COMMUNITY PROPERTY

1. (1) California is a community property state.

2. (2) There is a community presumption, meaning all assets acquired during the marriage are presumptively
community property

3. (3) The following are considered areas of separate property: (1) property owned by either spouse before the marriage;
(2) property acquired during the marriage by gift, will, or inheritance; (3) property acquired during marriage with
the expenditure of separate funds; and (4) the rents, issue, and profits derived from separate property.

DIVORCE

1. Economic community ends when:

a. (1) intent not to resume the marital relation by at least one party; AND
b. (2) conduct consistent with that intent
2. CP not properly divided on divorce, court retains continuing jurisdiction to award CP not previously adjudicated and on
motion will be divided 50/50 unless interests of justice require unequal division
3. Disparity in earning power can only be considered as to spousal/child support
4. General Rule: each and every community asset (and liability) must be divided equally
a. Economic Circumstances Exception: can give particular asset wholly to one spouse and “cash out” the other spouse
with other assets
i. (1) Family Residence
ii. (2) Closely held corporation
iii. (3) Pension
b. Statutory Exceptions
i. (1) One spouse misappropriates CP, whether before or during pendency of divorce
ii. (2) One spouse incurred educational debts; treated separately as separately incurred debt
iii. (3) One spouse incurred tort liability not based on activity for benefit of the community
iv. (4) Personal Injury award is CP, but on divorce is awarded to the injured spouse (interests of J)
v. (5) “Negative Community” = community liabilities exceed assets; relative ability to pay debt is
considered (want to protect creditors)

LIFETIME AND TESTAMENTARY GIFTS

1. Neither spouse can make a gift of CP to a third-party w/o other spouse’s written consent
a. If done w/o consent, can recover gift from donee or recover from spouse’s assets
b. Exception = government savings bonds (federal preemption)

ACQUISITIONS ON CREDIT DURING THE MARRIAGE

1. Community Credit Presumption: Funds borrowed during marriage and goods purchased during marriage are presumptively
community credit
2. BUT, borrowed funds (and credit purchases) are classified according to the primary intent of the lender (where is the
lender looking to for satisfaction of the debt)
a. CP = lender relying on personal credit, standing in community
b. SP = loan secured with mortgage on SP

FIDUCIARY DUTY

1. Spouses have duty of the highest good faith and fair dealing with each other.
a. Presumption of Undue Influence if one spouse gains an advantage from a transaction
i. Spouse has the burden of proof to show fiduciary duty not breached
b. Grossly negligent and reckless investment of community funds = breach of fiduciary duty

ALTERING THE CHARACTER OF ASSETS BY AGREEMENT

1. Parties can opt out of statutory definitions of CP/SP by agreement before and during marriage
2. Premarital Agreements
a. General Rule: prenups must be (1) in writing and (2) signed by both parties.
b. Oral agreement invalid EXCEPT where executed/fully performed
 i. Note: marriage alone is NOT sufficient performance
c. Almost Anything can be agreed to EXCEPT agreements as to child support
d. Defense (1) Not signed Voluntarily: prenup deemed involuntary + unenforceable unless party challenging the
agreement:
i. (a) Was represented by independent legal counsel at time agreement signed (or waived in separate writing);
AND
ii. (b) Was given at least 7 days to sign; AND
iii. (c) If not represented by legal counsel, was fully informed in writing (in language in which party is
proficient) of terms and basic effect of the agreement and party executed a document declaring that the got
the information and identifying who provided it.
e. Defense (2) Unconscionability (matter of law)
i. (a) Spousal Support: provision in prenup regarding spousal support unenforceable IF:
1. (i) Party challenging was not represented by independent legal counsel; OR
2. (ii) Provision is unconscionable at time of enforcement
ii. (b) Other: prenup unenforceable IF:
1. (i) unconscionable when made; AND
2. (ii) no full and fair disclosure of other party’s property/financial obligations; AND
3. (iii) right to disclosure not waived in writing; AND
4. (iv) party challenging had no adequate knowledge of other party’s property or financial
circumstances

