Community property

At divorce: o CP is divided equally. o SP belongs to each spouse and is not divided by the court.

At death: o if spouse dies without will , all CP goes to surviving spouse. o SP also goes to surviving spouse if there are no other heirs
(parents/children).
 Otherwise, surviving spouse receives ½ or 1/3 of decedent’s
SP.
 If heirs, spouse gets at least 1/3. o if spouse dies with will, that spouse may devise ½ CP and all of his/her SP to anyone.
 Ex: specifies all property go to nephew at death.

CP definition: o “All property, real or personal, wherever situated, acquired by a married person during marriage while domiciled in this state.”

SP definition: o “All property owned before marriage and all property acquired after marriage by gift, bequest, devise, or descent. Also, the rents, issues, and profits.” o Separate and apart: economic community ends o SP:

property owned before marriage,
 earnings after economic community ends ,
 inheritances received during marriage is SP. o ex: H owns stock before marriage = SP. Dividends that accrue are also SP.

IMPORTANT QUESTIONS TO ASK: o (1) The time of the acquisition, before marriage or after separation, is a significant determinant of the character of the property of the spouses. o (2) The type f acquisition, either through labor or through a gift or inheritance, will also determine whether the property is CP or SP.
FIT (Funds, Intentions, Titles)

There is a presumption that property is CP in CA. o To rebut this, must trace to SP funds . o If something/property is untitled acquired during marriage while in
CA, it is presumptively CP.

FUNDS: In CA, when the title is in one spouse’s name, title does not determine character of property. o Tracing: Always look to the source of funds used to acquire the property.


INTENTIONS: (Intentions only apply if there’s been a valid transmutation)
H and W may have intended/agreed property was to become SP even if
Community funds were used to buy car. How to change property?
o Transmutation: As of 1985, to transmute, there must be:

(1) an express declaration
 (2) in writing
 (3) by the spouse whose interest in the property is adversely affected.
o Ex: “ To W, as her separate property.”
 Ex: W buys chair with her funds from savings (it’s $25). H and W separate. Chair is valued at $25,000. How to characterize and divide? o Chair is untitled so presumptively CP. Using W’s funds doesn’t transmute. Chair would be divided 50/50 with the $25,000.
o If W wanted to keep chair, H could receive another item of equal value from CP or she could buy him out.

Ex: Same hypo but W receives inheritance of 10K from aunt and opens a different savings account in her name, puts 10K into that account. She withdraws 1K from the account and uses $25 to buy chair. How to characterize and divide?
o It is untitled, presumptively CP. But W would try to rebut by tracing to SP funds. If W can show funds used to purchase chair came from inheritance, she would be able to rebut.
 Ex: H and W use W’s savings from her earnings to buy $10 worth of stock.
They put it in W’s name. Orally agree stock will be W’s SP. H and W separate. W wants to claims stock as SP.
o Funds used to buy stock are CP because came from earnings during marriage.
o Title is in W’s name but title isn’t determinative of character.
o Intentions are that stock will be W’s SP, but intentions were orally expressed.
o Property was acquired during marriage before separation.
Presumption = CP. W cannot rebut by tracing b/c funds used to buy stock are CP (came from her earnings). Title doesn't help. Oral agreement isn’t sufficient because as of ’85, must be in writing and expressly declare the spouse adversely affected, here H, consented to giving up interest in property. Value of stock will be split evenly.
Premarital Agreements (Antinuptial/Prenuptial)

Challenging Premarital Agreements o To protect economically inferior spouse, challenge agreement because there could’ve been:
 (1) fraud
 (2) duress

(3) undue influence

o Nelson : H and W had one-sided agreement. W was pregnant and young. Older H made her sign K, she didn’t want to have child out of wedlock. W waived spousal support. Undue influence here — grossly oppressive and unfair advantage of necessities/distress. o Dawley : major provision in agreement concerned mutual separate property clauses. (These are routinely upheld today.) W claimed undue influence but she was educated and had counsel, so no undue influence even though she faced unplanned pregnancy. H also agreed to support W and child for 14 months. The waiver of spousal support was enforceable because it didn’t waive all of it.

Timeline of Premarital Agreements (1986- Present) o Prior to 1986, case law allowed evidence of implied modification or retraction based on oral agreement or conduct. o Premarital Agreement Act of 1986:
 only applies to premarital agreements executed on or after
January 1, 1986.
 former law continues to apply to agreements made prior to
1986.

General requirements:

(1) must be in writing

(2) signed by both parties. o Simply adhering to these requirements don’t automatically render enforceability.

*** Must also abide by K law.
 Shaban : Parol evidence isn’t allowed to insert missing terms and conditions absent from the agreement to make the agreement enforceable, although such evidence would be allowed to interpret existing terms .

*** Writing requirement is subject to Statute of Frauds exception – estoppel. (Partial performance of a couple’s oral agreement qualifies as exception to the requirements of the Statute of Frauds.) o Party seeking enforcement must have performed bargain and in so doing irretrievable changed his/her position.

Subjects of Premarital Agreements o Property o Choice of law o Personal rights and obligations o Child support is not included.

Defenses to Enforceability o 2 methods to invalidate premarital agreement
 (1) Prove the agreement was not executed voluntarily


Must show: (1) fraud, (2) coercion, (3) lack of knowledge.

Involuntary standard: California Supreme Court said while retention of independent legal counsel was a relevant factor in determining voluntariness, there are other factors: o (1) proximity of execution of agreement to wedding o (2) surprise from presentation of agreement o (3) presence/absence of independent counsel or opportunity to consult counsel o (4) inequality of bargaining power (age and sophistication of parties) o (5) disclosure of assets o (6) understanding and awareness of agreement.
 (2) party against enforcement must prove both that the agreement was (1) unconscionable when it was executed and that (2) before the execution, the spouse was not provided with fair and reasonable disclosure of the property or financial obligations of the party.
 There must also be proof the party didn’t voluntarily waive, in writing, his/her disclosure of the property or financial obligations, and party di dn’t have actual or reasonably could not have had adequate knowledge of property/obligations.
 If there’s an adequate disclosure, the agreement will be upheld regardless of degree of unconscionability at time of execution.
2002 Premarital Agreement Act Amendments

Subjects included: o Spousal support

New provision includes that spousal support provisions in agreements will not be enforceable unless the party against whom enforcement is sought was represented by independent counsel at the time the agreement was signed. o Even if that party was represented by independent counsel, spousal support provisions can still be held unenforceable if they are unconscionable at time of enforcement.
2002 Enforceability

Added requirements regarding voluntariness.

Agreement shall not be deemed voluntarily executed unless the party against whom enforcement was sought was represented by legal counsel at time premarital agreement was signed, or after being advised to seek

independent legal counsel, expressly waived representation in a separate writing. o Also must have not had less than 7 calendar days between the time that party was first presented with agreement and advised to seek independent legal counsel and the time the agreement was signed. o If party chooses to waive counsel, must be informed of rights and obligations unrepresented party would be giving up and must have a document declaring they received explanation. o It also cannot have been done under fraud, duress, or undue influence.
Retroactivity on 2002 amendments

Until issue of retroactivity is settled by Supreme Court, trend is toward nonretroactivity.
TRANSMUTATION: Prior to 1985

Could be done by conversation or conduct.

Raphael : object of oral agreement of transmutation was fully performed when agreement was made for it immediately transmuted and converted the SP of each spouse in CP, nothing further remained to be done.

Jafeman : Only evidence supporting agreement to convert H ’s house he owned before marriage to CP was W’s testimony that they referred to it as
“our home.”
Not sufficient.

Changes to transmutation resulted from Marriage of Lucas .

