CP Outline
Lois Schwartz
Fall 2006
CP Outline
Important Dates:
 January 1, 1975: Married Woman’s Special Presumption; Equal Management and control for spouses
 January 1, 1984: Family Code §2640:Anti-Lucas legislation (reimbursement scheme)
 January 1, 1984: Reimbursement to the community who contributes to SP education
 January 1, 1985: need express written declaration by spouse whose interests are adversely affected to
transmute property from CP to SP
 January 1, 1986: Premarital Agreement Actprenups must be in writing and signed by both parties
 Prior to January 1, 2000: unmarried same-sex couples=unmarried cohabitants
 January 1, 2000-July 1, 2003: could register as domestic partners
 January 1, 2001 or 2002: Anti-Bonds legislationFamily Code §11615(c)
 January 1, 2005: CA Domestic Partner Rights and Responsibilities Act of 2003 is passedCP laws
now apply to Domestic Partners
I. (Into to CP) Chapter 1—Development of the CA CP system
A. Intro
1. Unless the couple makes an agreement to the contrary, all property acquired during marriage
by the labor, skills, or efforts (LSE) of either spouse is CP that is owned equally by both spouses.
2. Characterization (CP or SP) is the heart of the CP question. (No property can be both.)
3. 8 statutory CP scheme states (CA is different though); rest are CL states who often use
equitable distribution schemes to rectify some of the harsh results of a non-CP scheme.
a) CP: Louisiana, Texas, New Mexico, Arizona, CA, Washington, Idaho, and Nevada
b) CL: each spouse owns whatever he/she earns.
c) Wisconsin has a modified system that amounts to a CP scheme.
4. CP is specified in the CA Family Code and has origins in the CA constitution (1849), art. 11,
§14
B. CP Defined
1. Property held in common by an H and W, each having an undivided one-half interest in this
property by virtue of their marital status. (Applies only to H/Ws or domestic partners who are
legally married and only to income and assets acquired during the marriage.)
C. The Meaning of Marriage
1. Maynard v. Hill [USSC; 1888]
a) Facts: H left W in Ohio and didn’t support her and the kids financially. Claim by the
W’s heirs as to a parcel of real property acquired by the H. If her challenge to the ex
parte divorce was found valid, she’d be entitled to a significant amount of property
under the land grant to her former H’s name.
b) Rule: Marriage is a social institution rather than a private K allowing the parties to
set their own terms and thus is subject to legal constraints beyond the terms of the
marriage K.
(1) CP law automatically applies to CA marriages, regardless of what the parties
intend or understand.
D. Development of the Tracing Principle
1. Tracing Principle: SP produces SP and CP produces CP
2. CP includes all the property acquired by a married person through the use of his or her
Labor, Skills, or Efforts (LSE)
a) When CP is used to buy other acquisitions, the new asset is CP. Similarly, when
property classified as CP produces rents, profits, income, and increases in value, these
products are CP.
3. George v. Ransom [CA SC; 1860] (intro to tracing)
a) Facts: A creditor of H, sought W’s separate funds in payment for her H’s debt.
b) Rule: The creditor of the H cannot subject the proceeds or dividends of the SP estate
of his W to his claim. (Rents/profits from W’s SP remains SP.)
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c) Held: Court held that the H’s creditors could reach CP for his debts, but they could
not reach the W’s SP or the proceeds or dividends of that property.
E. Development of the Equality Principle
1. Equality Principle: spouses have equal ownership interests in the CP
2. Stewart v. Stewart [CA SC; 1926] (no longer good law; discusses the equality principle but
elects against applying it)
a) Rule: The W does not have a present vested interest in the CP during the continuance
of the marriage relation. She merely has a protected expectancy in the Stewart’s CP.
b) *Note: a year or so later, the Legislature did enact legislation stating that the interests
of both spouses in the CP are present, existing, and equal.
F. The Principles of Contractual Modification
1. Parties may entirely or partially avoid the CA CP system by agreement. [CA Family Code
§1500] (premarital or antenuptial agreements)
a) Premarital agreements made on or before January 1, 1986 are regulated by CA’s modified
version of the Uniform Premarital Agreement Act. [CA Family Code §§1600-1617]
(1) Good faith required
(2) No consideration required
(3) Statute of Frauds requirement: there must be a writing signed by both parties. [CA
Family Code §1611]
(a) BUT, an oral premarital agreement may be enforced when :
(i) the executory promise was fully executed by the promisor (an
executory promise is one that not yet been performed, when it is
performed , the promise is executed)
(ii) the promisor is estopped to assert the SOF because the other party
relied to his/her detriment on the oral premarital agreement (getting
married or staying married is not grounds for estoppel though), or
(iii) adoption or ratification during the marriage (pre 1985)
(4) Agreement is unenforceable if:
(a) Agreement limits support duties
(b) Agreement promotes divorce (In re Marriage of Noghrey)
(c) Unconscionable and non-disclosure
(i) If the party against whom enforcement is sought proves that: (i) it
was unconscionable when executed; and (ii) the party did not and could
not have had adequate knowledge of the wealth of the other party, and
did not waive her right to disclosure of such wealth [CA Family Code
§1615(a)(2)]
(d) Involuntarily executed
(e) *See new requirements in Family Code §1615 (c), subsection (c) which
were added in 2001 in response to Marriage of Bonds (*very important)
(i) This § provides that an agreement was not executed voluntarily
unless the court finds all of the following:
(a) The party against whom enforcement is sought was
represented by independent counsel when she signed the
agreement or, after being advised to seek independent counsel,
expressly waived such representation in a separate writing;
(b) At least seven days before it was signed, the agreement was
presented to the party against whom enforcement is sought and
that party was advised to seek independent legal counsel;
(c) If unrepresented by legal counsel, the party against whom
enforcement is sought was fully informed, in writing prior to
the signing of the agreement, of the terms of the agreement and
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the rights she was giving up by signing the agreement, and was
proficient in the language of the explanation and the agreement;
(d) The agreement and the other required writings were not
executed under duress, fraud, or undue influence; and
(e) Any other factors the court deems relevant.
Policy Considerations (prenups)
a) In re Marriage of Noghrey [1985]
(1) Facts: There was an agreement that said if divorce, H gives ½ of his assets
and $500,000 or whichever is greater to the W.
(2) Rule: An antenuptial agreement, the terms of which encourage or promote
divorce, is against PP and is unenforceable.
(a) *A promise to give a substantial amount of $ or property only in the
event of divorce, facilitates such an event and would be in violation of
PP; whereas agreements that define the legal rights of the spouses with
respect to property acquired before or after doesn’t violate the PP.
(3) *Consideration is not required for a prenup and there cannot be illusory
consideration in the form of a K for preexisting marital duty.
b) Marriage of Bonds [CA SC; 2000]
(1) Issue: Did Sun enter the agreement voluntarily?
(2) Rule according to the Bonds Court: In premarital agreement situations, the
parties are not in a confidential or fiduciary relationships and the burden is on
the party challenging the agreement to show a lack of voluntariness in entering
the agreement.
(3) Sun had the burden of showing that she didn’t enter the agreement
voluntarily and the Court found she didn’t meet that burden.
(4) *Legislature went ballistic and added (c) to §1615 added the requirements
stated above in 2001. This § is not retroactive.
FormalitiesTransmutation
a) Pre-1985, Oral and implied agreements are enforceable
b) After January 1, 1985, a signed writing is required which expressly declares that a
change in ownership of the property is being made [Family Code §852: signed by person
who is adversely affected] (Estate of MacDonald)
(1) Exception: A writing is not required of personal gifts (like jewelry, clothes,
stocks) between spouses which are relatively insubstantial in value in light of
their circumstances. (Marriage of Steinberger) [Family Code §852(c)]
(2) A declaration of character of property in a will is not admissible evidence of
a transmutation before the death of the testator (compare with a characterization
of property in an inter vivos trust which is admissible to show transmutation)
c) Estate of Bibb [2001]
(1) Facts: The son, Dozier, from the first marriage, filed a petition to establish the
estate’s ownership of the property lot, apartment building, and Rolls Royce. He
contended that the property had not been validly transmuted from his dad’s SP
to CP because the DMV records and grant deed didn’t clearly state the change.
(2) Rule: Need a writing that satisfies the SOF, clear and unambiguously states
the change of status of the property independent of extrinsic evidence, and is
consented to by the party who rights are adversely affected. [Family Code
§852(a)]
(3) Held: Yes, the grant deed signed by the H transferring his SP interest in real
property to himself and his W as joint tenants satisfies the express declaration
requirement of the Family Code. BUT, no, an unsigned computer printout of
DMV registration, indicating that the Rolls Royce was reregistered in the names
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of the H or the W (needs to be more specific than A or B) does not satisfy the
requirements for a valid transmutation under the Family Code.
(a) *Extrinsic evidence is not allowed here
d) Marriage of Steinberger [2001] *Important exception to the §852 (a) writing
requirement
(1) Facts: James gave Buff a diamond ring in celebration of their fifth wedding
anniversary. When the couple filed for divorce, Buff claimed that it was her SP.
(2) Rule: Under Family Code §852, gifts of personal property that are substantial
in value, taking into account the circumstances of the marriage, will not be
considered converted to SP without the writing required by §852.
(3) *cards accompanying the gift doesn’t count as the writing
(4) *must know the financial worth of the couple to determine this issue
II. Chap. 2—Classification of property as CP or SP
A. General Presumption of CP (Presumption that Acquisition During Marriage is CP)
1. Basic presumption is that all earnings during marriage are CP, but a competing presumption
is that if anything can be traced to SP prior to the marriage, it will remain SP.
2. Family Code §760: CP Defined
a) All property, real or personal, wherever situated, acquired by a married person
during the marriage while domiciled in this state is CP.
3. Family Code §770: SP of a Married Person
a) SP of a married person includes all of the following:
(1) All property owned by the person before marriage
(2) All property acquired by the person after marriage by gift, bequest, devise,
or descent.
(3) The rents, issues, and profits of the property described in this section. [This
is different than the original Spanish-Mexican system where these were CP.]
(4) A married person may, without consent of the person’s spouse, convey the
person’s SP.
4. How to determine the present character of property:
a) Determine the character of the source property
b) Exchange Rule: A change in form doesn’t the change the character of the asset
c) Tracing
5. Raising the General Presumption of CP
a) The general presumption comes into play when the fact of acquisition during
marriage is established.
b) Wilson v. Wilson [1946]
(1) Facts: H and W’s house was purchased in 1938 (7 years into the marriage),
title was taken and remains in the H’s name. H paid for the house in cash and
used funds that were accumulations of dividends from property owned by him
before marriage. H argued that because the community funds were exhausted in
paying for the living expenses, the house must have been purchased with his
separate funds. (This is rebuttal evidence to the CP presumption.)
(2) Court held that because the house was purchased during the marriage, the
CP presumption is strongly invoked. [Here, just by looking at the date of
acquisition, the burden shifted to the party asserting the SP nature.]
(3) To overcome the CP presumption, H would have needed to trace clearly
back to his SP funds (like a trust fund, etc); using process of elimination like he
did doesn’t cut it.
c) Estate of Jolly [CA SC; 1925]
(1) Facts: The probate judge ordered that distribution of the whole estate of W
(who died 10 years after H) to be made to her heirs to the exclusion of H‘s heirs.
They argue just because H died, doesn’t make the property SP, it remains CP.
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They supported their argument by showing that she never did anything to
enhance her estate by labor, skills, and efforts.
(2) Rule: All property acquired after marriage by either H or W or both is
presumed to be CP and this presumption can be overcome only by clear and
satisfactory proof that the property in question is SP—even in cases where only
possession (as opposed to acquisition) of such property after marriage can be
established.
