* Community Property *  

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1. ** Definition 

   1. Community Property (“CP”) is defined as a property acquired during marriage (Community generally means spouses)

      1. California is a CP state 

      2. There is a presumption that all property acquired during marriage is CP

      3. In California, all property acquired during marriage is CP, such as salary, wages or income from community assets ** 

      4. Separate Property (“SP”) is property acquired before marriage or after permanent separation (i.e., divorce); or property acquired during marriage by gift, will, inheritance; expenditure of separate funds; or rents or profits derived from SP

      5. At divorce, the CP are equally divided in kind, unless some rules require deviation from Equal Division Requirement (this will be explained below) or the spouses agree otherwise 

      6. At divorce, SP of one spouse remains SP

                    (Please note that whenever you deal with "Community Property"

                    in the Essay, the first words you need to write will be the above

                    six elements. Thus, hope you memorize the exact words above)  ** 

           2. Analysis of Community Property

1. In order to better understand CP, you will need to analyze the character of each item by asking in the following order (You will also need to use this order when you solve the CP essay question in the Bar Exam) :

   1. Source (of the property): when and how was the property acquired;

   2. Actions: did the spouses take any action that would change the character of the property from CP -->SPor SP --> CP;

   3. Presumptions: are there legal presumptions that may affect to change the character of the property from CP --> SP or SP --> CP; and 

   4. Disposition: what will be done with the property in the end **

           3. Important parts that should be considered

1. Always Trace the property (i.e., use all the facts in the Question)

2. See whether there was a transmutation (i.e., written & signed) 

3. What decides the characteristic of a property is not the title alone, but rather what funds were used to acquire the property 

           4. Date of Separation  

1. The marital economic community (i.e., in community property states, like California, property acquired during a marriage is called the “marital economic community”. For the purposes of the marital economic community, the marriage ends at divorce, death, or when you or your spouse moves out with the intent not to get back together. Thus, if you and your spouse are planning on filing for a divorce in California, but are still living together, the marital economic community will still exist) ends when there is:

1. permanent physical separation, and

2. intent not to resume the marital relationship (here, the intent of only one party is enough as long as it is communicated to the other party) 

   2. Equal Division Requirement

1. The general rule is that the court must divide each and every community asset equally at the time of separation, unless there is a written agreement to the contrary ** 

1. Two Exceptions

   1. Economic Circumstances Exception

      1. This exception is used when a major item of community property is not reasonably subject to division yet there is a critical need to maintain the item (e.g., family residence, closely held business, or pension)

      2. When this economic circumstances is availed, the court may award (i) asset of CP to one party, and (ii) cash out or order payments to the other party

   2. Statutory Exceptions (A spouse can get more than half of asset at the time of separation)

      1. Misappropriation: An unauthorized use of community assets for his or her own purposes to the exclusion of the other spouse without benefit to the community

         1. Examples: gifts of money to a girlfriend, boyfriend or other third party, purchase of illegal drugs or illegal guns, illegal gambling, payments to prostitutes/escort; waste or disposal of community property (yet, extravagant purchases do not include), gross negligence or reckless conduct or intentional misconduct relative to community assets or investment, knowingly violating the law to the detriment of the community, etc. **

      2. Educational Expenses: Community is entitled to reimbursement for actual costs incurred for educational expenses if education has substantially enhanced the earning capacity of the other community  

         1. Exceptions:

            1. Community has already substantially benefited from the other community. If more than 10 years have elapsed since the educational degree awarded, there is a presumption that the community has already substantially been benefited

            2. If the community also received a CP funded education

            3. The community is abundant economically and does not need the reimbursement ** 

      3. Tort Liability: A community is subject to a tort liability of either spouse. Any obligation incurred will be community debt. There are two types of tort liability​​

         1. Tort Act Benefiting Community – Liability is first satisfied from CP, and then tortfeasor SP

            1. Example) Negligent car accident while driving their kids to school

         2. Tort Act not Benefiting Community – Liability is first satisfied from the tortfeasor SP, and then CP

            1. Example) Negligent car accident while driving a third party whom the other spouse does not know (Note that Innocent spouse is not personally liable in this case) **

