Community Property

Characterization of Asset

Characterization of an asset depends upon when the asset was acquired, the source of the purchase funds or the means of acquisition, applicability of any legal presumption, and the couple’s individual actions. Key Words or Phrases -

1. time of acquisition

2. source of purchase funds or means of acquisition

3. applicability of legal presumptions

4. parties’ actions

Time of Acquisition

Property acquired during course of a couple’s marriage is deemed to be community property and owned equally by both spouses. (General Community Property Presumption) [Estate of Duncan, 9 Cal.2d 207 (1937)] Property that is individually owned prior to marriage and property that is acquired after the dissolution of the marriage is classified as separate property. Key Words or Phrases -

1. asset acquired during marriage presumed to be community property

Source of the Purchase Funds or Means of Acquisition

If purchase funds were acquired through gift, bequest, devise, descent, or from profits derived through separate property, then the asset is separate property. If the asset is given through gift, bequest, devise, descent, or in exchange for separate property, the property is separate property. Key Words or Phrases -

1. purchase funds
2. means of acquisition
3. gift, bequest, devise, descent
4. profits derived from separate property
5. in exchange for separate property

Applicability of Legal Presumptions

Legal presumptions may overcome the general community property presumption that property acquired during marriage is community property. The legal presumptions are

1) source of funds

2) title inconsistent with community property

3) agreement or

4) title displaying intent to make a gift to other spouse

Simple Tracing

A separate property proponent may overcome the general community property presumption by tracing the source of the funds used to buy the asset during marriage. Tracing can only be used if asset is untitled or only titled in the purchasing spouse's name. If separate property funds can be shown to have paid a portion of total purchase price, the separate property proponent takes a proportional separate property interest. Key Words or Phrases -

1. only used if asset is untitled or in purchasing spouse's name alone
2. proportional separate property interest

Title Held in Different Form

A separate property proponent may overcome the general community property presumption by establishing a contrary form of title. Asset title may establish intent to hold property in a form other than community property. If the property is held as joint tenants, tenants by the entirety, or tenancy in common, the court will presume the parties intended to take title in a form other than community property. Key Words or Phrases -

1. title may establish intent to hold property in a form other than community property
2. form of title will defeat general community property presumption
3. joint tenants, tenants by the entirety, and tenancy in common

Evidence of Agreement to Hold Property in Form Other than Community Property

The general community property presumption can be overcome if the separate property proponent establishes the parties entry into a premarital agreement, or if the parties had entered an agreement during marriage, changing form of asset title. (Transmutation) Key Words or Phrases -

1. premarital (antenuptial) agreement
2. transmutation

Premarital Agreements

A separate property proponent can avoid community property laws by establishing evidence of an agreement to hold property in a form other than community property. Premarital, or antenuptial, agreements usually state that property separately owned by parties, as well as income earned during marriage, will remain separate property. Premarital agreements also limit the surviving spouse's ability to reach property after the other spouse's death. [Marriage of Dawley, 17 Cal. 3d 342 (1976)]

Effect of Premarital Agreement

The effect of a premarital agreement is to contract out of the community property scheme prior to marriage. Key Words or Phrases -

1. premarital agreements represent intent to opt out of community property scheme

Requirements for Valid Premarital Agreement

A valid premarital agreement does not require consideration, but must comply with Statute of Fraud requirements. Compliance with Statute of Frauds requires a premarital agreement to be in writing and to be signed by both parties. Additionally, premarital agreements cannot limit support obligations between spouses [Marriage of Higgason, 10 Cal. 3d 476 (1973)] nor can they promote divorce. [Marriage of Noghrey, 169 Cal. App 3d 326 (1985)] Key Words or Phrases -

1. no consideration required
2. must be in writing and signed by both parties (Statute of Frauds)
3. premarital agreement cannot limit support obligations between parties nor promote divorce

Exceptions to Statute of Frauds Requirement

Exceptions to the Statute of Frauds requirement include:

1) if the promisor fulfills an executory oral promise

2) when the other spouse has detrimentally relied upon the party's oral premarital agreement.

Operation of Premarital Agreements Governed by Statute and Case Law

Premarital agreements entered into prior to January 1, 1986 are governed by statutory code and case law. Premarital agreements entered into after January 1, 1986 are governed by the Uniform Premarital Agreement Act. Premarital agreements are generally treated the same under the pre-1986 as under the post 1986 statute. Key Words or Phrases -

1. treatment under post 1986 statute identical to treatment under pre-1986 statute and case law.