Marriage of Lucas: Transmutation was from CP to SP of W. H and W bought a home part ially with CP and partially with W’s SP. Her funds made up 65% of cost. Court affirmed that H transmuted his interest in home as it was supported by sufficient evidence: W wanted to have title in her name alone, title and registration was in W’s name alone. Although purchase agreement was in H’s name alone, H didn’t object to title and registration being in W’s name. It was H’s silence that resulted in transmutation of asset into W’s SP.
TRANSMUTATION: 1985 to the Present

As of January 1, 1985, more difficult to transmute.

The critical time is the date of the alleged transmutation, NOT the date of the acquisition of the property .

Legislature intended the new rules to apply to all property owned by spouses no matter when property was acquired. o It is the intention of the spouse adversely affected by the transmutation that controls.

Transmutation may be by: o written agreement by an express 5eclaration OR o transfer. o no consideration is needed.

How to accomplish transmutation:

o writing of express declaration and o spouse whose interest in the property is adversely affect must make, join, consent to, or accept express declaration in writing.

Thought transmutation can be accomplished by written agreement, what really matters is written understanding of spouse whose interest is affected.
HOW TO TRANSMUTE

Court said all written docs would be sufficient to transmute. o (1) Must meet express declaration requirement: stating characterization of ownership of property is being changed.
 Words like “transmutation,” “CP,” and “SP” were magic words.
 Magic words not required but language must show the spouse affected knows that he/she is giving up their interest in the property.
 Court interpreted language of statute to preclude introduction of extrinsic evidence to supplement written document.
Express declaration was supposed to get rid of that.
Extrinsic evidence can’t be used to prove oral agreement. o (2) The writing must show a spouse truly intended a transmutation such as adding a sentence indicating he was giving up his interest in stocks or directing that the stock should be transferred to her

Points: name as her sole and separate property.
 Mere transfer isn’t enough. o No extrinsic evidence o No exceptions to Statute of Frauds
GIFT EXCEPTIONS TO TRANSMUTATION

Not all transmutations of marital property should be in writing.

1985 transmutation statute excludes certain gifts from express declaration requirement.

Limits on the exclusion is required to be: o (1) A gift between the spouses of clothing, wearing apparel, jewelry and other tangible articles of a personal nature, (2) that is used solely or principally by the spouse to whom the gift was made, and
(3) that is not substantial in value taking into consideration the circumstances of the marriage.

All requirements must be met or there has to be an express declaration in writing to transmute the gift to the SP of donee spouse.

Steinberger : Ring was bought for W. Court found it was substantial in value. Wouldn't be considered converted to SP without writing required. If
W wanted to keep ringt, she would owe H ½ value of ring. The ring was purchased with community funds and there was no express declaration in writing of H giving up his interest in CP.


Neighbors
: W bought H birthday car with her SP funds. Car doesn’t count as a tangible article. If car were to be CP, W would have right to reimbursement of her SP funds.
COMMINGLED OR OTHERWISE COMBINED EXCEPTION TO
TRANSMUTATION

Family Code states the commingling rules will govern characterization of commingled property.

Commingling refers to separate and community funds being deposited in a bank account or other type of account.

Combined scenario: when spouses use SP and CP funds to purchase an asset and take title in joint form. o At divorce, when property is held in joint form and there are
“combined” funds used to purchase the asset, Family Code controls characterization of that property.
STATEMENT IN A WILL ON TRANSMUTATION

In some cases, a statement in a will can transmute property.

A statement would not be admissible as evidence of a transmutation of the property in a proceeding commenced before the death of the person who made the will. o If H and W divorce, H would change his mind about giving up something to W as her SP. Also, a will does not become effective until the death of decedent, so H can change will up to that point.

IMPORTANT: Transmutation is effective from the time it was made, and only another transmutation would change it back to a different character.
EVIDENTIARY PRESUMPTIONS:
General CP Presumption:

property acquired during marriage is presumed to be CP. o Unless rebutted by spouse who claims property is SP, presumption is conclusive.

At death: o if one spouse dies without a will, all CP will go to surviving spouse.
A spouse has right to will ½ of CP to anyone chosen by testator.
 Ex: H and W buy piano using W’s inherited funds. P was acquired during marriage. Proof that it was acquire during marriage will raise the CP presumption. Tracing can be used to rebut this, however.

Ex: H and W marry, H dies without will. W finds box of cash with $100K and H’s brother claims that money goes to him as H’s SP. W claims it’s
CP and belongs to her. o Problem here is little evidence. $100K could be either CP or SP. o Formulation of general CP presumption as property acquired during marriage doesn’t help—unknown how and when funds were acquired.

o Courts have held the general CP presumption encompasses property possessed during marriage as well as property acquired during marriage. o RULE: So, after a long marriage, where there is limited evidence of the source of the founds, the general CP presumption will apply to property possessed during the marriage. o H’s brother wouldn’t be able to trace to a SP source so $100K would be CP.
Short Marriages and Burden of Proof on General CP Presumption:

Standard of proof for rebutting the general CP presumption: o preponderance of the evidence.

Does possessed formulation apply to short marriages where evidence can be inferred as to the source of the funds? o Probably wouldn't want to rely on the possessed formulation. o Mahoney : W and son from prior marriage claimed proceeds of a flight insurance policy H bought for $1. It was clear it was bought during the marriage, but unclear whether the $1 used to purchase the policy was acquired before or during the marriage. Married only
2 months before crash. Determined proceeds were SP and went to son as named beneficiary of policy. Stated W had to establish the policy was acquired with community funds to prove the proceeds were CP, bu t W should’ve been able to raise CP presumption merely by showing the policy was purchased during marriage. Then burden would’ve been on SP proponent, the son, to trace $1 to father’s earnings before marriage.
Presumption When Title is in One Spouse’s Name
 Property titled in one spouse’s name is treated differently from jointly titled property
 Title in one spouse’s name does not mean that the property is SP of that spouse. o General CP presumption applies.
 Ex: H and W buy boat, put title in W’s name, and use funds W received from inheritance. o Common sense says it’s W, but CP presumption applies first. o Boat was acquired during marriage so presumption is raised. o SP proponent, W, has burden of rebutting presumption.
APPORTIONMENT
When couples use CP and SP to purchased property.
 Ex: H and W buy lamp for $10K during marriage. $6K from W’s inheritance and $4K from H’s earnings. Going to divorce. o Characterization of lamp begins with general CP presumption because lamp is untitled and lamp was acquired during marriage. o W could try to rebut presumption through tracing. If she can, she will only rebut partially because $6K was used out of $10K.

o Conclusion would be part SP and part CP. The portion of SP is in direct proportion to the contribution toward the purchase price. o $4K is from community funds. So at divorce, W gets $6K SP and
$2K as her ½ share of CP. H would be entitled to $2k.
Property increase in value.

Ex: Lamp now worth $30K, increased in value by $20K. o 60% of W’s SP is in lamp and 40% of CP is in lamp. o Increase in lamp will also be 60% W’s SP and 40% CP. o $20K increase will be split: $12K (60% increase in value) as W’s
SP and $8K (40% increase in value) as CP. W will be entitled to
$12K as her SP
, $4K as her ½ share of CP, and H $4K as his ½ share of CP. o Then add proportional original contributions to purchase of lamp plus increase in value to determine how lamp will be divided. o At divorce, W will be entitled to $24K value of lamp, and H will be entitled to $6K of value of lamp.
 If W wants lamp, she can buy out H’s share by either giving him $6K or another item valued at $6K.

Property apportioned according to the funds used is called Pro rata apportionment.
THE MARRIED WOMAN’S SPECIAL PRESUMPTION
This is the only separate property presumption in CA CP law: Married
Woman’s Special Presumption.

