Altman. Community Property Fall 2022
Prof. Altman
Community Property
Fall 2022
I. CHARACTERIZING PROPERTY
A. PRESUMED CP IF ACQUIRED DURING MARRIAGE
Rule 760: all property, real or personal, wherever situated, acquired by a married person during the marriage
while domiciled in this state is community property (unless Rule 770)
- Starting point is the date of the marriage ceremony
- Lynam v. Vorwek
Issue: “Does the fact that the husband and wife are in possess ion of money after their marriage raise a
presumption that it was acquired after such marriage?”
Rule: “It has been held that the possession of money by either or both husband and wife after marriage,
in the absence of other evidence, raises a presumption that it is community property.”
o Burden of proof is on the appellant to defeat the presumption
- Fidelity & Casualty Company v. Mahoney
Issue: whether a spouse is entitled to an insurance cut that listed the beneficiary to a son
Rule: If the source of the premium payments was from community property then yes. But it’s up to the
appellant to show that the payment was indeed from community property
o If the question is whether an asset was possessed during marriage, it is generally unnecessary to
allocate the burden of demonstrating possession.
o Asset possessed at the end of marriage (death/divorce) is normally conclusive evidence that the
asset was possessed during marriage
 However is not, without more, strongly probative of acquisition during marriage
Rule 770 (exceptions)
a. Owned before marriage
b. Acquired by gift, bequest, devise, or descent
- Estate of Clark
Issue: whether inheritance is considered separate property
Rule: Yes. Separate property is defined in § 163 of the California Civil Code to include property
acquired after marriage by bequest, devise, or descent. In contrast, California Civil Code § 164 defines
community property as any property acquired after marriage that is not specifically listed as separate
property.
c. Rents, issues, profit of above (includes appreciation) are treated like underlying asset
d. Property retains character when exchanged
- If I had a car before marriage (SP), got marriage then sold the car and used the money to buy stocks. The
stocks remain SP
Acquired During Marriage
Presumed Community Property: anything acquired during the marriage, is presumed to be cp
- Absent special case, can rebut with evidence of SP source
- Possessed during marriage? (Not sure if it was acquired during marriage)
o Lynam v. Vorwerk
“It has been held that the possession of money by either or both husband and wife after marriage,
in the absence of other evidence, raises a presumption that it is community property.”
 Burden of proof is on the appellant to defeat the presumption
o Fiedlity v. Mahoney  says to look at how long the marriage was (if short, more likely SP
funds)
Wife had the burden of providing evidence that the asset possessed during marriage (the
insurance) was acquired during marriage but failed to do so
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 probably bad case, check zoom for explanation
 (Short marriage, guy before boarding plan buys death insurance and names son from
previous marriage as beneficiary, wife says policy is half hers and doesn't have tracing
and loses) - wrongly decided bc we did know when asset was acquired. Most people
believe that we don’t worry about the dollar that was used to buy the insurance policy.
The insurance policy was acquired during the marriage and because it was acquired
during marriage, we should presume CP and it should’ve been duty of the son who was
asserting otherwise to provide BOP.
 Only use duration of marriage as test when you can’t pinpoint the time of acquisition; for
assets acquired during marriage  CP presumption
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i. Unless Traced to a Separate Source
Tracing to a Separate Source
Estate of Clark
Facts:
If the son indeed died without a will and the father inherited the asset  clearly separate property
- What’s complicates it is that the father received a settlement that was received during the
- CHECK ZOOM
- second marriage and wife argues its community property, court disagreed
Downer v. Bramet
- Although the land was “gifted,” court saw it as an award for his work over the years, especially when
the boss and employee never interacted socially outside of work
- “Any property receive in recognition of worked performed is CP, even if the transfer of the property is a
gift, rather than a contractual obligation”
Property retains character:
- If CP, royalties/appreciation/things purchased with it are CP
o CP earned during marriage but received after belongs to marriage
o Ex: wrote book during marriage & received royalties after = CP
o Even settlement money! See Clark
- If SP, royalties/appreciation/things purchased with it are SP
o Ex: if owned car b4 marriage and sold to buy fridge, fridge = SP
o EVEN settlement money! See Clark
- Examples
o After Chris and Casey marry, Chris opens a checking account into which Chris deposits all
Chris’ paychecks into. Casey doesn’t have access to it. After a few years, Chris withdraws 35k to
buy a car, neighbor crashes into car. They divorce and Chris sues neighbor for damages and
neighbor settles with Chris, paying 25k.
▪ The money is entirely CP
▪ Just putting it in a separate account unilaterally doesn’t make it SP
▪ If this was SP money that it was used to buy car, then this would be mixed
▪ Even if the payoff is after the marriage, the asset was purchased during the marriage and
is CP
▪ This is personal property, but if this was a personal injury award, CA has this rule where
court can have discretion to split with Casey
o Ray and Deborah are married. When Ray’s parents became ill and needed care, parents moved
in. Deborah cares for them. After a time, Ray’s parents tell him that if the couple will continue to
provide care and housing, the parents will leave Ray everything that they own in their wills.
When the parents eventually die, their wills leave all of their assets to their other son, Robert.
Ray sues to have the will set aside. HE succeeds. The court awards all of the parents’ assets to
Ray. Shortly after this, Ray and Deborah divorce. She claims that the money is CP and that she is
therefore entitled to half
▪ Is Deborah correct?
● In Washington (CP, but controversial), Yes, because the couple earned the money
during the marriage. The court found that the legal obligation to Ray was earned
in exchange for labor during marriage
● A lot of people think no, bc the inherited property belongs to the person who
inherited
▪ Most courts think that “inheritance” (where you take care of parents) are gifts
Altman. Community Property Fall 2022
ii. Tort Recoveries & Insurance
Tort Recovered / Personal Injuries Awards
If employer was responsible for injury, + like worker’s comp and treated like tort reward, not disability (paid for
pain + suffering by employer)
Most states (Not CA)  Replacement Analysis (payout matches the loss/damaged asset)
- Pain and suffering = SP
- If hospital bills paid by CP = CP
- If hospital bills paid by SP = SP
- Earning capacity/ability to work = CP for lost ability to work during marriage
o Get SP wages for the rest of the years that you would’ve been able to work after separation
o If lost ability to work 5 yrs & 2 yrs married = 2/5 is CP
California:
- If injury during marriage = CP (*fact that lawsuit/award is after separation doesn’t matter)
o If marriage ends by death = personal injury damages are CP
o If marriage ends by divorce = “Community Estate Personal Injury Damages”
▪ Court may award 100% to injured spouse
▪ But CA courts have discretion to give at most 50% (if justice so requires) of damages to
non-injured
● Usually, an equitable matter - about compensating for physical pain? Not being
able to work for years and were those years mainly in marriage?
o If injury after separation = damages are SP
▪ Community/other spouse can be reimbursed if CP or SP spent for injuries
● If you spent hospital funds w/ CP, then reimburse CP
- Doesn’t matter:
o If spouse was contributorily negligent.
▪ Personal injury is still presumed CP if injury took place during the marriage
o If this is for lost wages/pain + suffering
Insurance
- Casualty Insurance  Replacement analysis (same character as the property insured)
o If the asset was cp, payout go towards CP, if it was SP, payout towards SP
o Ask whether the insured asset was SP or CP
- Life Insurance  Source of funds analysis
o Whole life (given money in savings, builds up overtime. Valuable even if you haven’t died)
▪ Check zoom (definition)
▪ Can be CP, SP, or mixed depending on the source of funds
● If mixed  pro-rata
o Term life (pay annual premium based on likelihood to die, valueless if you don’t die during
policy, payout at death)
▪ Can be SP or CP depending on the source of funds for that year’s payment
● Most courts look to the most recent payment as source of funds for whole
character of insurance
● Others look over the life of the policy renewals and calculate what % were paid
with CP vs SP
- Right to Renew
o Its value depends on whether it’s an asset or not
▪ If right to renew policy is an asset and acquired during marriage  CP
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● (Estate of Logan: suggest right to renew is valuable if insurance is otherwise not
insurable)
▪ If asset, part of this insurance is CP despite the source of funds
▪ Valuing the right: likely how much you would have to pay for this in the market.
● May be more valuable if the person has high risk of dying because he would have
difficulties getting insurance elsewhere
o Division at Divorce
▪ Can value the right to renew and divide this as CP; or
▪ Retain jurisdiction and divide when the person dies (if likely to die soon)
- Beneficiary designation
o Look to source of funds
o If policy is bought w/ CP and
someone else other than spouse
named beneficiary, surviving
spouse still owns half of
proceeds (unless transmuted
effectively) - unilateral
designations aren’t ok
▪ AKA: Doesn’t matter if
someone is named
beneficiary, if CP then
½ goes to spouse unless
transmuted effectively
iii. Title Presumptions
Not all property has a title system for documenting/tracing ownership. Cars, real estate, patents, copyrights, and
stocks have titles
Taking Title in One’s Spouse’s Name Does Not Change its Character
- Otherwise, a spouse could unilaterally transform community property to their own separate property
- sometime when title is placed in one spouse’s name (by the other spouse, or by both together), this
transforms property’s character
Taking Title in a Joint Form Can Alter its Character
Meaning that the title precludes normal rules allowing tracing to a source of funds
- Joint Tenancy: creates equal fractional interests in an undivided parcel of property. It includes right of
survivorship.
- ex) Bob and sue marry. They then earn money and spend it to buy a house, taking title as joint tenants,
Sue dies, leaving all her assets to Alice. Who owns the house?
o Bob does, Alice as no share
o The house was presumed CP because purchased during marriage. It was purchased with
community funds. But the joint tenancy title is dispositive as to character at death. No tracing to
a community source is permitted.
 By agreeing to take a joint tenancy it transformed a community property into a form of
separate property (least for death cases, divorces are more complicated)
Altman. Community Property Fall 2022
iv. Commingled Funds
The Family Expense Presumption
Frequently one or both spouses commingle community and separate property funds in a single account. At
divorce or death, the owner of separate funds may attempt to trace those funds in order to claim them as
separate property. Two important rules that accompany tracing efforts:
1) Available community property funds are presumed to have been used to pay family expenses. Separate
property funds are deemed to have been used to meet family expenses only when community funds are
exhausted
Write: Absent contrary evidence, available community funds are presumed to be used for family
expenses
o Family Expenses:
 Things you don’t sell, enjoy as part of family needs (ex: groceries, clothes, trips,
everyday items, rent, insurance, interest, taxes, decoration)
 NOT investments (ex: buying a house without a mortgage, house debt reduction,
condo)
2) When separate property funds are used to pay family expenses, the separate estate has no right to
reimbursement unless the parties have agreed otherwise (via agreement or Joint Title / *must first prove
that SP funds were used to pay. If unclear mixed account, use tracing below)
Write: If separate funds are used for family expenses, they are treated as a gift to the community. The
separate estate is not entitled later to reimbursement (unless proven contrary agreement)
o See v. See  when family expenses paid, presume CP funds were sued when available
“The presumption applies when a husband purchases property during the marriage with funds
from an undisclosed or disputed source, such as an account or fund in which he has commingled
his separate funds with community funds. He may trace the source of the property to his separate
funds and overcome the presumption with evidence that community expenses exceed community
income at the time of acquisition.”
 “A husband who commingles the property of the community with his separate property
but fails to keep adequate records cannot invoke the burden of record keeping as a
justification for a recapitulation of income and expenses at the termination of the
marriage that disregards any acquisitions that may have been made during the marriage
with community funds.”
 “…unable to establish that there was a deficit in community accounts when the assets
were purchased, the presumption controls that property acquired by purchase during
marriage is community property.”
 “once he comingles, he assumes the burden of keeping records adequate to establish the
balance of community income and expenditures at the time an asset is acquired with
commingled property.”
- Tracing Property Purchased from a Commingled Fund
California’s community property system requires that, upon termination of marriage by death or
dissolution, the community or separate character of the spouses’ assets be ascertained
Two ways to prove SP Asset:
1. Exhaustion Tracing: the separate character of an asset may be established by showing that, on the
date of a particular withdrawal, the commingled account contained only separate funds because,
prior to that time, family living expenses had completely exhausted community funds (prove on the
date of purchase, no CP funds available)
o Need to know that there were no CP funds on the day this asset was bought – not that in general
there weren’t enough CP overtime/CP expenses exceeded CP income (recapitulative tracing:
when summing up total CP income/expenses.)
