Effect Of Parties' Actions on Characterization of Assets

Effect of Commingled Bank Accounts, generally

The mere fact that SP funds are commingled with CP funds does not change or “transmute” the SP into CP

Tracing Commingled Funds: Family Expense Presumption

Expenditures for family expenses (food, housing, clothing, vacations) are presumed to have been made with community funds to the extent they were available, even if separate funds were also available

Tracing Commingled Funds: Gift to Community Presumption

Absent evidence of a reimbursement agreement, a gift is presumed when separate funds are used to pay family expenses, and therefore the paying party is not entitled to reimbursement

Exhaustion Tracing Method to overcome Family Expenditure/Gift Presumptions

Requires showing that, when the asset was purchased, all community funds in the account had already been exhausted by the payment of the family expenses, and therefore the asset must have been purchased with separate funds.

Direct Tracing Method to overcome Family Expenditure/Gift Presumptions

Requires showing that when the asset was purchased, there were separate funds available, and the spouse intended to use those separate funds to purchase an SP asset instead. AKA the “quick in, quick out” method. A party may show that they deposited separate funds into the account shortly before making a specific payment, especially if the payment was the same as the amount deposited.

Proponent of SP May not use Recapitulative Accounting

The SP proponent may not simply show that total family expenses exceeded total community income and conclude that all remaining funds and assets purchased from the commingled account are that party’s SP. The burden is to show that each asset was purchased with SP funds. This method does not necessarily show that CP funds were unavailable when each asset was purchased

Jointly Titled Commingled Accounts

The Probate Code provides that the contents of a bank account held jointly by married persons is presumptively CP, but this presumption may be overcome by tracing funds to one spouse’s SP (unless the spouses expressly agree that such sums will be CP)

Community Funds used for Installment Purchases

When an installment purchase (such as a mortgage) is made before marriage and CP funds are used to pay off the purchase during the marriage (or if one spouse inherits land during the marriage that is subject to a mortgage and pays off the note with CP funds) then the community estate is entitled to a pro rata portion of the property measured by the percentage of principal debt reduction attributable to the expenditure of community funds. Appreciation is allocated in proportion to each estate’s ownership interest.

Term life insurance

Insures against the risk of death for a defined period

Whole Life insurance

combines term insurance with a savings plan. A whole life premium is first applied to term insurance; the remainder is saved and invested by the insurance company, building up cash value that can be redeemed or borrowed by the policy owner

Term Insurance CP Rules

Term insurance has no cash value. The character of a term policy is determined by the final premium rule. The estate that paid the most recent premium is the owner of the policy, or in the event of the insured’s death, the policy proceeds

Whole Life Insurance CP Rule

Prorated. To the extent that a policy has a current cash value, the cash value is CP in proportion to the percentage of premiums paid by the community. When an insured dies, the cash value of the policy before their death should be apportioned according to the premiums paid by each estate, and ownership of the remainder of the proceeds (the portion attributable to term insurance) should be determined by the final premium rule.

Property Insurance Funds CP

Property insurance proceeds can take either the character of the insured property or of the insurance premiums. Several cases have held that even if CP was used to pay the premiums on a policy insuring one spouse’s SP, the insurance proceeds arising from casualty to that property remain SP, but the community may have a claim for reimbursement.

Community Funds Used to Improve Own SP

When a spouse uses community funds to improve their own SP (“feathering their own nest” no gift is presumed. Expenditure of CP does not change ownership character of the asset, but the community is entitled to reimbursement for the greater of: (1) the cost of the improvement; or (2) the amount by which the improvement increases the value of the asset. When the asset is realty, the situation is governed by fixtures: improvements become part of the property.

Community Funds Used to Improve Other Spouse’s SP

Traditionally, a gift has been presumed in this case, and the gift presumption can be overcome only by evidence of an agreement to reimburse. However, several intermediate appellate courts have rejected the no-reimbursement rule and reimbursed the community even absent an agreement.

Spouse’s Own Sp Used to Acquire or Improve Other Spouse’s SP

A spouse who makes an SP contribution to the acquisition or improvement of the other spouse’s SP is entitled to reimbursement, without interest or appreciation, of their separate property contribution