      4. Personal Injury Award: If there is a personal injury cause of action against either spouse from the Date of Marriage to the Date of Separation, there is a presumption that all personal injury awards will be CP, thus both spouse will be entitled to the award equally

         1. At Divorce & At Death – If the personal injury award is still existing unspent at the death or the divorce of the injured spouse, the award will be awarded entirely to the injured spouse as SP

      5. Negative Community: This community refers to a situation where the community liabilities and debts exceed the available assets to pay the liabilities and debts. Here, the relative ability of spouses to pay the debt is considered. The interest here is to protect the creditors **

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  3. Quasi Community Property & Quasi Marital Property

1. Quasi Community Property​

   1. Definition – Quasi Community Property ("QCP") is a property acquired in another state that would be CP if it was acquired in California but it was not

   2. Divorce – At divorce, California Courts treat QCP as CP, thus it is subject to the Equal Division Requirement rule (see the rule above) 

   3. Death – At death, the surviving spouse has a one-half interest in the QCP of the decedent.  Yet, the decedent has no right in the QCP of the survivor

   4. Property Acquired in another CP State other than California – This property is also treated as California CP  **

2. Quasi Marital Property

   1. If a determination is made that a marriage is void or voidable and the court finds that either party or both parties believed in good faith that the marriage was valid, the court shall declare the party to have the status of a putative spouse

      1. Putative spouse is a spouse who is not lawfully married, but within good faith, objectively reasonably believed that he or she was lawfully married

   2. The property acquired during the union (i.e., similar to marriage), which would have been CP or QCP if the union had not been void or voidable is called Quasi Marital Property (“QMP”) 

   3. Putative spouse will hold the right of QMP, which is identical to the right of CP or QCP 

   4. Thus, if you get to deal with QMP in a California Bar Exam Essay Question, always analyze your answer according to CP or QCP

      1. Remember, the difference between CP and QCP is CP is a property that is acquired in California while QCP is a property that is acquired in another state other than California ​

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  4. Presumptions

1. Definition: Presumptions means what type of property the property is to be presumed, whether it is CP or SP **

1. CP Presumption 

   1. Definition: All property, real or personal, wherever situated, acquired by a married person “during the marriage” while domiciled in California, the property is CP

   2. Rebuttable Presumption: A spouse may beat this CP presumption (i.e., claiming the property is SP) by preponderance of the evidence (i.e., under the preponderance of the evidence standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater than half a chance that the claim is true) by tracing the SP acquisition of the property (Again, the reason why you need to know whether the funds are CP or SP is, in the process of getting a divorce, when the funds are CP, the property must be divided in half which both spouses are entitled to the property, while the funds that are SP, one spouse will receive the whole property)

      1. Property which was purchased from Commingled Funds (i.e., funds are commingled with both CP and SP thus, it is hard to prove whether the funds are CP or SP. The spouse will use the below Exhaustion Method to prove that the commingled funds are SP. Again, please note that if the commingled funds are proved to be SP, the spouse will be entitled to the property that was purchased from the SP commingled funds alone; whereas if the commingled funds are proved to CP, the property that was purchased from the CP commingled funds will be divided equally to both spouses):  

         1. Exhaustion Method ( = Family Expense Presumption Method) – under this method, in order to establish that the property which was purchased from commingled funds is SP; a spouse must show that at the time of acquisition, all CP inside the commingled funds were exhausted by community expenses

            1. ​The court will presume that any community expenses paid from a commingled funds were paid with CP. The presumption is that a spouse would preserve his or her SP funds rather than use them to pay the community expenses. Therefore, if the community had $400 in a commingled account and a spouse deposited $800 from his or her SP inheritance, then paid $400 of community expenses, the court would presume the remaining $800 in the account is SP of the spouse  **

      2. Direct Tracing Method – under this method, in order to establish that property which was purchased from commingled funds is SP; court will trace the assets used to purchase a property during marriage to know whether: 

         1. sufficient SP funds were available in the commingled funds; and

         2. the spouse intended to use SP funds in the commingled funds to purchase the asset 

   3. Rebuttable Presumption II – A spouse acquired the property by gift, will or inheritance, in which it is presumed to be SP (see Definition of CP at the top)

   4. Rebuttable Presumption III – The property was earned or accumulated while the spouses were living separate and apart, in which it is presumed to be SP