3. Marital Agreements (Transmutations)

a. By gift or by agreement.
b. Requirements (apply to all types): must be
i. (1) in writing
ii. (2) signed by spouse whose interest is adversely affected; AND
iii. (3) must explicitly state that a change in ownership is being made
iv. EXCEPTION: gifts of tangible property of personal nature which are not of substantial value taking into
account the circumstances of the marriage.
c. Note: exceptions to the writing requirement such as estoppel, partial performance, etc., do not apply.
d. Wills – cannot be used as evidence in divorce proceeding of transmutation

EFFECT OF HOW TITLE IS TAKEN

1. Taking title in joint and equal form (title in both names) “H and W”
a. Marriage of Lucas: death of one party = if property title in joint and equal form and one spouse has contributed
separate property funds to the purchase or improvement of the property, the contribution is presumed to be a gift and
there is no right to reimbursement absent an agreement of the parties to the contrary.
b. Anti-Lucas Statutes: divorce/legal separation
i. (1) Ownership: property acquired in joint and equal form is presumptively CP and subject to equal division.
Presumption rebutted by:
1. (a) Express statement in the deed that property (or portion of it) is SP; OR
2. (b) Written agreement by parties that property (or portion of it) is SP
ii. (2) Reimbursement: spouse who made contributions of SP to acquisition/improvement of CP is entitled to
reimbursement without interest for contributions to DIP:
1. (a) Down payment
2. (b) Improvements
3. (c) Principal Payments on Mortgage
iii. NOTE: statutes only apply to title documents or deeds (receipts not enough)

EFFECT OF PARTIES’ ACTIONS ON CHARACTERIZATION OF ASSETS

1. Installment Purchases Pre-marriage and Payments made w/ CP

a. Proration Rule: the community estate takes a pro rata portion of the property, measured by the amount (percentage)
of the principal debt reduction attributable to the expenditure of community funds (applies even if not paid in full, to
insurance policies) =
 Principal debt reduction attributable to CP
Purchase price

b. Example: W buys house for $100k before marriage and pays $30k, mortgage for $70k balance. Marries H and pays
rest in full with CP. =

$70,000
$100,000 = 7/10 CP and 3/10 SP

c. Whole vs. Term Life Insurance Policy

i. Whole Life Insurance Policy (cash value w/ investment feature) = proration rule applies
ii. Term Life Insurance Policy (pure insurance w/ no cash surrender value like car insurance) = last premium
determines the character
1. Example: if last payment made with CP, then CP. If last payment made with SP then SP.
2. CP Used to Improve SP
a. CP used to Improve Spouse’s Own SP
i. No gift presumed
ii. Community entitled reimbursement for cost of improvement OR the amount which the improvement
increases the value of the realty (whichever is greater)
iii. Also applies if CP used to preserve spouse’s separate estate (pay taxes, insurance, maintenance)
b. CP used to Improve Other Spouse’s SP – split authority (argue both)
i. (1) No reimbursement – presumption of gift which can be overcome only with evidence of an agreement to
reimburse community estate
ii. (2) Reimbursement – no presumption of gift
c. REMEMBER: if One Spouse’s SP used to improve CP
i. (1) Divorce = Anti-Lucas Statutes (reimbursement for DIP)
ii. (2) Death = Lucas (no reimbursement/presumption of gift)
3. Commingled Bank Accounts
a. Mere fact that SP funds commingled with CP funds does not transmute those funds to CP
i. But, burden of proof on party to show that EACH asset was purchased with SP funds
b. Family Expense Presumption: presumed that expenditures for family expenses (food, housing, clothing) were made
with community funds (to the extent available) even if separate funds were available
i. NOTE: if some family expenses paid with SP funds, presumption = gift to the community w/ no
reimbursement intended (unless have an agreement to reimburse)
c. (1) Exhaustion Method: show that property must have been purchased with SP because all of CP in account
already exhausted and used to pay family expenses
d. (2) Direct Tracing Method: at the time the asset was purchased (i) there were sufficient separate (as well as
community funds) available AND (ii) he intended to use those separate funds to purchase a separate property asset
i. Example: H deposits $12k of SP in account and two days later spends $12k on property.