Agreements Made by Parties During Marriage

Separate property proponent may overcome the general community property presumption by presenting evidence of a valid agreement (transmutation) made by the parties during marriage holding the asset in a form other than community property. Key Words or Phrases -

1. transmutation is a valid agreement made during marriage to hold property in a form other than community property

Requirements for a Valid Transmutation

Transmutations must be separated into two types. Those agreements made prior to January 1, 1985 and those made after January 1, 1985.

Requirements for Valid Transmutations Prior to 1985

Agreements made prior to 1985 are still governed by liberal case law. Courts recognize explicit oral promises to hold property in a form other than community property and also recognizes agreements implied from behavior. [Estate of Nelson, 224 Cal. App. 2d 138 (1964)] Key Words or Phrases -

1. transmutation agreement made prior to January 1, 1985 can be evidenced by explicit oral promises as well as behavior

Requirements for Valid Transmutations Made After 1985

Agreements made after January 1, 1985 must have a written statement signed by the party whose interest is adversely affected.

Taking Title in a Form Indicating A Gift to the Other Party

Prior to 1975, if title was placed in the name of a married woman, the husband was deemed to be making a gift, and the wife took the property as her separate property (Married Woman's Special Presumption). Key Words or Phrases -

1. Married Woman's Special Presumption

Rational for Married Woman's Special Presumption

Prior to 1975 the husband was deemed to have total control over disposition of the community property. After 1975 the spouses were given joint control. Key Words or Phrases -

1. prior to 1975 husband had control over disposition of community property
2. after 1975, spouses equally share control over community property

Application of Married Woman's Special Presumption

The presumption applied when a married woman received title in her name alone, shared title with a third party outside the marriage, or when the husband and wife took title in form of tenants in common. This presumption may still apply to title placed in a married woman's name prior to 1975, and, if title is taken after 1975, a reasonable inference of gift arises. Key Words or Phrases -

1. applies when title in married woman's name alone, or with a third party, or husband and wife take property as tenants in common
2. today, title in married woman's name alone creates reasonable inference of gift

Overcoming the Married Woman's Special Presumption

The presumption can be overcome between parties by showing that the husband did not place title in his wife's name. [Louknitsky v. Louknitsky, 123 Cal. App. 2d 406 (1954)]. Simple tracing to a community source will not rebut the gift presumption. Key Words or Phrases -

1. overcome presumption by showing husband did not place title in wife's name
2. simple tracing not enough to rebut the presumption

Parties’ Actions

Parties’ actions may indicate intent to take an asset in a form other than community property. Parties may take title in a joint form but pay disproportionate amounts drawn from separate property. The disproportionate contribution is considered a gift of the separate property to the community. Key Words or Phrases -

1. separate property contribution towards purchase of jointly titled asset considered a gift to the community

Marriage of Lucas

The Marriage of Lucas, decided in 1980, holds that a separate property contributor to the purchase of a jointly titled asset is deemed to have made a gift to the community. A separate property proponent can overcome the gift presumption by establishing evidence of an understanding or agreement, oral or written, that parties would maintain a separate property interest.

Anti-Lucas - Modified Lucas (Divorce)

Lucas still applies when considering marriages ending in death. Marriages ending in divorce are now subject to Cal. Civ. Code Section 4800.1. Key Words or Phrases -

1. Cal. Civ. Code 4800.1

Joint Title Presumption (Cal. Civ. Code Section 4800.1)

All property held in joint form is presumed community property, unless there is a written agreement or statement in title that it is separate property and not community property.

Joint Title Presumption

The joint title presumption applies to all property held in joint forms of title, including joint tenancy, tenancy in common, tenancy by the entirety, and community property.

Recovery for Party Proving Existence of Separate Property Interest

If the separate property proponent proves, by means of a written agreement or statement in title, that a separate property interest was to be preserved, they receive original separate property contribution, proportional share of the property's appreciated value, and a community property share of the remainder.

If Proponent Cannot Meet Statutory (4800.1) Burden, then Entitled to Reimbursement under 4800.2

If a separate property proponent cannot meet the burden of establishing an agreement to maintain a separate property interest under 4800.1, he is entitled to simple reimbursement of his contribution, without interest or a proportionate share of property appreciation. Key Words or Phrases -

1. 4800.2 gives the unsuccessful separate property proponent simple reimbursement of the separate property contribution.