2. Joint Form Property Presumption 

   1. Definition: Property acquired by the parties during marriage in Joint Form Property (i.e., Joint Form Property is a property that is held in the name of two or more parties. These two parties could be husband and wife, business partners, or people who have a reason to own property together. Examples are Joint Tenancy, Tenancy by the Entirety, etc. These examples will be explained in ‘Real Property’) is presumed to be CP **

   2. Rebuttable Presumption

      1. Express Statement in a deed (i.e., a legal document that is signed and delivered, especially one regarding the ownership of property or legal rights) or other documentary evidence of title (i.e., a document that shows legal ownership to a property or asset) stating the property is SP (i.e., through these deed or title, a partner may rebut that the property is CP, and prove that the property is SP, which the partner alone will get the whole property), or

      2. Written Agreement declaring that the property is SP (i.e., through the written agreement, a partner may rebut that the property is CP, and prove that the property is SP, which the partner alone will get the whole property)

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​  5. Premarital Agreement & Transmutation Agreement 

1. Premarital Agreement

   1. Definition: A written contract that explains the rights and duties of each party once they get married (When a couple plans to get married, they have the option to sign a premarital agreement before marriage, which is a written contract that explains the rights and obligations of each party once they get married. Couples usually look into getting a premarital agreement before marriage when he or she does not want the other spouse to get everything they own if they get divorced. Generally, the premarital agreement is decided, when and how the agreement should be enforced under the Uniform Premarital Agreement Act (i.e., Uniform Premarital Agreement Act (“UPAA”) is a Uniform Act governing premarital agreements which is said to promote more uniformity and predictability between state laws relating to premarital agreements. The UPAA was enacted to ensure that a premarital agreement that was validly entered into in one state would be honored by the courts of another state where a couple might get a divorce) **

   2. Waiver of Premarital Agreement

      1. Can waive (i.e., give up) nearly any rights and assets, such as spousal support and property rights, however child custody or child support, and anything that violates public policy (i.e., encouraging divorce) cannot be waived 

   3. Requirements of Premarital Agreement 

      1. it must be in writing, and 

      2. signed by both parties **

         1. However, the premarital agreement does not need to be in writing and signed by both parties if: 

            1. the verbal premarital agreement that was made is already fully performed, or

            2. the other party has detrimentally relied on the verbal agreement that was made 

   4. Defense to Premarital Agreement 

      1. A party can claim that the premarital agreement is invalid due to the following reasons:

         1. the agreement was signed involuntarily (i.e., if the premarital agreement was signed involuntarily by a party, the agreement is unenforceable) **

            1. Yet, despite the claim of the party that the premarital agreement was signed involuntarily, if (i) the language written in the premarital agreement is proficient, (ii) the premarital agreement was in its final complete form and was given to the party a week before he or she signed it (i.e., the reason why it is given to the party a week before he or she signs the premarital agreement is to give him or her the time to deliberate concerning the agreement), and (iii) the premarital agreement was represented by an independent legal counsel at the time it was signed; then, the premarital agreement will be considered to have been signed voluntarily by the party and therefore the agreement will be enforceable 

      2. Unconscionability

         1. If the premarital agreement is unconscionable (i.e., unreasonable), the agreement will be deemed unenforceable by the court. The premarital agreement will be deemed unconscionable if:

            1. the agreement does not fairly advantage both parties, or

            2. the party challenging the agreement had no adequate knowledge of the assets, financial obligations or liabilities of the other party because there was no full and fair disclosure considering those assets, financial obligations and liabilities **

         2.  Absence of Independent Counsel

            1. Note that at times, the premarital agreement may be deemed unconscionable, if each party was not represented by his or her independent legal counsel separately at the time it was signed. The reason is if one party is represented by his or her independent legal counsel and the other is not, there is a possibility that the agreement will be too lopsided, with one party awarded almost everything and the other receiving a penny, which in this case, the premarital agreement will be ruled as void by the court. Thus, it is best for each spouse to be represented by each independent counsel when negotiating and drafting the agreement **

2. Transmutation Agreement 

   1. Definition: Transmutation Agreement is an agreement between married persons that changes the character of property (i.e., CP --> SP, or SP --> CP) owned by one of the parties, or the parties jointly, during marriage