The presumption is if property was acquired prior to January 1, 1975, by a married woman in an instrument in writing , it is presumed to be her SP. o The title raises the presumption, not when it was acquired.

The presumption is rebutted NOT by source of funds but by the
INTENTION of the husband. o If H didn’t intend gift or didn’t intend to change nature of property, then his testimony can rebut the presumption.

Prior to 1975, H was manager and controller of CP. o Law presumed that because of this, putting title in W’s name signified a gift of CP to her. o The title or deed in W’s name raises the presumption the property is her SP.
 In 1975, Married woman’s special presumption was abolished.
 The Married Woman’s Presumption only applies to property (1) titled in
W’s name (2) prior to January 1, 1975.
JOINT TENANCY DEEDS AND TITLES

Joint tenancy has the right of survivorship. Joint tenancy is initially classified as SP.

Joint tenancy provides that spouses hold undivi ded ½ interest in the joint tenancy.


If spouses use CP to buy the house or any other purchase and hold it in
JT, solution is to divide the property in half at divorce.
Title or Funds

Issue: Purchase made with SP of one spouse or with part SP and part CP.

Rule: As of 1984, all JT property acquired during marriage will be presumed to be CP at divorce. o Rule: When the spouses make an agreement to hold the property jointly, the presumption that arises can only be rebutted by another agreement. o When spouses put property in joint title, CP presumption can never be rebutted by tracing to funds used to buy the property. o Rule: It can only be rebutted by an agreement that the property I not held jointly as of 1984 and the agreement must:
 (1) be in writing OR
 (2) in a clear statement in a deed or title.
Reimbursement of Separate Property

As of 1984, there is a right to reimbursement of contributions to the acquisition of the property to the extent the party traces the contributions to a SP source.
 Ex: If house was purchased in ’84, if W can trace to her SP the $100K contribution to the ac quisition of the house, she’ll be reimbursed without interest. o What about the $250K appreciation of the house?
 Rule: Appreciation will remain CP and will be split between
H and W.
 So if W can trace to her SP contribution, she’ll receive
$100K as reimburse ment plust ½ of the appreciation, $125K and H will receive $125K.

At divorce:

W will receive $225K and H will receive $125K.
Two-Step Analysis: Characterization and Reimbursement

Step One: Characterization o Look only to the title an any agreements about the property. o Once it has been determined that there are no agreements about the property, and the joint tenancy property is characterized as CP, then move to Step Two.

Step Two: Remedy for the Separate Property Contributor

IMPORTANT:
What if there’s an agreement? “ At divorce, house will be part W’s SP.”

Step 1: Characterize —If they divorce, house will initially be presumed CP. Written agreement as SP and CP will be sufficient to rebut the CP presumption.

House will be characterized as W’s SP and will receive house as hers in toto.

*** Step 2: No need to do Step 2 because the house is her SP and not part of community estate

IMPORTANT:
What if the agreement is “At divorce, house will be part W’s SP and part CP?”

Characterize: initially will be presumed CP.
 Apply Step 2? NO. Don’t apply it because it applies only if we characterize the house as ALL CP. The house will be apportioned according to the proportions specified in the agreement.
(Apportionment is the Step Two)
Oral or Written Agreement for Rebuttal?
 What if there’s an agreement about the property but it is oral or implied from conduct? o Rule: As of 1984, if the property was acquired in JT, the agreement
MUST be in writing.
 Oral or implied-from-conduct will not rebut the presumption that JT property is presumed to be CP at divorce.

Rule: Tracing to funds can never rebut CP presumption that arises when spouses’ property is held in joint form.
Oral Agreement Prior to 1984
 What if property was acquired before ’84 and couple had an oral or implied agreement? o Ex: H and W bought a house with W’s $100K SP but acquisition was in ’80. They put title in JT, and at the time they orally agreed that the house would be W’s SP. House has appreciated and is worth $350K. Recently separated. (At this time, oral agreement was permitted to rebut CP presumption at divorce)
 Step One: Characterization:

House is in JT and would be presumed CP at divorce.

Supreme Court refused to apply to writing requirement to acquisitions prior to 1984.

RULE: CP presumption can be rebutted with an oral or implied agreement if the property was acquired prior to 1984
No Agreement Prior to 1984

Same hypo as above but not agreement as to character of the house. So, the house would be characterized as CO at divorce. o W would want to know if she’ll have a right to reimbursement of her
SP contribution as provided by 1984 legislation.

 NO. RULE: Marriage of Lucas held that a SP contributor could receive reimbursement only if there is an agreement between the parties to that effect.

Court viewed the SP contributor as a gift to the community. So, any appreciation would be split between the community. So no reimbursement because they had no reimbursement agreement.
SUMMARY
 Step 2 is to determine if there’s right to reimbursement when there’s been a SP contribution to the acquisition of the property.
 Step 2 is relevant only if there’s been a characterization of CP at Step 1.
 For acquisitions in ’84 or after, there’s a right to reimbursement based on tracing. Appreciation of the property goes to the community
—it’s not apportioned.

For acquisitions prior to ’84, reimbursement is available to the SP contributor only if there’s an agreement to that affect
. It can be oral, implied, or written. If no agreement regarding reimbursement, considered a gift to the community.
COMMUNITY PROPERTY DEEDS AND TITLES

Couples can hold property in CP deeds and titles, not just JT.
1987 Amendments

When Legislature enacted the 1984 Anti-Lucas legislation, they focused exclusively on JT deeds and titles. They omitted mention of CP or any other joint deeds or titles.

As of 1984 a JT title required something in writing to rebut the presumption. Because CP deeds and titles were omitted from the ’84 legislation, prior law continued to operate. o Under that law, a CP title could be rebutted by an oral or implied agreement. o So, a s of ’84, it was harder to rebut the CP presumption if the deed or title was in JT b/c of the writing requirement, than if the deed or title was in CP.

REMEMBER: JT and CP titles are presumed to be CP at divorce.
 Ex: H and W buy house for $100L in ’84, and deed says house is CP. Oral agreement that house is W’s SP. Divorce. o If house is in JT, oral agreement wouldn’t rebut CP presumption at divorce. Written agreement or statement in deed/title is required to rebut. o But, law regarding CP deeds and titles continued to allow rebuttal by oral or implied agreement. So, here, house would be characterized as W’s SP based on oral agreement. If house were in JT, it’d be characterized as CP b/c there was nothing in writing to rebut.


In 1987, amendment included all p roperty “in joint form, including property held in TIC, JT, tenancy by the entirety, or as CP.”
 What about time period from ’84-’87? o The type of rebuttal of the CP presumption depends on when property was acquired. o For JT, oral or implied agreements can rebut presumption for acquisitions up until ’84 . o For CP deeds and titles, oral or implied agreements can rebut the presumption up until ’87.
COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP

As of July 1, 2001, H and W may hold title as CP with right of survivorship.
 Created: when “expressly declared in the transfer document” that title is
CP with right of survivorship. o No explanation of exact requirements of “transfer document.” o Court would likely focus on “expressly declared” language if the property is designated in some document other than a “transfer document.”
 I.e. title or deed could be the required “transfer doc.”

At divorce: o Property will be treated as CP.

At death: o Property treated as JT and the surviving spouse gains the property by right of survivorship.
TENANCY IN COMMON
 TIC is a “joint title” and will be presumed to be CP at divorce .

Tenancy in common: o People owning in TIC can have equal or unequal interests.
 H could specify having ¼ interest and W could have ¾ interest b/c they invested that much respectively. o At death:
 no right of survivorship.
 If W dies, H has right to only his interest, ½ of property. o

Joint tenancy: o People with JT have equal, undivided interests in the property.
 ½ interests in the property even if they have invested unequal amounts in property. o At death:

carries right of survivorship.
 If W dies, H automatically receives the property via right of survivorship. Entire property becomes H’s. o If one assigns or sells his/her interest in the property, the JT is severed and becomes TIC.