(3) *Note: Court relied on the basic presumption that all property acquired after
marriage starts is CP (acquisition approach). There is nothing here to show that
anything has changed that CP status; her heirs could have rebutted by showing it
was hers via gift, etc. or her LSE, but they just didn’t have any evidence to do
that.
(4) *Note: CA Probate Code §640.5 which preserves CP says when the second
spouse dies, a determination is required that shows what CP is traceable to CP
and then CP rule will apply. The court will split the property between the
relatives. (Peculiarity to CA law.)
6. Rebuttal of the General CP Presumption by Tracing
a) The usual method of rebutting the general CP presumption is to trace the asset back
to a SP source. Difficult to do with bank records that are not clearly earmarked
describing their source (Freese highlights this).
b) Freese v. Hibernia Savings and Loan [CA SC; 1903]
(1) Facts: W owned two parcels of land and sold them both. She had opened a
bank account in the name of “Frank or Ellen Denigan.” The account was closed 3
months after her death and $1K of it was paid to a third party. Her heirs argue
that it was SP and so H can’t give it away. But, he argues that she transmuted
the property by the title.
(2) Rule: The “clear and satisfactory” evidence standard for overcoming the
general CP presumption requires only a preponderance of the testimony under
all the facts and circumstances. If property can be traced back to SP, the
presumption is overcome.
(a) Clear and satisfactory standard: little higher than a preponderance
of the evidence, but is a little lower than clear and convincing evidence.
(3) Held: established beyond doubt that the two properties were Ellen’s SP and
the profits therefore should have remained her SP.
B. Common Statutory Presumptions Regarding SP
1. Assets falling within one of these statutory categories are presumed to be SP:
a) Family Code §770: SP of a married person
b) Family Code §771: Earnings and accumulations during period of separation
c) Family Code §772: Earnings or accumulations after entry of judgment of legal
separation
2. Estate of Clark [1928]
a) Issue: Is the $150K his SP because the right to get that $ was his right prior to the
marriage and therefore his SP or should the receipt of the $150K be treated like income?
(inception of right doctrine)
b) Rule: Property acquired by compromise is SP if the right compromised is SP.
3. Downer v. Bramet [1984]
a) Facts: H was given the W-4 ranch in Oregon along with two other employees by his
boss. He didn’t mention this during the settlement talks. W argues this isn’t postseparation income, but deferred payment for LSE of the H during the marriage
b) Held: Even though the transfer of the ranch interest was legally a gift, there is
substantial evidence the gift was made by former H’s employer in recognition of H’s
devoted and skillful services during his lifelong employment.
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c) *Note: Property acquired after the date of separation is SP, but the court makes an
exception here because the H had been working all these years during the marriage and
can’t just postpone his receipt and keep as SP.
4. In re Marriage of Hardin [1995]
a) Facts: H and W were married in 1961 and in 1969, H walked out of the apt. But, H
and W continued their economic relationship and saw each other often. In 1991, they
asked the court to judicially find when the date of their separation was. W argues it was
in 1982 when Victor wanted to remarry, but H says it was in 1969 when he moved out.
b) Rule: The date of separation occurs when either of the parties does not intend to
resume the marriage and his/ her actions bespeak the finality of the marital
relationship.
c) *Note: there is both an objective and subjective component to this rulethe court will
look, when there’s no agreement on the date of separation, at the subjective perception
of one or both parties
(1) Objective look at objective factors like the date when there was no present
intention of continuing the marriage combined with a complete and final break
d) *Note: date of separation requires more than just living separate and apart, factors
relevant but not determinative are:
(1) the date the spouse moves out;
(2) the fact that the spouse never moves back;
(3) whether the move follows a heated argument;
(4) whether there are frequent arguments between the spouses;
(5) whether the spouse ever spent the night again; whether the spouse dated
other people;
(6) whether the spouses cease to attend business, social, and family events
together;
(7) whether the spouse has filed previous divorce papers
e) Factors indicating they haven’t legally separated:
(1) Continuing close personal relationship
(2) Economic togetherness (purchasing property, keeping a joint bank account)
C. Special Presumptions within the CP System
1. Special presumptions based on form of title
a) Married Woman’s Special Presumption:
(1) Despite the general presumption that property acquired by a married person
is CP, when written title to property was placed in a married woman’s name
alone before 1975, that property is presumptively the married woman’s SP.
[Family Code §803]
(a) However, under Horsman, the court must allow rebuttal evidence by
the other spouse
(b) Tracing is usually not enough to rebut, need to show intent to keep it
CP too
(c) Underlying rationale for the presumption was that when a married
man executed a conveyance of property to his W, he must have intended
to change the property rights of himself and his W.
(2) In 1975, the equality amendments were added
(a) The married woman’s presumption wasn’t needed because woman
took over equal management and control of CP
(3) Horsman v. Maden [1941]
(a) (when presumptions are based on title, it is important to remember
that title is not determinative but it is evidence of how the property is
held)
(b) Rule: While there is a presumption that any property acquired by the
W by an instrument in writing became her SP, such presumption is not
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conclusive between the parties but is disputable. (Rebuttal evidence
must be allowed to dispute this presumption and show the intent of
the H)
(4) In re Marriage of Ashodian [1979]
(a) Facts: H was a bus driver and W was a licensed real estate broker.
She had bought and sold property (some with his knowledge, but then
he decided he didn’t want to be a part of it). At divorce, in 1975, he
claimed this was CP because she earned it with her LSE during the
marriage, but she claimed it was SP based on Family Code §803 and the
married woman’s presumption (she had title in writing and got it before
1975, so §803 did apply)
(b) Rule: A SP presumption applies to property acquired by a married
woman prior to 1975 by an instrument in writing, but it is rebuttable by
clear and convincing evidence. (The H didn’t meet this burden since he
“abandoned” his interest in the management and control of the property
and as such gave her a gift, so it is her SP.)
Concurrent Estates
a) Most married couples hold their property as joint tenants. One perceived advantage
is the survivorship feature of joint tenancy; the property passes by operation of law to the
survivor, without the necessity of probate administration.
b) Joint tenancy is a form of title in which H and W each own an undivided one-half
interest that is SP, and the surviving spouse automatically becomes the owner of the
decedent’s interest as well as his own.
(1) A joint tenancy can only be created by explicit language: “G to John Smith
and Mary Smith as joint tenants” or “G to John Smith and Mary Smith as joint
tenants with a right of survivorship.”
c) Estate of Levine [1981]
(1) Facts: H made a will and in it said that the joint tenancy of the home was
only for convenience and really it was CP, but the W never knew of the will.
(2) Rule: There is a rebuttable presumption that the character of the property is
as set forth in the deed. (Only agreement between spouses can rebut the
presumption; secret intentions of one spouse won’t suffice!)
d) In re Marriage of Lucas [CA SC; 1980] (key case in CP law)
(1) Facts: During their marriage H and W purchased a home; W used SP funds
for the down payment ($6K) and for some maintenance and improvements.
(2) Rule: SP contribution to CP is presumed to be a gift, without a writing.
(3) Held: The act of taking title in a joint and equal form is inconsistent with the
preservation of a separate interest. (Effectively, the SP contributor is presumed
to have made a gift, and she can overcome the presumption of gift only by
proving an understanding or agreement between the parties that she would
maintain a SP interest. Her subjective intent alone is immaterial. She must prove
an understanding by both parties which can be both oral or written.)
e) *Aftermath of Lucas (this applies only to divorce and legal separation, not to death
cases….Lucas should still apply in death cases)
(1) The CA Family Code now provides that all property held by the spouses in
joint form is presumptively CP for purposes of distribution at divorce or legal
separation.
(2) But, under Family Code §2640(c), at divorce the SP “contributions to the
acquisition of the property,” shall be reimbursed to the SP contributor without
interest or appreciation.
(a) Family Code §2640 provides the same reimbursement formula when
a separate contribution improves CP or reduces the principal of a loan
used to finance the purchase or improvement of the property, but does
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not allow any reimbursement for payments made for interest on the loan
or payments made for maintenance, insurance, or taxation of the
property.
(3) Aufmuth: “if there is an agreement or understanding (doesn’t say it has to be
in writing) that the party contributing the SP down payment (on a house), the
party making the SP down payment, retains a pro rata SP status that increases
with the equity in the house”
(a) Basically: get what you put in, plus the increase in equity, off the top
at divorce and then split the rest 50/50 with spouse
3. 3 ways the courts can look at these problems:
a) SP contribution to CP asset is a gift; no reimbursement (Lucas);
b) reimbursement for SP contribution to CP asset, but no increase in value (anti-Lucas
legislation…this is current law on this specific topic);
c) pro rata, pro tanto, proportionate analysis which says that with an agreement, the SP
contribution builds a proportionate share (Aufmuth…which is also current law)
III. Classification of Non-Tangible Property: Chapter 3: Limitations on the Classification Process
A. Value of Education and Professional Practice
1. Effectively, education and training acquired during marriage are not treated as CP. Instead,
at divorce, unless the parties sign an agreement to the contrary, Family Code §2641 creates an
equitable right of reimbursement with interest to the community when community funds are:
a) Used either to pay for education or training or are used to repay a loan incurred for
education or training, and
b) The education or training substantially enhances the earning capacity of the educated
party (and therefore enhances the value of the community).
(1) When such loans are still outstanding at divorce, they are assigned solely to
the educated spouse.
2. Todd v. Todd [1969]
a) Facts: At the time of the division of assets H’s law practice was valued at almost $10K
and W got nothing. Goodwill was valued at $1K. W contended that H’s education,
partially paid for by community funds, is a community asset and that it has substantial
worth and should be taken into account when evaluating the community estate for
divorce purposes.
b) Rule: (1) A license or degree is personal and can’t be monetarily valued and therefore
it is not CP. (2) The practice, however, at the time of dissolution can be valued and is CP.
B. Contribution to Spouse’s Education
1. In 1984, the legislature enacted Family Code §2641 which is a reimbursement scheme in order
not to discourage spouses from supporting each other during their educational endeavors.
a) In a divorce (must be divorce, not death), the community (not the non-student
spouse herself) will be reimbursed for community contributions for education or training
that substantially increases the earnings of one party.
(1) Watch out on exams for when the license or degree doesn’t actually improve
substantially the earning capacity or they just sit on the couch after they earn
it…reimbursement would not happen then.
b) Reimbursement can be for expenses directly related to education, such as tuition,
books, supplies, and transportation (anything that would have been done even without
the education are normal living expenses and the community can’t be reimbursed).
c) Equitable Defenses to Reimbursement Duty
(1) The community has already substantially benefited from the education or
training. There is a rebuttable presumption affecting the burden of proof that if
fewer than 10 years have elapsed between the contributions and the initiation of
the divorce, the community has not substantially benefited. If more than 10
years have passed, a presumption arises that the community has substantially
benefited and therefore been constructively “reimbursed.”
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(2) If under 10 years, the courts will do a proportionate reimbursement instead
of an entire reimbursement: If within 9 years, then already have 9/10 of the
benefit, so only get reimbursed 1/10th.
2. In re Marriage of Watt [1989]
a) Facts: For the entire 9.5 years of their marriage, H was a full-time student while W
worked fulltime for Kaiser, using all of her income for family expenses. H received his
MD right after their separation. The court gave her a double-whammyno spousal
support (because she had been working) and the community doesn’t get reimbursed for
H’s education.
b) Rule: When awarding spousal support, a court must consider the totality of one
spouse’s contributions to the other spouse’s attainment of a degree, including
contributions for ordinary living expenses.