   2. Analysis: In order to be qualified as a transmutation agreement, there are two steps that needs to be analyzed 

      1. First Step

         1. There must be a writing 

            1. Exception to the writing requirement is that the valid transmutation is a gift (e.g., jewelry, clothes) that did not need writing, or a will prior to death 

         2. The writing must be signed by the spouse whose interest is adversely affected, and 

         3. The writing must state an express intent to transmute, the ownership will be changed, and the spouse will give up all the rights and interests of the property **

      2. Second Step

         1. A presumption of undue influence must be considered

            1. The presumption of undue influence arises when one spouse has gained an advantage against the other in a transaction

            2. To defeat the presumption, the spouse who gained substantially has the burden to prove that the non-gaining party knew about his or her gain **

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 6. Contribution

1. SP contribution into CP Asset

   1. Two Sets of Laws (Death or Divorce)

      1. Lucas Case (Death)

         1. At the death of a person, the asset is evaluated as follows under the Lucas case:

            1. if you put SP into a joint CP asset, it is presumed to be a gift to CP. And the only way to rebut this presumption is a ‘writing’ to the contrary that the property is not a gift and is a SP

      2. Anti-Lucas Legislation (Divorce) 

         1. Reimbursement §2640

            1. This rule applies, at divorce, to residential properties that are acquired during marriage, which is CP because the property is acquired during marriage, using SP contributions that include any of the following **

               1. Down payments to purchase the property initially are entitled to reimbursement;

               2. Payments for Improvements (must be at or near the time of acquisition) are entitled to reimbursement; and

               3. Payments from SP that Reduce the Principal of a loan used to finance the purchase are entitled to reimbursement

                  1. The party that makes those SP contributions is entitled to a reimbursement to the extent the party can trace the contribution to a SP history

                  2. The amount of reimbursement is without interest (i.e., the spouse can get back only the amount of money he or she has put in whether the property value declines or appreciates ( = dollar for dollar)) **

         2. Ownership §2581

            1. Property acquired during marriage in joint and equal form is presumptively CP (i.e., thus both spouses will be entitled to the property, instead of one spouse receiving the whole property), and the property will be subject to equal division requirement(see above) on divorce

               1. This CP presumption can be rebutted (i.e., the spouse will claim the property is SP in order to receive the whole property by himself or herself) by:

                  1. express statement in the deed (i.e., a legal document that is signed and delivered, especially one regarding the ownership of property or legal rights) or other instrument of title that states the property (or portion thereof) is SP, or

                  2. written agreement by the parties that states the property (or portion thereof) is SP

2. CP contribution into SP Asset  

   1. Business

      1. Generally, the business initiated before marriage is SP (i.e., because it was initiated before marriage), and the compensation will be given to the community who initiated the business, yet when the community gets married, the effort of the other community needs to be considered too which is regarded as CP for the contribution of the other community made to the SP business is made during marriage. And at divorce, that other community is entitled to be reimbursed for the effort he or she has contributed during marriage **

         1. Two Formulas

            1. There are two formulas in how this other community needs to be compensated for the CP labor he or she has made to enhance the value of the SP business, at divorce 

               1. Pereira Analysis

                  1. Apply this formula when (i) business operated before marriage, or (ii) business bought with SP during marriage 

                  2. Apply this formula when the chief growth factor of the business is personal skill, labor and effort by the other community (e.g., the community contributed creative ideas, developed new techniques, worked long hours with a little salary given) **

                     1. ​How to calculate under Pereira Analysis (There are ways to calculate, but I will suggest the below analysis)

                        1. Value of the business at the time of marriage = P1

                        2. Rate of return = P2 

                        3. SP = P1 + (Number of years married x P1 x P2)  

                        4. CP = Value of the business at the time of divorce – SP **

               2. Van Camp Analysis

                  1. Apply this formula when (i) business operated after separation, or (ii) the community was compensated by the salary/large bonus by the other community

                  2. Apply this formula when the chief growth factor of the business is unique character of the company and all-in-all market factors (e.g., industry, patents, legislation, capital investment) 

