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CALIFORNIA COMMUNITY PROPERTY MARY GOZA, ESQ.

CHAPTER 1: BASIC PRINCIPLES (PART 1)

Exam Tip 1: Community Property appears on the bar exam once a year, on average. The subject has been combined with other subjects in the same essay. The topic is easy to spot because the fact pattern ends with “Answer according to California Law” and the party names begin with “H” and “W.”

Community property (CP) is about dividing assets and assigning debt of a married couple facing

divorce or upon death of a spouse.

The typical fact pattern involves a couple and describes their assets, debts, liabilities and

possible misbehavior (e.g., committing a tort, infidelity).

The call of the question generally asks about the respective rights and liabilities of the parties.

Exam Tip 2: Abbreviations used in this handout are accepted on the bar exam.

The first step—Determine to what extent community property principles apply.

Marital Community

Sometimes called the marital economic community or simply the community

Whether an asset is characterized as CP depends in part on WHEN it was acquired—

_______________________________________________creation of the marital community.

Creation: The marital community begins upon a ______________________________________.

Termination: The marital community ends upon death, divorce, or permanent separation.

o The date of separation occurs upon:

1) Expression of intent to end the marriage from ________ spouse to the other; and

2) _____________________________ consistent with that intent.

Note 1: The unilateral intent of one spouse will suffice.

Note 2: A separation occurs informally without court involvement.

Note 3: As of January 1, 2017, living separate and apart (i.e., physical separation) is no longer required. The new law applies retroactively.

Exam Tip 3: With a recently enacted law, the bar examiners will typically accept both the old rule and the new rule.

Example 1: In 2014, Wendy learned of Henry’s gambling addiction and said

they were “over.” Henry refused to move out, but from that point forward they

slept in separate bedrooms, stopped marital relations, made their own meals

2 | © 2016 Themis Bar Review, LLC | CA Community Property

and kept separate bank accounts. Because of their minor children and financial

concerns, they continued to reside together, and would take trips together with

the children. In 2016, Wendy told Henry she wanted to make it official and

divorce. When did the marital community end? __________________________

_________________________________________________________________

_________________________________________________________________

Separate Property (SP) Defined

General Rule

o Separate property is all property acquired:

________________________ marriage;

After divorce or ________________________________________________________; or

By ________________ or inheritance (i.e., bequest, devise or descent) whenever

acquired (even if _________________________________________________________).

Income of SP

o Rent, income, or ______________________ earned from a SP asset ____________________

_____________________.

Example 2: Wife acquired ABC stock before marriage, making it the SP of

Wife. The dividends paid during marriage are SP because they are income of SP.

Community Property (CP) Defined

General Presumption

o Property acquired ________________________________________________________ that

is not SP is presumed to be CP.

Income of Community Property

o The rent, income or profit earned from a CP asset __________________________________.

Labor and Earnings

o The labor, earnings, salary and wages of a spouse are ____________.

Property Acquired with Community Property

o Property acquired using CP funds or property is presumed ___________________________

_______________________.

Quasi-Community Property (QCP) Defined

Spot the issue: The married couple were domiciled in and acquired property in ______________

___________________________.

QCP is property acquired by a married couple while living in another state that would have been

classified as CP if the parties were __________________________________________________

_________________________________________________________ at the time of acquisition.

CA Community Property | © 2016 Themis Bar Review, LLC | 3

o Generally treated the same as __________________________________________________

Example 3: Husband and Wife got married and lived in a non-community

property state. While there, they used their salaries to acquire a cabin. They

later moved to CA and filed for divorce. Who is entitled to the cabin?

What is the issue? The issue is QCP because they acquired property while

married and living in another state. Characterize the purchase to determine if it

would have been CP were they living in CA at the time.

In this case: During marriage = CP and paid for with salaries = CP. The cabin is

characterized as QCP and upon divorce, will be treated as CP.

Example 4: What if they acquired the cabin while married and domiciled in

California? At divorce, CA CP law applies to all of their property, wherever

situated.

During marriage, property that qualifies as QCP is governed by the law of the other state.

QCP is triggered ONLY upon divorce or upon death of the spouse _________________________

_________________________ to the asset.

o If titled in the name of one spouse, it will be treated as the __________ of the titled spouse.

o The non‐titled spouse holds only those rights provided by the law of the prior domicile.

Example 5: Using the above example, assume the cabin is titled in Husband’s

name alone. After they move to CA, Wife dies. In her will she devised a 1/2

share in the out-of-state cabin to Sister. What will Sister take?

______________________, unless the other state’s law would provide

otherwise. QCP is triggered by death of the titled spouse or divorce. Neither

happened here, so Wife did not have any QCP interest to convey at her death.

During marriage, the cabin is subject to the law of the other state.

Equal Division Rule

Upon divorce, the CP and QCP will be _______________________________________________

absent a contrary agreement or an exception (discussed further below).