C. Professional Goodwill
1. Goodwill is essentially the difference between the total value of a business or professional
practice and the value of its assembled physical assets. Goodwill is an intangible value that
develops during the life of a business and includes, among other things, the reputation and
habitual clientele of a business or practice.
2. To the extent that goodwill is earned during a marriage, CA treats it as CP.
3. Valuation is tricky: courts use one of two methodsmarket sales valuation or capitalization
of past excess earnings.
4. In re Marriage of Lopez [1974]
a) Facts: H is an atty; he formed a law partnership with two of his associates. Each paid
for 25% of the partnership. This 25% interest in the law practice was valued at $52,
275.68 each.
b) Issue: Is professional goodwill a CP asset?
c) Rule: Yes, it may be deemed a CP asset.
D. Royalties: If one spouse writes a book or a screenplay during the marriage, the money brought in
after the separation will be considered CP and some will be given to the non-creative spouse after the
divorce.
E. Life insurance
1. Whole Life Insurance Policies
a) Traditionally Proceeds are apportioned according to who paid the premiums:
(1) The premiums paid with SP produce SP proceeds (Example: If SP paid ¼, ¼
of the Proceeds will be SP and ¾ CP); the premiums paid with CP produce CP
proceeds
2. Term Life Insurance Policies
a) Law is not settled—If spouse became uninsurable during the community funded
premium period, probably use apportionment (as in whole life policy).
b) Otherwise, the rule is even less settled. Argue both positions—The last annual term
policy is the only policy which paid proceeds. Therefore, pay all the proceeds to the
party who paid the last year’s premium. This is an unfair windfall to the estate which
made the last annual premium payment. Therefore, apportion proceeds as in a whole
life policy.
3. If a deceased spouse named a beneficiary (not the surviving spouse) in a CP policy, the
beneficiary will receive ½ of the CP interest and the spouse will receive her ½ CP interest.
4. Military Life Insurance or any other federal life insurance:
a) Entirely preempted by federal law (anyone may be designated beneficiary; CP has
no right to reimbursement for premiums paid with CP)
5. Policy at Divorce:
a) Whole Life (With Cash Value)
(1) Take out the policy when young and healthy, pay into during one’s life, and
when one dies, the main beneficiary gets the proceeds.
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(2) To the extent a policy has a current cash value, that cash value is CP in
proportion as the community paid the premiums. Cash value is just another
form of savings and exists apart from the pure insurance component of the
policy.
(3) *On an exam look to see when it was purchased. Any payments made
during the marriage give the community an interest.
b) Term (Pure) Insurance
(1) These are benefits of employment and one has the option to renew after each
term expires (some are renewable every 2 years).
(2) The insurance becomes a new insurance policy upon renewal, so if one is
carrying a term life insurance policy and he splits from his W and the policy
concludes. Then, he renews the policy….the policy is now SP.
(a) EXCEPTION: If the insured becomes disabled and therefore
uninsurable (couldn’t go out and buy a new policy), some courts say the
inception of right is critical and the community has an interest in the
policy (because the policy was acquired during the marriage, that’s when
the right began). The community is not necessarily the beneficiary, but is
entitled to receive some proportionate interest value.
(3) Term insurance has no cash value. The premium covers no more than the
risk of death. When the premium period expires, there is nothing left except the
right to insure for another premium period, usually annual periods until age 65.
(4) Look to see, on an exam, when the term was renewed. If renewed after the
separation, then SP and the community has no interest in the term insurance.
Ends when the last term during the marriage ends.
c) In re Marriage of Spengler [1992]
(1) Facts: H had a group term life insurance plan. H and W separated in 1986.
The insurance coverage continued until 1989. At the same time, he married
another woman and named her his beneficiary. When the H died and $100K
went to the 2nd W, the first W claimed ½ because she claimed it was a CP asset.
(2) Rule: Because the right to renew came up after the marriage ended, the term
life insurance is not property that is subject to division under CP.
IV. Limitations on Classification of Property under the CP System (Chapter 3 Continued)
A. The Valid Marriage Requirement (CP applies only when a valid marriage)
1. Valid marriage requires:
a) Legal capacity
(1) Age (determined by each state)
(2) Ability to understand the consequences of agreeing to a marriage
b) Legal Formalities
(1) Appropriate solemnization (ceremony)
(2) License issued and recorded by the State
(3) In the presence of witnesses (no private marriage)
2. No CL marriage in CA, but CA will recognize CL marriages that are valid in other
jurisdictions
a) CL marriage= man and woman live together and hold themselves out as H and W
and by virtue of their conduct, the society deems them to be married
3. Putative Spouses v. Unmarried Cohabitants
a) Putative: one or both in the relationship believe in good faith that they are married,
but it turns out to be an invalid marriage
b) Unmarried Cohabitants: Deliberately unmarried couple (don’t get the same rights
afforded to them as a Putative spouse because of the lack of good faith belief that they
were married)
4. Same Sex Unions
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a) CA=domestic partnerships in January 1, 2005; applies to same-sex couples of any age
and to male-female couples where at least one of the partners is over age 62.
b) CA Domestic Partner Rights and Responsibilities Act is a model for property division
that is based on a CP model and extends those rights to same sex partners
Putative Marriages
a) Once the court finds that a putative spouse exists, the rule is that property acquired
by the parties during the relationship that would have been CP or quasi-CP if the
marriage had been legal, then it is now quasi-marital property and it is divided
according CP principles.
b) There must be a good faith that is subjective, but within reasonable bounds.
(subjective/objective test)
c) An innocent putative spouse (could be one or both) can make a claim to ½ of the
quasi-marital property. But, the open question is whether the guilty party (if there is
one) can claim 1/2 the quasi-marital property because he/she defrauded the other
person.
d) When a relationship is putative because one or both of the parties have a prior legal
marriage that was never terminated, many problems arise.
(1) The legal spouse has rights to the property too. But, usually the couple is
separated so the earnings, etc. are not CP under Family Code §771. But, assets
(stocks, property, etc.) acquired during the 1st marriage and are CP.
(a) When a party to a putative marriage (guilty or innocent),
permanently separated from the prior legal spouse before beginning the
putative marriage, all earnings and accumulations by that spouse are
post-separation and are considered SP for the 1st marriage, and are quasimarital property in the relation to marriage #2.
(2) After the putative (innocent) spouse finds out that she’s not a legal spouse,
she can no longer claim any property acquired as quasi-marital property
e) When the party to the putative marriage is not separated from the legal spouse,
property acquired in both relationships could be CP of the legal marriage and quasimarital property of the putative marriage. (bigamous relationship)
(1) Possible solutions:
(a) Divide all of the property in both relationships in 3 ways
(b) Divide all property between the putative spouse and the legal
spouse, leaving the “guilty” spouse (the one in both relationships) with
nothing.
f) Upon death: The probate code makes no specific provision for testate and intestate
succession involving putative spouses. When there is also a legal spouse in the picture,
classification and succession can be complex.
(1) If the previous legal spouse is dead at the time the spouse in the putative
marriage dies, most courts treat the surviving putative spouse as the “surviving
spouse” for purposes of intestate succession.
(2) If the previous legal spouse is alive, and the common partner leaves a will,
the common partner may only bequeath his/ her half of any quasi-marital
property or CP.
(3) If the common partner dies intestate, modern courts usually pass the quasimarital property by intestate succession to the putative spouse and only CP of
the previous marriage to the prior legal spouse. When there is no permanent
separation (bigamy, concurrent relationship), courts divide the estate of the
decedent equally between the two “surviving spouses.” (Vargas).
(4) As for SP, in Estate of Leslie , the California Supreme Court expressly left open
the question of distribution of the deceased's SP when there was both a legal
spouse and a putative spouse who survived the intestate deceased. However, in
Hafner, the California court of appeal was confronted with conflicting statutes
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and divided all of the decedent's intestate property between the putative spouse
(she received half) and the legal spouse and the decedent's four children -- the
five of them received the other half of the property. There were three children
from the legal marriage and one from the putative marriage; thus, the legal
spouse received one third of the second half and the children received two thirds
of the second half.
g) Coats v. Coats [CA SC; 1911]
(1) Facts: H and W were married in 1887; sought annulment (marriage void
from the beginning) due to physical incapacity of W. She was awarded $10K
based on principles on equity.
(2) Rule: Annulment erase doesn’t erase all of the quasi-marital property interest
here (what would have been CP). Although there wasn’t a valid marriage, and
therefore no CP, the courts can by way of analogy apply CP principles to quasimarital property.
(3) Held: The court must focus on the expectation of the “putative” spouse. She
believed and had every reason to believe they were building the community, and
so the act of annulment at the end of the relationship shouldn’t just erase all the
property they gained together.
h) Estate of Leslie [CA SC; 1984]
(1) Facts: They were married in Mexico, but it was never recorded. Both people
believed they were married and lived in a house together. But, the previous kids
made a claim at her death. W died intestate.
(2) Held: A surviving putative spouse does have a right to share in the SP of the
estate, and the court has extended equity principles to SP in order to honor what
it perceived to be the expectations of both spouses. Lots of emphasis on the fact
that they believed in good faith that they were actually married.
i) Estate of Vegas: common spouse dies intestate, the two spouses (legal and putative)
can split equally
j) Estate of Hafner [1986]
(1) Facts: H marries Joan and had 3 kids, abandoned them, left for CA. He met
Helen, told her he was divorced even though he hadn’t bothered to get one; they
marry in Mexico and again in Vegas. Helen thought in good faith that they were
married. H gets hurts and gets a substantial PI settlement; and then dies. Helen
claims that money and Joan does too.
(2) Held: Equity requires that the court divide the property between the original
legal spouse and the putative spouse. Two innocent wives, any resolution is
going to impair somebody’s legal rights, but this is the best resolution. Helen
gets half, the other half split by the rest of the kids and Joan.
(3) *The putative spouse didn’t get any of his SP.
(4) *Only ½ of the quasi-marital property goes to the putative spouse, and thus
the other ½ of the decedent’s quasi-marital property was awarded to the legal W.
(can look at this critically)
(5) Court can’t take away the ½ of the quasi-marital property that belongs to
Helen, but other than that, they can play with H’s ½ of the quasi-marital
property.
k) Vallera v. Vallera [CA SC; 1943]
(1) Facts: No putative good faith belief because she knew that he was married.
(2) Rule: When there is no belief that a valid marriage exists, the cohabitant does
not gain the rights of a co-tenant in the earnings and accumulations of the other
party during the course of the relationship. (This has been superseded by some
domestic partners laws, but only apply to same-sex relationships or heterosexual
couples who are older than 62).
(a) At this time, if no legal option to get married, out of luck.
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Marvin v. Marvin [CA SC; 1976]
(1) Facts: couple enters an agreement to cohabit and they don’t get married.
Live together for 6 years, and then he kicks her out. He supports her for one
year, and then stops. She claims that they entered an oral agreement to share
equally in the property accumulated during the course of their relationship. Also
claims that she gave up her acting career to work as a companion.
(2) Court says:
(a) If there’s an express agreement between non-marital partners, the
courts will enforce it, unless such a contract is explicitly founded on
meretricious sexual relationships.
(b) In the absence of an express contract, the court should inquire into
the conduct of the parties to determine whether such conduct
demonstrates an implied in fact contract or some other agreement
(taking title or loan in a certain way that indicates they intend to be like
people living in CP system.)
(3) 4 principles that Marvin illustrates:
(a) Distribution of property acquired during a non-marital or
meretricious relationship is governed by judicial decision, not CP statutes.
(they do apply by analogy to putative spouses)
(b) Express contracts between non-marital partners will be enforced
unless they’re based on meretricious sexual services.
