unless:
i. ILC at time signed or waived rep in a sep writing; &
ii. Seven days b/w presented w/agreement & advised to seek counsel & signing; &
iii. If unrep’d ILC, execute a doc stating
A) Fully informed in writing (in understandable language) &
B) Name of info provider
c. Unconscionable & w/o knowledge of other party’s prop or financial obligations (Q of law):
i. Unconscionable when executed, &
ii. without
A) Fair, reas, & full disclosure of other party’s prop or financial obligations; &
B) Waiver of right to disclosure; & party seeking to avoid enforcement had
C) Adequate knowledge (actual or constructive) of other party’s prop or financial obligations.
C. Transmutation: Agreements during marriage
1. PRE-1985, oral transmutations permitted (express or implied in fact).
2. On or POST-1/1/85, all transmutations require:
a. Writing;
b. Signed by spouse whose interest is adversely affected; &
c. Expressly state that a change in ownership is being made.
d. Gift EXCEPTION: Gifts of tangible prop of a
i. Pers nature that are
ii. Not substantial in value taking into account the
iii. Circumstances of the marriage.
3. Statement in a will is inadmissible as evidence of a transmutation in a proceeding commenced before the death of the maker of the will.
III. Effect of How Title Is Taken
A. CP infers intent to change the character of the prop to the form evidenced by the written title.
B. Title not held in joint form
1. Titled in 1 spouse’s name does not overcome CP P(x).
2. Married Woman’s Special P(x) for Prop Acquired PRE–1975
a. Where CP was used to take written title in a W’s name before 1975 & title did not indicate whether CP or a JT was intended, the property presumptively the W’s SP.
b. Where title is taken in W & H’s names before 1975 & not in JT form & not as “H & W” or “Mr. & Mrs” then ½ is W’s SP and ½ is CP.
c. Where title is taking in name of W & 3d party before 1975 (TICs; 1/2 is W’s SP).
3. Rebut by showing that
a. H did not intend to make a gift to W, but had some other reason for taking title solely in her name,
i. e.g., creditors, or
b. W took title in her name w/o H’s knowledge or consent.
c. P(x) NOT rebuttable as against 3d party BFP who buys asset from W in reliance on fact that it’s titled in her name only.
4. POST–1/1/1975, title in W’s name may raise an inference of gift.
a. Fraudulent transfer: insulate home from creditors=gift not inferred
C. Title Held in Joint Form presumptively CP (LUCAS)
1. JTWROS or CPWROS= title passes to survivor by ROS.
2. Joint & equal form “John & Mary Smith, H & W,” “Mr. & Mrs. John Smith,” or “John & Mary Smith”
D. REBUT LUCAS by:
1. Issue arises at death
a. Rebut: proof of an agreement that the spouse who contributed the SP was to have a SP ownership interest.
b. NO R2R.
2. Anti-Lucas: Issue arises at divorce or legal separation
a. Statement in the deed or other instrument of title that the prop is SP & NOT CP; OR
b. Written agreement by the parties that the prop is SP & NOT CP.
c. Spouse who made POST–1984 contributions of SP has R2R w/o interest for contributions to DIP (Down-payment, Improvements, Principal payments on mortgage).
d. R$ cannot exceed net value of prop.
IV. Effect of Parties’ Actions on Characterization of Assets
A. CP Payments used to
1. PAY OFF Purchase Price of SP (Pro-Ration Rule)
a. Community estate takes a pro rata portion of the prop measured by the amount of PRINCIPAL DEBT REDUCTION attributable to the expenditure of community funds (payments of mortgage interest, prop taxes, insurance premiums, etc. are NOT counted).
Principal debt reduction attributable to CP] = CP %
Total Purchase Price
b. Life Insurance: Pro-ration rule applies to life insurance.
i. Term life insurance/final premium rule: character of last premium payment determines distribution of proceeds.
2. IMPROVE SP
a. One’s own SP
i. Gift is NOT presumed;
ii. Community does NOT get a proportionate share (fixtures doctrine), but:
iii. Community has R2R$ for the greater of
A) Cost of improvements or the
B) Increased value of the prop.
b. Other Spouse’s SP: [SPLIT!]
i. Traditionally, Gift presumed and no R2R$ unless
A) Evid of an agreement to R$ the community estate. If the K is silent as to amt of R$, R$ cost of improvements.
ii. Others: No Presumption of gift. Community has R2R$
c. CP, then in the divorce context anti-Lucas R$ statutes apply, & spouse who contributed the SP has R2R$ w/o interest for contributions to DIP.