Retroactive Application of Joint Title Presumption & SP Contribution to CP

Retroactive application of the joint title presumption and reimbursement for SP contributions toward CP unconstitutionally deprives persons of their vested property rights.

Timeline for Proper Application of 4800.1 and 4800.2

Refusal to apply statutes retroactively creates a confusing time line. Titles acquired prior to 1984 are controlled by the Lucas case, titles acquired between 1984 and 1987 are controlled by the 1983 version of 4800.1 and 4800.2 and titles acquired after January 1, 1987 are controlled by the 1986 version of 4800.1 and 4800.2. Key Words or Phrases -

1. applicability of the different rules and sections depends upon the date of title acquisition

Commingling of Separate Property Funds and Community Property Funds

Commingling occurs when separate property and community property are mixed in a single bank account. The funds are presumed to be community property and if the separate property proponent wishes to prove an asset was purchased with separate property funds, they must do so through tracing.

Separate Property Proponent Allowed to Trace Funds to Separate Property Source

A separate property proponent must show that funds taken from a commingled account came from a separate property source. The separate property proponent will attempt to trace the purchase funds to her separate property. Key Words or Phrases -

1. funds may be traced to a separate property source

Presumptions Governing Commingled Funds

Courts will consider a separate property claim in light of two presumptions. First, separate property funds are used to pay expenses only when the community funds are depleted. Secondly, a gift is presumed when separate property funds are used to pay family expense unless rebutted by evidence of reimbursement agreement. Key Words or Phrases -

1. presumption

Two Tracing Methods Used by Separate Property Proponent

A separate property proponent attempting to establish the nature of an asset purchased with commingled funds can use direct tracing or indirect tracing. Key Words or Phrases -

1. direct tracing
2. indirect tracing

Direct Tracing

When using direct tracing to establish character of an asset purchased with commingled funds, the separate property proponent must show the availability of separate funds and the intention of using those funds for asset purchase. [Marriage of Mix, 14 Cal. 3d 604 (1975)] Key Words or Phrases -

1. show availability of separate property funds and intent to use for purchase of asset

Indirect Tracing

When using indirect tracing to establish the character of an asset purchased with commingled funds, the separate property proponent must show that, at time of purchase, there were no community funds available. Therefore the asset must have been purchased with separate funds. Key Words or Phrases -

1. show lack of community funds at the time of asset acquisition

Failure to Trace

If the separate property proponent fails to successfully trace the funds to separate property, the court classifies the commingled account as community property.

Classification of Business Profits

A business may be brought into a marriage as separate property of one spouse. When the spouse works in this business during marriage, a portion of the profits earned are considered community property. Courts have developed two different methods for proper apportionment of these profits. These methods are named the Pereira and the Van Camp Accounting Methods. Key Words or Phrases -

1. separate property business will create profits which may be considered community property
2. Pereira Accounting method
3. Van Camp Accounting method

Pereira Accounting Method

The court considers the initial value of the separate property business at the time of marriage, then imputes a fair rate of return upon this value. The fair rate of return belongs to the separate property owner and the remainder is considered community property. Courts use this method when the individual owner had a great deal to do with the success of the business. This method leaves a greater sum to community property. Key Words or Phrases -

1. estimate a fair rate of return upon the initial value and give to separate property owner
2. use when individual had a great deal to do with success of business
3. more beneficial to the community

Van Camp Accounting Method

Courts use this method when the success of the business results from market conditions because this method leaves a greater sum to the separate property proponent.

The court values the separate property owner’s services at a fair market rate, then subtracts paid family expenses. Whatever value of the services remains is considered community property. The separate property proponent retains all other value as their separate property.

Community Funds Used to Improve Separate Property

If a spouse uses community funds to improve the separate property of other spouse, courts imply a gift of the community funds with no right of reimbursement.

If a spouse uses community property to improve their own separate property, courts grant the community a right to reimbursement, or the right to the value of the improvement in light of appreciation, whichever value is greater.

Assets Acquired through Credit

Credit acquired by one spouse during marriage is presumed community property. Therefore, purchases made through extended credit are also characterized as community property.