 See cautions that recapitulative tracing cannot be used for this purpose. Must look at
amount in account on the date of each spending
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2. Direct tracing: requires that the parry asserting separate ownership establish that separate funds
sufficient to over the amount withdrawn to purchase the asset in question were on deposit in the
comingled account on the specific date of the withdrawal. It is also incumbent upon this spouse to
prove that at the time of the acquisition, he intended that separate fund be used for the purchase
o Documentary proof that on the date of purchase there were sufficient SP funds in account AND
proof that purchase spouse intended to use SP (no written required for showing intent, Mix)
 Even if CP funds aren’t exhausted, sufficient to show proof that there were enough SP
funds and intend to use them
 Intent Factors:
o Testimony from the person
o Proximity in time between SP deposit and purchase as evidence that
money being deposited with intent to make the purchase
o Title is not dispositive by can be relevant
 If source proven CP, title doesn’t matter except to show intent to
use SP/CP
 When is title relevant?
 if married and take title in one name (SP), not enough to
prove if you don’t meet transmutation requirements
 but if married and take joint title, then likely CP because
CP presumption and presume that joint title is valid (maybe
enough for transmutation)
o If you use SP to pay for joint, absolute right to
reimbursement at divorce
o If you own property before marriage in own name
as SP, get married and transfer property from self to
couple as CP, maybe transmutation
o Marriage of Mix
If records are not adequate to prove SP source, items purchased during marriage are presumed
CP
 Ether kept two accounts that included by CP and SP
 Each year of the marriage, except one, Esther deposited more SP into these accounts than
the SP expenditures. Therefore, there were sufficient SP assets to buy the properties.
 Esther testified that she intended to use SP funds.
 Trial court find that the real property is her SP
 Objections?
 It is somewhat recapitulative, insofar as it allows annual, rather than daily, records
 It ignores expense. Perhaps some times community expenses far exceeded
community income and so SP funds were exhausted on community needs.
v. Credit Acquisition & Loans for Assets with Unpaid Debt
Relevant when:
1) the role of joint title in real estate purchases
2) the effect of paying down debt during a marriage in ways that mix SP and CP
- If debt is paid off, the paid off asset takes whatever form of funds used to pay off that debt
When a Spouse Bought Something on Loan During Marriage, is it SP or CP?
Depends on the lender’s intent when issuing the loan (did they look at SP or CP when giving the loan?)
- Assets with unpaid debt acquired during marriage under credit = presumed CP
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- Even though no there was no community funds expended, because loans relied primarily or exclusively
on community assets (Grinius and Grudelj)
UNLESS spouse can show intent of lender/lender relied on SP
- SP vs CP Reliance:
o Relying on earnings (income) usually CP
▪ Duration of marriage?
o Creditworthiness is usually CP
▪ depending on how long married so far and if expecting to pay off with CP income in the
future
o Relying on SP assets from before marriage as collateral probably SP
- 2 ways to show Intent:
1) Primary Intent of Lender: relied primarily on borrower’s SP in giving loan
o Spouse needs to show some evidence
▪ Gudelj: Jon claimed that he was notoriously bad at business, so the lender must have
relied on some SP real estate but no proof
● No evidence about lender’s intent  presumed CP
● Primary intent is less difficult to show
o Lender could’ve relied partially on CP earnings and mostly on SP for this
to be SP asset
2) Intent of lender: only SP if relied only on borrower’s SP in giving loan
o Spouse needs to show some evidence
▪ Grinius: During the marriage Joyce and Victor buy a restaurant building using some SP,
but mostly loans. Husband only had circumstantial evidence (not direct)
● He argued that the main collateral for the loan was the building, which he argues
is SP (but you cannot use this as evidence since this building is the very property
we are considering—circular reasoning)
● Fact that lenders wanted both spouses to co-sign suggested CP intent
● Most courts use this Grinuis idea
“Loan proceeds acquired during marriage are presumptively community property;
however, this presumption may be overcome by showing the lender intend to rely
solely upon a spouse’s separate property and did in fact do so.”
o That credit acquisitions during marriage are CP unless lender relies
exclusively on separate assets
o More difficult to show: Lender must’ve relied 100% on SP (not partially
CP) for this asset to be SP
Altman. Community Property Fall 2022
A. OPTING OUT
i. Prenuptial Agreements
In marriage, must “opt out” of CP sharing/presumptions
Prenups
Distinct from cohabitation, post-nuptial, and martial settlement. Prenups often used for older couples with
assets, second marriages
- In CA, no fiduciary duties for engaged coupled unlike married couples so obligations and postnups are
easier to strike down
- Post-nuptial: agreement on how to organize assets during marriage
o Not used in CA
- Marital settlement: what to do with the assets once marriage dissolute
- History:
o Until 1970 (no fault divorce CA), most addressed property at death
 Because divorce prenups thought to encourage divorce
 Because divorce prenups thought to undermine fault-based norms
o Rules for prenups depending on year of marriage:
 Before 1986, there was no statute, so the law was judge-made
 In 1986, CA adopts the UPAA
 In 2002, CA amends the UPAA
- Can include:
o Alteration of CP rights
o Rights to and disposition of property (waiving marital property rights)
▪ Waiving rights during marriage, at death, or at divorce
▪ But if significantly one-sided division at divorce, looks sketchy
▪ If prenup says: “there is no CP,” this erases the CP presumption
o Choice of law governing agreement
o Attorney fees
o Waiver/limits to spousal support (more contentious)
▪ Pre-1986: can’t waive/in prenup
▪ 1986: UPAA silent
● Court interpret silence as waivers permitted if agreement otherwise valid
(voluntary and not unconscionable or disclosure)
▪ 2002: cannot waive spousal support UNLESS
● Party seeking support independently repped (not retroactive)
● Even if repped, not enforceable if either (maybe retroactive)
o Violates involuntary OR unconscionable when signed and no disclosure
OR
o Unconscionable at time of enforcement (not signing)
▪ Some courts have held this to be retroactive
▪ Ex: So if at signing they were penniless but later one is much
richer, maybe unconscionable for one to get all $
- Can’t include:
o Child custody
o Child support plans
o Religion upbringing
o Fault divorce requirements (limiting exist or financial consequences) – CA adopted no fault
divorce, and the private fault-based system is prohibited
▪ Cannot adopt terms thought to encourage divorce (ex: payout, limiting exit or financial
consequences)
o Penalties for infidelity
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o Encouraging divorce
▪ Ex) “upon divorce wife gets all of CP and half of husband’s SP” à can appear to
encourage divorce (setting up a bounty for divorce)
Prenup Procedural Rules: Property
- Prenups must be in writing (FC 1611)
o Unless traditional exception to SOF (like part performance or promissory estoppel)
- Do not need consideration (FC 1611)
- Can be stuck down on some procedural grounds
“a premarital agreement is not enforceable if the party against whom enforcement sought proves either
of the following” (Two grounds for invalidation) (The person resisting the enforcement has the burden
of proof (FC 1615(a))
1. Involuntary (FC 1615(a)(1))
 Voluntariness
 Requirements before 2002
o understood basic effects of the prenup (what you’re getting into)
o understood that they were entitled to a separate lawyer
o not subject to undue, inappropriate pressure
 refusal to wed without prenup is not coercion (some pressure but
not coercion)
 Having to call off a wedding on short notice might be undue
pressure
 Some unwed (pregnant) mother cases found duress (unclear if still
valid)
 Single mothers were more likely to be seen as shameful
o In RE Marriage of Bonds  ruling caused public outcry
Facts: Bonds marries Sun. She has not lawyer, is not financial
sophisticated, and speaks limited English. Presented prenup hours before
wedding. Prenup gives her no property. Bond will not marry her without.
 CA Supreme court reversed appeal courts, finding that Sun knew
and voluntarily signed the prenup
 Short notice is not ideal. But wedding had no guest and could have
been cancelled (not much undue pressure)
 Involuntariness can include: lack of counsel, unequal bargaining
power, surprise presentation, proximity of wedding are all relevant.
 2002 Revisions/Requirements to CA UPAA (Responding to Bonds regarding
voluntariness)
Presumed Involuntary UNLESS (1615(c))
o Both parties have independent counsel, or unrepresented was advised to
get one AND signed a document acknowledging advice
o 7 days between presentation of prenup and signing
 Initially thought to apply only to unrepresented (2002~2019). CA
Legislative clarified it applies to ALL parties (2020)
 Not retroactively applied
 Tiny changes allowed
o Unrepresented party must be informed the terms of the agreement. Their
rights lost must be explained in writing (in a language they understand)
and must sign document acknowledging receipt of information
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o Not subject to duress, fraud, undue influence (allows courts to inquire
about factual questions – “were you led to fully trust your spouse?”, or
lack of capacity
 Tension with burden of proof 1615(a)  presumed or need proof?
2. Unconscionable when executed AND Inadequate Asset Disclosure (1615(a)(2))
 Unconscionable
 Unequal distribution is not unconscionable even if on party receives nothing
(Bond)
 Unequal bargaining power is relevant but not necessarily unconscionable (Bonds)
 Couples don’t owe each other fiduciary duties before marriage
 When it looks like a bad deal from a third person perspective
o Ex) Asymmetric agreement: wealthy spouse says nothing he owns is
shared property but everything the other spouse owns is shared
Asking someone to give up lucrative career for your benefit and nothing
will make will ever be yours
 Disclosure (FC 1615(a))
 Fair (changed to “reasonable and full” in 2002) disclosure of property and
financial obligations; OR
 Expressly waived in writing a right to such disclosure; OR
 Party had, or reasonably could have had, adequate knowledge of property and
financial obligation
 Violation of disclosure duty alone is insufficient to nullify agreement. It must
also unconscionable when executed / unconscionability alone does not nullify
agreement absent failure of disclosure (needs both)
o Looks like a bad deal from a third person perspective (unconscionable)
AND you didn’t know what you were getting into (wasn’t fully disclosed
to)  unjust result  VOID
Prenup: Spousal Support
- Before 1986 spousal support could not be waived or set in prenup
- 1986 UPAA did not mentioned spousal support. Most people assumed that ban remained
o But courts interpreted silence as permitting spousal support waivers if otherwise valid (voluntary
etc.)
- 2002 Amendments (1612(c))
o Forbid spousal support terms unless recipient was represented by independent counsel
o Forbit spousal support terms if unconscionable at time of enforcement
- Domestic Partners
Registered domestic partners in CA are treated as married for all state-law purposes, including
community property
o Some federal benefits are denied
o UPAA applies to contracts in anticipation of domestic partnership
o As of 2020, anyone eligible to marry can opt for a domestic partnership
- Putative Spouses
A person who sincerely believes that they are married will be treated as married (for property purpose)
until that belief ends
o Belief
 Some states require belief to be reasonable and sincere
 In CA, sincere belief is enough
o Any property acquired by couple before party discovers they weren’t married  CP
 After discovery, likely cohabitants and not CP
o Why does the benefits end with the good faith belief?
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A&B marry while A is married to someone else. B has no idea about this. 5 years later, B
discovers A’s other spouse. A stay in a relationship with B
 Under the PS doctrine, any property acquired by the couple before B’s discovery is C.
after the discovery A&B are merely cohabiting and not gaining any CP
 A common reason for PS cases is that in CA, divorce do not become final util at least six
months after filing. People who do not know this sometimes marry shortly after a divorce
hearing
 Unlike most states, CA will not retroactively validate these marriages once the
prior divorce becomes final
PS cases arise in several typical patterns. In all of these, A “marries” B, while already married to
someone else, often while in the process of divorcing that person. B does not know. Then:
 B files for divorce seeking property division. A claims there is not CP because the
marriage was invalid. B will get the property as PS
 A dies intestate and B seeks to inherit. Some other relative claims that B should get
nothing because the marriage was invalid. B will inherit as if the marriage was valid
 A dies in an accident. B sues for wrongful death. Defendant tries to dismiss the case
because B is not a spouse. B will win
 A dies and B tries to collect on A’s pension. B often wins.
 Cases like Vargas where there are two spouse both seeking to collect are very rare
o FC 2251 makes clear that if only one spouse has a sincere belief that the marriage is valid, that
spouse can choose whether to invoke the PS doctrine
 If both spouses believed: either can invoke the doctrine and it will be affected on the
other person
 Choice to invoke:
 can ask the court to divide assets = or not
o If doctrine invoked = couple shares assets like CP
o Unclear how this would be divided among three, although courts have
broad discretion (maybe each gets a third or H gets nothing)
 Treated same as married people for purposes of CP (w/ transmutation, etc.)
 Unclear: once that spouse invokes PS doctrine, does the other spouse gain benefits too?
 Likely yes, spouse cannot deny benefits to the other
- Marriage v. Cohabitation
Prior to 1976  no rights for cohabitant besides property issues (both split the cost on an asset)
o Non-marital unions lack access to courts, or to marital property or spousal support
o Agreements to share outside of marriage are often struck down
After 1976  Marvin (and others) will enforce agreements (opting in to share)
o Prenuptial agreements enforced (opt out of sharing)
o Result: marriage and cohabitation are default rules
 You can always opt out of presumed norm (sharing presumed for marriage, not sharing
for cohabitations)
o No writing requirement for cohab agreements (unlike prenups)
 Oral Agreements
Q: Prenups, real-estate contracts, and long-term leases must be in writing. Why should
we allow oral cohabitation agreements?
 Informal agreements are to be expected with informal relationships
o We allow oral agreements to marry in CL marriage for the same reason.
 But oral agreements cause problems
o They get litigated when relationships end and one party has an incentive to
lie
o They get litigated at death, when only one party is available to testify
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o They are often insufficiently exact about important details
o Even when parties acknowledge an agreement, they may have different
interpretations of its terms.