Tracing

To rebut a CP or SP presumption, a party can ________________________________________

__________________________________ to a different classification.

Why look at the source? A change in __________________ (e.g., from cash to tangible property)

does not change the character of an asset.

Example 6: Wife purchases a camper during marriage. The property is

presumed CP because it was acquired during marriage. Wife made the

purchase with funds from Bank. The account at Bank consists of funds she

inherited from her grandmother. Property acquired by inheritance is SP. Wife


can rebut the CP presumption by tracing the source of funds used to purchase

the camper to her SP bank account.

CHAPTER 2: BASIC PRINCIPLES (PART 2) & AGREEMENTS

Parties Subject to Community Property (CP)

Validly Married Couples

a. Elements of a valid marriage:

1) _________________________________

2) Sufficient age (__________________ or older absent a court order plus parental

consent)

3) Formalities (license and solemnization)

Example 7: Hal and Wendy live together in CA and have not married but are

saving money for a wedding. They pool their salaries, share all expenses, and

hold joint title to their home in both names, and they refer to each other as

"husband" and "wife." Are they subject to CP principles? __________________

_________________________________________________________________

Putative Spouse Doctrine

o Spot the issue: A party to a void or voidable marriage mistakenly believes ______________

_____________________________ that he is legally married

o Protects an innocent spouse in a void or voidable marriage from losing CP benefits IF he

acted in good faith, as determined by the ________________________________________

______________________________________________

Example 8: Wilma told Hal she was single before they married in 2010. In

late 2012, Wilma admitted that she and Horatio got married in 2000 and never

obtained a divorce. The marriage to Hal is void and he is a putative spouse.

Example 9: What if Hal forgave Wilma and continued to cohabit with Wilma

as her husband? Rights of a putative spouse ____________________________

_____________________________________________________________ the

invalid marriage (i.e., as soon as good faith is over).

a. Void or Voidable Marriage

Void: A void marriage is __________________________ and null from the beginning.

Grounds:

o Incest


o ____________________________ (e.g., remarries without _________________

______________________________________________)

Voidable: A voidable marriage is valid and legal until _____________________________

__________________________ by the court.

Grounds:

o Underage

o Unsound mind

o Fraud sufficient to vitiate ________________________ (e.g., concealed sterility)

o Force or duress

o Incurable physical incapacity

o Bigamy exception (remarriage after the _________________________________

__________________________ of the prior spouse)

b. Quasi-Marital Property (QMP)

The property acquired by a putative spouse during a void or voidable marriage that

would otherwise be CP or QCP is called quasi‐marital property.

QMP is divided equally, the same as CP or QCP.

Example 10: Using the above example, are Wilma and Hal subject to CP? No

because they do not have a valid marriage. It is void due to bigamy. But their

property that would have been CP or QCP is ______________ (and

____________________________ as CP/QCP.

Unmarried Cohabitants

o CA does not recognize the doctrine of common‐law marriage.

o Apply general _____________________________________________________________ to

divide the assets of unmarried cohabitants.

o An express agreement between unmarried cohabitants (i.e., cohabitation contract) is

enforceable unless the underlying consideration for the contract is sexual services.

Example 11: Hal and Wendy live together in CA and have not married. They

pool their salaries, share all expenses, and hold joint title to their home in both

names. They refer to each other as "husband" and "wife" because they formed

a valid common-law marriage in Texas where they used to reside. Are they

subject to CP principles? _________, CA ___________________ recognize their

marriage as valid.

o Full Faith and Credit: CA will recognize ___________________________________________

_________________________________________________________; community property

principles will apply to the marriage.


Exam Tip 4: If unmarried cohabitants subsequently enter into a valid marriage, contract principles apply to the conduct and property of the parties up until the time the marriage occurred. CP principles apply upon marriage.

Agreements Affecting Property Division

Parties may remove themselves from the CP system (in whole or in part) by entering into a

contractual agreement before or during marriage.

Example 12: Before marriage, Herb and Winnie enter into a written agreement

that all wages will be each spouse’s SP instead of CP. Is that permitted? ______.

Permissible content: Alterations to property and ownership rights, as well as spousal support

Prohibited content: An agreement may not impact ____________________________________

nor promote _____________________________ (e.g., provide an incentive to seek dissolution).

Exam Tip 5: If the exam fact pattern presents an express agreement, analyze its validity FIRST before characterizing and dividing the assets to address any impact the agreement has on the analysis of each asset.