 If JT is not severed and becomes TIC, decedent’s share goes to his/her heirs via intestacy law or by will to whomever he/she specifies.
REIMBURSEMENT

Once JT has been characterized as CP and there was SP contribution to acquisition of property, Fam Code provides right to reimbursement based on tracing. o Payments on interest on a loan and payments for maintenance, insurance on, or taxation of property = expenses, NOT part of acquisition. NOT REIMBURSABLE.

Fam Code: o Reimbursement right based on tracing o Right to reimbursement can be waived in writing o The amount reimbursed will not exceed net value of the property at the time of division
 Most relevant to value of stock purchases.
 Where value has decreased, Fam Code will allow the SP contributor to recoup whatever value is left at the time of division.
 Ex: H and W bought stock in a Corp 1 in ’95 for $10K. To purchase stock, H sold stock in Corp 2 he owned from before marriage. They put the title to Corp 1 stock in JT. In
’98, stock was worth $50K and after stock market bubble burst, Corp 1 stock is now worth $5K. Divorce.

JT stock will be presumed CP at divorce, if no agreement about character about stock, it will be characterized as CP. H will have a right to reimbursement bc of Fam Code if he can trace to his
SP.
If he traces, he’d get $5K as reimbursement. B/c statute says amount shall not exceed net value of property at time of division, he will not be reimbursed for entire $10K SP contribution.

FamCode application of reimbursement to acquisitions of property prior to
’84. o In most cases where a down payment is made or a purchase is made with SP funds, the date of the acquisition of the property and the date of the SP contribution are contemporaneous.
 Then the date would be purchase date. o Where improvements are made with SP funds some time after the purchase of the property, it would be possible to interpret acquisition as transaction and apply the date the SP contribution was made.
IMPROVEMENTS

2 ways for determining rights to improvement:

o 1) consider the improvement a gift OR o 2) permit reimbursement of the funds used for improvement

3 scenarios: o (1) spouse uses his/her SP funds to improve other spouse’s SP. o (2) spouse uses community funds to improve other spouse’s SP. o (3) spouse uses community funds to improve his/her own SP.

(1) Before January 1, 2005, no interest or right to reimbursement — presumed to be a gift. o After January 1, 2005, would have right to reimbursement of SP contribution to improve other spouse’s SP. o Probably no retroactivity.
 (2) Traditional rule = use of CP funds to improve other spouse’s SP is presumed to be a gift, absent an agreement to the contrary. o Under Marriage of Wolfe and recent cases, use of community funds to improve the other spouse’s SP creates instead a right to
 (3) ….. reimbursement to the community without interest .
Amount of Reimbursement

Marriage of Warren : o amount expended was the correct amount to be reimbursed. But in that case, amount expended was greater than the value added y the improvement. It noted that when H attempts to improve his own land with community funds, iinjured wife is entitled to either the amount expended or the value added —whichever is greater so that there will be no benefit from the breach of trust.

Ex: H used $20K of community funds to add swimming pool to home. It can be determined pool added approx $50K value to home. Should community be entitled to $20K or $50K? o Rationale of rule is to prevent H from using community funds for own self-interest, the value added by improvement would be correct figure to use. Makes sense community should benefit from appreciation that can be attributed to improvement.
COMMINGLED BANK ACCOUNTS

Remember: Commingling rules apply at death, not just divorce. o Keep adequate records of SP and CP.

Special rules with tracing to funds used for family expenses. o Family expenses = not acquisitions:
 food, vacation, rent, med/dental care

not divided at divorce or death.
RULES:

Available CP funds are presumed to be used to pay for family expenses.
SP funds are deemed to be used for family expenses only when community funds are exhausted.


When SP funds are used to pay for family expenses, the separate estate has no right to reimbursement unless the parties have agreed to reimbursement.
 Ex: H has $1,500 CP and $2,000 SP put in checking account in H’s name.
They take a trip which costs $2k. $1,500 of CP used (trip is expense, not acquisition). Once CP is exhausted, remaining $500 of SP is used. o Under second rule, H can’t claim reimbursement from community or from W’s SP unless they had agreement he’d be reimbursed. o Ex. continued… H has $500 SP left and again deposits paycheck into same account of $1500 for CP. Gets inheritance of $10K and puts it into account. H pays $2K in health bills (expenses), so under rule, CP funds are used to pay for fam expenses. $1,500 CP goes to that and the remainder is used from SP. Then, he buys car for
$10K and puts that in his name and wants to claim it as his SP. If he can prove CP funds were exhausted when he bought car, he will succeed.
 Analysis: Depends on application of general CP presumption and special rules for tracing to commingled accounts.

(1) general CP presumption applies b/c car was acquired during marriage. Burden is on H, SP proponent, to rebut presumption by tracing to his SP.
Title isn’t determinative.

(2) See v. See on rules for tracing to commingled accounts. o Rule: SP proponent can rebut the CP presumption if, at the time of acquisition, all community income was exhausted by family expenses.
DIRECT TRACING METHOD

Another method to trace commingled bank accounts is direct tracing. o When both types of funds are in a bank account, the SP proponent need only show that SP funds were in the account and the SP proponent intended to use the SP funds to acquire the property in question. o Ex: (refer to example above) H would be allowed to prove that (1)
SP funds of $10K were available at time of acquisition of car, and
(2) he intended to use those funds to purchase the car as his SP. If he could prove these, he would rebut CP presumption.
JOINT BANK ACCOUNTS

Problem: join tly titled bank accounts rather than in one spouse’s name. o Does title or funds control?
 Legislature made provision:


Rule: At divorce, contributions to bank accounts of married persons are presumed to be CP and can be rebutted by tracing to SP.
COMMUNITY BUSINESSES, PROFESSIONAL PRACTICES, AND GOODWILL
Goodwill

Goodwill of an entity is an asset that is valuable property interest, which accounts for the expectation of continued public patronage. o A value we place on the probability an establishment will continue to exist and be successful. o The value the purchase is willing to pay above the actual, tangible value of the business is value of the “goodwill” of business. o Beyond mere value of stock, funds, property. o It is reputation, local position, skill, necessities, etc. o Where person acquires reputation for skill, he often creates an intangible valuable property by winning confidence of patrons and secures immunity from successful competition.

How to value goodwill o At divorce:

Both H and W present evidence on value of goodwill consisting usually of expert testimony. o Common methods:

(1) Market value:

expert looks at what a willing buyer would pay in cash for the community business if it were sold at the time of separation or divorce
 (2) Capitalization:

Looks at net income of a professional practice for 1 year, subtract from it what a reasonable salary would be for a professional of comparable experience, and multiply by a multiplier of some value.

Idea is to take into account past earnings and project these into present value of goodwill. o IMPORTANT: Goodwill may not be valued by any method that takes into account the post-marital efforts of either spouse.
 Any method based on the earnings or projected earnings of a spouse after sep/divorce is prohibited. o IMPORTANT: Value of goodwill must exists at the time of the dissolution. That value is separate and apart from the expectations of the spouse’s future earnings.
EDUCATIONAL DEGREES

Courts have been convinced that an educational degree is personal to holder and cannot be considered divisible property. o B/c it cannot be sold, transferred, or assigned to anyone else. o Cannot be inherited.

o So, not subject to division at dissolution.

Problem: o Couple agrees one spouse should get advanced degree to get better standard of living.