CHARACTERIZATION PROBLEMS RAISED BY CERTAIN ASSETS

1. Business Owned Before Marriage Greatly Increases in Value During Marriage (two authorities, DISCUSS BOTH)
a. Pereira
i. Personal Skills and Effort: where one spouse’s time, skill, and effort were major factors in growth of
business.
ii. Formula = SP + pay interest on SP; the rest is CP
1. Pay interest (10% per annum) on value of business at time of the marriage
2. Example: W’s business worth $100k at time of marriage. Married 10 years. Now business is worth
$4 million. W entitled to initial $100k + another $100k interest. Business = 5% SP and 95% CP
b. Van Camp
i. Valuable Company or Asset: applies where the capital investment was the major factor in business’s
growth, and spouse’s skills and efforts were less of a factor. Look for instances where spouse was paid a
substantial salary and large bonuses = community was compensated.
ii. Formula = Value community; the rest is SP
1. Spouse’s services at market rates (how much would executives in similar positions be
compensated on the market MINUS family expenses paid from community funds = Community
component; Balance = SP
 2. Example: Business now worth $4 million. Married 10 yrs., market rate for execs. = $100k and
living expenses = $80k per year. $20k x 10yrs = $200K is CP (5% CP, 95% SP)
c. NOTE: court is not bound to adopt Pereira or Van Camp. Choose whichever achieves substantial justice

2. Pension Benefits
a. Employee retirement benefits accumulated during marriage, whether or not vested at the time of divorce = form of
deferred compensation (CP)
b. Proration Rule Applies:

Years of service while married

Total years employed to retirement = CP

c. If not yet eligible for retirement at time of divorce, two options

i. (1) If and when received decree = if and when pension received, spouse gets her share (if 1/3 CP, then gets
1/6 = his/her share of CP)
ii. (2) Cash out = award other assets of equal value
d. If eligible at time of divorce but chooses not to, the retirement benefit is deemed matured and spouse entitled to their
share (election not to retire does not defeat spouse’s present right)
e. Disability Retirement Benefits and Workman’s Compensation
i. Treated as Wage replacement and are classified according to when received and not when earned.
ii. Note, if Spouse elects disability retirement over regular retirement, other spouse’s community interest not
defeated.
f. Severance Pay
i. Split Authority (Argue BOTH):
1. (1) Severance pay = SP because replaces lost earnings which after a divorce or permanent
separation would be SP; OR
2. (2) Severance pay = CP because it arose from a collective bargaining agreement and was thus
earned by employment during the marriage

3. Stock Options
a. If option is awarded during marriage but does not vest until after the economic community has ended, the proration
formula that is used in determining what portion of the option is CP and What portion is SP depends on the primary
intent of the employer in granting the option.
b. Marriage of Hug
i. Applies if stock options awarded primarily to award employee for past services (as a form of deferred
compensation)
ii. Formula:

Years from the date of employment to date economic community ends

Years from the date of employment to date options vest x available stocks = CP

iii. Example: H married and employed in 1998. Divorced in 2006, and stock option vests in 2008. Option
included 5,000 shares: 8 yrs./10 yrs. = 8/10 x 5000 = 4000 shares = CP and spouse entitled to 2000.
c. Marriage of Nelson
i. Applies if stock options awarded primarily to encourage spouse to remain w/ company.
ii. Formula:

Years from date option granted to date economic community ends

Years from date option granted to date option become exercisable x available stock = CP

iii. Example: H married and employed in 1998. Granted stock option (5000 shares) in 2004. Divorced in 2006
and option vests in 2008. 2 yrs./4 yrs. = ½ x 5000 = 2000 shares CP and spouse entitled to 1000.