(c) If there is no express agreement, the court will examine the course of
conduct of the parties to see if there is an implied contract, agreement of
partnership or joint venture, or some other tacit understanding (raising
kids together).
(d) Quantum meriut: restitution for services rendered and other
equitable remedies may be available for non-marital partners.
(4) Implied in fact relationships will probably happen more often in a long-term
relationships where the people hold themselves out to be H and W.
m) Upon injury or death as well as dissolution, co-habitants are treated as individuals
and can’t get loss of consortium, etc.
The Domicile Requirement
a) Rozan v. Rozan [CA SC; 1957]
(1) Facts: Couple is domiciled in CA and H goes to work in another state, using
his earnings (attributable to LSE) the couple purchases property in ND. H
argued that the real property was his SP, not community.
(2) When there is a choice of law issue, the choice of law doctrine favors the
law of the domicile rather than the law where the land is situated.
(a) Usually in a situation such as this, the court will allow title to stay in
tact in the other state, and will simply adjust the other assets to
compensate.
(3) Rule: Property acquired while domiciled in CA as the result of a spouse’s
work, efforts, ability, and skills is CP.
b) Grappo v. Coventry Financial Corporation [1991]
(1) Facts: After H and W separated, she moved to her SP on the Nevada side of
Lake Tahoe, for which H had lent her the funds to construct a house, and H
brought this action, claiming an interest in the real property.
(2) Need to go through the CP analysis even though the property is located in
NV
(a) The property is presumed to be CP because it was acquired during
the marriage
(b) Rebuttal of the general presumption: oral agreement to keep
property separate, title to the property was in the W’s name alone
l)
6.
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(c) After going through this analysis, the next step would be to see if NV
would honor the CA court’s decree and say that she’s required to give
him ½ of the property value.
(3) Rule: The laws of the domicile of the parties at the time property was
acquired govern in determining the characterization of the property as separate
or community.
(4) Held: It is apparent that CA has the most significant relationship to the
parties and issues in this case. Therefore, the characterization of the parties’
respective marital interests in the NV property must be determined under the CP
law of CA.
V. Constitutional considerations with respect to CA CP (*retroactivity is difficult to test)
A. Definition of quasi-CP:
1. Family Code §125: Quasi-CP
a) Quasi-CP means all real or personal property, wherever situated, acquired before or
after the operative date of this code in any of the following ways:
(1) By either spouse while domiciled elsewhere which would have CP if the
spouse who acquired the property had been domiciled in this state at the time of
its acquisition.
(2) In exchange of real or personal property, wherever situated, which would
have been CP if the spouse who acquired the property so exchanged had been
domiciled in this state at the time of its acquisition.
2. Necessity of Change in Domicile. The new statutory rules apply only where both parties change
their domicile to CA. (In re Marriage of Roesch; 1978).
3. During marriage, quasi-CP is treated as the SP of the acquiring spouse. EXCEPTION: During
marriage, quasi-CP is treated as CP with respect to creditors who may reach the non-debtor
spouse’s quasi-CP (unlike SP)
4. At divorce, quasi-CP is treated exactly like CP, but both parties must be domiciled in CA and
divorce must occur in CA.
5. At death, survivor spouse had a one-half interest in decedent’s quasi-CP. However, decedent
has no interest in the survivor’s quasi-CP (decedent cannot bequeath his spouse’s quasi-CP in his
will).
B. The Due Process and Privileges and Immunities Clauses
1. Addison v. Addison [CA SC; 1965]
a) During marriage, quasi-CP is treated as the SP of the acquiring spouse because at the
acquisition it was considered his SP and it would be an unconstitutional taking if as soon
as he crossed the border it’s no longer his.
(1) So, the acquiring spouse can sell it, give it away etc during the marriage, just
like normal SP, but creditors can reach it unlike normal SP
b) At divorce, the property is CP. Why? Because there’s a compelling interest in
protecting the welfare of the non-acquiring spouse at divorce. It is a taking, but one
justified by a compelling interest.
c) At death, survivor spouse has a one-half interest in decedent’s quasi-CP. However,
the decedent has no interest in the survivor’s quasi-CP. Why? Because the decedent
doesn’t need the taking to protect his/her welfare because he/she is dead.
2. In re Marriage of Roesch [1978]
a) Necessity of Change in Domicile. The new statutory rules apply only where both
parties change their domicile to CA.
b) Facts: The parties lived in Pennsylvania for virtually their entire married life which
was 27 years long. After separation, the H came to live in CA while the W remained in
Pennsylvania with their minor son.
c) Held: CA’s interest in the Pennsylvania marital property was minimal,
Pennsylvania’s interest was substantial, thus, CA’s quasi-CP statue could not be applied.
d) Domicile Acquisition Rule:
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(1) Personal property acquired by a spouse during marriage, while domiciled in
a common-law state doesn’t loose its character as SP of acquiring spouse upon
change of domicile to a CP state. (Tracing rule applies to exchange of commonlaw SP.)
(2) Because the H had moved, W was still protected by the laws of PA.
(3) Court has the authority to characterize the property as quasi-CP if H here,
but first it will look at the extent the W is protected by the laws of the home state.
C. Retroactivity Problems
1. An ongoing theme in CP law, is whether a rule is prospective or retroactive. The general
thinking is that if the problem that the legislature seeks to correct is a substantial violation of
constitutional principles, the new rule should be applied retroactively. Otherwise, the legislation
is prospectively applied so there is proper notice for all interested parties.
2. In re Marriage of Bouquet [CA SC; 1976]
a) Facts: There was an old statute that allowed the W to retain her earnings and
accumulations while living separate and apart as her SP. But, the H’s earnings and
accumulations during this same period were deemed CP. After the filing for divorce, but
before granting it, a new law was passed that provided that earnings and accumulations
of both spouses were deemed SP. The W argued that the law was prospective.
b) Held: The law was passed to eliminate the probable prior unconstitutional aspects of
the former law (it was a sexually discriminatory law). As such, it seems that, even
though it’s rare to do, this new law should be retroactive.
3. In re Marriage of Heikes [CASC.; 1995]
a) Facts: H sought a petition for review of the proper classification of two parcels of
land which he reconveyed to himself and his W as joint tenants during the marriage.
b) Issue: Does the Constitution permit the statutorily authorized reimbursement of a H
for SP contributions he made in 1976 to the property divided as CP in 1992?
c) Rule: Due Process demands that the change of the law be prospective in application
unless there is a “compelling state interest” in retroactive application.
(1) The only state interest considered compelling is to prevent a “rank, patent
injustice.”
d) Held: The CA SC was reluctant to apply “an about face in the law” retroactively to
acquisitions prior to the effective date of the statute. So, laws changing the
characterization of joint title property and the right to reimbursement were not applied
retroactively. (No rank, patent injustice when dealing with the anti-Lucas
reimbursements, like there was in Bouquet.)
D. The Supremacy Clause
1. Wissner v. Wissner [USSC; 1950]
a) Facts: H named his mother as the beneficiary to a Life Insurance policy that he got
through the Army rather than his estranged W. Because this policy was purchased as a
result of LSE, the W tries to claim it is CP.
b) Held: The Supremacy Clause prevails here. The W doesn’t have an interest because
the federal laws preempt the state’s CP laws.
(1) *The right to choose the beneficiary of a federal military policy is the policy’s
holder’s right, up to ½ of the proceeds. The W here was actually entitled to ½ of
the proceeds, but not all of them.
c) Rationale: It would be too difficult to determine the insurance policy distributions for
each veteran based on 50 different states’ laws. One federal law for every state to abide
by, makes it easier to administer.
d) *Military personnel, RR workers, and ERISA (Employee Retirement Income
Security Act) situations: federal law preempts.
(1) ERISA is the statute that governs all private pension plans. It was created to
cure the inadequate funding, etc. within private pension plans. It requires that
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vesting occurs within 5 years of employment and provides that pension benefits
can’t be attacked by creditors.
(2) While preemption involving ERISA can be challenged on the fact that private
money is involved and should therefore be subject to state law, the rationale
behind ERISA has proven so important that it still preempts.
2. Boggs v. Boggs [USSC; 1997] (*This would probably have lead to a different outcome if this
had been a divorce situation, but instead this dealt with a predeceased spouse)
a) Facts: This was an appeal from a summary judgment stating that ERISA preempted
Louisiana CP laws. H and his first W were married when H began working for a
company and they remained married until her death. They had three sons. Within a
year of W1’s death, H married W2, and they remained married until his death in 1989.
The dispute over ownership of the benefits was between W2 based on H’s will and the
sons of the first marriage based on W1’s will.
(1) W2 argued that the sons’ competing claim, since it was based on W1’s
purported testamentary transfer of her CP interest in undistributed pension plan
benefits, was pre-empted by ERISA.
b) Held: The sons don’t have a claim to share in their deceased father’s retirement plan
under their deceased mother’s will, due to the purpose of ERISA. That purpose is to
protect the surviving spouse. That surviving spouse is now W2.
VI. Selected Problems in Classification
A. Commingled Funds
1. “Commingling” refers to the combining or intermixing of community and separate funds
into a common mass or pool (usually a bank account).
2. 3 Tracing Methods (**Funds not proven to be SP by tracing are CP)
a) No Withdrawals: If no withdrawal has been made, uncommingling is easy. The
funds retain their original character.
b) Drawer’s Intent: If the proponent of SP can show she intended to use SP funds to
purchase the asset and that sufficient SP funds were in fact available at the time of the
purchase of the asset, the asset is SP and the CP presumption is rebutted. (DIRECT
TRACING)
c) Exhaustion of CP funds: If the proponent of SP can show that CP was exhausted
when the asset was purchased, then the asset must be SP and CP presumption is
rebutted. (EXHAUSTION METHOD)
3. Transmutation of funds:
a) Commingling is different than transmutation because when funds are commingled
they are in one account, side by side, but with transmutation the spouses during
marriage are changing the character of the property from CP to SP.
b) See details above for requirements and rules involving transmutations during
marriage and prior to marriage
4. See v. See [CA SC; 1966]
a) Facts: This is the Sees Candy family. H is very involved in the family controlled
corporation and deposits his salary in a corporate account and uses this account to pay
for family expenses.
b) The court required a day-by-day approach, rather than an aggregate approach (that
the H and the trial court usedH wanted to be able to show that an excess of community
expenses over community income over the entire length of the marriage was sufficient to
show that all property acquired during the marriage was his SP) and said that the H
would need to show there were no community assets in the account on the day the asset
that the H is claiming is SP was purchased. (Exhaustion Methodthe SP proponent can
rebut the CP presumption, if at the time of acquisition, all community income was
exhausted by family expenses. Then clearly the property must have been purchased with
SP funds.)
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c) This case presents the judicially created Family Expense Presumption that assumes
that family expenses are first paid by CP funds.
(1) Expenses expended for food, rent, vacations, and medical and dental care are
for family expenses. They are “consumed” and do not result in acquisition of
property that would ultimately be divided at divorce or death.
(2) The rules concerning family expenses are:
(a) Available CP funds are presumed to be used to pay for family
expenses. SP funds are deemed to be used for family expenses only
when CP funds are exhausted.
(b) When SP funds are to pay for family expenses, the separate estate
has no right to reimbursement unless the parties have agreed to
reimbursement. (it is presumed to be a gift)
d) Rule: Use the Exhaustion Method and if a spouse chooses to commingle, he/she
must keep perfect records.
e) If there are NO records in a commingled account, then the court will assume that
whatever money is being used are CP funds and any SP has been a gift to the
community.