B. Commingled Bank Account
1. Two presumptions apply
a. Family expenses paid for w/ CP funds, even though SP funds were available.
b. Intent to make a gift when SP funds used to pay family expenses
2. Permissible Tracing Methods
a. Exhaustion Method: At time the asset was purchased,
i. No CP funds in the account, so the asset must have been purchased w/ SP funds.
b. Direct Tracing: At the time the asset was purchased,
i. SP funds available, and
ii. SP proponent intended to use SP funds to purch SP asset.
3. Total Recapitulation Accounting is NOT permitted: SP proponent may not simply show that total family expenses exceeded total community income & conclude that all remaining funds & assets purchased from the commingled account are her SP. Problem is that this does not prove that CP funds were unavailable when each asset was purchased.
4. NOTE that anti-Lucas statutes do NOT apply to jointly held bank accounts, which is why “tracing” is permitted in cases involving bank accounts even though account is titled in both spouses’ names.
V. Characterization Problems Raised by Certain Assets
A. Business Owned Before Marriage Greatly Increases in Value
1. Pereira Accounting
a. Use when business growth was due to Skill & labor.
b. Tends to favor the CP estate.
Increase in value – Interest on SP capital = CP (distribute half to each)
2. Van Camp Accounting
a. Use when primary cause of increase in value is due to Capital (character of the business).
b. Tends to favor SP proponent.
Increase – FMV of Labor - Expenses paid by CP=SP
B. Pension Benefits: Retirement pension benefits earned during marriage whether or not vested at time of divorce are CP.
1. Unvested: Whether the benefit is vested is only one factor in distribution. A ct may divide benefit when & if benefit is received or vests.
2. Right to reinstatement is a CP asset & non-employee spouse must pay a portion of reinstatement fee to receive portion of pension benefit.
3. Eligible/ineligible
a. Ineligible for retirement, ct should either:
i. Grant a “when & if” decree;
A) Nonemployee spouse may insist that she receive her one-half CP interest as soon as the worker is first entitled to retire.
b. Eligible, but does not wish, to retire, W has a present right to her 1/2 of the CP component.
i. Payout
A) Private employer: A ct may order private employer (not public) to pay the nonemployee spouse her share of the benefits as if the worker had in fact retired.
B) Public/private employer: A ct may order payout by spouse by awarding assets of equal value.
4. Time rule:
a. Immediate distribution
Yrs of service while married = CP
Total pension contribution yrs
b. Wait & see
Monthly benefits = CP%
Total pension contribution yrs
c. Date of filing demand for benefits is controlling. Benefits will not be paid retroactively.
5. Marriage ends by Death=Federal ERISA preemption
a. Prohibits a nondivorce deceased spouse’s testamentary transfer of her CP interest in her surviving spouse’s pension.
b. A divorced spouse’s share of CP pension expires at her death & reverts to the surviving employee spouse
c. Purpose of ERISA benefits is to support the plan participants & their spouses.
B. Disability & Worker’s Comp (Disability)
1. Treated as Wage replacement. Thus, classified according to when received, regardless of when injury occurred.
C. Pension v. Disability: Spouse cannot elect to defeat other spouse’s CP interest by choosing Disability instead of Pension.
1. Disability will be treated as CP to the extent that it replaced community interest in pension.
2. Disability covers post-retirement period then ct will go behind the label & determine whether the benefits are essentially disability pay or retirement benefits.
D. Severance Pay (SPLIT): is it more like a pension or disability?
1. Right to severance earned by employment during marriage as part of employment agreement=CP
2. Wage replacement for lost earnings, not obligated or intended to compensate past services, like disability = SP
E. Military Retirement Plan=CP
F. Stock Options
1. Stock options awarded during marriage are CP b/c it’s a form of incentive compensation (even though spouse has to continue to work to exercise them).
2. Time Rule:
[Yrs of marriage while employed until exercise of SO] = SP
[Yrs of employment until exercise of SO]
G. Good Will of a Professional Practice
1. To the extent that goodwill is earned during marriage, CA treats it as CP.
2. “Goodwill” is difference between the value of a business or professional practice & the value of its physical assets.
a. An intangible value that develops during the life of a business & includes the reputation & habitual clientele of a business or practice.
3. Computing value of goodwill: (2 methods)
a. Market Sale Valuation by expert witness: the price good will would command in a sale of the business or profession
b. Capitalization of past “excess earnings” attributed to goodwill: present value of the future stream of income, that the goodwill developed during marriage, will generate in the business or professional practice.
Net earnings from practice
- Community labor (Reas value of)
- Capital & physical assets (Reas return on)
=“Excess earnings,” attributed to good will.