4. Goodwill of a Professional Practice

a. Goodwill = those qualities that generate income beyond that derived from (1) professional’s labor; and (2)
reasonable return on capital and physical assets (primarily established by expert witness)
b. Goodwill of a professional practice (to the extent acquired during the marriage) = CP subject to division on divorce
c. Buy/sell agreements = a factor but NOT conclusive
 5. Educational Expenses
a. Degrees =/= CP
b. But, spouses entitled to reimbursement for cost of education if education enhanced other spouse’s earning capacity
i. Applies even if loans incurred before marriage but paid with CP after marriage
c. Defenses:
i. (1) Community has already substantially benefitted from the earnings of the educated spouse (presumption
if more than 10yrs have elapsed since degree awarded)
ii. (2) Other spouse also received CP-funded education
d. Loans used to finance education are assigned solely to party who incurred the debt.

TORT AND CONTRACT LIABILITY

1. Where other spouse = tortfeasor, tort recovery = SP
2. Where third party = tortfeasor, tort recovery = CP
a. BUT, in property division on divorce/legal separation, recovery awarded entirely to injured spouse as long as award
can be traced and wasn’t already spent.
b. On death, treated as CP
3. CP is subject to the tort liability of either spouse. Whether debt recovered from CP or SP first depends on:
a. (1) If spouse was performing act for benefit of the community, then liability is first satisfied from CP, then from SP
b. (2) If spouse not performing act for benefit of the community, then liability first satisfied from SP, then from CP
c. NOTE: liability can never be satisfied from non-tortfeasor spouse’s SP (not personally liable)

MANAGEMENT
1. General Rule: equal management powers = each spouse has equal management control over all community property, and thus
has full power to buy and sell CP and contract debts w/o other spouse’s joinder, consent
a. Personal Belongings Exception: One spouse cannot encumber personal property used in family dwelling (furniture,
clothing, etc.) without written consent of other spouse. Transaction voidable by other spouse at any time.
b. Business Exception: Applies when a spouse operates a business interest that is all or substantially all community
personal property and has primary management and control of all the business. While this spouse can act alone in all
transactions, if the spouse sells, leases, or otherwise encumbers substantially all of the personal property used in the
business, must give written consent notice to other spouse.
2. Conveyance of Real Property: Joinder of both spouses is required (1yr statute of limitations to void transfer)
a. Does not matter if property sold to BFP and if buyer knew or should have known that seller was married, then no
statute of limitations on voiding transfer.
b. Neither spouse can transfer or encumber their ½ interest in real CP. Only the entire interest can be transferred or
encumbered (exception to pay attorney in divorce = family attorney’s real property lien)
3. CP can be used to satisfy debts incurred by spouse during marriage. Spouses have equal management powers and either
spouse can enter into contracts and/or incur debt.
a. CP can also be reached to pay for debts incurred before marriage. Exception = earnings of nondebtor spouse cannot
be reached for premarital debts if held in a separate account (in which other spouse has no right of withdrawal) and
not commingled with other CP funds.
b. NOTE: SP of nondebtor spouse cannot be reached for premarital debts (not personally liable)
4. Medical Bills (Contracts for Necessities): each spouse has a duty to support their spouse and minor children, thus each spouse
is liable for the other spouse’s contracts for necessities (SP can be reached to pay these bills)
a. If funds are available to pay medical bills, spouse can be reimbursed from community estate.
b. NOTE: still liable if separated. Must be divorced to lose personal liability

MULTISTATE PROBLEMS/CONFLICT OF LAWS

1. Property acquired while the couple was domiciled in a non-community property state, which would have been classified as
CP had it been acquired under the same circumstances in CA = quasi-community property (treated same as true CP = 50/50)
2. NOTE: Quasi-CP protection applies only if non-acquiring spouse survives the acquiring spouse.

PROPERTY ACQUIRED OUTSIDE THE MARITAL RELATION

1. CA doesn’t recognize common law marriages (unless validly contracted in another state)
a. Governed by contact law (as long as not based solely on sexual services)
2. If not married or registered domestic partners, own property as tenants in common w/ ½ each.
3. If one party tricked by other into thinking common law marriages ok in CA, the becomes putative spouse
a. Test = subjective belief that lawfully married. If so, then assets treated as quasi-marital property (50/50)