5. In re Marriage of Mix [CA SC; 1975] (DIRECT TRACING)
a) Facts: W is an attorney and she commingles her CP earnings and SP in a bank
account. She withdraws funds to purchase rental property and is able to produce a
schedule from her records chronologically itemizing the source of SP funds that went
into the SP rentals and the balance left after each transaction.
b) The court requires more than just her accounting records because the records are not
quite itemized enough and because she is the record keeper and the proponent there
could be a conflict of interest.
c) Held: The records coupled with her testimony and the affidavits of her friends were
adequate evidence of tracing to her SP.
d) Rule: Keep careful records and if the spouse who claims it is his/her SP is keeping
the records, they will probably have to bring in extra evidence above just the records to
prove no bad faith in the recordkeeping.
6. In re Marriage of Frick [1986]
a) Facts: H relied on the Direct Tracing Method to argue that he used SP funds to pay
off an encumbrance on property he owned before marriage. The problem was that he
had commingled his salary with his SP income. He argued that he met his burden of
rebutting the CP presumption by showing that he received a specific amount of SP each
month that he deposited into his commingled account, and he paid a specific amount
every month to make payments on the encumbrance.
b) Rule: When payments are made out of a commingled account, the presumption is
that the funds are CP and that presumption must be rebutted by the SP proponent.
c) Held: Because the H only produced selective evidence of how he managed the
account, the court found this was CP. It seemed to the court that the H was actually
withholding relevant information.
7. Bottom line: Tough to commingle and satisfy the strict evidentiary requirements of the Direct
Tracing method. The Exhaustion Method is also tougher for SP proponents to meet.
8. Other ways to divide commingled accounts:
a) Stock account purchased with commingled funds:
(1) Some courts will say take stocks that have increased in value and call them
CP and the stocks that have decreased in value are SP
(2) Other courts will say look at the stocks in the account and see what day they
were each purchased and what % of the purchase funds were CP and what %
were SP in the commingled account on the day of the purchase.
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(3) If there are no records, the courts will assume a gift of SP to the Community.
(But, if no donative intent apparent on the part of the spouse who had SP, he/she
can ask for reimbursement)
b) After the account is done immediately prior to the withdraw, either the SP proponent
can ask for reimbursement or a pro rata share of the funds.
B. SP Businesses
1. Pereira v. Pereira/ Van Camp Distinction
a) (Used where marital labor contributes to the growth in value of a SP business.
Some of the increase in value will be awarded to the estate which provided the capital
and some to the estate which provided the labor.)
b) VAN CAMP:
(1) More likely to be used if the capital or nature of the business is the primary
cause of the increase in value (used when something other than community
effort causes the increase)
(2) VAN CAMP RULE: Pay the community a fair wage. That’s all it gets. Give
the remainder of the value of the business to the estate which provided the
capital (usually SP.)
(3) Came from 1921 case and determines the “reasonable value” of the spouse’s
service sand allocates that as CP and the remainder is SP.
(4) Fair wages are generally the market rate for comparable services.
(5) Family Expenses paid by the business should be treated like wages paid to
the family. Thus, deduct family expenses from the wages. What’s left of the
wages goes to the estate which provided the labor (usually the community). If
wages to CP were overpaid, it was a gift to CP.
(6) Example: W owned a dry cleaning business before marriage. During the 10
year marriage, the business appreciated in value. Because the appreciation is
more likely due to the nature of the business than to her labor, Van Camp applies.
The Community will receive a fair salary (minus family expenses paid from the
business). The remainder is WSP.
c) PEREIRA:
(1) More likely to be used if the managing spouse’s labor is the primary cause of
the increases in value of a business (Example: A landscaping business)
(2) PEREIRA RULE: Pay the original capital plus interest per year (use 10%) to
the estate which provided the capital (usually SP). That’s all it gets. Give the
remainder of the value of the business to the estate which provided the labor
(usually the community).
(3) Comes from early case (1909) and apportions the profits of a SP business by
allocating a “fair return” on the SP investment and allocating any “excess to the
CP.”
(4) Facts: H has a saloon that he brought to the marriage as his SP, but was
investing LSE during the marriage.
d) The court has discretion to choose the method which produces the most just results.
e) Pereira usually favors the community and Van Camp usually favors the SP owner.
f) Note that with either approach, before a final distribution can be made, a deduction
for family living expenses must be made from the aggregate amount of CP acquired
during marriage. Only the balance remaining after such deduction is CP.
2. Marriage of Koester [1999]
a) Facts: H argued that a business he owned prior to his marriage, but incorporated
after his marriage, should be dispersed as separate and not CP in the dissolution
proceedings.
b) Rule: The Pereira analysis, which awards the value of SP at the time of marriage plus
a reasonable return to represent the appreciation of separate capital with the balance
going to the community, applies when business property is at issue in a dissolution
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proceeding because the reimbursement statute was never designed to apply to SP
businesses, and is inherently not applicable to businesses when the requirements for
transmutation have not been met, and because the mere incorporation of a business is not
a change in its character.
3. Tassi v. Tassi [1958]
a) Facts: H, now deceased, made certain transfers of property, without W’s consent, to
other relatives.
b) Rule: Two approaches are available to a court for the allocation of earnings from a SP
business between separate and CP and the court is free to choose whichever formula
“will achieve substantial justice between the parties.”
(1) Still though, the court should properly exercise its discretion to determine
whether or not the community services to the SP involved has been the key to the
income generated.
4. In re Marriage of Imperato [1975]
a) If a community business increases in value after the date of separation, the courts are
instructed to use what is called reverse Pereira/Van Camp. If the effort is considered
separate effort, and the increase in value would be considered SP. If the increase in value
can be attribute do other factors, such as economic circumstances, then the increase in
value is considered CP.
C. Installment transactions:
1. Vieux v. Vieux [1926]
a) Facts: Prior to his marriage, H executed an installment contract to purchase real
property and, after his marriage, he used some CP funds to pay installments on his
contract.
b) Rule: When one spouse before marriage executes an installment contract to purchase
property and then uses community funds after marriage to pay some of the installments,
the CP is entitled to an interest in such property in the proportion that community funds
were used for installments.
D. Borrowed Funds and Credit Acquisitions:
1. Start with the basic CP presumption. Then rebut with SP tracing. However, when property
is acquired on credit during marriage, the SP proponent must trace by using the intent of the
lender.
a) Characterization of property acquired on credit is determined by whether the
lender’s intent was to rely upon the purchaser’s SP or CP for repayment of the loan.
b) When the lender relied on community assets for repayment of the loan, the CP
presumption is not rebutted, and the property will be characterized as CP.
2. Gudelj v. Gudelj [CA SC; 1953]/ In re Marriage of Grinius [1985]
a) These two cases used different variations of the intent of the lender test.
b) Gudelj: Held if there is no evidence showing that the lender or seller “primarily”
relied on the purchaser’s SP in extending the credit, the CP presumption stands.
(1) Involved H’s interest in a cleaning business that was purchased during
marriage. H paid for part of the business with cash and part with a note. The
cash was determined to be HSP; the question was whether the note was also his
SP.
(2) In Gudelj there was no testimony as to the intent of the seller. However,
there was some evidence regarding the purchase of the interest in the cleaning
business. (H had received some cash that was his SP and he argued that it could
be inferred that the seller must have relied on his SP in selling him the interest on
credit.) However, the court decided that without evidence that the seller had
actually known of HSP, H’s rebuttal failed.
(3) Factors to determine the primary intent of the lender:
(a) Source from which the lender expects repayment (salary, income)
(b) Signature on the loan
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(c) Identity of the person who’s providing security for the loan
(d) Purpose for the loan
(e) Relative wealth of the parties
(f) Lender’s intent in prior loans
c) Grinius: Held the CP presumption may be rebutted by showing the lender intended
to rely “solely” upon a spouse’s SP. (Makes it almost impossible to characterize the loan
as SP.)
(1) The couple started a restaurant business with funds borrowed from a bank
and the Small Business Administration. Even though the business was
considered CP, there was a question about the restaurant real property that was
in H’s name and that he claimed to be his SP.
(2) In Grinius, the restaurant real property was purchased with loan funds. H
argued that those funds were SP, and thus the CP presumption was rebutted.
But, the Court of Appeal said there was no showing that the lender had relied
solely on HSP and so it was still CP.
d) Both cases started by saying the interest in the cleaning business and the restaurant
real property, even though acquired through credit, were presumed to be CP. That
presumption is rebuttable by tracing to the intent of the lender.
Contribution of SP to CP Real Property: purchase and improvements
a) Marriage of Smith [1978]
(1) Spouse used other spouse’s SP for community purposes (down payment on
real property, payment on cost of swimming pool, and purchase of equipment
for family business). She was presumed to be making a gift and entitled to
reimbursement from CP or SP of the other spouse only when there was an
agreement to that effect. Such contribution was presumed to be a gift.
b) In re Marriage of Lucas [1980]
(1) When a spouse contributes SP to down payment on CP real estate (or other
joint forms of ownership), the SP contribution is presumed to be a gift and the
spouse had no right to reimbursement.
(2) The gift presumption could be overcome only if there was an agreement that
the contribution would remain SP. If such an agreement existed, the
contributing spouse would have a proportional SP interest in the property.
(3) NOTE: Anti-Lucas legislation effective 1/1/84 CA Family Code §§2580-2581
and §2640 which reversed the gift presumption and offered straight
reimbursement applies to divorce and legal separation only. In the case of death,
the Lucas gift presumption remains intact.
c) Marriage of Walrath [1998]
(1) Rule: Spouse’s statutory right to reimbursement under Family Code §2640(b)
is not limited to reimbursement from the specific asset to which the SP
contribution was originally made. When that original property is refinanced and
proceeds used in part to purchase or reduce indebtedness on original and other
assets, contributing spouse is allowed to trace the contribution to SP and be
reimbursed from these assets.
Contributions of CP (via loan repayment) to SP Real Property:
a) In this scenario, the spouse who owned the property before marriage would argue
that the community does not acquire any interest in the property by providing funds to
reduce the loan. The other spouse would argue that the community has acquired part of
the property by providing funds to reduce the loan. The answer is that the community
gains an interest in the property.
b) A secondary issue arises in this scenario, because payments on a loan, particularly a
mortgage loan, include both principal and interest, and in some cases, also taxes and
insurance. The spouse who purchased the property before marriage would argue that
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only principal payments should be considered. The other spouse would argue that both
principal and interest payments should be considered.
c) In re Marriage of Moore [1980]
(1) Facts: W had bought a house about 8 months before she married H. She took
the title in her name alone. She purchased the house for approximately $57,000
and made a down payment of approximately $17,000. She secured a mortgage
loan to purchase the house. Prior to marriage, W made payments on the loan,
and the principal had been reduced by approximately $250.00
(a) While the couple was married, the loan principal was reduced by
almost $6,000. And, the house had appreciated in value and was now
worth $160,000.
(2) The court determined that the community was entitled to a pro rata share of
the increased value of the SP asset, holding that when CP funds are used to make
mortgage payments on SP, the community develops an interest in the property
to the extent that it reduces the principal debt. However, CP payments of
interest, tax, and insurance do not buy into ownership. The actual value of the
CP interest in the property depends on the FMV of the property.
(3) Moore Formula:
(a) Divide amount by which the CP payments have reduced the
principal by the purchase price;
(b) Multiply that community percentage by the equity value of the
house to find the capital appreciation due to CP funds;
(c) Add to that the amount of equity paid by CP funds.
(4) Important points:
(a) Community funds paid to reduce the principal on a separate loan
will result in the community obtaining a proportionate interest in the
property according to the formula established by the Court in the Moore
case. (The community builds a pro-rata share in the SP.)