Lawful Marriage

Typically, formation of economic community begins with a lawful marriage. A legal marriage requires legal capacity and performance of legal requirements. Key Words or Phrases -

1. legal capacity
2. performance of legal requirements

Legal Capacity

A valid marriage requires legal capacity. Legal capacity requires:

1) compliance with statutory restrictions prohibiting marriage among degrees of kinship, and

2) the parties cannot be concurrently married to another.

Elements Making Marriage Voidable

Elements such as

1) fraud,

2) coercion,

3) under age, and

4) lack of sexual capacity

may make the marriage voidable at the request of an interested party.

Legal Requirements

Legal requirements in California consist of a licensed, registered, and witnessed ceremony culminating in a public announcement of marriage. Marriages not in compliance are not recognized in California, unless the marriage is afforded legal recognition in another jurisdiction. Key Words or Phrases -

1. a licensed, registered, and witnessed ceremony culminating in a public announcement marriage
2. a marriage must comply with the legal requirements or be legally recognized in another jurisdiction

Putative Spouse

A person who is not lawfully married, but has an objectively reasonable, good faith belief that she is lawfully married is afforded the same legal protection as if the marriage were lawful. If a person leaves both a putative and a lawful spouse, the courts will divide the estate equally between the two parties. Key Words or Phrases -

1. must have an objectively reasonable good faith belief that she is lawfully married
2. putative spouse given equal protection as lawfully married spouse

Loss of Putative Status

Once an unlawfully married spouse no longer has an objectively reasonable, good faith belief, she loses status as putative spouse. [Lazzarevich v. Lazzarevich, 88 Cal. App. 2d 708 (1948)]

Unmarried Cohabitants Cannot Avail Community Property Law

If parties live together but do not intend to legally marry, California will not apply community property law and instead apply general contract law.

Courts Apply Contract Law to Cohabitants

Courts are willing to apply contract law to cohabitant agreement and have enforced express contracts as well as implied contracts. Courts have been unwilling to enforce a contract between cohabitants if based upon sexual services. Key Words or Phrases -

1. California applies basic contract law to enforce agreements between cohabitants

Unmarried Cohabitant Rights as Against Third Parties

Unmarried cohabitants cannot make a claim against third parties nor the government regarding rights which flow from a marital relationship, as cohabitants do not possess such rights.

Spousal Control of Separate Property

Each spouse has complete control over his or her separate property.

Equal Management & Control of Community Property

In 1975, spouses were given equal control over community property, meaning they may buy, encumber, sell, and trade all of the community property. But each spouse still maintains testamentary control over their ½ interest in the community property.

Both spouses must agree to encumber, lease for more than one year, convey, or sell any real property characterized as community property

Each spouse must agree to encumber, lease for more than one year, convey or sell any piece of real property classified as community property. [Ca. Civ. Code Section 5127] Key Words or Phrases -

1. each spouse must agree to transfer real property belonging to the community

Nonconsenting Spouse has Power to Void

If property is transferred without consent, the nonconsenting spouse has one year to void the transfer, but must tender the purchase price back to the buyer. A nonconsenting spouse may also void any encumbrance placed upon the community property without his/her consent, in its entirety. [Droger v. Friedman, 283 Cal. Rptr. 584 (1991)] Key Words or Phrases -

1. nonconsenting spouse given power to void transaction

Sale to Good Faith Purchaser

The power to void does not affect transfers to good faith purchasers.

Personal Property Belonging to the Community Cannot be Given Away by Spouse without Written Consent

A spouse cannot sell, convey, or encumber community property used as a family dwelling, or community property household furnishings, or clothing of the spouse or minor children without the written consent of the other spouse. [Ca. Civ. Code 5125(c)] Key Words or Phrases -

1. spouse cannot sell, convey, or encumber community property used as a family dwelling, or community property household furnishings, or clothing of the spouse or minor children without written consent

Nonconsenting Spouse has Power to Void

If an unauthorized sale of personal property belonging to the community does occur, the nonconsenting spouse may void the transaction at anytime without returning the consideration paid. Key Words or Phrases -

1. nonconsenting spouse has power to void

Bank Account in Spouse’s Name Alone

If a spouse keeps an account in their name alone and it is held for their own exclusive benefit, the account cannot be reached by the other spouse.

