Brief Community Property (CA Essay Outline)

California Community Property General Presumption

California is a community property state. All property acquired by either spouse during marriage while domiciled in California is presumptively community property (CP). All property acquired before marriage, after permanent separation or divorce, or by gift, bequest, devise, or descent-along with rents, issues, and profits derived from separate property-is presumptively separate property (SP).

Permanent Separation

Permanent separation occurs when there is a complete and final break in the marital relationship, which occurs when:

1) one spouse communicates to the other an intent to end the marriage, and

2) the spouse's conduct is consistent with that intent.

Earnings and accumulations acquired after the date of permanent separation are classified as separate property.

Putative Spouse and Quasi-Marital Property (QMP)

A putative spouse is a party to a void or voidable marriage who has a good-faith belief that the marriage was legally valid.

Property acquired during a void or voidable marriage that would have been CP/QCP in a valid marriage is classified as quasi-marital property (QMP) upon request of the putative spouse and is divided in same manner as CP.

Quasi-Community Property (QCP)

Quasi-community property (QCP) is all real or personal property acquired by either spouse while domiciled in a non-CP jurisdiction that would have been classified as CP if the acquiring spouse been domiciled in California at the time of acquisition.

At divorce, QCP is divided equally.

At death, the surviving spouse has a one-half interest in QCP titled in the decedent's name.

Premarital Agreement Enforceability

Premarital agreements must be in writing and signed by both parties.

An agreement is deemed involuntary unless the party against whom enforcement is sought:

1) was represented by independent legal counsel or executed a separate written waiver;

2) had at least 7 calendar days between presentation and execution;

3) if unrepresented, was fully informed in writing of terms and rights waived in a proficient language; and

4) was no from duress, fraud, or undue influence.

Must not be unconscionable at the time of execution:

1) must have adequate knowledge of wealth of other party

2) or waive right to disclosure in writing

Child support cannot be waived.

Spousal support can be waived if independent counsel and not unconscionable at time of dissolution.

Transmutation (Post-1/1/1985)

A transmutation is an agreement between spouses to change the ownership characterization of property. Beginning January 1, 1985, a valid transmutation requires a writing containing an express declaration of ownership change, with signed consent of the adversely affected spouse.

Exception: Personal gifts between spouses of insubstantial value relative to the marital estate does not need to be in writing.

Married Women's Special Presumption

Property acquired in writing by a married woman prior to January 1, 1975, is presumed to be her SP.

If acquired with a third party, it is presumed a tenancy in common.

If acquired with her husband as "husband and wife," it is presumed CP unless a contrary intent appears in the instrument.

Lucas Rule (Joint Title at Death)

At death, all property held in joint title between spouses is presumed to be CP.

A spouse’s SP contributions to down payments, improvements, or principal reduction (DIP) are presumed to be gifts to the community, and no right of reimbursement exists unless there is an express written agreement.

Anti-Lucas Rule (Joint Title at Divorce)

At divorce or permanent separation, all property held in joint title between spouses is presumed CP, unless rebutted by an express agreement or clear statement in title.

Unlike Lucas, a spouse’s SP contributions may be reimbursed without interest for down payments, improvements, and principal payments (DIP).

Tracing Commingled Funds

When SP and CP funds are commingled, the SP proponent must trace funds to show an asset was acquired with SP.

1) Exhaustion Method: Demonstrates all CP funds were exhausted by family expenses at the time of purchase, leaving only SP funds.

2) Direct Tracing Method: Demonstrates sufficient SP funds were available at the time of purchase and the SP owner intended to use SP funds.

Un-traceable funds are CP.

Pereira Approach (CP Labor Enhancing SP Business)

The Pereira approach applies when SP business’ growth during marriage is primarily attributable to the personal skills, labor, and management of the operating spouse.

1) SP Interest = Initial SP capital contribution + reasonable rate of return (10% per year).

2) CP Interest = Fair market value of business at dissolution - SP interest.

Van Camp Approach (CP Labor Enhancing SP Business)

The Van Camp approach applies when SP business’ growth during marriage is primarily attributable to the inherent character or capital of the business.

1) CP Interest: Fair market value of spouse's professional services - family expenses paid from business earnings or salary already taken.

2) SP Interest: Fair market value of business at dissolution - CP interest.