 Implied Agreements and Equitable Remedies
Factors that point towards Implied agreement or equitable case for relief
 Foregone opportunities and lost earning capacity
 Joint contributions to acquisitions (either financial or via unpaid home labor)
 But quantum meruit means value of services minus support received. Often this
will be equal
 In reality, usually based on clear evidence (written, oral with witnesses)
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C. EMPLOYMENT BENEFITS
All employee benefit plants – compensation (pension, stock options, vacation pay, annuities
i. Pensions / Retirement Benefits
Pensions
Pensions are CP to the extent that they are earned during the course of the marriage.
- Characterized by when earned not when received
o So if pension is from work before marriage  SP
- They are deferred compensation (like royalties)
- Unvested Pension
o Even unvested pensions are property (Brown)
 They might have no value if the employee quits or is fired before vesting
 Even if unvested pensions are contingent valued assets, still property (as lottery tickets
are)
 The same is true for vested pensions if the employee dies before retirement
 Unvested pensions cannot be unilaterally terminated by employers, suggesting that they
ae property
 Not treating them as property deprives spouses of a valuable asset in the cases
where the pension does eventually vest
o ERISA shortened the amount of time need for a pension to vest (so less frequent issue)
o Courts rarely divide an unvested pension at divorce (since its value is speculative). Instead, court
retain jurisdiction to divide that pension at retirement when its value will be known
 Courts never divide unvested pension at the time of the divorce because it's too
speculative at that time
- Delayed Retirement
When pension matures but the working spouse does not retire  often this is fine with the other spouse
because the delated retirement will produce larger payment in the future, often more than enough to
make up for the delay
o Gilmore hold that the non-employee spouse must be paid benefits as if the employee retired
once the employee become eligible (Gilmore Order)
 Gilmore isn’t compelling worker to retire:
 Often salary is higher than pension, so if person can live on pension after sharing
it, can likely afford to make pension payments to spouse before retiring
o OTOH, in retirement, expenses often go down or assets can be sold (such
as houses)
Dividing a Pension: The Time Rule
Most courts divide pensions according to the time rule (especially defined benefit plans)
- Courts like the time rule because the math is easy
- The rule is that the community (divide ½) owns the portion of the pension equal to (at retirement):
o Time worked at the job while married / total time worked at the job
o Ex) worked for 40 years, married for 20 years --> give the spouse 50% of the pension
- When the court decides to divide the pension at the time of divorce (even when the court doesn’t know
how long the working spouse will keep working?) (At divorce)
o The community owns a portion of the pensions’ current value equal to:
 Time married while at this job/Time at the job so far
 Multiply that decimal to the pension (gives amount CP should receive)
 Then divide that in half for each spouse
 Amount each spouse should receive (1/2 of CP)
- When amt of benefits is related to specific work done/service/points/status rather than years  time rule
isn’t permitted—abuse of discretion (Poppe)
o Same idea of time rule but points instead of time
Altman. Community Property Fall 2022
 If due to points, you earned 100 of 300 during marriage
 100/300 X pension
 Divide in half for CP
- Some CA courts in cases of rapid appreciation / increase in pension late in marriage or after divorce 
don’t use time rule
o When employee’s pension grows rapidly after divorce, sometimes time rule unjust
 Take expert testimony on relative contributions
 For defined contribution plans, ct. often accepts testimony from accountants on
appropriate allocation
 And instead, award to the community value due to post-marital labor rather than just
normal appreciation over time
o BUT NOT ALWAYS...sometimes can still use time rule in these cases
-
-
Right to Reinstate a Pension
o When pension connected w/ other rights, rights take on pension’s character
 Ex: right to reinstate a pension / buy back into pensions
 CA courts often characterize rights this way
 Lucero: couple withdrew funds from pension and spent them during marriage.
After divorce, H returned to co and allowed to buy back into pension (used SP
funds). But since original pension = CP, right to reinstate was CP
o though he could be reimbursed from community for buy-in price OR
entitled to be co-owner
o Reimbursement if SP / CP spent to “buy in” to pension:
 Entitled to be reimbursed for the loss OR
 entitled to be a co-owner
Joint & Survivor Pension: when one spouse dies, and pension was part/entire CP
o Governed by terminable interest rule:
 Public pension (govt workers)
 If employee remarries & dies, ex can still collect but new spouse still gets dead
person’s half (overruled Benson)
 If non-employee dies, her beneficiaries can still collect (overruled Waite)
 Private pension
 If employee remarries, ex can still collect (overruled Benson)
o ERISA allowed FC to overrule Benson
 If non-employee dies, her beneficiaries/heirs get nothing (Waite upheld)
o ERISA preempted FC from overruling Waite
ii. Disability Pay
Disability Pay – Unlike pensions, disability pay is generally interpreted using a replacement rule
- If the payments are during the marriage, they are CP; if they happen after, they are SP
- Even if you buy disability insurance with CP, the payment (after marriage) that comes from it is SP
- One outlier decisions in Marriage of Rossin
Altman. Community Property Fall 2022
A disability policy was purchased before marriage and the spouse became disabled before marriage.
Payments received during marriage were declared SP (even though the wages they replace would have
been CP)
- Disability Pay: Complications
Label doesn’t define—do factual analysis to determine whether disability or pension (Stenquist)
1. Disability/Pension Mixture (Stenquist)
o Court: only the difference between regular retirement pay (foregone) and disability pay (elected)
is SP. You cannot defeat your spouse’s CP interest by this election
 Purpose to provide for couple’s retirement based on employee’s work, not compensating
lost injury wages
2. Disability Pay Past Retirement Age (65yo) / Permanent Disability
Some courts hold that disability pay received after 65 become retirement pay, since it no longer
compensates for lost wages
o In this case, injured can only get disability enhancement as SP
3. Military
Jone and Stenquist are still good law as to civilian pensions. But they do not apply to the military–
ERISA preempts state ct. division of military benefits
- Disability IF:
o Too young to retire, getting disability when ineligible for pension
▪ Even if you could get pension in a few years or you had to give up pension to get this, if
you’re technically ineligible/young to get pension now this isn’t pension!
▪ Disability isn’t a substitute for pension bc couldn’t have gotten pension now anyways
● OR never had a pension to begin with, so clearly disability
o The company never would’ve offered him a pension, so this must be
disability
o In this case, analyze under disability replacement BUT even if this is SP, non-injured can still
recover once injured reaches retirement age
o IF Disability
Replacement depends solely on timing (Marriage of Jones)
▪ If employee gets disability payment during marriage = CP bc replacing earnings while
married
● Source of funds or services based on is irrelevant
o If wages would’ve been CP, then disability = CP
● At age 65, those pensions = retirement benefits
▪ If employee gets disability payments after divorce = SP bc replacing sep. wages
● BUT when injured turns 65 (retirement age), non-injured can likely receive
portion as retirement benefits
● Doesn’t matter what funds used to purchase or what services $ based on
● Even if based ENTIRELY on CP services/work
o Injured wasn’t entitled to any pension so payments were purely disability
= SP (Jones)
● Reasoning: Disability isn’t deferred compensation to reward you for past work
but compensating for lost wages
One outlier: Marriage of Rosin (source of funds)
▪ Person purchased disability insurance and was disabled all b4 marriage
▪ Court looked at source of funds—what $ used to buy policy
● SP bc bought insurance b4 marriage, even though replacing CP wages
● Payments received during marriage were declared SP, even though wages they
replaced would’ve been CP
▪ Marriage of Jones (replacement) is more typical
Altman. Community Property Fall 2022
● Payments received after divorce were SP even though based on military service
during marriage
iii. Severance Pay
Paid by employer (unlike unemployment which is paid by state)
- Sometimes limited to not-for-cause termination, such as downsizing but sometime available for
resignations
- Sometimes discretionary, but sometime contractually mandated
- Amount is sometimes tied to salary and years of service
- Sometime available only after specific time with the employer
General Rule: severance pay is characterized by replacement analysis
- Determine if the “severance” is deferred compensation vs under replacement theory
o If deferred compensation  likely CP (based on source of funds, linked to established
pension/right to enhancement occurred during marriage (Leham) etc.)
 Buy-outs  often seen similar to pension enhancements
o If under replacement theory  likely SP (assuming its replacing something that’s SP,
employers’ intention(?))
 Regular severance payments  often under replacement theory
Marriage of Wright
Rule: There’s no community-property interest in severance pay received by one employee spouse after
separation
- Severance pay is not made in consideration of the past performance of an employee, rather, is made in
recognition of the difficulty that an employee may have in finding a new job and the loss of income that
difficulty would create. (Intended to compensate for lost future wages)
o The severance pay was voluntary (no contract)
Is this decided based on PURPOSE of funds or TIMING of right acquired?
- Purpose Theory of severance package  Replacement Analysis (Wright)
o USE: if severance is voluntary, can’t be a right that arose during marriage since not a right at all
(not included in K)
 If rewarding past CP labor = CP (assuming benefit acquired in marriage) *Wright was
unclear which of these two factors mattered more:
● Severance was part of K/contractually obligated
o Horn/Skadden: severance is guaranteed as a contractual right whether e
terminated early or retired on time
● Would’ve been given regardless of when employment terminated
o Paid no matter what: eventually must leave, and will be paid regardless of
circumstances of departure
o Horn/Skadden: couldn’t have been aiming to replace future wages, bc
could’ve gotten when retired (when there are no future wages)
 So, severance looks like $ earned during career
▪ If compensating for future lost wages = SP
● Employer had no obligation to pay severance (voluntary)
● Only received bc/when fired
o Wright: father-in-law makes it hard to find new job
 So, Severance like worker’s comp., substituting future lost wages
- Timing Theory of severance accrual  Source of Funds Analysis (Lehman was referring to early
retirement, but many think we can use this theory for severance, though the court didn’t clearly specify)
Altman. Community Property Fall 2022
▪ Unclear if this theory applies to severance
● Most lawyers say no
● If it does, explains why we treat life insurance/pensions as based on source of
funds (rather than wage replacements)
● But doesn’t explain why disability payments (Jones, but not Rossin),
unemployment benefits, or casualty insurance are governed by replacement
analysis
▪ USE: Maybe if severance is involuntary (in K), you can use this
● If employer gave you this as a right, when did the right arose?
o during marriage = CP
o after dissolution = SP
▪ Employer’s intent may be irrelevant
o *TALK ABOUT LEHMAN / FUTURE UNCERTAINTY:
▪ Seems to be governed by majority rule, but some uncertainty/instability to how this is
governed in the future
▪ If source of funds is used for severance, it raises question why unemployment, casualty
insurance, and disability (Jones not Rossin), are governed by replacement
▪ But it explains why life insurance and pensions are based on source of funds rather than
wage replacements
▪ NO MATTER how specific question of severance pay is resolved, CP law will continue
to have a schism in its approach to assets with deferred payments
iv. Early Retirement Benefits
Early Retirement Benefits
- Can be given lump sum payments, installments, or enhanced pension
o Amount & availability usually depends on years of service and salary
- Marriage of Lehman
There is a community-property interest in an enhancement of an employee-spouse's retirement benefits
received after the dissolution of the marriage. If the right to retirement benefits occurs as a result of
services provided during the marriage, then the right to any enhanced retirement benefits is also the
result of services provided during the marriage.
o Here, the pension was a right during marriage. Therefore its enhancement (linked to the
pension) was also partly CP, even though the enhancement took place after divorce
o Very broad analysis, suggests that the employer’s purpose is irrelevant
▪ Key question is whether a right arose during the marriage
▪ If that is correct, Wright was correctly decided because there was no contractual right to
severance, but had there been a contractual right the payments would have been CP
o Buy-outs connected to pension  likely CP
o Buy-out not connected to pension  look towards replacement analysis
-
How to divide:
o Early retirement � tend to be governed by replacement analysis because compensating someone
for wages he would’ve had if kept working
▪ If during marriage retiring  CP
● Replacing wages could’ve worked while married
▪ But if retiring after separation � SP
● Replacing wages after separation
o Another theory if this is expression of gratitude for long service
▪ Should be CP because rewarding past work
Altman. Community Property Fall 2022
o **Most likely outcome: when the right arose (Lehman)
- Purpose of employer /replacement is irrelevant. Whether this is enhanced version of old pension or a
brand-new pension is relevant here:
▪ If during marriage = CP
● If pension was a right during marriage = CP
● Or if this was an enhancement of pension earned in marriage = CP
o Enhancement ex: waive penalty for early retirement and allow to retire
now for just as much as would get later (thus get $ sooner), or any offers
to improve pension deal.
o EVEN if the buyout plan itself arose after marriage
▪ If after divorce = SP
● Ex: lump sum early retirement payment, offered after divorce and not connected
to pension = SP (Fram)
● Ex: after divorce, facing a financial crisis, USC offered Frank $100,000 cash if he
would retire immediately. The amount was calculated based on Frank’s salary
and his years of service.
● If the right arose completely after marriage, hard to see this as compensation for
marital services
▪ If after divorce but connected to pension arising in marriage = CP
● If this is tied to pension as enhancement, then we ask when the right to pension
arose
▪ NOTE: Lehman says that pretend years of services used to enhance severance pay aren’t
used to apply time rule calc.
● Use normal time rule: years worked while married/total years actually worked at
job
o Denominator is NOT years boss is willing to pay you extra
▪ Ex: in Lehman, boss said: “Give you deal where it’s as if you
worked an extra 3 years.” Don’t add those years into the
denominator!!!