Solution (Fam Code): o Partial remedy. o Although student spouse receives degree, a loan incurred during marriage for education is assigned for payment to student spouse.
With diploma goes debt. o Primary remedy for supporting spouse = reimbursement of community contributions.

Along with assignment of loan to student spouse without offset, reimbursement is the exclusive remedy.
 However, attainment of degree and efforts of spouse who supported spouse may also be considered in awarding of spousal support.
Who Receives Reimbursement?

Community receives reimbursement.

How to define community contribution? o Community contributions to education/training = payments from community from community or quasi-community property for payment for education or training or repayment of a loan incurred for education or training. o Includes direct payments: tuition, fees, books, supplies, transportation. Special living expenses related to education experience, but not ordinary living expenses.

How is reimbursement calculated? o Amount reimbursed includes interest at the legal rate, starting from end of calendar year in which contributions were made.

Statute provides that reimbursement and assignment of loan may be reduced or modified if unjust. o Reason: when community has substantially benefited from education, training, or loan incurred.

Rebuttable Presumption That Community has Substantially Benefited from
Community Contributions Made More than 10 years Before
Commencement of Proceeding o Presumption addresses where spouses have already accumulated significant CP, and there’s no need to reimburse the community for the contributions made to education or training. o There’s a contrary presumption that community has not substantially benefited from community contributions made less than 10 years before commencement of proceeding.
 This addresses scenario where couple divorces soon after student spouse gets de gree and there’s little to not CP to divide.

Loan Incurred Prior to Marriage
 Community contributions include payments made with CP… for repayment of a loan for education or training. Community shall be reimbursed for this – Fam Code.

Weiner - H went to med school before marrying W. During marriage, paid money on loans incurred. Court held the language of the statute supported conclusion that reimbursement included payments for premarital educational loans. Statute was intended to correct inequity that arises with community contributes financial support to education but does not share in benefits of that education. Reimbursement rememdy provided in statute governed community contributions made to repay premarital educational loan.

Problem: If a balance on the loan remains, how is loan assigned? o Rule: reimbursement and assignment is the exclusive remedy regarding educational loans.
(Fam Code) o Bottom line: Reimbursement applies to community contributions during marriage that repay an educational loan incurred prior to marriage. Assignment of a premarital loan will also be to the student spouse who incurred the loan.
Education: Enhancement of Earning Capacity

Reimbursement remedy is for CP contributions to education or training that substantially enhances the earning capacity of the party.

Problem: What if someone just got a degree because? Not for better living? o Analysis: Contributions were made to tuition and clearly CP and potentially reimbursable. BUT, this was not what was intended by
Fam Code. o Rule: Does not provide reimbursement for any and all education or training. o Rule: Limitation is that the education or training must substantially enhance earning capacity of spouse seeking education. o Conclusion: Here, community contribution is a gift.

Remember: Whether the education or training substantially enhances earning capacity of student spouse is determined on case-by-case basis.
PENSIONS

Pension: o A deferred wage payment. o Can be either:
 Defined benefit: pension that pays out a certain amount each month.

Defined contribution: someone contributes a certain amount and that amount is later distributed. o If earned during marriage, but paid at later date, it is CP and divisible at divorce.


Retirement savings: o Subject to division at divorce.

Vested Pension: o A period of employment before the pension “vests.” o If employee leaves employment before pension vests, there are no rights accrued from pension. (Must work a length to receive rights.) o If earned during marriage = CP and divisible at divorce.

Unvested Pension: o May never vest due to quitting or being fired. o Someone may divorce prior to pension vesting. o It is a mere expectancy, a contingent interest in property upon continued employment.

Brown : o Held pension rights, vested or unvested, comprise a property interest of the community and that the spouse may properly share in it.

Mature Pension: o Even though a pension is vested (person has right to it even if employment may terminate), it may not have matured yet. o Matured when it provides an unconditional right to immediate payment. o Usually matures when employee reaches the eligible age for retirement. o (One can continue to work after it matures.) o Gillmore: H became eligible to retire after marriage dissolved.
Continued to work rather than retire. W requested court order H to pay her share of pension benefits even though H hadn’t retired and didn’t plan on it. His pension was both vested and matured, so W had right to it as CP. Issue = whether right to it immediately. YES.
 Rule: cannot, by invoking a condition wholly with his control, defeat the community interest of the other spouse.
 Rule: Spouse’s interest in the share becomes fixed and doesn’t increase as earning spouse’s pension rights increase.
Disability Benefits

Purpose: o (1) compensate for personal suffering caused by the disability o (2) compensate for the loss of earnings resulting from the disability

When employee works until retirement, even after becoming disabled, then retirement benefits may not be solely for personal suffering and loss of earnings. o Retirement benefits may accrues b/c spouse earned them. o If spouse continues working, the time and effort resulting in retirement benefits would be considered CP.


Problem: How to characterize and divide benefits when receiving both disability and retirement benefits? o Stenquist : Suffered injury 80% disabled. Continued working until retirement. Entitled to choose regular retirement or disability pay.
Disability rate was hire, began to receive higher disability pay.
Divorce. Rule: Trial court apportioned his disability pay: First was by time (pension rights attributable to the time before he married was considered his SP); second apportionment was by type of benefit (pension rights attributable to his disability were considered his SP, the pension rights attributable to ordinary pension rights earned during marriage were considered CP.) CP was divided equally. o Rationale: Cannot invoke a condition wholly within his control and defeat community interest of spouse and disability is to compensate for loss of earnings.

IMPORTANT: Federal law preempts CP law for many federally authorized benefits. o I.e. pension benefits of railroad workers are owned by retired worker rather than treated as CP. o Military benefits are treated, however, according to state law —
Except for disability pay. So, disability pay elected instead of retirement pay is controlled by federal law.

Problem: In military services when a spouse purchased disability insurance. o Rule: Apportionment by time and type of benefit. o Saslow: H got disability policies with community funds and during marriage, became disabled. After collecting benefits, divorce.
Question was whether disability benefits were H’s SP or CP.
 Issue: Policies purchased with community, benefits considered CP. Purpose of policy was to give disabled spouse help with lost earnings and benefits could be SP.
 Rule: Spouses’ intent controlled.

If spouses intended that the insurance was to replace lost earnings, benefits = SP.

If intended was to replace retirement income, considered CP and split between spouses. o Elfmont: H purchased disability insurance during marriage w/ community funds. H didn’t begin to receive disability until 2 years after dissolution. Payments after couple separated were therefore made with his earnings , which are SP. Determining factor = H renewed disability polices after separation with SP funds and at the time, H did not intend to provide community with retirement income.
Severance Pay

Important: Note when severance pay and disability pay was received: during or after separation!


Hypo: o H was terminated, offered a severance package, and occurred during marriage. o Issue: whether it was CP or H’s SP. o Analysis:
 (1) clear that CP includes employment benefits earned during marriage;

(2) SP includes employment benefits earned before marriage and after separation.
 Rule: Also, the characterization of many employment benefits is determined not only by timing but by categorizing them either as pension benefits or disability benefits.

Rule: If benefits earned by employee during marriage, those = CP. If benefits instead compensate for loss of future earnings and diminished earning capacity after separation, the benefits = SP.

Severance pay = similar to disability benefits, so would probably be SP.

Wright : H terminated and got lump sum termination pay. Employer knew H would have hard time finding job. Because pay was similar to disability benefits, it was characterized as SP.