                     1. How to calculate under Van Camp Analysis (There are ways to calculate, but I will suggest the below analysis)

                        1. Reasonable payment to the CP labor of the community = P1

                        2. Family expenses paid from the CP = P2 

                        3. CP = (P1 – P2) x Number of years married  

                        4. SP = Value of the business at the time of divorce – CP  **

   2. Insurance

      1. Whole Life Insurance 

         1. Insurance with a cash value and investment feature

         2. Proration Rule Applies ​

            1. ​Definition of Proration Rule: When CP is used to pay an installment payment on SP, the community gains an interest in the property

               1. Total amount of insurance payments made ÷ Amount of insurance payments made by CP (i.e., this gives the formula to determine what percentage will be SP)

      2. Term Life Insurance 

         1. Insurance with no cash value (e.g., car Insurance)

         2. Final Payment Rule Applies

            1. Last premium payment received determines the character **

   3. Retirement Plans

      1. Types of Retirement Plans

         1. Defined Contribution Plan

            1. Definition: This is a type of retirement plan that is typically tax-deferred, in which employees contribute a fixed amount or a percentage of their paychecks to an account that is intended to fund their retirements (e.g., employee stock option plan)

            2. Rule: Everything contributed in a defined contribution plan between the the date of marriage and the date of separation is regarded as CP. Thus, at divorce, the amount will be divided by both communities 

               1. Note that If the defined contribution plan has decreased in value, then it is regarded that the amount of CP has decreased **

         2. Defined Benefit Plan 

            1. Definition: This is a type of pension plan sponsored by an employer that can give the biggest possible benefit to the participants while lowering taxable income. It is a plan that guarantees to pay a pension at a certain age 

            2. Rule

               1.  Decease of the participating community:

                  1. generally, if a participating community predeceases a non-participating community, the payment will continue to the non-participating community until his or her decease

               2. Divorce

                  1. generally, if a non-participating community divorces the participating community, his or her CP interest is recognized, and the non-participating community will always receive certain payments from the plan **

                  2. Types of Defined Benefit Plans at divorce (Note that the basis of the Defined Benefit Plan is to determine what percentage of the benefit the community could receive is CP)  

                     1. Brown Formula ( = Time Rule) 

                        1. Definition: A common way to divide the CP interest in a defined benefit plan. The calculation of this formula gives the community the percentage of the retirement benefits 

                        2. How to calculate (There are ways to calculate, but I will suggest the below analysis)

                           1. (The service credit earned during marriage / total years of service credit) x ½ = The percentage of CP the community will receive

                     2. Gillmore Rights

                        1. Definition: There are times an employee wants to continue working past his or her earliest retirement age. If the employee is divorced and his or her former community wants to start receiving benefit payments based on his or her (i.e., former community) interest in the retirement plan, Gillmore Rights allow the former community to start receiving the benefits before the employee (i.e., who wants to continue to work) actually retires. These rights give the non-employee former community the ability to receive the CP share of the employee former community benefits, regardless of whether the employee former community actually retires at that time or not ** 

   4. Real Property

      1. Rule of Real Property

         1. Under Real Property, the community is entitled to:

            1. reimbursement back for the principal reduction (i.e., a decrease in the amount of the loan), including down payment 

            2. reimbursement back for improvements on the property:

               1. the community who improved his or her own SP house with CP funds has a claim for reimbursement

                  1. Note that the community will get either the value of the improvement or the increase in value of the house, which is larger 

               2. the community who improved the other community SP house with CP funds, in this case, the court is split on whether the community has a clam for reimbursement or not ** 

            3. Capital Appreciation

               1. Definition: A rise in the value of any asset, such as a stock, bond or piece of real estate relative to its purchase price or cost basis (i.e., initial value of the asset) **

      2. Real Property Control

         1. Rule: All community must join in executing any instrument that sells, conveys, leases or encumbers (i.e., burdens) the real property that is CP

            1. Note that, however, a community may unilaterally encumber his or her one half interest in the CP in order to pay his or her lawyer when the lawyer is representing him or her 

            2. Additionally, note that each community has equal control (i.e., management) to CP (i.e., that is, either spouse can act alone to buy, sell, spend, or encumber all CP), whereas each community has exclusive control to his or her SP separately 