- SEVERANCE OR EARLY RETIREMENT?
o Is it described as connected to pension or severance payment?
▪ Is it called a pension enhancement or altering the pension plan? Is it tied to joint and
survivor account or how well your pension funds are doing in the market? (pension)
▪ OR are they just offering you a stack of money on the spot? (severance)
o Who is making payment?
▪ Lump sum from employer (severance)
▪ Paid by pension admin as pension check
● Even if not described as pension, likely treated as pension
o How is it structured?
▪ Gives you credit for 20 years even if you only work 15 � might lead to a better pension
● Primarily valuable because it enhances pension
o How did they let you go?
▪ Voluntary – pension
● “Our budgets are struggling, anyone here more than 20 years will get buy out if
you voluntarily leave.” Could dep on how structured (other above factors)
▪ Not voluntary departure -- severance
● firing you because crisis
v. Stock Options
Altman. Community Property Fall 2022
Employee Stock Options
- Often used to attract workers (substitute for starting salary)
- No income tax due until shares sold – tax deferral
- Crates an incentive to stay at the company
- Creates an incentive to work hard since the company doing well increases employee’s wealth
Marriage of Hug
Stock options can be granted for a variety of reasons based on each individual employer-employee relationship.
- Stock options can be granted in order to retain quality employees and provide an incentive for those
employees to perform well and increase the value of the employing company.
o Stock options granted in that manner would be for the purpose of future services and would have
a minimal effect on community-property interests.
- Stock options can also be granted as a tax-beneficial alternative to a merit bonus.
o Determining the community-property interest would require an analysis of the terms of the stock
option and the time period of services the option served to replace a bonus.
- Stock options can also be used in lieu of other compensation to attract quality employees and reward
those employees for their services, especially where there are new companies with less capital
Court says this is a question that depends on the purpose of the options
- In this case, the options lured the husband from another job, suggesting that hey compensated for losing
his unvested pension (a CP right) and for past labor that started when he began working at Amdahl
- In other cases, the main purpose of options might be to create an incentive for future labor or encourage
future retention  SP
Use Time Rule:
- IF options given to incentivize employee into working @ company long-term (doesn’t have to be
leaving another job) (Hug)
o Years at job while married / years at job before exercise = CP share
o Could be an attempt to retain them/get them to stay
- IF options given to reward continuing/recent work or incentivize short term future hard work � Nelson
o Months from grant to separation / months from grant to exercise = CP share
▪ Calculate distinct CP % for each month exercised shares
● Grant: month employer gave the options to e
● Exercise: month the employee actually bought stock
- *Not always clear between those two, no obvious evidence that will push a court in one direction or
another
o If stock options issued because particularly excellent year and bonus and not usually given,
reward for past work (Nelson)
▪ Bonus and you can exercise anytime over the next month
o If stock options exercisable over particularly long period (5-6 req) and want to keep you, may
look also like incentive to stay working (Hug)
▪ Ex: 250 each over the next 4 years (more ambiguous), or not before 3-4 years from now
(future oriented)
Altman. Community Property Fall 2022
Altman. Community Property Fall 2022
D. MIXED ASSETS
i. Separate Business with Community Labor
Professional practices/businesses/stock portfolios = property
Beam v. Bank of America
- “Income derived from a spouse’s separate estate that’s attributable to ordinary economic factors rather
than the spouse’s efforts and skill remains that spouse’s separate property” even if the spouse expended
substantial effort to manage that estate
CA’s Approaches in Distributing Separate-Property Income (California tries to disaggregate the value of
community labor from the value of premarital capital)  giving fair share for the shared labor
o Pereira: a fair return on investment is considered separate income; with any excess considered to
result from the spouse’s efforts thus making the excess community income (applied here)
 Estimate a fair return on the initial value of the business. Any increase above this
estimated return is presumed to be due to community labor. That amount is owned by the
community
 Tends to be better for the community rather than the SP owner.
 Most useful if there are other comparable businesses to use as comparison. IF this
business did well compared to other similarly situated businesses, we have reason
to attribute the difference to special effort
 Used to estimating the value of community labor value is hard
 Pereira: entitled to share of the company’s appreciation if your labor made company
appreciate more than a fair return would indicate
 ASSUME THE FOLLOWING:
o Interest rate of 10% annually simple interest
o 20 year marriage
o Comparable salary for a pharmacist is 50k per year
o Expenses for the family (from business) were 40k per year
 SIMPLE INTEREST RATE calculation
o Value @ marriage (of SP asset) X annual simple interest rate = $ per year
 100K X 10% = 10K
o $ per year X # years married w/ business = reasonable return (SP)
 10K X 20 years = 200K
 200K is what the court thinks is a reasonable return on 100K
investment over 20 years
o Reasonable return (SP) + initial value (SP) = SP
 200K + 100K = 300K (SP)
o Value @ divorce (of SP asset) – SP = CP
 900K – 300K = 600K (CP)
o Divide CP ½ for each spouse
o NO CP if did no better than average (all businesses grew)
 Don’t have to be average exactly, but unusual growth
o *Don’t take into account family expenses (lower cts)
 Had business funds not been expended for CP, business would be
+valuable. Subtracting CP expenses is repetitive.
 Use for:
o Business profits mainly bc skill, work, and efforts of worker
o Easy to find comparable businesses in same industry
o See below (court discretion)
 Usually better for community (but not always, depends on facts)
o Esp. if business appreciated unusually high rate
Altman. Community Property Fall 2022
o Van Camp: a reasonable value of the spouse’s efforts managing the separate property is
considered community income; income in excess of that value is separate income
 Estimate a fair wage for the martial labor. If community did not take that much in wages
(or expenditures for CP purposes) community is owned the difference
 Tends to be worse for the community, rather than the SP owner (because it's
reimburses community for forgone wages, sometime without interest rather than
sharing business growth/appreciation)
 Looks to how much one would need to pay an outside to do the same job. But
owners often work harder than employees at the same task. So, VC may
underestimate the contribution of the owner-worker
 Van Camp: if you weren’t paid for labor, entitled to reasonable employee wages
 Formula:
o Reasonable salary – CP expenses X years worked while married
 *Takes into account family expenses
 Use for:
o Increase in value of the asset is primarily due to factors other than
skill/hard work of owner (ex: industry boom)
 Worse for community
o No opportunity to share in appreciation
 Sometimes courts consider interest but not always
 Interest would apply to the difference btwn what you were paid
(CP expenses) and what you should’ve been paid (reasonable
salary)
 Owners often work harder than outsiders
o
Courts will apply the more equitable in a particular case, either way, family-expense
presumption applies
 Courts have broad discretion to pick a formula (almost never overruled)
 May depend on reliable evidence available:
o P: there are comparable businesses
 if none, look at reasonable success
o VC: easier to estimate comparable services/value of CP labor
 Whether judge thinks exceptional business success due to:
o P: Special features of business
o VC: special features of worker
o How to tell?
 If similar businesses had extraordinary growth, likely business not
efforts of party
 If similar business had modest growth and this was exceptional,
then probably parties and not business
 Fairness
o P: If couple lived modestly, put profits back into business
 In this case, VC may be unjust, bc it just reimburses & doesn’t
allow them to share in appreciation
ii. Business Goodwill
Value of business beyond value of material assets
Professional Goodwill as Divisible Community Property
Altman. Community Property Fall 2022
Not really about mixed assets. The valuation of business goodwill can arise for purely community property
businesses
Good Will: the bult-up value of one’s business beyond the value of his capital stock, funds, or property
- Deals with the valuable above the value of the assets as a whole
- Note, the sale price might understate good will if a change in management would predictably lead
customer to stay away (ex: the owners are likable so the customers come mostly because they like the
owners personally)  if the owners leave, some of the good will disappear (unless they agree to stay as
employees)
Going Concern Value: the amount by which the value of the tangible assets as a whole, assembled together for
the conduct of business, exceeds the aggregate of the assets taken separately
- Deals with the value of the assets as a whole
Valuing good will can be complex:
- Sometimes courts will look at to sale of comparable businesses to estimate
- Sometimes they have actual sales (or compensation for a book of business, or a non-compete agreement)
that can help with estimates
- Sometimes they will use the capitalization for excess earning methods
o The idea is to compare the current earning of a professional (ex: doctor) with the amount that
doctor could earn as an employee for an HMO (where individual doctor reputation matters less).
The difference is (roughly) the value of the doctor’s good will
- Courts are often ware of valuation methods that look to future revenue because they worry that this
amounts to treating post-martial income as owned by the community.
o The idea of capitalizing excess earnings seeks to avoid this problem by separating future
anticipated income due to skill and effort (HMO salary) from future income due to current
goodwill
Marriage of Watts (1985)
The mere fact that a business cannot be sold does not, without more means that the business has no good will
- in evaluating a practice’s goodwill, a court may use “any legitimate method of evaluation that measures
its present value by taking into account some past result.”
Transferability requirement:
- Some states don’t treat goodwill as divisible CP asset unless there’s market for GW/you can transfer
client base
o Professional practices/surgeons: some states may not consider this CP asset w/ value because not
easily transferable
▪ Good will is est. w/ other doctors not patients, and too difficult to convince all doctors
who refer to you that the new doctor is good
● Biz depends on referrals from other doctors, so other doctors must trust your good
name
● No repeat customers
o Restaurant/dentists: more easily transferrable because
▪ Convince patients/customers to stay on w/ new during transition
▪ Sign non-compete
o “Whether marketable goodwill exists for professional depends on nature of practice and whether
patients or clients come for individual personal reasons / can be brought into the habit of going
to the new provider.”
- CA treats goodwill as CP asset even if no market/transferability (Watts)
o Formula:
Sometimes courts look to comparable business to estimate
Altman. Community Property Fall 2022
▪ How much have similar biz sold for? This biz will be worth that much including GW bc a
willing buyer paid that much for similar biz
Sometimes they have actual sales (Or compensation for a book of business/non-compete agmt)
that can help w/ estimate
▪ They’re getting ready to sell this biz, so can value it easily
▪ Ex: if you got a bonus for bringing clients from old co to new, bonus regarded as GW if
you can show that
Sometimes they use capitalization of excess earnings method:
▪ Look at similar professionals and see if earner is getting excess amount
● Compare professional’s current earnings w/ amt could earn as HMO employee
(working @ general place). The diff. (roughly) is GW value
● HMO pays Drs based on skills not personality (rep unimportant)
▪ At divorce, that income stream needs to be reduced to present value and then divided
Courts often wary of valuation methods that look to future revenue bc worry that this is treating postmarital income as CP when it is SP
Altman. Community Property Fall 2022
iii. Professional Degrees
But for FC 2641, there would be a plausible argument that advanced degrees earned during marriage are CP
- like professional goodwill, they represent future earning capacity acquired during marriage. And like
goodwill, they have value even if they cannot be sold
FC 2641 changes all this by declaring that advanced degrees are not divisible assets.
- Instead, the community is entitled (at most) to reimbursement, with interest, for direct expenses (books,
tuition, transportation, money expended to repay education loads) (not reimbursement for foregone
opportunity if there’s any)
- Additionally, 2641 assigned education loans entirely to the degree owner (unlike other loans which are
divided)
- Limits on Reimbursements
Reimbursement for advanced degrees can be avoided (or reduced) if:
1. Degree did not substantially enhance earning capacity
2. Community already substantially benefitted from the degree (presumed so if ten or more
years between degree and separation)
3. Supporting spouse also received degree during marriage to which the community contributed
(cost/value of the degrees/earning potential isn’t listed in the statute but some courts might
consider it)
4. Education reduced the degree earner’s need for spousal support
Marriage of Watt (1989)
- Code § 4320 requires the trial court to include the provision of ordinary living expenses in the
determination of spousal support  reimbursement for indirect expenses
- California Family Code § 2641 provides the marital community can be reimbursed for contributions to
education or training that significantly increase one spouse's earning ability
o In contrast to the language of Family Code § 4320, Family Code § 2641 allows only for
reimbursement of actual educational expenses.  reimbursement for direct expenses
*Advanced degrees are not property in CA but professional practices stemming from a degree are
- possible to get reimburse the community for certain education contributions such as tuition payment
- reimbursement not required if, for example, the community already benefitted (after longs time degree
was earned)
iv. Separate Real Estate with Community Funds
For CP RE, SP can be reimbursed for:
- Down payments
- Improvements (permanent fixtures)
- Debt reductions
For real estate purchased during marriage with mixed funds & no/sole title:
- Presumed CP – because acquired after marriage
o This presumption can be rebutted by tracing to separate source
o Unlike Moore, any portion financed by debt is likely CP unless party can show lender relied
only on SP assets (Grinius)
o Marriage of Lucas- The rebuttable presumption under state statute that real property titled by a
husband and wife as a joint tenancy is intended to be held as community property cannot be
overcome solely by evidence of the source of purchase funds.
Marriage of Moore
Altman. Community Property Fall 2022
The value of real property is generally represented by the owners’ equity in it, and the equity value does not
include finance charges or other expenses incurred to maintain the investments. Since such expenditures
(interest, taxes) do not increase the equity value of the property, they should not be considered in its division
upon dissolution of marriage.