Remember: If benefits can be characterized as earned by employee spouse, then benefits will be CP if earned during marriage. So, even if benefits received after separation, it’ll be CP. o If benefits can be characterized as replacing future earnings, will be
SP if received after separation. o B/c benefits like severance pay replace future earnings and are not tied to employ ee’s earnings during marriage, = SP.
Early Retirement

Rule: H and W separate and H continues to work. At dissolution, court determines that H’s retirement benefits are CP to extent earned during marriage. Ct retains jdx to divide H’s retirement benefits once H retires. o Hypo: After several years, work offers H early retirement package which means it’ll increase H’s monthly retirement payment if he retires early.
 Issue: Whether additional payment is CP or H’s SP.
( Lehman )

Lehman : H and W haggling over retirement benefits as enhanced. They divorced but H continued to work. H was offered enhancement iffer which added to retirement benefit. The benefits were CP, but dispute was over enhancement. H claimed SP and W claimed CP. o Rule: Enhancement is CP b/c the enhancement derives from retirement benefits earned during marriage. o Rule: Once he/she has accrued a right to retirement benefits, at least in part, during marriage before separation, the retirement benefits themselves are stamped a community asset from then on.


IMPORTANT: If employment benefits can be tired to community efforts during marriage, it’ll be characterized as CP. If benefit serves purpose other than rewarding employment during marriage, it wouldn’t derive from employment and could then be characterized as SP. o In Lehman , his enhancement was to encourage retirement.

Hypo:
H and W married in ’85. W worked at Company since ’80. Pension vested in ’03 and was able ti retire in ’04. Her monthly pension is $1K a month. Couple separated. Rights of H to W’s pension? o Apportionment. o Time period for pension to vest was 20 years. Of the 20, 5 were before marriage and 15 were during. So, ¼ of her pension (5/20) is her SP and ¾ (15/20) is CP. W will receive ¼ her monthly pension as SP. W and H will split ¾ of W’s monthly pension.
SEPARATE PROPERTY BUSINESS

If spouse owns prop prior to marriage or receives gift during marriage , that property is SP. Any rents, issues, and profits of that property are SP.

Rule: If a spouse owns business prior to marriage or starts a business during marriage using funds received from gift or inheritance , then that business is SP.

Rule: If a business is CP, but under sole management of one spouse, that spouse would be able to solely manage the business except the managing spouse would need to provide written notice if he/she wanted to sell, convey, or otherwise encumber the business.
Pereira

If the increase in value of a business can be attributed to community effort, then this approach applies.

Rule: Apportion for the profits of a separate property business by allocating a “fair return” on the SP investment and allocating any “excess to the CP.”

Favors the community.
Van Camp

If the increase in value of a business is attributed to something other than community effort, then this approach applies.

Rule: Determine the “reasonable value” of the spouse’s services and allocates that as CP and the remainder is SP.

Favors the SP owner.

Gilmore: H owned 3 car companies. Van Camp was applied and allocated to community the salaries the H received. Concluded all income was spent on community expenses during marriage and so community had received its share of the increase attributeable to SP business. So, community received its share and all increase in value in dealerships belonged to H as his SP.

o KEY: major factor was that in the period after WWII, there was a tremendous increase in automobile business. It was market conditions that caused the increase in value, not H’s efforts.
Hypo:

W owned business before marriage. After marriage, she designed bracelet that was instant hit and business tripled in value. At divorce, H claims he should share in increase of W’s business. o Analysis:
W’s business is her SP b/c owned before marriage. But, during marriage, W’s design was community effort, and therefore any profits attributable to that effort belong to the community.
 To accommodate W’s SP interest and community effort,
Pereira approach allocates to both.
 Pereira says W deserves some increase in value —she deserves “reasonable rate of return” on investment of her
SP.
 Reasonable rate “rate of legal interest” which is 10% unless different rate is proven appropriate.

Community interest is anything over that reasonable rate of return.
 B/c W’s business tripled in value from her efforts, community will have greater share in that value. W keeps business as her SP PLUS reasonable rate of return, plus ½ share of community interest.

Same scenario but increase in her business was due to fashion fad that had a bead W had in her store. o Analysis: Business increased in value, but increase is attributable to economic circumstance, so use Van Camp approach. o Here, community deserves whatever can be attributed to community effort. o It’s assumed W’s community effort were rewarded if she received a salary.
(If she did, it’s considered what the community deserved from the SP business.)
 In a small business, owner doesn’t always receive salary but instead draws out money as needed.
 If W didn’t receive a salary, courts will use the reasonable salary that someone in W’s position would’ve received.
 Rule: Van Camp also subtracts the community expenses from the community income to calculate the community share of the profits from the SP business.

If all income was spend during marriage, remainder is all SP that belongs to W.

If H and W lived frugally, and their expenses were less than their income, then community will split whatever remains.
CREDIT ACQUISITIONS


First, General CP presumption applies for characterization. o Property acquired by either spouse during marriage is presumed
CP. (Car, business, home acquired in one spouse’s name is presumed to be CP)

Second, General CP presumption is rebuttable by tracing to SP funds.

Exception: When property is acquired on credit during the marriage, SP proponent must trace by using intent of the lender/seller. o Rule: Characterization of property acquired on credit is determined by whether lender’s intent was to rely upon purchaser’s SP or CP for repayment of the loan. o Rule: When lender relied on community assets for repayment of loan, CP presumption is NOT rebutted, and property will be characterized as CP.

Gudelj: Business bought during marriage. H paid for part of it with cash and part with note. Cash was SP, but question was to note from lender.
Rule: When tracing borrowed funds, the character of property acquired by a sale upon credit is determined according to the intent of the seller to rely upon the SP of the purchaser (or upon a community asset.  not the case anymore). o In this case, there was no testimony as to intent of seller.
Regardless of whether seller actually knew of H’s SP and his business failures, RULE: it is the seller or lender’s intent that controls whether the community property presumption can be rebutted.

Grinius : Rule: seller or lender must have relied solely on SP in selling the property OR in lending the funds to purchase the property. This is the more recent test.
Rule: If the seller/seller relied on both, the SP proponent fails and the property will be characterized as CP.
SEPARATE PROPERTY LOAN/COMMUNITY PROPERTY REPAYMENT

Problem: Where a person acquires property prior to marriage on credit.
Then that person marries. During marriage, CP is used to pay back loan on property. At divorce, issue is (1) whether the CP contributions represent acquisition of an interest in the property or (2) merely will provide a right to reimbursement of community funds use to pay back loan. o Rule: Acquiring interest in property means the property will be apportioned part SP and part CP, giving community a share in any increase in property’s value. o Rule: Reimbursement means the community will receive the funds used to reduce the loan but no share in any increase in the property’s value. o In above hypo, community gains an interest in the property.

Problem: Because community gains interest in the property, how to calculate? o Moore/Marsden.


Moore: W bought house before marriage. Took title in name alone.
Purchased house for approx $57K and made down payment of $17K.
Secured mortgage loan to purchase house. Prior to marriage, W made payments on loan, and the principal had been reduced by approx $250.
While married, they made payments on loan from community funds and loan principal was reduced by almost $6K. House appreciated in value; market value of house was $160K. Court held community acquired interest. o Characterization: Home and loan used to purchase house = SP. o Since W was unmarried, lender must have been relying on her credit and her ability to repay the loan when deciding to grant loan.
Her creditworthiness before marriage is considered SP in character. o If house was considered to be W’s SP in its entirety, she’d have been entitled to entire increase in house’s value. If community acquired interest, community would have some proportional share in the increase in house’s value and both would be entitled to ½ community share in the increase in value. o Moore formula: Ratio is based on ratios of funds to the purchase price , not to the total reduction of payments of principal .
 $6K community funds yielded a community interest of a little more than 10% ($6K (community attributed)/$57K (purchase price)) and W’s separate interest of almost 90%
($51K/$57K). $51K was reached by attributing to W’s downpayment of $17K plus $40K loan and then subtracting the $6K of community funds. So, community interest was almost $17K and W’s SP interest was $110K. H would receive ½ of community interest, $8,500, and W would receive $118,500, her SP interest plus the other ½ community interest.
 The Supreme Court formula is the one that is used to calculate the interests in property acquired before marriage on credit with community funds used to reduce the principal loan.
o Bottom line formula: Calculation of the community and separate interests would be the ratio the separate/community contributions that reduce principal bear to the purchase price:
 SP funds/purchase price and CP funds/purchase price.
That ration will produce a percentage that is the share to be attributed to the community and the SP spouse. The ratio will be multiplied by the amount of appreciation.
The figure will be added to the community funds and the
SP funds respectively. SP spouse will receive the separate interest plus ½ of community interest.