(b) Community funds paid for interest on the separate loan and for
taxes and insurance will not be included in the calculation of the
community interest in the property.
d) Marriage of Marsden [1982]
(1) Adds a twist to Moore by allowing a credit to the SP owner for any
appreciation prior to the time the first CP contribution is made.
In re Marriage of Frick [1986]
a) The H in Frick attempted unsuccessfully to persuade the court to use the fair market
value of the property at the time of the marriage instead of the original purchase price to
calculate the relative SP and CP percentages of interest. This would have reduced the
community interest. The court did not agree and continued to use the purchase price,
but it did allow the H a credit for the increase in value prior to any community
contribution.
b) Alternative Frick formula for calculating respective interests: CP and SP respective
interests should be based on ratio of capital contribution to purchase price of SP property
acquired before (or during) marriage. Note that court uses purchase price of property
rather than FMV of property at time of marriage for allocation of shares. Since purchase
price is smaller, this approach is likely to give community a larger percentage.
Basic Formula from Moore, Marsden, and Frick:
a) Divide the contribution of the CP estate by the purchase price of the SP asset to find
the percentage of the community interest;
b) Multiply the percentage by the net value of the house to determine how much money
the community will receive;
c) If the asset has increased in value prior to any CP contribution, the SP owner is
entitled to a credit for the appreciation before you run the calculations in (b).
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Marriage of Wolfe [2001]
a) Facts: CP funds used to install drip irrigation system on HSP land.
b) Rule: When the other spouse contributes CP funds to improvements on spouse’s SP
land, contribution spouse is entitled to reimbursement. SP character is unaffected, and
CP contributed is no longer presumed a gift.
E. Contribution of SP of One Spouse to SP Real Property of the Other Spouse:
1. No published case has decided the effect of this situation. Two approaches appear possible:
a) Presumption of Gift. Analogy to Marriage of Lucas .
b) Reimbursement. Based on Family Code §2640 as evidence that the legislature no
longer believes that the paying spouse intends to make a gift when SP funds are
expended on real property not owned as SP.
F. Personal Injury Awards:
1. Before Marriage:
a) If the c/a arises before marriage and receipt of damages occurs before marriage,
award is SP of injured person.
b) If c/a arises before marriage and receipt of damages occurs during marriage,
inception of right doctrine suggests that award is SP of injured spouse. However, to
extent that award compensates spouse for lost wages, award may be characterized as CP.
2. During the Marriage:
a) If c/a arises during marriage and receipt of damages occurs during marriage, award
is CP.
b) If c/a arises during marriage and receipt of damages occurs after separation or
divorce, award is CP.
3. After Marriage:
a) If c/a arises after marriage and receipt of damages occurs after marriage, award is SP
of injured spouse. Court may order reimbursement to other spouse or community if
either contributed to expenses related to injury. Family Code §781(b).
4. Allocation of CP PI damages upon divorce:
a) Family Code §2603(b) provides that PI award received as CP during marriage is
assigned to injured spouse at divorce even though this results in unequal division of CP
UNLESS (1) non-injured spouse is entitled by interests of justice to some of the CP PI
award, not to exceed ½, or (2) CP PI damages are commingled with other CP and lose
their special character, in which case they are treated like any other CP.
b) There may be inter-spousal tort if one spouse injuries the other. In this situation,
there is usually insurance involved, and any damages are the SP of the injured spouse
upon divorce. Family Code §781(c).
5. In re Marriage of Devlin [1982]
a) Facts: W appeals from judgment awarded bulk of couple’s property to H because it
was acquired with proceeds from H’s PI damage award.
b) Family Code §2603(a) provides that PI damages received from c/a arising during
marriage are held as CP during the marriage. Upon dissolution, however, Family Code
§2603(c) provides for the assignment of CP PI damages to the injured spouse.
(1) Courts may take into account economic needs and condition of each party,
time elapsed since award of damages, and other conditions that may warrant a
different distribution in the interests of justice.
(2) In any event the spouse is to receive no less than one half of award.
c) CP PI damages are not transmuted to regular CP by purchasing other CP with the
funds unless commingling occurs and tracing to PI award is successful.
d) Held: The award goes to the H because the trial court properly exercised its broad
discretion in basing the decision on the fact that H was a paraplegic, and W had both the
education and ability with which to secure gainful employment and be self-supporting.
7.
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G. Employment Related Benefits
1. Retirement Benefits:
a) Retirement is a red flag for CP interest.
b) Benefits are apportioned according to the years of SP and CP contribution to
retirement:
(1) Time Rule—(Number of Years Worked During Marriage/Total Number of
Years Worked) x Value of the Pension
c) Social Security Benefits are Preempted by Federal Law
d) Military Retirement Benefits are not Preempted by Federal Law, Apply CP Rules
e) In re Marriage of Brown [CA SC; 1976]
(1) Facts: By the time H and W separated, H had accumulated only 72 of the 78
points necessary for the vesting of his pension. Thus, his pension was an
“unvested” pension. (He had no absolute rights to the pension.)
(2) The Brown Court redefined an unvested pension from a “mere expectancy”
to one that was a “contingent interest in property.” The Court distinguished the
two definitions by saying that an expectancy does not rise to the level of any
“interest,” but a contingent interest is still a “right,” even if it is a contingent one.
(a) Court defined the term “vested” as “a pension right which survives
the discharge or voluntary termination of the employee.”
(3) Rule: To the extent an interest builds during the marriage in a pension plan
even when it is not vested, that interest is considered CP and is subject to
division at divorce.
(4) The Court thought the “mere expectancy” definition would have been unfair
to the community and to the W. So, the Court overruled prior precedent and
declared that pension rights, “whether vested or not vested, comprise a property
interest of the community and that [spouse] may properly share in it.”
f) Family Code §2610: Retirement Plans; Orders to Ensure Benefits
(1) Except as provided in subdivision (b), the court shall make whatever orders
are necessary or appropriate to ensure that each party receives the party’s full CP
share in any retirement plan, whether public or private, including all survivor
and death benefits, including, but not limited to, any of the following:
(a) Order the disposition of any retirement benefits payable upon or
after the death of either party.
(b) Order a party to elect a survivor benefit annuity or other similar
election for the benefit of the other party and if that election is already
included in the retirement plan, no court shall order a retirement plan to
provide increased benefits determined on the basis of actuarial value.
(c) Order a retirement plan to make payments directly to a nonmember
party of his or her CP interest in retirement benefits.
(2) A court shall not make any order that requires a retirement plan to do either
of the following:
(a) Make payments in any manner that will result in an increase in the
amount of benefits provided by the plan.
(b) Make the payment of benefits to any part at any time before the
member retires, except as provided in paragraph (3) of subdivision (a),
unless the plan so provides.
(3) This section is not retroactive to payments made by a retirement plan to any
person who retired or died prior to January 1, 1987 or to payments made to any
person who retired or died prior to June 1, 1988, for plans subject to paragraph
(3) of subdivision (a).
g) Example: Works 5 years prior to the marriage, then 15 years during the marriage,
and then 5 years after marriage at which point H retires and starts taking his pension
payments.
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(1) 15/25=60%. Therefore, the community is entitled to 60% of the retirement
benefits. And, the employed spouse gets the other 40% outright and then half of
the 60% and therefore ends up with 70% of the pension benefits. The
unemployed spouse gets 30%.
Disability Benefits:
a) Disability pay (including workers’ compensation income) is treated as wage
replacement money
(1) What income is being replaced? If CP income is being replaced, the
disability income is CP. If SP income is being replaced, the disability pay is SP
income.
(2) If the disabled party could retire and receive retirement pay, but elects to
receive disability pay instead, then the disability pay is replacing retirement
income. Therefore, it is treated as retirement income and is CP to the extent that
it replaces a CP interest in a pension.
b) Disability benefits serve two purposes: (1) to compensate for the personal suffering
caused by the disability and (2) to compensate for the loss of earnings resulting from the
disability and the compelled early retirement.
c) But, usually, these are like PI awards and stay with the disabled ex-spouse.
d) Marriage of Elmont[CA, SC; 1995]
(1) Facts: H was a physician who had purchased disability insurance during
marriage with community funds. H began receiving disability payments about
2.5 years after the couple’s dissolution proceedings commenced. Therefore, the
payments after the couple separated were made with his earnings, which were
SP.
(2) The determining factor, according to the Supreme Court majority opinion,
was that the H renewed the disability policies after separation with SP funds and
that at that time H did not intend to provide the community with retirement
income.
(a) The timing and the funds are paramount: acquisitions after
separation with SP funds are characterized as SP.
(3) The Court did agree with the decision in In re Marriage of Stenquist and found
that when a spouse has a choice in which benefits to take (disability-SP or regular
retirement benefits-CP), it’s CP because the power to elect “disability” pay over
“retirement” pay has the potential to defeat the community interest in the
pension.
Termination and Other Employment-related Benefits:
a) Marriage of Gram [1994]
(1) Facts: The former H exercised his early retirement option and virtually
doubled his retirement payments. W wanted these enhanced benefits for early
retirement to be treated as CP.
(2) Held: The enhanced portion was CP and was characterized as deferred
compensation for services rendered by the H during marriage.
(3) Court did acknowledge that if the enhanced early retirement compensation
was viewed as present compensation for loss of income (replacement for postseparation salary), then it might qualify as HSP. But, here the court rejects that
approach and favors the community because retirement benefits earned during
the marriage are CP and enhancement of those must also be considered CP.
b) Not all termination benefits are CP. They tend to be classified as such when benefits
are derived from a contract (can be implied). CP presumption is strengthened when it is
based on the employed spouse working for a specified number of seasons before coming
into the retirement benefits.
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(1) SP when the termination benefits are substitute for lost earnings, lay off
benefit, the termination package is designed for maintenance of income, and
payments are reduced by any earnings if the person goes to work elsewhere.
4. Bottom Line: Retirement benefits earned during the marriage are CP, enhancements of
existing retirement plans would be included in the CP, and supplemental retirement benefits are
SP.
VII. Spousal Management of CP and Creditor’s Rights
A. Spousal Management:
1. Early statutes gave management and control of CP and WSP to H and so H had all
management and control.
2. 1872: W received sole control over her SP
3. 1927: W was given, via Family Code §751, a present existing and equal interest in the
community, but it was more of a trust-like situation. (Interest, but no management rights.)
4. 1951: W controls her earnings and PI recoveries as long as she kept them separate from CP
5. 1975: Legislature adopted Family Code §1100 which gave the concept of equal management
between spouses. This section is retroactive to CP prior to January 1, 1975.
6. SP: Managed by SP owner
7. Quasi-CP: Treated as SP during marriage for purposes of management and control (but
treated as CP with respect to creditor access)
8. CP: Both spouses have equal management and control during their lifetime. That is, each
spouse has the power to buy, encumber, sell all CP without the other spouse. (See Family Code
§751)
9. Exceptions to the rule of equal management for CP:
a) Real Property: Both spouses must join in executing any instrument by which
community real property is sold, encumbered, conveyed, or leased for more than one
year
(1) Non-consenting spouse can void the transfer if he brings an action within
one year of the filing of the transfer
(2) Non-consenting spouse can void a transfer to a good faith purchaser with no
knowledge of the marriage only if he shows that he didn’t consent to or partake
in the transfer. He must then refund the purchase price to avoid unjust
enrichment.
b) Personal property: A spouse cannot convey CP household furnishings or clothing of
other spouse or children without written consent of the other spouse.
c) Business: The manager-spouse of a CP business has primary management and
control of the business. Primary management means that the managing spouse may act
alone in all transactions, but must give prior written notice to the other spouse of any
sale, conveyance, or encumbrance of substantially all assets of the business.
d) Bank account: Only the party named on the account has management and control
rights to the account
e) Gifts: Gifts of community personal property require written consent of the other
spouse. The non-consenting spouse may revoke an unauthorized gift during the donor’s
lifetime. After the donor’s death, the non-consenting spouse may only receive her half of
the CP gift. The deceased’s one half CP interest is treated as a testamentary gift.