4. Cap/Limit on goodwill: Even if partners of a small firm put a cap on the value of goodwill, or buy out agreement says no compensation for goodwill, the claiming spouse can still get more. The cap is a factor, but it’s not conclusive.
H. Educational & Training acquired during marriage not CP
I. Education & training EXPENSES
1. Equitable right of R$ exists at divorce, unless the parties sign an K to the contrary, when Community funds are
a. used either to pay for education or training or repay a loan incurred before marriage &
b. the education or training substantially enhanced the earning capacity of the educated party.
2. Equitable Defenses to R$:
a. Substantially benefited: Community has already substantially benefited from education
i. 10 year rule: Presumption that the community has substantially benefited if more than 10 years since education & divorce.
ii. Try to rebut it
b. Other spouse also received a community-funded education; OR
c. Need for spousal support is reduced as a result of education.
3. Unpaid loans are assigned solely to the spouse who incurred the educational debt.
J. Life Insurance
1. Time rule: insurance proceeds treated as CP in proportion to the percentage of premiums paid by community
a. Term insurance: The final premium rule applies.
2. Third Party beneficiary: If deceased spouse named a third party as beneficiary, then that’s a testamentary disposition of his ½ of the CP interest in the policy.
II. Tort & Contract Liability; Management Problems
A. PI Recovery Against Other Spouse=SP.
B. PI Recovery Against 3d Party Tortfeasor
1. If c/a arises during marriage, any recovery is CP.
2. But at prop division upon divorce or legal separation, the PI damages are awarded entirely to the injured spouse
a. Except as interests of justice require otherwise (e.g., it’s the only CP asset), &
i. Past Circumstances: Time, energy, community funds used in taking care of injured spouse
ii. Future Circumstances: Not working etc...
b. It has not been expended or commingled w/ other CP.
i. Tracing is not allowed to uncommingle! special situation
ii. Commingled means that it loses its special character. same bank acct as other CP and SP doesn’t mean commingled.
c. Injured spouse will take at least ½
3. At death of either spouse, it will be treated as CP.
C. Tort Liability: CP is subject to the tort liability of either spouse.
1. Priority of satisfaction of liability
a. Was tortfeasor “performing an act for the benefit of the community?”
i. Yes: liability is first satisfied from CP, then SP.
ii. No: liability is first satisfied from SP, then CP. In any case, judgment creditor cannot reach the non-tortfeasor spouse’s SP.
D. Management Issues: Generally, each spouse has equal management & control over all CP. This means that either spouse acting alone may buy, sell, spend, & encumber ALL the CP.
1. Thus, each has full power to buy or sell CP & contract debts w/o the other spouse’s joinder or consent.
a. Neither spouse can transfer or encumber “my 1/2 interest in CP.” Only the entire interest in CP can be transferred or encumbered.
b. Exception: May encumber ½ interest in CP to pay family law atty in divorce action (NOT to pay any other creditor).
2. Real Prop Exception: Both spouses must join in conveyances of real prop (including leases for more than a year).
a. Innocent transferee: When CP is
i. Titled in one spouse’s name only & that spouse
ii. Misrepresents his marital status to an innocent transferee, non-consenting spouse has
A) 1 year from date deed was recorded in which to bring an action to
B) Void the transfer;
C) Return purchase price to transferee
D) Must prove Spouse did not consent in any way.
b. If transferee was aware that spouse was married, the 1 year S/L does NOT apply.
3. Business Exception: Spouse who operates a business that is all or substantially all community pers prop has primary management & control of the business.
4. Pers Belongings Exception: One spouse cannot sell or encumber pers prop used in family dwelling (furniture, furnishings, etc.) or clothing w/o written consent of other spouse. Transaction is voidable by other spouse at any time & prop may be recovered.
E. Creditors’ Rights
1. General Rule: All CP & debtor’s SP are liable for a debt she incurred before or during marriage. Other spouse’s SP is not liable.
2. Exception: CP earnings of nondebtor spouse are not liable for debtor’s premarital obligation if those earnings are held in a separate account in which the debtor spouse has no right of w/drawal & which is not commingled w/ other CP funds.
3. Necessary: Each spouse has duty to support the other spouse & minor children of the marriage. Thus, each spouse is persly liable for other spouse’s Ks for necessaries, including medical bills (even if separated, but debt was incurred during marriage).
a. If CP funds were available to pay medical bill, then spouse paying w/ SP can be reimbursed from community estate.
4. After divorce, creditor cannot reach CP awarded to a spouse unless that spouse:
a. incurred the debt, OR
b. was assigned the debt by the ct.