Important: (1) Community funds paid to reduce the principal on a separate loan will result in community obtaining a proportional interest in

property according to formula established by Supreme Court in Moore . (2)
Community funds paid for interest on the separate loan and for taxes and insurance will not be included in the calculation of the community interest.

Marsden : o Marsden scenario : someone purchases property before marriage on credit, marries, and community funds are used to pay back the loan.
 Even more complex scenario: marriage comes some years after purchase of property. During time between purchase and marriage, payments are made that reduce principal of loan and property increase in value. Community funds during marriage are used to reduce principal of loan, and increas in value of property is greater. How to calculate SP and community interests in that property? o Ex: L buys house in ’95, taking title as single woman. Purchase price = $100K, makes down payment of $20K. Secured mortgage loan for remaining $80K. Between ‘95=’00, made payments on the loan that reduced principal to $70K. House appreciated in value to
$200K. She married in ’00, and at that time, house and loan would be considered SP. Payments made to reduce principal on loan are
SP, and increase in value of $100K = SP b/c both occurred before marriage. After marriage, payments to reduce principal were made from community funds. At time of divorce, payments from community of $20K reduced principal on loan to $50K. House also appreciated in value to $500K. o Marsden analysis of example above : Court applied Moore formula.
L’s SP interest included all contributions to reduce loan and increase in value of the property before marriage. To calculate community interest, Court used the ratio that the amount of community funds bore to the purchase price to calculate the community interest. That was $20K/$100K or 20%. Then that figure was multiplied by the increase in value during marriage. That would be 20% of $300K. That equals $60K. So, community interest would be the community funds that reduced the principal ($20K) plus the community share n the appreciation ($60K). The total of $80K would be split. o Review pg. 186-187.
MANAGEMENT AND CONTROL OF COMMUNITY PROPERTY
Community PERSONAL Property

Rule:
CA statute limits access in one spouse’s name to that spouse. o Ex: If H puts earnings in bank account in his own name, W won’t have access to that bank account. (W could obtain a court order that her name be added to H’s account.)


Rule: Gifts to 3 rd parties and community businesses, will be treated separately.

Rule: The other exception requires written consent before a spouse sells, conveys, or encumbers community personal property used as the “family dwelling, or the furniture, furnishings, or fittings of the home, or the clothing or wearing apparel of the other spouse or minor children, which is community personal property.” o Ex: W got loan and used furniture in home as collateral. W defaulted on loan and creditor carted off furniture. Encumbrance on furniture would be void and creditor would have to return furniture b/c H didn’t given written consent.

Rule: There’s a general duty regarding community personal property that each spouse shall act in good faith w/ respect to other spouse in management and control of community property.
GIFTS

Rule: Limitation on management and control of community personal property concerns gifts. Prohibits gifts or disposal of community personal property for less than fair and reasonable value unless the other spouse has given written consent. o This does not cover gifts between the spouses. Transmutation statute covers that, allowing a spouse to transmute SP to CP and vice versa.

What happens if a spouse violates the mandate of the statute and gives away community personal property without the consent of the other spouse? o During the marriage, the nonconsenting spouse has the right either to ratify the gift or to revoke the gift and sue to recover all the property for the community. After the death of the donor spouse, the nonconsenting spouse has the right to ratify the gift or to void the gift up to ½ the value of the gift. o This was the case in early Spreckels v Spreckels : Feud over gift of stock that father had given to son. Son fell out of favor w/ dad, dad tried to revoke gift. Dad argued gift was void b/c he hadn’t obtained
W’s written consent Argument failed, b/c written consent statute wasn’t applied retroactively to CP acquired prior to date of the statute. (pg. 199) Dad gave money to elder sons. At time of da d’s death, his fortune had been reduced b/c of earthquake. Younger children who got nothing sued challenging gift. Lawsuit was complicated when W died in middle of proceedings. o In later Spreckles
, ossue concerned W’s rights if H gave gift w/o her written consent. Supreme Court held H’s gift wasn’t void, but voidable afer H’s death. Court then considered whether wife had ratified gifts in her will, she had. Court considered the gifts to be valid.

Issue: Who can be sued to recover gifts made without other spouse’s consent?

o Fields v. Michael : H had given away gifts to various ppl without W’s consent. Problem was people who got gifts had used up the gifts.
Question was whether W had remedy. Rule: Court held a W whose CP rights have been violated is entitled to pursue whatever course is best calculated to give her effective relief. W was entitled to sue H’s estate for gifts.

Issue: Whether community personal property transferred to 3 rd party was really a gift or whether it was given in return for fair and reasonable value. o Estate of Bray: W questioned accounts and bonds that were in name of H and his son from former marriage. Son claimed the accounts and bonds as surviving JT. W claimed the money in the accounts and used to buy the bonds was a gift given w/ written consent. Son’s argument was the money was given in return for services rendered by son who worked for father’s business. Most damaging fact was during the entire time H was putting $ into bank accounts and buying bonds, son never knew about them. Son had also received a salary while working for his father. Court concluded there wasn’t enough evidence to show the bank accounts and bonds were for services rendered. They were instead gifts and W was entitled to half those gifts made without consent.
COMMUNITY BUSINESSES

Rule: Fam Code gives primary management and control to spouse who is operating or managing a business or an interest in a business that is all or substantially all community personal property. That means managing spouse may act alone in all transactions. o However, s pouse must give “prior written notice to the other spouse” for major actions such as “sale, lease, exchange, encumbrance or other disposition of all or substantially all of the personal property used in the operation of the business. o Still, if the managing spouse fails to give that prior written notice, the validity of the transaction will not be adversely affected.

REMEDY: Family Code 1101 lists possible remedies such as breach of fiduciary duty and ordering of an accounting.

Ex: W starts pet business using community funds. Purchased 3 vans and equipped them for grooming. Has employees. H was happy she started business. H was allergic to animals and went no where near business.
The business is CP, owned by H and W. Under general management and control provisions, either H or W has management and control. Under primary management provision, W, who operates business, may act alone in all transactions.
There’s no problem w/ W purchasing van, expending
$$ in equipping them, hiring employees and running business. She needn’t consult H in making business decisions . o If W receives offer to sell her business, including vans, she must give prior written notice to H she’s plas on selling. If she goes ahead and sells without the notice, sale will still be valid. If H is

displeased after sale, he could go to court and file claim for breach of fiduciary duty or request an accounting.
FIDUCIARY DUTY

Rule: With regard to community personal property, Fam Code explains the duty includes full disclosure and full access to info about assets and debts of the community, upon request. o Duty to highest good faith and fair dealing. Neither spouse shall take advantage of each other.

Marriage of Walker : W handled accounts. Over the years, she withdrew total of $69K to meet family expenses. Tax penalties were incurred. She never hid withdrawals or tax penalties nor did H ever ask about them. W breached fiduciary duty by failing to inform H of depletion of IRA accounts.
Court awarded H over $71k (amount withdrawn plus tax penalties).