- L could have said that she owns the entire house – the money contributed the community was a gift to
her. Ct. rejects the gift analysis vs. D claims that the community deserves credit for its debt reduction
AND interest and taxes
o Ct rejects this. Interest and taxes did not increase equity in the house. They are no different than
rent - community expense
- Formula for CP ownership of appreciation dispute
o David favors CP debt reduction/total debt reduction.
 Ct. rejects this. Adopts formula of CP debt reduction/purchase price because David’s
formula ignores ownership share due to credit and down payment. Ct’s formula awards to
L a portion of appreciation due to the 1) down payment 2) the loan and 3) half of CP debt
reduction. David’s formula neglects the first two SP contribution
- If you can trace to SP source, like Moore, spouse entitled to reimbursement for down payments/debt
reduction and pro-rata ownership share:
1) STOP AND ASK: is this house purchased in joint title? (CP right of survivorship, joint tenants,
tenancy in common, title as CP)
o If so, spouse (SP) may not be entitled to ANY appreciation unless rebutted (see joint title below)
2) Reimbursement for funds
o Spouse gets ½ of CP debt reduction and down payment
o Spouse gets all of SP debt reduction and/or down payment
3) Ratio of appreciation (pro-rata ownership)
o SP contributions to equity / PP = SP %
 Contributions: down payment + debt reduction
 Equity: diff. btwn what you owe on mortgage and what home is currently worth (how
much of home you own)
o SP % X appreciation = SP appreciation amt
 Appreciation = market value today – purchase price
4) CP gets everything else
o Appreciation – SP appreciation amt = CP appreciation amt / 2
 *don’t forget to divide in half for CP (each spouse
50/50)
When Community Funds are used to improve Separate Property
There’s no presumption of a gift when community funds are applied to improve separate property. But such
contributions may create only a right of reimbursement. Fixtures, or other improvements, become part of the
freehold (the doctrine of merger) and thus do not affect ownership of the freehold.
Altman. Community Property Fall 2022
- CP improvements to SP houses (as opposed to debt reduction) are generally reimburses, though there are
some cases hinting at pro rata ownership
When there’s SP contributions to the other spouse’s SP house  FC 2640 provides interest free reimbursement
Premarital appreciation in Moore is handled in an odd way. The SP owner is given full ownership of premarital
appreciation. But the formula for allocating appreciation during the marriage is still CP debt reduction/purchase
price (problem 4(d) p. 283)
Property Acquired After Marriage NOT with Joint Title
If property purchased during marriage with a mix of SP and CP has no title (such as an antique) or sole title:
- The property is presumed CP – because acquired after marriage
- This presumption may be rebutted byt tracing to a separate source
o The ban on tracing to a separate source comes from joint title (FC 2581)
- Each source is entitled to a pro-rata ownership share, much like in Moore
o Unlike in Moore, any portion financed by debt is likely attributed to the community unless
separate owner can show that lender relied on only separate assets
o CHECK SLIDES
- Another Moore Example (p.286 example 4(a)  slides
Altman. Community Property Fall 2022
v. Joint Title & Separate Contributions
Houses, cars, bank accounts, buildings
Joint Tenants: separately own 50% each, survivor
takes all
Tenancy in Common: each pass to heir
Title as CP: spouses own everything together, 50%
divorce
CP w/ Right of Survivorship (CPWRoS): treated as
JT at death
Marriage of Lucas
The rebuttable presumption under state statute that real property titled by a husband and wife as a joint tenancy
is intended to be held as community property cannot be overcome solely by evidence of the source of purchase
funds.
- Anti-Lucas Laws – Sections 4800.1 and 4800.2 p.127-32
NO TITLE or SOLE TITLE  CP Presumption
- UNLESS rebutted by tracing to separate
source (both death & divorce)
JOINT TITLE ASSETS
Jointly titled assets acquired during marriage
 presumed CP
o Cannot be rebutted by form of title
or tracing, NEEDS agreement
Joint Titled Property at Divorce (presumes title is accurate)
1) For any jointly titled assets purchased in 1987 or later, the rules for divorce are:
1. Presumed CP
2. Presumption can be rebutted only by written evidence of intent (not by tracing)
o If it shows an intent for a pro rata share, then the SP owner gets the pro rata share (and
reimbursement).
o If it shows an intent for the DP to be a gift to the community, then the property is entirely CP.
3. Despite CP presumption, 2640 requires that SP contributions be reimbursed without interest (absent
written rebuttal)
o Not presumed gift to community (2640b – Anti-Lucas)
2) Any similar purchase before 1984, presume that SP was a gift to community, but allow oral or written
rebuttal to receive pro rata share
o If rebutted successfully  pro-rata share AND reimbursement
o Pro rata calculation shown in FN 3 p.126-27
3) Between 1984 and 1987, the first rule applies to joint tenancy, while the second applies to other joint
title forms (TIC, CPWROS, and Title of CP)
Joint Titled Property at Death
Property held as joint tenancy or community property with right of survivorship automatically belongs to
the surviving spouse
- No reimbursement right for a SP contributor
- 2581 (CP presumption for joint form) only applies at divorce
- JT is not a form of CP. So, 2640 right of reimbursement does not apply to JT (at death)
The outcome for property held as tenants in common or as community property is less certain
- Regulation of property at death is not under family code but rather probate code so 2640 probably
doesn’t apply
- Likely the Lucas presumption that SP contributions are gift to the CP applies at death
o Unless written/oral rebuttal, then pro-rata share
o Most people think that the reimbursement right does not exist
Third parties: title presumptions apply to couple for divorce not third parties necessarily
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Does transmuting into joint title waive right to reimbursement?
- Background:
o If spouse transfers house to both spouses (joint tenants), and at divorce wants reimbursement for
the value of the house before transfer, what can he get?
o Ex: Bob owns house before marriage. During marriage, he transfers title to himself and wife as
joint tenants. At divorce, Bob claims a right to reimbursement of the value of the house at time of
transfer.
- FC 2640 right to reimbursement refers to SP contributions to the acquisition of CP. But do we apply that
to this case?
o We have no holdings on point. But in Marriage of Heikes, the CA Scotus faced this fact pattern.
It held that 2640 could not be retroactively applied because the events took place before 1984. It
didn’t comment on whether 2640 would otherwise have applied if the date was after statute
o But the fact that the court didn’t apply transmutation to this and instead left this as an issue of SP
contribution to asset makes some think that if this was applied today, he would be entitled to
reimbursement
o Likely outcome: many think there shouldn’t be reimbursement rights
▪ Reimbursement is limited to cash contributions used to buy jointly titled asset (ex: down
payment, fixtures) or when changing title on an already owned asset
▪ Also, transmutation means a waiver of this reimbursement right
● Casebook author thinks once it’s transmuted, should waive right to
reimbursement
E. TRANSMUTATION
Change in character during marriage
- From SP to CP
- From CP to SP
- From one’s SP to the other SP
- If transmuted correctly/effectively  CAN’T revoke!
Before 1985
- Oral transmutation was allowed
- Transmutation could be inferred
- problematic in death cases, when one cannot testify
Post 1984 Transmutation
Requires that most post-1984 transmutation be supported by a writing signed or accepted by the spouse whose
ownership interest in the property is adversely affected. Must also not violate spouse’s fiduciary duties to each
other
- California Family Code S850: Transmutation of property by agreement or transfer
- California Family Code S851: Fraudulent transfer laws apply
- California Family Code S852: Form of transmutation
o 852(a): must be in writing, express, and signed (or otherwise accepted)
 Express: must state clearly that a change in ownership is happening. Extrinsic evidence of
intent is not permitted (Barneson & MacDonald)
o 852(b): to be effective against third parties, it must be recorded
o 852(c): gift between spouses of clothing, wearing apparel, jewelry, other tangible articles of a
personal nature that is used solely or principally by the spouse to whom the gift is made Includes
express exemptions for gifts of relatively inexpensive personal items
o 852(d): commingled assets or assets that combine SP and CP
- California Family Code S853: Effect of Will
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o A statement in a will of a character of property can’t be used as evidence of a transmutation of a
property in a proceeding before the death of the will writer (Wills do not transmute while the
testator is alive)
o Neither do revocable trusts
Marriage of Benson
A transmutation of community property is not valid unless it is made in writing and expressly states that the
agreement is effecting a change in the character or ownership of community property
- The writing requirement under 852(a) is not subject to common exceptions to the statute of frauds such
as the doctrine of part performance
What Sort of Language is Needed in the Written Agreement?
- MacDonald
A writing is not an “express declaration” for the purpose of section 852(a) “unless it contains language that
expressly states that the characterization of ownership of the property is being changed.”
- Decedent should be aware the legal effect of her signature might alter the character/ownership of her
interest in an asset
o Doesn’t require the term “transmutation” or any specific locution
o Court doesn’t suggest that this must be informed consent i.e that W knew exactly that right she
was waiving. It just needed to clearly state that a right was being lost
- Marriage of Barneson
After a husband had a stroke and instructed brokers, in writing, to “transfer” his stocks to his wife
- The husband’s written instructions failed to satisfy 852 “express declaration” requirement because the
word “transfer” fails to expressly state that the characterization or ownership of property is being
changed
Transmutation and Fiduciary Duty
A transmutation fully satisfying the requirements of 852 can nevertheless be ineffective if it violate te fiduciary
duty that spouse bear to one another
- S721: “…imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take
any unfair advantage of the other”
o A rebuttable presumption of undue influence arises when one spouse has gained an advantage
over the other in an interspousal transaction. The spouse who obtained the advantages bears the
burden of rebutting that presumption
Transmutations Subject to the Transmutation Statutes
- Marriage of Valli
The statutory requirements of transmutation apply not only to interspousal transactions also property purchased
by a spouse from a third party (third party transaction) if the spouse used community funds and the transaction
occurred during the marriage
Joint Tenancy Title Taken by a Married Couple and Purchased with Community Property Earnings
- In re Brace
Under California law, joint-tenancy property acquired during marriage after 1975 using community funds is
presumed to be community property, which may be transmuted to separate property only by agreement between
the spouses.
- Does Brace matter other than for creditor’s rights?
1. At divorce, 2581 requires that all property acquired during marriage in joint form be treated as CP
absent clear written contrary intent. So, Brace has no effect at divorce
2. At death, JT title is given effect – this is the reason people select JT
Altman. Community Property Fall 2022
3. So, why does Brace matter?
a. Creditor rights are important
b. Management duties during marriage are different for SP
Altman. Community Property Fall 2022
II. MANAGEMENT AND CREDITOR’S RIGHTS DURING MARRIAGE
The biggest defense between CP regimes and other states is not at death or divorce but control during a
marriage. Because community property is equally owned, its subject to equal control
- Either spouse can essentially spend community assets as they please (subject to a few fiduciary duty)
- Equal control means that either spouse may use or sell community assets without the other’s consent
o Limited by: a fiduciary duty, a ban on gift, special rules for real estate, special rules for specific
personal property (businesses, homes, and clothing)
Any transfer without joint written consent may be set aside by the nonconsenting party. BUT:
- If title is held in one spouse’s name and buyer/lender in good faith did not know about the marriage,
transaction is presumed valid (unclear if rebuttable)
- If title is held in one spouse’s name, there is one year SOL for set aside starting with recording
A. REAL ESTATE
California Family Code §1102
Forbids the sale, lease for over one year, or voluntary encumbrance of CP real estate without the written consent
of both spouses
- Doesn’t apply to transfers or leases between spouses
- Doesn’t block judgement liens
o Lezine v. Security Pacific Financial Services, Inc.
 1102 doesn’t block judgement lien so W failed to have new lien set aside
 Problem could not have arisen had the court divided the couple’s assets at the same time
that it set aside the mortgage
- EXCEPTIONS: for spouses who are incapacitated, or property held in trust
o §1102(e) allows encumbering real estate to borrow money to hire a divorce lawyer
- REMEDIES:
o If not joint consent, can set aside transfer
▪ If still married, can set aside mortgage/sale fully within three years OR one year if house
is held in sole title
▪ If getting divorce, can only set aside as to half of the property
o OR can request unequal division of assets at divorce (if he suffered financial loss)
▪ But if he made ½ the money from the sale, then no financial loss unless he can show it
was below market sale or that btwn time of sale and divorce the property price increased
so that by selling soon she deprived him of money he could’ve made in the interim
o BUT community must still repay sale/loan (Lezine)
▪ Must reimburse buyer for purchase price (or half purchase price if only 50% is set aside)
▪ In Lezine, problem wouldn’t have arisen had the ct divided the couple’s assets at the
same time that it set aside the mortgage
● But it assigned the mortgage/debt to H, and then waited a year before dividing the
assets/giving house to W
● During that time, bank put a lien on the house because it was still a CP asset, so
subject to SP debts
o Creditors can come after CP assets for some SP debts
o If the bank had given it to W as her own separate asset, it would’ve been
safe from creditors
o Setting aside the mortgage does not set aside the debt
▪ At divorce, the court should’ve given W the house and H the debt to make the victim
whole
● Then the house would’ve been her SP (only assigned to one) so no longer subject
to SP debts/liens of spouse who incurred it
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▪ Lezine- The good-faith creditor retains all of the legal rights of any unsecured creditor.