Reverse Pereira and Reverse Van Camp

When a spouse operates a CP business after separation using SP labor, the court will use one of two methods to calculate distribution:

1) Reverse Pereira (favors CP): CP interest = value at separation + reasonable rate of return; remaining growth is SP.

2) Reverse Van Camp (favors SP): SP interest = fair market salary - salary drawn; remaining value is CP.

CP Contributions to Own SP Improvements

When a spouse uses CP funds to improve their own SP, the community is entitled to reimbursement for the greater of:

1) the actual cost of the improvements, or

2) the increased value of the property

CP Contributions to Other Spouse's SP Improvements

Jurisdictional split:

1) Traditional View: CP funds spent on the other spouse's SP are presumed to be a gift unless a written reimbursement agreement exists.

2) Modern View: Rejects the gift presumption and grants the community a right to reimbursement.

Moore/Marsden Rule (CP Contributions to SP Real Property)

When CP funds are used to reduce mortgage principal on SP real estate, the community acquires a proportional ownership interest.

1) CP Ownership % = CP principal reduction ÷ total initial loan amount.

2) CP Value Share = CP Ownership % × total capital appreciation during marriage. (Interest, taxes, and insurance payments are excluded.)

Personal Injury Recovery

Classification depends on when the cause of action arose (time of injury).

1) During Marriage: Recovery is CP. At divorce, the courts will award the injured spouse the entire recovery (unless justice requires another division).

2) After Separation: Recovery is SP.

Intra-Spousal Injury: Tortfeasor spouse's SP must be exhausted before CP is reached.

Pension Plans and the Time Rule

Pension benefits earned during marriage is CP regardless of vesting status. If earned prior to and during the marriage, the court uses the Time Rule to calculate the CP share:

1) CP % = years married while earning pension divided by total years earning pension.

2) Division Methods: the court uses either Reservation of Jurisdiction (payable when eligible) or Cash-Out (present value buyout).

Stock Options Apportionment

Stock options vesting during marriage are CP.

Options awarded during marriage, but exercisable post-separation are apportioned based on intent:

1) If awarded for past service, the Time Rule calculates the CP share.

2) If awarded to encourage future post-divorce performance, they are SP.

Disability, Workers' Compensation, and Severance Pay

Classified according to what the benefit is intended to replace.

1) CP: If intended to replace lost marital earnings or earned retirement benefits.

2) SP: If intended to replace post-separation future earnings or compensate post-divorce earnings loss.

Educational Expenses and Training Reimbursement

Education and degrees are not CP assets. At divorce, the community is entitled to reimbursement with interest for CP contributions to education/training that substantially enhanced earning capacity. Rebutted/reduced if:

1) community substantially benefited (>10 years elapsed);

2) offset by CP-funded education of the other spouse; or

3) education reduces spousal support need.

Life Insurance (Whole vs Term)

1) Whole Life (accumulates cash value): CP and SP hold proportional percentage shares based on total premium payments contributed by each estate.

2) Term Life (no cash value): Classified based on the estate (CP or SP) that paid the premium for the final term coverage period.

Business Goodwill

Business goodwill earned during marriage is CP. Valued via the Excess Earnings Method:

1) calculate professional spouse's annual net earnings;

2) subtract fair return for business and subtract earnings of a peer professional;

3) capitalize the excess earnings over the duration of the marriage.

Community Liability for Debts and Premarital Earnings Exception

The community estate is liable for all debts incurred by either spouse prior to or during marriage.

Exception: Earnings of a non-debtor spouse are exempt from premarital debts if kept in a separate account where the debtor spouse has no withdrawal rights and funds are not commingled.

Order of Debt Satisfaction

1) Community Benefit Debts: Satisfied first from CP, then debtor spouse's SP, then non-debtor spouse's SP.

2) Separate Interest Debts/Torts (not for benefit of community): Satisfied first from debtor spouse's SP, then from CP.

Debts for Necessaries of Life

A non-debtor spouse's SP is liable for debts incurred by the other spouse during marriage if incurred for "necessaries of life" (food, shelter, medical care).

Post-separation but before divorce, non-debtor spouse SP remains liable for "common necessaries of life".

Distribution of Property at Death

At death, a decedent spouse may devise 50% of CP/QCP and 100% of their SP.

If dying intestate, the surviving spouse receives 100% of CP/QCP, and 100%, 50%, or 33% of decedent's SP depending on whether decedent leaves surviving issue or parents.