Control of Business

If a spouse has primary management and control of a separate property business, or a community property business, she can act alone in all transactions except those consisting of any sale, lease, exchange, encumbrance, or disposition of all or substantially all of the personal property used in the operation of the business. [Cal. Civ. Code Section 5125(d)]. The nonconsenting spouse is given the power to void the transaction, but only if the action substantially impairs the spouse’s ½ interest [Ca. Civ. Code section 5125.1] Key Words or Phrases -

1. primary management and control
2. consisting of a sale, lease, exchange, encumbrance, or disposition of all or substantially all
3. nonconsenting spouse may void only if interest is substantially impaired

Checks on Managerial Powers to Make Gifts of CP

To effectuate a valid gift of community property, one spouse must have the written consent of the other. However, a nonconsenting spouse’s subsequent behavior may act to ratify the gift.

A nonconsenting spouse may void the unauthorized gift in its entirety during the lifetime of the gifting spouse. After the death of the gifting spouse, a nonconsenting spouse may avoid only 1/2 of the gift.

Spouse’s Fiduciary Duty to Other Spouse

Each spouse has a fiduciary duty toward the other spouse and must act fairly in matters concerning control and distribution of community property.

Fiduciary Duty

The fiduciary duty requires spouses to share in the control of the community assets, and one spouse may not diminish the community assets without permission of the other.

Other Spousal Duties Owed

In addition to the fiduciary duty, the managing spouse has a duty to deal in good faith with the nonmanaging spouse, a duty to account to other spouse, and a duty to secure nonmanaging spouse's consent prior to distribution of community asset. [Ca. Civ. Code Section 5125(e)] Key Words or Phrases -

1. duty to deal in good faith

2. duty to account

3. duty to secure consent

Nonmanaging Spouse Remedy for Breach of Duty

If the managing spouse breaches her duty, the nonmanaging spouse may 1) request an accounting of the community property, 2) make a claim against the managing spouse's separate property for value of loss, or 3) request his name be added to title to reflect the community nature of the asset. Key Words or Phrases -

1. accounting
2. claim for value of loss
3. add name to title

Statute of Limitations

Nonmanaging spouse, still married to managing spouse, has three years from date of discovery to bring action. But an action may always be brought upon death or divorce. [Cal. Civ. Code Section 5125.1] Key Words or Phrases -

1. three year statute of limitations
2. can always be brought in cases of death or divorce

Creditors Rights Determined Date Debt is Incurred

A creditor's right to recovery depends upon the date the debt was incurred. Tort debt is incurred at time tort occurs; contract debt occurs at time of contract formation; a spouse's child and spousal support obligations from a prior marriage are treated as debts made before the current marriage; and in all other cases, a debt is incurred the date the obligation arises. [Ca. Civ. Code Section 5120 et seq.] Key Words or Phrases -

1. tort debt incurred date tort occurs
2. contract debt incurred date of contract formation
3. prior spousal and child support debt obligations treated as incurred prior to marriage
4. all other debt incurred as of date obligation arose

Property Liable for Debt

When taking property to satisfy debt obligations, creditors are subject to limitations if a debt is incurred prior to marriage, then creditors can reach all community property plus the debtor’s separate property. The other spouse's separate property cannot be reached. A debt incurred by one spouse during marriage exposes all community property and the debtor's separate property. Key Words or Phrases -

1. debt incurred prior to marriage
2. debt incurred by one spouse during marriage

Debt for Necessities Exception

Each spouse will be liable for debt incurred for his spouse's necessities. Necessities include expenses appropriate to sustain the spouse’s quality of life. But a spouse will not be liable for any debt incurred during separation, unless the debt was incurred for “common necessities.” Common necessities are restricted to basic living expenses. Key Words or Phrases -

1. necessities
2. common necessities

Payment of Tort Judgement

Generally a person is not liable for payment of a tort judgement against his spouse, unless the person would have been liable despite the marriage. [Cal. Civ. Code Section 5122(a)] Key Words or Phrases -

1. spouse not liable for payment of tort judgement unless he would have been liable without marriage

Liability for Tort Judgment

Creditors can reach both separate and community property interests of the tortious spouse. But creditors are limited in the order upon which they can collect.

Creditor (Tortious Conduct) Takes Property According to Established Order

Creditors will be able to reach property so long as the required order of taking is followed

1. If the tortious conduct occurred while acting for benefit of community: the creditor must first pursue community property, and then separate property of the tortious spouse;

2. If the tortious conduct occurred while in activity having no benefit to community: the creditor must first pursue the separate property of the tortious spouse and then the community property interest of tortious spouse.