Here, Security Pacific was a good-faith creditor to the marital community and had all of
the rights of an unsecured creditor. Security Pacific had the legal right and ability to
record a judgment against the community and seek a judgment and subsequent
enforcement against any community real property that could be used to satisfy the
community debt.
o Set Aside Mortgage- Bank no longer has the right to repossess the house if mortgage is set aside
o If house title is only in ONE name, limitations:
▪ If house title is in one spouse’s name, transaction presumed valid if buyer didn’t know
about marriage in GF
● Doesn’t mean this can’t be rebutted—unclear what presumptively valid is
o does it mean never set aside or needs a strong showing?
o Even if you can’t set aside, maybe could still count as a fiduciary breach
and get unequal division of CP assets
● *in general, good faith purchaser doesn’t protect forgeries
▪ If house title is in one spouse’s name, SOL = 1 year to set aside transaction starting from
recording (CONCRETE LAW)
● Doesn’t say anything about buyer/lender not knowing, but regardless of what they
should have known, if title is held
● Ex: B and S married and own CP asset only in B name. B sells it to me, and I
record immediately. Sue doesn’t discover problem for 5 years. Only had 1 year
from when I recorded sale to set aside.
o Can’t set aside but can still get unequal division at divorce
B. PERSONAL PROPERTY
In general, either spouse may use or sell personal property without consulting the other; BUT
- If one spouse manages a CP business, they must give the other written notice before selling, leasing, or
encumbering all/substantially all of the business’ personal property
o Not, the business’ real property is subject to the usual real estate rule
o Failure to give this notice does not allow the non-managing spouse to set aside the transaction.
But there might be a remedy for breach of fiduciary duty
- Neither spouse may sell or encumber without written consent personal property that is:
o The family dwelling (includes mobile home)
o Furniture, furnishings, or fittings or the home
o CP clothing and wearing apparel of the other spouse or children
o These may be set aside in full (even after divorce/death)
- Add a Name
If one spouse keeps community assets in a form that the other cannot control, FC 1101(c) allows a court
to order that title be changed or a spouse’s name added so that both spouses have effective control
o Wilcox v. Wilcox – A husband may sue his wife in order to preserve his interest in communityproperty funs while the parties remain married
C. GIFTS & DONATIONS
FC 1100(c) forbids making a gift of community personal property without joint written consent
- No matter how big or small!
o Ex: $5 gift to nephew w/o consent is forbidden
o Ex: donating to political organization/food bank w/o consent
o Ex: giving money to mistress w/o consent
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o Ex: naming one person as sole beneficiary to CP asset w/o consent
- UNLESS:
o Incapacitated spouses (requires court action)
 Ex: dementia, not able to give consent
o Ratification (courts frequently find spouse ratified after the fact; have broad discretion)
 Acknowledging awareness & failing to object can ratify (Spreckles)
 She could’ve challenged this OR even wrote in will, “My horrible husband gave
away money that’s mine, I wish I could do something.”  would’ve been
ok/enough
 Acknowledging gifts without complaining suggested that she was ok with them
 This isn’t clear precedence for other cases – just highlights how much discretion courts
have to find ratification
o Maybe it wasn’t a gift but compensation (see below)
- REMEDIES:
o Can recover from... (assuming didn’t ratify)
 recipients to recover gift OR spouse/estate to be reimbursed for their share from spouse’s
SP
 Fields gives the aggrieved spouse choice of which to pursue
 Can set aside... (assuming didn’t ratify)
 entire gift during marriage (3 years) or
o can undo entire gift bc you are staying married and might want all the $ to
invest in a diff. way (you share the whole thing together)
 half @ death/divorce
o because the person who made gift showed intent to give this away, and the
aggrieved is only entitled to ½ the CP
 OR can receive unequal division of assets
o But cannot receive this if you set the gift aside
 SOL allows suit... (so long as haven’t ratified)
 during marriage (3 yrs)
 at divorce
 or after death
o the right to set aside these gifts survive your death!!
o Don’t have to prove spouse didn’t know about gifts—just didn’t ratify
(though showing lack of awareness helps)
- What counts as a gift?
o A gift = no consideration, receiving nothing back (did nothing to earn)
 Ex: in Estate of Bray, the son was working for father and paid wages, annual bonuses.
Father also deposited $ into JT account for son and savings bonds.
 JT account deposit is gift bc father was already paying son for work (this was just
extra gifts w/ no consideration)
o Not like a work bonus because son didn’t even know how much $ being
deposited (not incentive to work harder) or how often
o No way to see if there was a connection between frequency of deposits
and how hard he worked
o Transfers of community property by a husband in recognition of valuable
services provided by an employee are voidable by the wife under state
law.
o As a result, Walter’s gift, while made in recognition of Dick’s services,
was not a transfer in consideration of Dick’s services and is not exempt
Altman. Community Property Fall 2022
from the voidable option provisions of § 172. (The deposits were unknown
and untimed, so they look like gifts)
 annual bonuses might be because they are annual, and son knew the amt:
incentives to work hard every year
o even if not contractually obligated, this rewards work and incentivizes and
thus compensation
 HOWEVER: in son’s divorce, it’s possible these same assets could be treated like
compensation (CP) not gift (SP)
o Just for policy reasons, to encourage transparency between spouses with
gift-giving and sharing with CP compensation
 Merely a bad investment isn’t a gift
 Spreckels v. Spreckels – Written acknowledgement in a wife's will of a husband's
independent lifetime gift of community property functions as the wife's consent to the
lifetime gift.
 Harris v. Harris – Can the right afforded by state statute for a wife to disaffirm
unauthorized gifts of community property made by the husband be exercised by the
personal representative of the wife’s estate?  Yes
D. FIDUCIARY DUTIES
Spouses are fiduciaries from the date of marriage until divorce (including final division of property).
- Many fiduciary issues arise in connection with the divorce process-when couples must disclose
information about assets (more later)
- Also, there’s fiduciary duties in managing assets during marriage (here)
o Includes Management Duties (gifts, personal property, real estate) (see above)
Some Background
1. Statutes were amened in 2002 to strengthen the duties
2. They purport to mirror the duties of business partners set out in the corporation code 16403 and 16504
 includes duties to provide accurate information and duties of loyally and care
3. The SOL is 3 years from discovery. But cases may also be brought the end of a marriage, either by death
or divorce
4. The exclusive remedy (for breach of fiduciary duty) is unequal division of community assets and debts,
not personal liability from the other spouse’s separate estate (and not seeking assets from the other’s
separate asset)
5. Usually, the victim is entitled to half of the harm done to the community (plus attorney fees and costs).
But in extreme cases of fraud or malice, FC 1101(h) allows a court to aware 100% of any loss to the
victim
Crimes: Marriage of Beltran
H forfeits his military pension when convicted of lewd behavior. Ct approves unequal division of CP assets to
offset this loss to the community
- Cites prior case Marriage of Stitt where wife committed embezzlement. Ct divided CP asset unevenly
to account for. CP funds spent for her criminal defense
o Note on Lawyer Fees
Although Ct found that embezzlement violated fiduciary duty and therefore justified unequal
division of assets, it did NOT suggest that the obligation to pay the lawyer was a separate debt
during marriage. Had the lawyer tried to collect his fee, he could have collected against
community assets
 Example of the characterization of a debt as between the spouse does not mirroring the
characterization for creditors
Altman. Community Property Fall 2022
 Hypo: if H borrowed 10k from the bank, without W’s consent, and spent it negligently,
and both the bank and W seeks to collect (for the loan/remedy for breach), typically the
bank (creditor) will receive collection for first.
 If W divorces and divides assets before bank gets judgement, W could protect
herself.
 But if bank gets the judgment to collect before separation of assets, W is out of
luck
Torts: Marriage of Hirsch
H is sued for violating duties as corporate director. He settles and seeks to have the community funds used for
the settlement for the damaged shareholders.
- W seeks unequal division of community assets under breach of fiduciary duty.
- This was not a crime. The tort committed was for the benefit of the community. So, it is a community
obligation. W had no claim under breach of fiduciary duty.
o Unclear if the case would have come out the same way if it had been an intentional tort (as
opposed to negligence)
Using CP funds for SP Purpose: Beltran
Cites cases holding that unilaterally diverting CP funds to SP purposes violates the fiduciary duty. Spending CP
money to pay debt on SP house is an example (without consent)
- Spending CP funds to pay real estate taxes on a SP house (Without consent) violates a fiduciary duty
and justifies reimbursement during marriage or unequal division later
Consumption: Marriage of Moore
W complains that household items disappeared. She thinks H sold them to buy alcohol.
- Trial Ct finds misappropriation, as if the items were given away. On appeal, reversed. No evidence of
gift but likely that H sold items (received consideration) without W’s consent which isn’t a breach.
o No evidence that they were protected household items (furniture, furnishing, clothing, jewelry
(remanded case to figure out). Would have been a breach if there was evidence.
 Also breach if there’s evidence of a gift, or illegal activity/crime
o That they were sold for alcohol is not a breach of fiduciary duty. Using CP funds for personal
consumption is normal. Court does not want to micromanage which consumption is excessive
Negligent Management: Marriage of Shultz
H owed money to creditor but did not pay. The creditor sued, and H failed to show up for court, apparently
because he did not receive notice of the court date since he gave the court his former address.
- Trial court divides CP assets unevenly because H was negligent in managing this lawsuit
- Reversed on appeal: this is not deliberate misappropriation. Unless he managed funds or debt with gross
negligence, tantamount to fraud – which this was not- the community is responsible for marital loses
- Similar case Is Marriage of Duffy: H invested in risky tech stock and lost money. Ct finds that the
fiduciary duty includes duty of loyalty but not a duty of care. So, no breach.
Desirable Investment Opportunities: Marriage of Lucero (previous read case) vs. Somps vs Somps
- Right vs mere opportunity?
- Failing to use CP funds is a breach only if those opportunities were based on an investment right
connected to CP assets to efforts
*reference other outline
Altman. Community Property Fall 2022
Reimbursements to Spouse:
- Fiduciary:
o At divorce/death, community can be reimbursed for funds lost to fiduciary violations through
unequal division of assets OR set aside transaction/gift
▪ Usually only for 50% of community loss + atty’s fees unless serious fraud as to justify
awarding 100% of an asset to the victim of breach (lottery)
o The ONLY remedy of a breach of fiduciary duties is an uneven division of assets. You cannot
access the other spouse’s SP.
- Degree/Student Loans:
o In some cases, community can be reimbursed for funds spent on degree/loans
▪ if haven’t already substantially benefitted (10 years), other spouse wasn’t earning degree
too, etc.
o Student loans will be assigned to earner, not included in equal division of debts
- Injury/death not for community:
o If CP funds used to pay for personal injury/death caused by one spouse while not benefitting
community and SP funds were available, community can be reimbursed (unless insurance
proceeds paying off debt)
- Expenditures for necessaries:
o Same as above—if other funds available when debt was paid with SP, SP owner can be
reimbursed
- Child/spousal support:
o If CP funds used to pay child/spousal support not connected to marriage AND SP funds were
available at the time, community entitled to reimbursement
▪ If they had no SP funds, this wasn’t a breach of fiduciary duty bc that was a pre-marital
debt so no entitlement to reimbursement
E. CREDITOR’S RIGHTS (during marriage)
Creditors and CP Assets:
- A debt incurred in breach of fiduciary duty might justify unequal distribution at divorce
o But this does not limit a creditor’s rights during a marriage
NOTE: CP can be liable for premarital debts (even if kept in sep. accounts w/ sole management = still
CP!)
- In CA, all CP liable for all debts incurred by either spouse BEFORE OR DURING marriage (until
separation)
o Creditors can come after CP for:
▪ spouse commits tort causing personal injury/death b4 or while married
▪ Grolemund v. Cafferata- Community property is reachable by a creditor in order to
satisfy a judgment entered against only the husband based upon the husband's individual
tort
● spouse has credit card debt before marriage
● premarital debts
● debts incurred during marriage
- Doesn’t matter:
o who controls assets!!
▪ Creditor can satisfy debt by taking CP biz regardless of who manages it
▪ liability isn’t tied to management
o if spouse breached fiduciary duty
▪ though spouse can get unequal division of assets likely or maybe set aside unauthorized
transfers
Altman. Community Property Fall 2022
o that the debt was incurred before your spouse married you
o UNLESS:
▪ FC §1000: Debt for personal injury/death where injurer wasn’t acting for community
benefit  available SP funds must be used before CP for debt
● Then can come after CP if SP is exhausted
o If creditor fails to do this, spouse can be reimbursed
● Benefitting:
o Was the tort committed at a time in an activity benefitting the community?
o If benefiting community, CP may be used first
● UNLESS insurance proceeds used to pay debt (this rule doesn’t apply to that
scenario)
▪ FC §911: Spouse keeps CP earnings in account that other can’t access, these can’t be
reached by other’s PREMARITAL debt (it's still considered CP)
● ONLY premarital– debts incurred during marriage can reach these CP earnings
● Did spouse incur this debt before or during marriage?