10. Fiduciary duty: Each spouse has a fiduciary duty of good faith and fair dealing management
and control of CP and neither spouse may take advantage of the other.
a) Family Code §1100(e) provides that “each spouse shall act…in accordance with the
general rules governing fiduciary relationships.” Therefore, this section and the general
description of spousal duties in Family Code §721, provides that a spouse owes the other
spouse a “fiduciary duty.”
b) Bad judgment is not bad faith
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c) Upon request, the managing spouse must provide full disclosure to the other spouse
of all information regarding the CP and the other spouse needs full access to information
about assets and debts of the community when requested.
d) Fiduciary duty is violated if spouse conveys CP without the other spouses consent in
the particular situations discussed above (gifts, home furnishings, etc.)
11. Rights of the non-managing spouse; governed by Family Code §§1100, 1101
a) Has a right to know
b) Has a right to sound management by the managing spouse
c) Has a right to participate
d) Has a right to be made whole in the event that the managing spouse has done
something to dissipate his/her share of the community or the SP
e) Has a right to full disclosure if asks for it
f) Has a right to petition the court for access to the records in order to mitigate the
damages during the marriage
12. Under Family Code §721: spouses can make contracts together and with third parties but
there must be full disclosure and an accounting.
13. Family Code §1100
a) Each spouse has absolute power of disposition during life
b) At death, though, each spouse has only power to dispose of their half of the CP
c) §1100(b)
(1) Managing spouse may not make a gift of CP or sell it for less than a fair or
reasonable value without the written consent of the other spouse.
d) §1100(c)
(1) Managing spouse can’t sell clothes, etc. without the consent of the nonmanaging spouse (usually done to avoid creditors)
(2) Community has the most interest in the property
e) §1100(d)
(1) If a spouse manages a business that is CP, the one with primary control can
act alone, but would need the written consent of the other spouse for a
significant transactions
14. Remedies
a) Court ordered accounting of the property
b) Reformation of title (court may add spouse’s name to title)
c) Claim against manager for breach of fiduciary duty if there is substantial impairment
of the non-manager’s CP interest
d) Family Code §1101—Remedies
(1) §1101(a): The breach of fiduciary duty must involve impairment of the
claimant’s interest in the community estate.
(2) §1101(b), (c): A court-ordered accounting or a court order to add a name to
the CP held in one spouse’s name.
(3) §1101(f): These remedies are available during marriage or at divorce or upon
death of a spouse.
(4) §1101(g), (h): These sections allow a court to award more than half of the
asset. A claim for breach of fiduciary duty means that there are potential
damages that can eclipse equal division of CP.
(a) For instance, under §1101(g), a remedy for breach of fiduciary duty
“shall include, but not be limited to” an award to 50% of an undisclosed
or transferred asset plus attorney’s fees and costs.
(b) Under §1101(h), the remedy for breach of fiduciary duty, which
amounts to oppression, fraud, or malice, “shall include, but not be
limited to” an award of 100% of an undisclosed or transferred asset.
(c) These provisions in actuality provide for “tort” damages resulting
from the breach of fiduciary duty.
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15.
16.
17.
18.
19.
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(5) Another remedy statute is §2602 and has long been available if a spouse has
“deliberately misappropriated” CP.
Family Code §1102: Deals with real property rather than personal property
a) “Either spouse has the management and control of the community real property.”
However, “both spouses must join in executing any instrument by which that
community real property or any interest therein…is sold, conveyed, or encumbered.”
Joinder is also required for leases of community real property for “longer than a period
of one year.”
Tyre v. Aetna Life Ins. Co. [CA SC; 1960]
a) Facts: H attempted to reach from the grave and continue to control the CP in his will.
He changed the insurance policy payouts and didn’t get the W’s approval. When W
found out, she disavowed the will provisions. The insurance company argued that he
had the management and control and therefore could change the payouts.
b) Held: After death, less management and control rights exist, even for the H. He only
had right to management and control of ½ of the CP that was his, not her half. (During
life, he had 100% control, after death, 50%.)
Marriage of Stitt [1983]
a) Facts: W settled a fraud and misappropriation of funds action her ex-employer filed
against her. She was also tried and convicted of embezzlement. H made partial
payments out of a joint account towards the attorney fees incurred by his W. After the
couple separated, W executed a second trust deed on community real property in favor
of the law firms which represented her for the remaining $she owed them.
b) Held: W was outside the “for the benefit of the family rule” and was mishandling
the CP without providing any benefit to the family whatsoever. In order to protect his
community interest in the house, free of the W’s debt, the court divided the house’s value
in half, gave the H half, and then whatever was left after she paid her debt was hers.
Marriage of Duffy [2001]
a) *seems to be a case of “gross mishandling” or “gross negligence or reckless conduct.”
b) Facts: H took his entire IRA brokerage account, almost $500,000, and invested it in
five tech stocks in 1995. The stocks were very volatile and declined in value to $261,483
by May 1998.
c) Held: After surveying the history of the fiduciary duty statues, the court concluded
that “a spouse generally is not bound by the Prudent Investor Rule and does not owe to
the other spouse the duty of care one business partner owes to another.” Thus, because
H owed no duty of care, no duty of care was violated.
(1) Plus, the court finds that the W didn’t ask any questions about the stocks and
so really she had equal management and control and didn’t use it.
(2) Spousal mismanagement would happen under this ruling when it is
objectively futile for the non-managing spouse to ask questions.
d) In response to the Duffy decision, the Legislature in 2002, inserted that language—not
limited to—into Family Code §721 and stated its intent “to abrogate the ruling” in Duffy.
Therefore, under the present statute, H’s decision to invest the couples’ entire IRA
brokerage account in highly volatile tech stocks would be considered a violation of a
spouse’s fiduciary duty under Family Code §721 because it was “gross mishandling” or
“grossly negligent or reckless conduct.”
Wilcox v. Wilcox [1971] (prior to 1975 equal management and control statute)
a) Facts: W had $30K of CP and hid it. The H asked the court to force his W to release
to him that $30K of CP.
b) Issue: What can a spouse do if the other spouse interferes with his or her right to
manage and control the CP?
c) Held: The c/a alleged in H’s compliant was not premised upon W’s mismanagement
of community funds, as stated in her demurrer, but upon her violation of H’s right to
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manage, control and dispose of community funds. As such, she needs to release that
money.
(1) Writing in 1971, “ The right of the H thus conferred to manage, control and
dispose of community personal property is invaded by his W when she deprives
him thereof by taking, secreting and exercising exclusive control over
community funds. A H has a c/a against his W for such an invasion and
violation of his right in the premises with attendant appropriate remedies.”
(2) After 1975, the rule here can be applied equally to H or W, since each has
equal right to manage and control the community assets and earnings.
B. Recapture and Reimbursement:
1. Spreckels v. Spreckels [CA SC; 1916]
a) Facts: H made gratuitous transfers of CP without his W’s consent. The other kids
object and say that their share of the W’s CP has been depleted without mother’s consent.
However, she indirectly ratifies in it in her will by leaving the kids who got the gifts out
of her will.
b) If H had gotten a fair return for the community assets given, then he wouldn’t have
been depleting the CP and because the gifts here weren’t given for valuable
consideration then the gift is voidable (not void). But, if the spouse (like here) does
anything that looks like ratification of the bequest, then the court will find ratification in order
not to undo transactions.
2. If the non-consenting spouse wants to challenge the exercise of management rights, the
courts will allow recapture during the marriage OR at divorce. (i.e. the court will correct the
situation and will give the community some $ back)
C. Creditors’ Rights:
1. Quasi-CP is treated as CP with respect to creditor’s rights
2. For debts incurred before marriage, the debtor’s SP and all CP are liable, non-debtor
spouse’s SP is not liable
a) Exception: If non-debtor’s earnings are deposited in a separate account to which the
debtor does not have access and the funds are not commingled with other CP, these CP
earnings are not liable.
3. For debts incurred by one spouse during marriage, the debtor’s SP and all CP are liable.
Non-debtor’s SP is not liable.
a) Exception: The non-debtor may be personally liable for debts for “necessaries of life”
(defined as living costs consistent with the spouses’ station in life.)
4. Tort Liability
a) Satisfied by CP first, if tort occurred during an activity for the benefit of the
community
b) Satisfied by SP first, if activity was not for the benefit of the community
5. There is a right to reimbursement for
a) Child Support: If CP funds were used to pay child (or spousal) support and SP
funds were available( Family Code §915)
b) Necessaries: If the non-debtor’s SP was used to pay the other spouse’s debts for
necessaries and CP or the debtor’s SP was available
c) Tort Judgment Family Code §1000: if the order of satisfaction was not followed
d) Recall, the right to reimbursement also exists for:
(1) Educational expenses
(2) Unauthorized gifts
(3) SP contributions to CP purchases or improvements (Anti-Lucas)
(4) If CP is used to improve spouse’s own SP, CP is entitle to reimbursement (for
the cost of the improvement or the increase in value—whichever is greater). If
CP is used by one spouse to improve the other’s spouse’s SP, a gift is presumed.
6. Most of the law in this area ensures that creditors can reach as much property, usually the
CP, as is available to ensure they are paid.
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7. Rather than characterizing debts as CP or SP, the CA system allocates responsibility or
“liability” for debts between the CP and each spouse’s SP.
8. Family Code §910(a): protects creditors in that “the community estate is liable for a debt
incurred by either spouse before or during marriage.”
9. Community can obtain reimbursement when CP is used to satisfy a SP debt in three
circumstances:
a) When SP of the souse making the expenditure has been benefited by the CP
expenditure
b) When CP is used for a child or spousal support obligation that predates the marriage,
then community may be entitled to reimbursement if there was SP from the debtor
spouse that he/she could have used to satisfy the obligation.
c) When an expenditure is made within a short time of the dissolution.
10. Golemund v. Cafferata [CA, SC; 1941]
a) Facts: H had been in a car accident and owed damages in a judgment against him.
Victim of the car accident asked the court to enjoin the sale of CP to satisfy the debt that
the H owes.
b) Court declines to do this.
c) GR: CA CP acquired prior to 1927 is always liable for the debts of the H because a
rule otherwise would say that the H didn’t have total management and control of the CP
property as he did before 1927, but the non-tortfeasor’s SP is not available.
d) Post-1975: all CP is liable for satisfaction of the tortfeasor’s debt, as is his SP.
e) There is a 7 year SOL for reimbursement after a spouse has knowledge of property
that was improperly applied to a debt.
11. In re Marriage of Braendle [1996]
a) Facts: American Overseas sought to enforce a judgment against CP (that the H
should pay the W money) held by the non-debtor spouse following the property
division in a divorce proceeding. (W and AO are both creditors of H)
b) Simple Rule: At divorce, W is the first in line as a creditor. The creditor’s rights are
given second priority and the W’s preferred interest in the asset protects her from any
encumbrance.
c) Property received by the non-debtor spouse is not liable unless the court expressly
assigns the debt.
Division of CP at Dissolution of Marriage
A. Property Settlement Agreements:
1. Divorce court has jurisdiction over all CP, not over SP unless the parties consent to that or
request jointly held SP to be divided.