         2. Additional Control

            1. Personal Property Fair Market Value Control

               1. Rule: A community may not gift, transfer or sell (i.e., for less than a fair market value) any personal property that is CP, without the written consent of the other community (i.e., however, if the community get to receive the fair market value of the personal property, the community need not tell the other community) 

               2. Remedy: If the community gifts, transfers or sells (i.e., for less than a fair market value) any personal property that is CP, without the written consent of the other community, the non-breaching community:

                  1. can claim the personal property in its entirety,

                  2. can make the transferred transaction voidable (i.e., the transaction may be declared invalid) at any time; or make the transferred transaction void (i.e., declare the transaction invalid) within a year, or 

                  3. is entitled to one-half of, or an amount equal to one half of, any personal property transferred below the fair market value **

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 7. Fiduciary Duties between Communities during the Dissolution Proceeding​

1. Rule: Each community has fiduciary duties until the assets are fully divided during the dissolution proceeding (i.e., a process to get divorced), which they need to act fair, with no fraud, and be honest to each other

2. Types of Fiduciary Duties

   1. Duty of Loyalty: Each community has a higher duty to the community than to himself or herself, and neither community shall take any unfair advantage of the other community

   2. Duty in Investment: A grossly negligent and reckless investment by one community is a breach of fiduciary duty 

   3. Duty to be Fair and Honest: If one community gains excess advantage from a transaction than the other community, there is a presumption of undue influence (i.e., one person taking advantage of a position of power over another person). In this case, the community who gained excess advantage will have the burden to prove that he or she did not breach fiduciary duty

3. Fiduciary Duties while Taking Action against Another during Dissolution Proceeding

   1. Rule: Each community has fiduciary duties to each other from the date of separation to the date of distribution of assets to all activities that affect the assets and liabilities during dissolution proceeding (i.e., if one community does not disclose all assets, investment opportunities, and financial issues that affect the family to the other community, the fiduciary duty is breached)

4.  Remedy for Breach of Fiduciary Duties

   1. Non-breaching community is entitled to one-half of, or an amount equal to one half of, any asset undisclosed or transferred in breach of the fiduciary duty, plus attorney fees and court costs for any breach made by the breaching party

   2. If a community can prove by clear and convincing evidence that the other community breached a fiduciary duty with fraud, undue influence or malice, the non-breaching community could recover punitive damages (i.e., punitive damages are awarded in addition to actual damages in certain circumstances, which are typically awarded at the discretion of the court when the behavior of the breaching  is found to be especially reckless and harmful) **

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 8. Additional Duties 

1. Duties of Creditors

   1. Rule: After divorce between the communities, a creditor cannot reach a CP awarded to a community unless that community:

      1. incurred a debt from the creditor, or 

      2. was assigned the debt by the court

2. Duties of Communities

   1. Rule: Which community is responsible for the debt depends on the period of marriage as below

      1. Before marriage (= pre-marital debt)

         1. Rule

            1. Both communities will be liable for the pre-marital debt  

            2. However, if the pre-marital debt still exists at the date of separation, the SP community who incurred the debt will be responsible for the pre-marital debt 

      2. During marriage

         1. Rule

            1. There is a presumption that the debts created between the date of marriage and the date of separation are CP, thus both communities will be responsible for the debt 

         2. Exceptions

            1. However, the debts created between the date of marriage and the date of separation could be SP, which makes the community who incurred the debt will be responsible for the debt, if:

               1. the debt was created by the community in anticipation of the dissolution of the marriage (e.g., hiring an attorney in a divorce action),

               2. the debt was created by the community not for the benefit of the other community (e.g., gifts to another person that the other community does not know), 

               3. the debt was created by the community for intentional, wrongful and illegal acts, or

               4. the primary intent of the lender was to bind one of the communities ** 

      3. After marriage

         1. Rule

            1. Both communities remain liable for any debts created from the date of separation to date of separation judgment for the necessaries of life(i.e., family expenses) 

         2. Reimbursement

            1. However, the community may be reimbursed at dissolution if the support obligation was paid by the community when separate property was available (i.e., need to look at whether there was a SP remnant of the debtor-spouse)

3. Widow Election

   1. Rule

      1. A surviving community may either choose to take under the will, with the will read in its entirety, or take against the will in intestacy and relinquish all testamentary gifts in her favor) **

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