▪ other than these exceptions, creditor can come after CP for your spouse’s premarital
debts
● Though in some cases you can be reimbursed
Creditors and SP Assets:
NOTE: SP not liable for other’s premarital debts—if creditor tries, spouse can set aside lien and prevent
creditor from gaining access
- SP assets mostly protected from debts incurred by one spouse EXCEPT
o Any debt for necessaries of life incurred by either spouse while cohabiting is personal
responsibility of both spouses  can reach SP
▪ Anything needed to sustain the marital standard of living
● Ex: vacation, furniture, insurance, food, clothing
▪ Creditor can go after either spouse first: no priority order
o Any debt for common necessaries of life even while separated (but still married) are personal
responsibility of both spouses � can reach SP
▪ Things needed to stay alive
● Ex: food, medical care, shelter
● NOT: fancy suits, restaurant meals, vacation travel
▪ Creditor can go after either spouse: no priority order
● Creditor goes after CP assets, and then can goes after SP (of either spouse) [no
priority]
o If spouses purposely transmuted CP � SP to avoid debts
- Spouse Reimbursement
o If non-debtor SP used while CP or debtor SP available, non-debtor may be reimbursed
▪ No prioritization order with SP assets from creditors seeking
o If creditor tries to come after your SP and not allowed to (ex: premarital debts), you can get lien
set aside and prevent creditor from accessing your assets
Altman. Community Property Fall 2022
III. ASSETS AND DEBTS: DIVISON AT DIVORCE
A. END OF ECONOMIC COMMUNITY
The community ends at death or separation
- CA is unusual in terminating the community
at separation
- Most states use either final divorce or filing
for divorcee
Courts have looked both to intent and behavior
- Intent never to reconcile
- Behavior consistent with this intent
Separation date matters because
- Income during separation is SP in California
- Assets purchases after separation are not
presumed CP
- Debts incurred after separation get different
treatment
Before divorce spouse must disclose all assets (duty of
good faith)
CFC S771: “The earnings and accumulations of a spouse . . . while living separate and apart from the other
spouse, are the separate property of the spouse.”
Marriage of Baragry
The separation of a husband and wife cannot be determined by the point at which the spouses begin to live in
separate dwellings.
- Here, the husband reaped both the benefits of a housewife and girlfriend while living separately from his
wife  Ct. finds couple was not separated / wife contributed to husband’s career and he cannot now
deny the marriage given that he was benefited from it
- Even if he clearly communicated/manifested his intent never to reconcile, his behavior didn’t show that
Marriage of Davis
A couple cannot be considered to be living separate and apart for purposes of determining community and
separate property while the couple is physically living together in the same house.  OVERULED
Family Code 70 states:  amended specifically to overrule Marriage of Davis
(a) “Date of separation” means the date that a complete and final break in the marital relationship has
occurred, as evidenced by both of the following:
(1) The spouse has expressed to the other spouse his or her intent to end the marriage.
(2) The conduct of the spouse is consistent with his or her intent to end the marriage.
- For Conduct, courts look to many factors including:
 Separate residences (relevant but no dipositive)
 Sexual relations
 Financial sharing
 Efforts to reconcile
(b) In determining the date of separation, the court shall take into consideration all relevant evidence.
(c) It is the intent of the Legislature in enacting this section to abrogate the decisions in In re Marriage of
Davis (2015) and In re Marriage of Norviel (2002)
The California norm is equal division of each asset. At death, the survivor is entitled, without exception, to a
one-half interest in each community property asset.
- In contrast, the Family Code allows an exception to in-kind, or item, division at divorce, with the
provision that the aggregate community estate must be divided equally.
Reconciliations
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- Efforts to reconcile can rebut intent required for separation. This is problematic because trying to
reconcile can be financially unwise if it fails
- There is a dispute about how to treat property acquired while separated if the couple later does reconcile
Domestic Violence
FC 4324.5 says that if a DV victim divorces abuser within five years of conviction+ time served for a DV
felony, victim can request that date of separation between to date of violent act or earlier (if warranted)
Divorce
Settlement: Most couples divide their assets at divorce by agreement
- Agreements need not to divide assets equally
- But spouses are fiduciaries
o So very unequal division is subject to a presumption that one spouse took advantage of a
confidential relationship. It can be challenged and possibly set aside (though there are strict time
limits for such challenges)
- Disclosures: FC2104-2105 requires full disclosure of all assets. Failures of accurate disclosure can lead
to:
o Penalties and attorney’s fees If intentional
o Set aside of final judgments if discovered after divorce
o Adjudication of undisclosed assets not distributed in divorce proceeding
o Disclosure must include both CP and SP assets (because a spouse can “believe” an asset is SP
but is actually CP)
- Temporary Restraining Order (TRO): Once petition is filed, courts under FC 2040 forbit sale or
encumbering any SP or CP asset without court permission
o Transforming JT property in tenant in common was held not to violate
In-Kind Division & Deviations
Assets are presumptively to be divided in-kind
- If couple owns a pension and a house, each get half of the pension and half of the house, rather than
awarding the house to one and pension to other
o In kind division avoids valuation problems, assures equal value and equal risk
- BUT, in-kind visions can be impossible, value-reducing, or harmful in other ways
o So, FC 2601 allows equal value (based) divisions when “economic circumstances warrant”
(spouse must show)
 E.g., A partnership cannot be divided
 A professional practice would lose value if owned by both spouses
 A small business run by one spouse would become impractical if owned by both
 Clothing is not feasibly owned by both and would lose value of ordered sold
 Marriage of Brigden (when “economic circumstances warranted”)  contrast with 
Connolly
-
What a Court can do with hard-to-divide-assets
o Order sale of asset and divide proceeds
 Often works for real estate. Either spouse can bid on the property if they have adequate
assets or can borrow. If not the family home, or when no children, solution can work
o Delay and retain jurisdiction
 This is the solution for many pensions, which can be hard to value, are subject to risk,
and often are so valuable that there is no offsetting asset to award to the other party. •
 A house under construction might warrant this treatment. It is hard to sell now, but can be
sold one year later
Altman. Community Property Fall 2022
o Award asset to one and a short-term promissory note to other:
 If asset can be sold soon, giving one spouse a promissory note (which itself can be sold)
allows the non-owner to get cash faster. The note needs to have interest and perhaps a
face value larger than half of the asset’s value, so that it can be sold for half of the asset’s
value.
o Shares of Stock
 Normally, these are easy to divide by giving half to each spouse.
 Brigden suggests this is usually mandated for public companies.
 Closely-held companies more like a small business.
 There is no market for the shares
 And the couple may use ownership to harass each other after divorce
 In-kind division can be avoided with offsetting payment (when possible) or
promissory note
o Family home
 Delay until market improves: If nether lives there, Ct can simply retain jurisdiction until
sold and order sharing of costs
 Delay so custodial parent can reside there (FC 3800)
 If resident spouse pays mortgage interest and taxes, no need to rent or other offset
 Otherwise, court can make order about costs. Sometimes non-resident is credited
with mortgage payments as part of child support
 Sometimes resident spouse is given title and non-resident spouse gets equalizing
payment or a security interest and promissory note
Marriage of Connolly
Shares of stock held as a community-property asset do not need to be divided in kind.
California Family Code Section 2552 valuation date for assets and liabilities
(a) For the purpose of division of the community estate upon dissolution of marriage or legal separation of the
parties, except as provided in subdivision
(b), the court shall value the assets and liabilities as near as practicable to the time of trial
(b) Upon 30 days’ notice by the moving party to the other party, the court for good cause shown may value all
or any portion of the assets and liabilities at a date after separation and before trial to accomplish an equal
division of the community estate of the parties in an equitable manner.
p.534 notes
B. EQUAL DIVISION
Prior to equal division, the community may see reimbursements
For valuation purposes, FC 2552 requires that assets and debts be valued at the time of trial, absent good cause.
- If asset value increases between the time of separation and time of trial, community still has interest in
the appreciation by valuing it at the time trial
- One common cause for valuation at separation is a CP business run by one party where appreciation of
the business post separation was due to the manager’s efforts
Exception to the equal division rule
- Community estate personal injury damages can be awarded to the victim
o If one injured and receives payout, allowed to allocate payout differently (up to 100% to tort
victim spouse)
- Breach of fiduciary duty can justify unequal division of assets. (ex: failure of recordkeeping and nondisclosure of assets)
o Includes all duties learned for far
C. MISAPPROPRIATION
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Deliberate Misappropriation of Community Property by One Spouse
- Williams v. Williams
Establishing the existence of community assets, which were in the sole control of one spouse, and
cannot be located, shifts the burden to the controlling spouse to show that the assets were used for
community expenses.
o Previous cases have held that the husband, as the party who had sole management and control of
community-property assets, had a fiduciary duty to manage those assets for the benefit of the
community.
o A husband is not required to account for every penny that is spent over the course of a marriage;
however, the husband cannot mismanage funds so that he gains an advantage over his wife.
- Marriage of Margulis
11-year separation before divorce and 1million goes missing. H had control and must keep adequate
record or court will presume assets are misappropriated
- Marriage of Rossi – nondisclosure of asset (lottery winnings), breach of fiduciary duty under
intentional nondisclosure (akin to fraud)
o A trial court does not have discretion to award anything less than the full value of a fraudulently
concealed community-property asset under state law.
(a) California Civil Code § 1101(h) states that if a spouse has intentionally, fraudulently
concealed community-property assets, the remedy shall include an award of 100 percent of
the value of the asset that was fraudulently concealed. The law does not provide for any
unclean-hands defense or any exception to that rule based upon the behavior of the nonconcealing spouse.
D. DEBT (AT DIVORCE)
“For purposes of making this division, the court shall value the assets and liabilities as near as practicable to the
time of trial….”
- This section, now codified at Family Code §2550 and §2552, was understood to require that assets and
liabilities be tallied and that the net division be equal. At divorce, the trial court assigned each debt to
one or the other party
However, legislature made three exceptions to the general requirement that unpaid debts incurred during
marriage be divided equally at divorce:
1. Education loans may be assigned, without offset, to the spouse who received the education
2. When a spouse incurs tort liability during marriage that is “not based upon an act or omission which
occurred while the married person was performing an activity for the benefit of the community,” any
outstanding liability is assigned to the tortfeasor spouse, without offset. Family Code §2627.
3. For divorces in which liabilities exceed assets: “To the extent that community debts exceed total
community and quasi-community assets, the excess of debt shall be assigned as the court deems just and
equitable, taking into account factors such as the parties’ relative ability to pay.” Family Code
$2622(b).
- Additional Exceptions
o Debt incurred before marriage (creditors can collect debts incurred before marriage by collecting
from CP, but after divorce, the debt (incurred before marriage) will become SP
o Any debt incurred during the marriage that does not benefit the community
 Unclear category. Does not include all personal consumption but might include unusually
large or problematic personal consumption (such as drinking)
HOW TO DIVIDE:
1) Assign separate/special debts (see above)
o Without offset
2) Divide rest of debts equally (CP debts)
o Not as important to divide in kind (often kept whole if equal in amount)
 Ex: credit card debt $500K to one and car debt $500K to other
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IV. ASSETS AND DEBTS: DISTRIBUTION AT DEATH
A. ASSETS
Distributing CP at Death
- When a married person dies in California:
o Surviving spouse automatically owns ½ of every CP asset
 Survivor also gets all of JT or CPWROS property (outside probate)
o Deceased may distribute by w9pp the other half of CP and all of their SP
 Unlike CL states, spouse have no right to inherent any share (no forced share) though
they already own ½ of CP
 Usually, this pattern protects surviving spouse
 But if all assets are SP of deceased, surviving spouse may get nothing
o If spouse dies intestate, the survivor gets 100% of CP and share of SP
- Just as at divorce
o Survivor can petition to set aside half of unauthorized gifts or transfers that required joint
consent
 The survivor need not sue gift recipient to set aside gift but can instead collect it from the
deceased’s half of the CP (Fields)
 Dargie makes clear that this is not required – can sue to set aside half of gift (not
all because the other half is binding on the deceased)
o Dargie. Patterson (Recapture of Unauthorized Inter Vivos Gifts after the
Donor’s Death)
Upon the death of a person who attempted to convey community property
without the consent the spouse, the surviving spouse can recover an ½
interest in such property in an action against the grantee.
 The surviving spouse need not seek his/her interest from the
husband’s estate
 This includes CP that the decedent spouse sought to convey during
the spouse’s life without the surviving spouse’s consent
 Although voiding the conveyance after the conveyor’s death is not
required under the law, the non-consenting spouse is still entitled
to a ½ interest in the property
 The court makes clear that item-analysis is required at death. Each
spouse owns half of each asset. They cannot be forced to accept
equal value in place of half ownership of each asset
o Life Insurance Policy Proceeds
CA classifies as CP the proceeds of a community funded life insurance
policy.
 When the insured spouse named a beneficiary other than his
spouse, CA treats the beneficiary designation as a testamentary
transfer of the insured’s ½ interest.