Rule : in 2003, Corp Code imposes duty on partners to furnish withot demand, any info concerning partnerships’ business required for proper exercise of partner’s rights and duties. o Rule : it is applied retroactively to events occurring prior to Jan 1,
2003, but that failure to disclose assets will become a focal point of divorce litigation. o In Beltran: H forfeited community military pension b/c of criminal conviction and in Stitt
, W incurred attorneys’ fees to defend against embezzlement charges. Both involved intentional misconduct or knowing violation of the law and would be considered breach of a spouse’s fiduciary duty.
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Rule: Fam Code 7 21 explains a partner’s duty of care is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of he law. o Schultz : spouse’s negligence wasn’t considered “deliberate misappropriation” of CP. H failed to contest debt owed by community. Debt wasn’t divided equally, H appealed additional share of debt that was awarded to him. Ct said fiduciary would be liable for gross mishandling of community financial affairs, which would be tantamount to fraud, but negligence wouldn’t.
Negligence wouldn't be considered breach of the duty of care a spouse owed to other spouse when managing CP.
o Duffy: H took his entire IRA brokerage account and invested it in stocks. The stocks were very volatile and declined in huge value 3 years later . Court said Rule: a spouse doesn’t owe to other spouse the duty of care was violated. o Fam Code 721 : Neither shall take unfair advantage of other.
 Situation that could result in unfair advantage is when both
CP and SP funds are available for investment.
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Marriage of Lucero : H used SP funds rather than CP funds to reinstate community pension. By using SP funds, W would’ve been deprive of her share of the pension.

 Somps v Somps : H used SP funds instead of CP funds to buy investment realty. That was not considered taking undue advantage nor a breach of fiduciary duty.
 Rule: If use of SP funds represents an attempt to deprive other spouse of an interest in a community investment like a pension or employment opportunity, that action differs from a simple choice of which funds to invest.
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Current Rule since 2002
: H’s decision to invest couple’s entire IRA brokerage account in highly volatile technology stocks would be considered “gross mishandling” or “grossly negligent or reckless conduct.”
This would be considered violation of spouse’s fiduciary duty.
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Rule: Rebuttable presumption of undue influence arises when one spouse obtains an advantage over another in a CP transaction. o Rule: To rebut presumption, advantaged spouse must show that the deed in question was freely and voluntarily made and with a full knowledge of the facts, and with complete understanding of effect of transfer. o Bottom line: The claim of breach of fiduciary duty presents an avenue for overturning interspousal transaxns that advantage one spouse. The issue is whether that advantage is unfair to the other.
Community REAL Property
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Rule: Equal management and control applies to community real property, too. (Either has control.) o However, both spouses must join in executing any instrument by which that community real property or any interest therein is sold, conveyed, or encumbered . o Joinder is also required for leases of community real property for longer than a period of 1 yr. o “Equal” means both spouses must participate in decisions.
 HYPO: H and W own community real property, but title is in H’s name. H meets buyer. H has debts and sells property to Bob. H doesn’t tell W about sale and H doesn’t tell Bob he’s married. Bob has no way to know it’s CP b/c title is in H’s name. H disappears, W finds out after sale property is sold. Bob and W are innocent. o Rule: Fam Code creates presumption of validity of the sale if the purchaser in good faith didn’t know about marriage of spouse who sold property. o Here, Bob would be good faith purchaser. But there’s a requirement still that W had to join in the sale, and she didn’t. W has right to
“void” the instrument that H executed w/o her. So, Bob would have no right to property . W would own property.
 Here, Courts have required that the community repay purchase price to bona fide purchaser. However, if the property has appreciated in value, the community benefits

from that increase in value and may be able to borrow the money needed to pay Bob. o Review pg. 210-211.
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Issue: When community real property is encumbered. o A spouse borrows money. The transaction involves: the loan and the security for the loan. The loan creates a debt, and the security for the loan creates a security interest in the real property. When loan is for large sum, lender requires that security interest, in even the debt isn’t paid. If loan isn’t paid, lender can obtain judgment for loan amount, and the judgment can be recorded as lien on property. o Review pg. 212 .
RESTRAINTS DURING DIVORCE PROCEEDINGS
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Rule: Once spouses live separate and apart, earnings become their SP, and C is not liable for most debts incurred during that time period. o However , the fiduciary duty doesn’t end when spouses separate.
Fiduciary duty continue s until “date of distribution of the community or quasicommunity asset or liability in question.”
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Rule: When divorce proceedings are initiated, the summons shall contain a TRO prohibiting spouses from transferring, encumbering, concealing, or disposing of property, real or personal, wheter community, quasi, or separate, without the written consent of the other party or an order of court. o EXCEPTIONS: (1) in the usual course of business and (2) for the necessities of life. (3) Also, extraordinary expenditures- a spouse must notify the other spouse of any proposed extraordinary expenditure at least 5 days before incurring such an expenditure and account to court for all extraordinary expenditures. Attorneys are protected b/c TRO doesn’t preclude party from using community, quasi, or SP to pay for attorney’s fees and costs.
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Issue : What can spouse do during divorce proceedings with CP and SP? o HYPO: H and W own real property in JT. Initiate divorce proceedings and TRO is in effect. H severs JT. While proceedings pend, H dies. If severnce is ineffective (so still JT) b/c it violates
TRO, W takes property as surviving JT. If severence is effective , ½ prop goes to H’s estate and son would inherit according to H’s will. o Estate of Mitchell : Issue = whether H’s severance was “transfer” of property in violation of TRO. Also, whether severance “disposed” of property in violation of TRO.
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Held severance was a disposition of property b/c it disposed of W’s right of survivorship. Ct didn’t consider right of survivorship to be property, but a mere expectancy. So severance only affected expectancy. Thus, TRO was not violated.

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REMEDY for Breach of Fiduciary Duty : When breach falls within oppression, fraud, or malice, it shall include but not be limited to an award to the other spouse of 100%, or an amount equal to 100% of any asset undisclosed or transferred in breach of fiduciary duty. o Marriage of Rossi : W concealed lottery. Argued H was physically and mentally abusive. Court said it’s better to reveal community assets and split them at divorce.
REMEDIES TO BREACH OF FIDUCIARY DUTY
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(1) A court-ordered accounting or a court order to add a name to the community property held in one spouse’s name. o This remedy is available during marriage, or at divorce, or upon death of spouse.
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(2) Court can award more than half of the asset. o Ex: a remedy “shall include, but not be limited to” an award of 100% of an undisclosed or transferred asset.  These provisions provide for “tort” damages resulting from breach of fiduciary duty .
 (3) If spouse has “deliberately misappropriated CP”—court has discretion to assess an additional award from or an offset against existing property. o Williams : as divorce became imminent, H withdrew money. If money was CP and deliberately misappropriated, Ct ha discretion to award her more than half, which would have been her one-half share.
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REVIEW 216-217
DEBTS/CREDITORS’ RIGHTS
LIABILITY FOR MARITAL AND PREMARITAL DEBTS
 In CA, it allocates responsibility or “liability” for debts between the CP and
 each spouse’s SP.
EXCEPTIONS TO LIABILITY RULES
CHILD AND SPOUSAL SUPPORT OBLIGATIONS
TORT OBLIGATIONS
LIVING SEPARATE AND APART
DIVISION AT DIVORCE: SEPARATE AND APART
LOOK AT ALL THE CONDUCT
WHAT IF DEBTS EXCEED ASSETS

DEBTS AFTER SEPARATION
DIVISION AT DEATH: JOINT TENANCY COMPARED TO COMMUNITY
PROPERTY
PRESUMPTIONS RE JOINT TENANCY
ORAL OR WRITTEN AGREEMENT
QUASI-COMMUNITY PROPERTY
PUTATIVE OR PARTNERS