2. Family Code §2550: “the court shall …divide the community estate of the parties equally.”
Thus, each spouse is entitled to a one-half interest in each community asset. (This creates an
elaborate game of offset.)
a) Courts can vary equal division when the property is in kind. (Whether a sale can be
forced on stocks is debatable.)
3. Deviation from the equal division requirement is possible when:
a) One spouse has deliberately misappropriated CP.
b) Liabilities exceed assets.
(1) Courts can make unequal distribution of debts depending on relative ability
of spouses to pay.
(2) Rationale: courts don’t want to cripple people financially when they come
out of a marriage.
c) One spouse has incurred educational debt (goes with the student spouse)
d) One spouse has incurred tort liability (goes with the debtor spouse)
e) One spouse has incurred a separate debt
f) One spouse is entitled to community estate PI damages.
4. Assets and liabilities are valued as near to time of trial as possible
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a) However, a spouse-managed business or professional practice in which the primary
asset is accounts receivable should be valued at time of permanent separation rather than
trial.
5. Income tax consequences of division
a) Transfers between H and W pursuant to divorce are not taxable.
b) Spouses assume an equal share of tax liability for sale of community assets to third
parties.
6. Community assets not listed in the divorce pleadings or that are not distributed by the decree
are subject to future litigation unless the property settlement decree states it is a final settlement
of all claims.
7. Setting aside property settlement or decree: (can ask the court to set aside)
a) Grounds: breach of fiduciary duty by managing spouse or extrinsic fraud or mistake
(1) Intrinsic fraud: involves error that the claimant, through due diligence, could
have guarded against.
(2) Extrinsic fraud: fraud that the person who is adversely affected couldn’t have
guarded against.
b) Recent legislation provides that uncontested judgments may be set aside within one
year on the ground of mutual or unilateral mistake.
8. Enforcement and modification:
a) In re Marriage of Hufford [1984]
(1) Facts: H appeals from a denial of request for modification of Spousal
Support.
(2) Issue: Whether the support orders can be modified depending on the
changing ability of the spouse to make payments and the changing status of the
receiving spouse?
(3) Rule: Although an agreement making spousal support non-modifiable by the
court is not contrary to public policy, the public interest is best served when
support awards reflect changes in need or ability to pay and there does need to
be some specific unequivocal language directly on the question of modification,
but no magical words.
(4) Held: Yes, modification can happen with OSCs for modification.
(5) Remember: The decree of divorce, the property division, and the support
orders are all three separate things. Practically though, most courts look at them
all holistically and use the SS and CS orders to compensate for the property
division.
B. Judicial Jurisdiction to Divide Property:
1. Gionis v. Superior Court [1988]
a) Facts: The grant of divorce was allowed prior to the division of property. The H
sought a writ of mandate vacating the order denying bifurcation of his martial status
from the other decisions like property and support.
b) Rule: Bifurcation is a positive thing and the court needs little evidence in order to
grant that motion.
c) But, remember can’t divide property before granting divorce.
2. Robinson v. Robinson [1944]
a) Facts: H appeals judgment awarding ex-W a life interest in HSP real property (family
home). Court of Appeal did reverse this judgment.
b) Rule: Power of court to dispose of property in marital dissolution is limited to CP.
There is no power to dispose of SP of spouse or to carve out life estate in such.
c) *Illustrates limitations of court’s authority to achieve equitable result when family
home (or other major asset) is SP. Traditionally, some courts considered property held in
JT to be SP of each not subject to division and therefore requiring a separate partition
action. Today, the presumption is that anything held in JT is CP for purposes of
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dissolution. Family Code §2650 gives court jurisdiction to divide JT property at request
of either party.
C. Equal Division Requirement:
1. In re Marriage of Stallworth [1987]
a) Facts: One child who had psychological issues and was in special education. He was
10 years old. The court ordered a deferred sale of the home. But, the higher court
reversed and said that there were possible negative economic consequences to the H.
b) Family Code §3800(b) allows for deferred division of the home if there are minor
children.
c) Rule: Custodial parent is entitled to the temporary use of the home until the
youngest child reaches majority and at that point, the house will be sold and the
proceeds will be divided equally. However, in order to do this, it must be shown that it
would be better for the child’s health and welfare to remain in the house in order to
authorize a deferred sale of family home (aka a Duke award)
(1) The Duke rule works well when the house is paid off, but when there’s still a
liability in the house, there needs to be some offset for that and only one spouse
would pay down the debt.
2. In re Marriage of Tammen [1976]
a) Facts: H is appealing from a division of property in which W received a CP award of
approximately 79%. The court ordered her to pay $19,820 secured by a trust on the
family residence. 10 year agreement.
b) Family Code §2601 provides that a court may award any asset to a party in a
dissolution proceeding on any conditions deemed proper to effect an equal division of
CP. (This section gives the court enormous amount of discretion.)
c) The Court of Appeal felt this promissory note didn’t accurately reflect an equal
division due to factors such as discounting due to a long deferment, the inferiority of the
security, and possible effects of inflation. (The TC didn’t justify enough why it made the
division it did.)
3. In re Marriage of Eastis [1975]
a) Facts: W filed for a divorce after 3 years. Here liabilities outnumbered the assets by
$1200. W was awarded net assets worth $2500 and ordered to pay $1000 in community
liabilities. H was given assets worth $1750 and ordered to pay $5400 of the community’s
obligations.
b) The court found that the assignment of the debt threw the equal division of assets out
of whack because W received $750 more in community assets than H. (Thus, this part of
the decision was reversed.)
c) The court must look at the division of debt and this is done in the court’s discretion—
doesn’t have to be equal.
4. Statutes involving the principle of Eastiscourt assigns, not divides outstanding debts.
a) Family Code §2500 series
b) Family Code §2620
(1) Debts for which the community estate is liable have to be confirmed or
divided by the court.
c) Family Code §2621: a debt incurred before marriage “shall be confirmed without
offset to the spouse who incurred the debt.”
d) Family Code §§2622, 2623, 2623, 2625, 2626, 2627
(1) Family code §2623(a): Debts incurred by either spouse for the common
necessaries of life of for the necessaries of life of the children of the marriage for
whom support has been ordered are confirmed to either spouse depending on
the spouses’ respective needs.
IX. Division of CP at Death of a Spouse
A. Rights of Surviving Spouse and Heirs or Devisees of Deceased Spouse
1. Testate Succession
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a) Laws governing testamentary disposition are different for CP and SP. Decedent
spouse has power over half of the CP and all of her SP at death. Surviving spouse is
guaranteed only his half of the CP. (Probate Code §100)
b) If the decedent spouse attempts to dispose of all the CP, the surviving spouse may be
forced to make an election between her share of the CP or taking pursuant to and under
the conditions in the will (election is heavily influenced by tax implications):
(1) Either accept a testamentary gift and forgo her statutory interest in half the
CP
(2) OR asset her interest in half the CP and thereby void the testamentary gift.
c) The surviving spouse has no ownership interest in the SP of the decedent spouse but
the decedent spouse’s testamentary power over SP is still limited regarding:
(1) Quasi-CP: Quasi-CP is treated identically to CP upon the death of the owner
spouse—decedent spouse can dispose of only half and survivor spouse has an
ownership interest in the other half.
(a) Exception: real property acquired by the decedent spouse located
outside of CA which would be subject to the laws of the state where it
existed.
(i) The statutory definition of quasi-CP applies to both
dissolution and death, and includes real property and personal
property. However, under California Probate Code section
66, out-of-state land (not a house or other dwelling) is excluded
from the definition of QCP when the community is dissolved by
the death of a spouse. California courts will not assert
jurisdiction over out-of-state land or, if they do, they apply the
law of the situs (state) of the property.
(b) If owner spouse transfers Quasi-CP to a third party during his life,
the surviving spouse may be able to compel the transferor to reconvey half
of it to the decedent’s estate (which was her half because he can only
give away ½) IF:
(i) Decedent spouse made inter vivos transfer while domiciled
in CA during his life;
(ii) Transfer was made to someone other than surviving spouse
without written joinder or consent of surviving spouse AND
(a) Transfer was a suspect conveyance (i.e. no
consideration and decedent spouse retained possession
or enjoyment of property at time of death or decedent
spouse retained at the time of his death power to revoke,
consume, invade or dispose of property, or decedent
spouse at time of his death had right of survivorship)
(2) Forgotten or omitted spouses (SP can sometimes be touched to cure an this
situation); and
(3) Forgotten or omitted children (same as above)
Intestate Succession
a) Laws governing intestacy are different for CP and SP. Where one spouse dies
without a valid will or where a valid will doesn’t dispose of all the CP, the decent
spouse’s half o the CP passes through intestate succession to the surviving spouse.
b) That portion of the deceased spouse’s SP passing through intestacy to the surviving
spouse depends on the number of children, parents, or issue of parents of the decedent
who survive.
(1) Dead H has SP but no will:
(a) Surviving spouse and one child : usually divide SP in half
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(b) Surviving spouse and two +children: surviving spouse receives one
third;
(c) Surviving spouse, but no surviving children, but others surviving
such ad decedent’s parents, nieces, nephews, siblings, then surviving
spouse receives one-half and blood relatives receive the other half.
(d) If no blood relatives surviving, surviving spouse receives all SP.
3.
4.
5.
6.
Dawes v. Rich [1997]
a) Facts: Claim had been made by tenants in a trailer park and the probate court find
that since the H (debtor) died, the trailer park tenants couldn’t get paid. The tenants
appealed.
b) Rule: Upon the death of the spouse, the marital community remains liable for debts
incurred by that spouse, but the SOL for anyone trying to assert a claim against the estate
is 1 year.
c) At death of the debtor spouse, the non-debtor spouse does incurs the debts of the CP.
Collection Bureau of San Jose v. Ramsey [CA SC; 2000]
a) Facts: Action by the hospital for bills of sick (and now deceased) W.
b) Lower court saw this as part of the necessaries of life and said that a 4 year SOL
applied.
c) The CA SC said, though, that 1 year SOL is applicable from the probate code.
Estate of Prager [CA SC; 1913]
a) Facts: There was a testamentary bequest to the W that was inconsistent with an
independent claim to property under traditional CP law.
b) Rule of laws of wills: one who is given a benefit under a will can choose between that
benefit or any other claim that is inconsistent with that benefit.
c) The intent of the testator matters: Here, the H wasn’t trying to give her SP in lieu of
her CP interest, instead he was attempting to give her SP in addition to her CP.
d) This wasn’t forced election because he didn’t indicate in his will that he needed to
choose.
Election of Benefits under Terms of a Will
a) Surviving spouse’s right to elect is commonly called the “widow’s” election,
although it is equally applicable to either spouse. The election allows a surviving spouse
to choose between the testamentary disposition in a valid will and the statutory share
(pursuant to the CP schemed in the Family Code).
b) The right to elect arises only if the decedent’s will is valid and discloses his intention to
dispose of the survivor’s share of the CP. Thus, an election is required where the testator
expressly requires it, or where the testator declares all of the CP as his SP and provides
for its disposition.
c) Where the testator’s intention is unclear, the courts disfavor forcing the survivor to
elect. Thus, the use of general terms without identifying the community or separate
character of the devised property will create an inference that the testator intended to
dispose only of his property interest, i.e., his one-half interest in the CP and his SP. (In re
Prager’s Estate)
d) A survivor’s election to take under the will or assert community or quasi-community
rights is accomplished by filing a petition under PC §§13501, 13550.
e) The surviving spouse is not required to elect between his or her CP rights and his or
her rights in intestacy.
f) A decedent’s SP may be devised to the surviving spouse conditioned on giving up
certain rights in CP.
g) The surviving spouse’s election does not transmute CP into the survivor’s SP. It
remains CP, subject to the decedent’s liabilities.
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