 The surviving spouse is entitled to the remaining half as her
share of the CP proceeds
o Survivor can assert a right to unequal division of CP assets based on rights of reimbursement or
violations of fiduciary duty
Estate of Prager (The Surviving Spouse’s Obligation to Elect)
A surviving spouse may elect to take her ½ share in all CP owned with a decedent spouse in addition to
receiving any other bequests under the decedent’s spouse’s will.
- Testamentary dispositions of a decedent are, unless explicitly stated otherwise, (presumably) intended to
cover only those assets that a decedent had a right to devise or bequeath
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o A decedent only has a right to bequeath his/her ½ interest in CP absent an agreement by both
spouses otherwise
When Election Issue Arises
When the will both purports to transfer to a third-party CP assets belonging half to the survivor AND giving the
survivor assets to which they otherwise have no claim
- Rule:
o If the will explicitly states that the survivor must choose, then the survivor must
o Otherwise, the law presumes that the deceased intended only to give away what they owned, not
more
 So the survivor can keep both their CP chare and the property given by will
o But if the will makes clear that the testator intended to give away assets belonging to the
survivor, then election is required despite no explicit statement
- E.g., Bob and Sue are married. Sue inherited a stock portfolio, which she allowed professionals to
manage for her. She and Bob also own real estate acquired during the marriage using CP funds.
o Sue’s will states: “I leave all of the real estate I own to my sister and all of my stocks to my
husband Bob”
o Bob claims that he own half of the real estate and can inherit all of the stocks. Is this correct?
 Yes, this fact pattern mirrors Estate of Prager. Giving away “all the real estate I own”
does not clearly signal an intent to give away more than you own.’
Estate of Wolfe
If a testator spouse attempts to dispose of both spouses’ interests in community property through his or her will,
the surviving spouse is required to choose between electing to retain his or her community-property interests or
receiving his or her interests as a beneficiary under the will.
- There is a rebuttable presumption when a will is interpreted that a testator only means to give away his
or her one-half interest in any community property. So long as the will can be logically interpreted to
support the presumption, the presumption will apply.
o Where the presumption applies, the surviving spouse retains both his or her one-half interest in
community property as well as any property received as a beneficiary under the will.
- Here, however, the language of the will made explicit that Mr. Wolfe, as testator, (mistakenly) believed
that the property at issue was his separate property and that he intended to devise the entire ownership
interest in such property. (There was no logical reading of the will in which Mr. Wolfe only intended to
transfer a one-half interest in the property at issue.)
o Because Mr. Wolfe's will devised the entire interest in community property, Mrs. Wolfe was
required to choose between receiving property as a beneficiary under the will or electing to retain
her one-half interest in community property bequeathed under Mr. Wolfe's will
Residual and Intestacy
If the surviving spouse is also the sole residual legatee, her lection to assert her CP rights may be costless. The
residual legacy will fail and all the residual CP will pass to the surviving spouse by intestacy (p.581 bottom)
B. DEBTS (at Death)
Estate of Coffee
Community property passing to a surviving spouse after a his or her spouse’s death is subject to the decedent
spouse’s debts and administrative expenses.
- The debt and expenses must be paid from the community property in its entirety before calculating the
surviving spouse’s one-half interest in the community property.
o In other words, the community property is liable for the decedent spouse’s debts.
If an Estate Goes Through Probate (Administration)
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All debts of the deceased must be paid before assets are distributed.
- For this to happen, we must know which debts are attributed to the deceased (and which assets are
available to pay them)
o Since 2001, CA has used the same rules to allocate debts at death as it uses at divorce
 Separate Debts: Educational debts, premarital debts, debts incurred during marriage not
for benefit of the community, and most debts while separated
 Debt incurred during the marriage for the benefit of the community may be satisfied out
of all CP and the SP of the person who incurred the debt
 Life insurance an JT passes outside of probate and so it not part of the debt
satisfaction process (see below)
o These become survivor’s SP when deceased dies, so creditors cannot
collect them when going after deceased OR CP debts
 Life insurance � becomes survivor’s SP @ spousal death
 JT  becomes survivor’s SP when other JT dies
- Not All Estates Pass Through Probate (includes insurance & JT)
A surviving spouse can often elect to bypass probate and take their share of CP and any other property
left to them without administration
o Doing so means that the surviving spouse become personally liable for all of the debts to which
property she acquires would have been liable
Altman. Community Property Fall 2022
V. CHOICE OF LAW & QUSAI-COMMUNITY PROPERTY
A. Bought Non-CA Property While Living in CA
CA residents acquire out of state property while in CA and divorces/dies in CA
- Divorce:
o Real estate acquired by married person during marriage  A cts treat RE as CP no matter where
located (if questionable that this is CP, CA cts will first use CA law to determine that)
▪ Ct can award RE to titleholder and give other party offsetting assets to equalize when
possible
● Not always possible if spouses don’t have other assets
● Ex: if NY house is in Kermit’s name, give NY house to Kermit and CA house to
Piggy if the two houses are of the same value
▪ OR order titleholder to convey half of RE to spouse
● Can gv non-title spouse deed to property or deed making TIC
● Assuming titleholder is in ctrm and can be forced to do this
▪ OR ct could make judgment ordering titleholder to give spouse ½ value of asset
● Ct awards non-owner spouse judgment in amt of half the value of RE, which can
be turned into a lien or enforced in the other state
● Out of state Cts enforce monetary judgments if CA orders
o Other states generally defer to CA final judgments for personal property
(though not always for ownership of RE)
▪ They won’t always change title if cts order them to do so, but
money judgment isn’t change in title of RE as matter of personal
property so cts always enforce these
NOTE: Only one spouse needs to have been CA domicil. @ time property was acquired
for this to work if divorce filed in CA
● But usually both lived in CA, otherwise property was likely acquired during sep.
o Personal property acquired by married person during marriage � treated as CP no matter where
located
▪ If this isn’t really CP (transmutation failures, etc.), then court would use CA law to first
determine if this is CP
▪ Ex: bank account in NY, storage locker in Maine
▪ Out of state courts will enforce these CA orders
- Death:
o Real property (RE)  CA leaves unadministered for admin/probate of the state where it’s
located to handle
▪ Not declaring it SP or CP—letting other state handle & then divide all CA personal/RE
and out of state personal property equally as if this RE doesn’t exist
● When distributing assets, CA cts divide equally all CP over which CA cts have
control over (including PP) and act as if out of state RE didn’t exist
● Ex: Piggy and Kermit own NY house, CA house, and stock. Since the ct doesn’t
know what to do with NY house, it will let NY take care of that and give ½ CA
house and ½ stock to Kermit and Piggy each.
▪ What other states will do w/ RE:
● Some states apply their own laws of title and distribution
● Others use CA law to adjudicate title disputes but apply their own law of
distribution at death
● Still others use CA law to distribute that asset at death too
▪ Reasoning: CA treats death diff. bc feels divorce is merely dividing but here they’re
assigning ownership
o Personal property � divided as CP no matter where located
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▪ Don’t forget: to factor non-CA personal property into the equal division of assets for
couples!!
B. Bought CA Property Living Elsewhere
Non-CA resident buys CA property and dies/divorces elsewhere
- Both death and divorce:
o CA defers to the laws of the place of domicile outside CA for both real and personal property
▪ With divorce, CA will follow the out of state order from a diff. court
● Assuming the divorce takes place in another state court and that court gives an
order on how divide assets
● Ex: If divorce in NY and NY ct orders property be divided, CA will follow NY
order
▪ With death, CA will have their own sep. probate proceeding in CA, but CA will apply all
aspects of the out of state law to adjudication of both RE and PP
● For substantive law about ownership and distribution at death
● Ex: If die in NY, CA will engage in sep. probate proceeding in CA but apply NY
law to all aspects of adjudication of CA RE at death
C. Quasi CP at Death/Divorce
Non-CA couple bought non-CA or CA property that would’ve been treated as SP in their state but is CP in
ours before moving and divorcing/dying in CA.
(theory dvlped bc CA felt unconstitutional to transform ownership just bc move to CA)
- Divorce: any asset (RE or PP) or debt acquired during marriage that would’ve been CP had the couple
lived in CA is Quasi-CP
o Regardless of what character is in diff. state, if this would’ve been CP in CA = quasi-CP (treated
exactly like CP)
▪ Ex: bought w/ funds earned during marriage, even if bought in one title in NY and would
be SP under their law, CP under ours
- Death:
o *IF IT’S OUT OF STATE RE – CA CANNOT DIVIDE
▪ Real Estate:
● RE located in CA: divide it just as would CP
o CA will divide in state RE / CA RE (whether QCP or CP)
● RE located not in CA: allow the other state court to adjudicate
o CA will never divide out of state RE (whether QCP or CP)
▪ Personal Property:
● CA can divide out of state or in-state, QCP or not
o If property would’ve been CP in diff. state and CP here = treat as CP
NOT OUT OF STATE RE
▪ CP states: Tx, Louisiana
o If the personal property would’ve been SP in a diff. state but CP here = QCP (NY)
NOT OUT OF STATE REAL ESTATE
▪ QCP = Property acquired by decedent while living elsewhere that would’ve been
decedent and survivor’s CP had the decedent been living in CA when he gained it
● AKA: property that would’ve been SP in a diff. state but CP here
● NY law says that any asset earned by spouse or in his name is his SP. NY also
doesn’t divide assets 50/50 at divorce.
▪ At death, ½ of decedent’s quasi-CP belongs to survivor and other ½ belongs to decedent
(protects survivor and/or earner)
● If person w/ QCP property dies (earner):
Altman. Community Property Fall 2022
o survivor (non-earner) gets half
o and other half belongs to decedent (earner)
● If person w/o QCP property dies (non-earner):
o survivor (earner) keeps it all
o decedent gets none
▪ if the decedent had no QCP (he did not acquire any property in NY
that would’ve been CP—he didn’t acquire any property in NY at
all)
- Transmutation:
o If couple took items in JT or CP and there was valid transmutation, this would still be called
quasi-CP but both spouses would have some (being co-owners)
▪ Instead of Ernie having some QCP and Bert having none
▪ This would be the same results for divorce but not for death
o QCP remains QCP when exchanged
▪ Ex: if Ernie buys stocks with salary, that’s still his QCP
Altman. Community Property Fall 2022
VI. FEDERAL PREEMPTION
Federal courts found that many statutes preempt state CP law. Congress has overturned some of these
decisions/created exceptions
- Federal Employee Benefits  about federal law preempting state law
o Federal employee salaries earned during marriage can be treated as CP
o Federal benefits paid during marriage can be CP
 E.g., retired federal employee receives pension payment during marriage. Once in the
bank during marriage, its CP
o BUT: unpaid federal employee benefits (or those paid after separation) cannot be divided by a
state court unless specifically authorized by statute
 Many statute do authorize such division for federal pensions, including military and most
federal civil service employees
 There are not always statutes beyond pensions
 E.g., Marriage of Stenquist said that when electing disability pay in lieu of
pension, only the difference between then could be SP. This remains good law for
most employment, but it is no longer valid for military disability pay, which
preempts state law
-
Pensions Governed by ERISA  non-governmental employment organizations
o QDRO allow state courts to divide a CP pension regulated by ERISA  awarding the pension to
the spouse/children
 QDRO: can the court order someone other than the employee receives pension payment
(I think?)
 This is a statutory exception to the general anti-alienation rule
 It allows a court to direct regulated pension payments to a former spouse or a child of the
earner
o When we discussed the terminable interest rule, I noted ERISA preemption. In particular
 Benson v. LA has been overturned by statute
 X divorces Y and marries Z. Y gets part pension during X’s life. Y still get paid
when X dies
 Waite v. Waite is overturned, but not for ERISA regulated pensions
 X divorces Y. Y dies, leaving her share to Z. Z can inherit – but not under ERISA
(note: if this was a government employer, Z could inherit)
 Boggs v. Boggs
Isaac earns pension while married to Dorothy, she dies, leaving property so sons. Isaac
remarries Sandra. Then he dies
 CT: ERISA prevents Dorothy from giving her share to kids. ERISA protects
surviving spouse right to pension
 Why doesn’t this overturn Benson?
In Benson Y is getting paid under a QDRO which is authorized by ERISA.
o Note later courts make clear that QDRO cannot authorize distribution to
heirs of non-earners as in Boggs or Waite. ERISA is about protecting the
living beneficiaries of earner.
-
Employer provided Life insurance and ERISA
Normally, life insurance is governed by source of fund analysis (private individual bought policy from
insurance co.) but private employer-provided life insurance is governed by ERISA.
o So, if employee designates someone other than spouse as beneficiary of a life insurance policy
provided by a private employer, surviving spouse cannot assert a CP right in the proceeds.
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-
US Savings Bonds
When a US savings Bong is co-owned, it has a survivor benefit. The survivor owns the entire bong
(much like a joint tenancy). If one spouse uses CP funds to purchase a bond naming a third party as coowner, upon the spouse’s death, there is no ways to assert a CP interest
-
Offsets to Circumvent Preemption
Courts have tried to circumvent preemption by dividing other assets unevenly
o Howell v. Howell, husband elected disability pay rather than retirement pay when he left the
Airforce. Although retirement pay can be divided as CP, military disability pay cannot
o Trial court ordered other CP assets divided unequally to offset the loss of retirement pay
 US S Ct declares this violates federal preemption