Prenuptial Agreements

o An agreement ___________________________ marriage

o It must satisfy the Statute of Frauds:

Must be _______________________________________________; and

Must be signed by _______________________________________________

o Verbal Agreement: Can be enforced through ______________________________________

__________________________________ or ______________________________________

____________________________

a. Enforcement:

The spouse trying to enforce the agreement must prove the agreement was neither

involuntary nor unconscionable _____________________________________________

_______________________________________________.

Involuntary—to be voluntary, all of the following conditions must be satisfied:

1. Spouse was represented by independent legal counsel or ________________

_______________________________________________________;

2. At least ____________________ lapsed after receipt of the agreement before

having to sign;

3. If unrepresented by counsel, the spouse was fully informed of the ___________

_______________________________________________; and

4. The agreement is not a product of _____________________, fraud, undue

influence or incapacity.

o NOTE: The court may consider any other relevant facts


Unconscionable—if all of the following apply at the time of execution:

1. Spouse lacked a full, fair, and _________________________________________

disclosure of the property and obligations of the other spouse;

2. Spouse did not waive the disclosure in writing; and

3. Spouse did not have, nor reasonably could have had, ______________________

___________________________________________ of property or obligations.

Spousal Support Provisions are not enforceable if:

The party against whom enforcement is sought was not represented by

independent counsel at the time of __________________________; or

At the time of _____________________________________ the provision is

unconscionable.

Agreements During Marriage (Transmutations)

Exam Tip 6: Transmutations are a frequently tested issue.

o Spot the issue: A spouse makes a gift or agrees or offers to change status of CP or SP

o Spouses may agree during marriage to modify the ownership status of CP and/or SP.

Example 13: Hank and Wanda married and acquired a house. Upon

separation, Hank told Wanda that the house is now “all yours as your own

separate property” and Wanda said, “OK.”

Issue? Transmutation and whether Hank’s verbal promise is enforceable to

change the home from CP to W’s SP. Answer is ___________. What if he wrote

that in an email? _____________.

o Writing Requirement: As of 1985, a transmutation must be in ________________________

and contain:

1. An _______________________________________________________________ by

the adversely affected spouse; and

2. Language ____________________________________________________________

__________________ in the character/ownership of the asset.

o Exception: Gifts of ____________________________________________________ between

spouses do not require a written transmutation if:

1. Tangible item of a __________________________ nature for use principally by

donee spouse; and

2. __________________________________________________ in value (considering

the relative wealth of the spouses)


Example 14: On Wynona's birthday, Herb gave her a painting by a famous

artist, paying $15,000 with money given to him by his parents. She hangs it up

in their bedroom. Who owns the painting? ____________________________.

Step 1: When was it acquired? During marriage. Source of funds? Gift to Herb.

Presumption? _______________________________________

Step 2: Actions? H gifted to W. Issue: Valid transmutation of SP from H to W?

In writing? ___________. Exception for gifts? Tangible personal property?

__________. For use by donee, W? _____________. Value? ___________

_______________________________.

Separation Agreements

o In anticipation of divorce, spouses may enter into a separation agreement to resolve

property issues.

Creditor’s rights

O A transmutation made with the intent to defraud creditors can be set aside by the court.

CHAPTER 3: PRESUMPTIONS, JOINTLY TITLED ASSETS

General Presumptions

The definitions of CP and SP are general presumptions.

The standard of proof to rebut a general presumption is _______________________________

of the evidence.

Special Presumptions

Rebuttable only with _____________________________________________________ evidence

of contrary intent

Special Community Property Presumption at Divorce

o Spot the issue: Planned or pending divorce? AND Property with written title in both

spouse’s names?

o Rule: At divorce, all jointly‐held property is presumed ________, including:

Joint tenancy

Tenancy in common

Tenancy by the entirety

Example 15: Husband and Wife buy a house for $100,000. Wife contributes

$20,000 SP for the down payment. They take title as joint tenants. At divorce,

the property is presumed as CP. During marriage? _______________________.


o Right of reimbursement for SP contributions

A spouse who makes SP contributions to jointly titled property can seek reimbursement.

Before 1984: SP contributions presumed to be a gift to the community (Lucas case)

Reimbursement recognized as of 1984 (as a result of “anti‐Lucas” legislation)

Includes: (i) ________________________________ payments, (ii) capital

improvements, and (iii) __________________ payments

Excludes: (i) _______________________________________________, (ii) insurance,

(iii) taxes, and (iv) interest

o Requirement to rebut the CP presumption:

Before 1984, evidence of an oral or implied agreement was allowed (Lucas).

As of 1984, _____________________________________________________ of contrary

intent is required (Anti‐Lucas).

o Effect if rebutted: The SP interest remains intact and acquires a _______________________

__________________________ in the property in the proportion the down (principal)

payment bears to the purchase price.

Example 16: Continuing with the example above: If the property is presumed

as CP, what about Wife's SP down payment? Wife gets reimbursed her SP down

payment ________________________________________________________.

What if Wife produces written evidence showing Husband wanted her to keep

her SP interest? Written evidence rebuts presumption of CP. Wife acquires an

interest and takes a pro-rata interest of _______________________________

_______________________________________________________ as her SP.

Special Presumption of Title at Death

o Spot the issue: Death of a spouse? AND Property titled in both spouse’s names?

Rule: The form of title at death is the presumptive form of ownership.

Example 17: Continuing with the above example, what happens if instead of a

divorce, one spouse dies? The Special Presumption of Title applies and because

it is joint tenancy, it is ______________________________________________.

The surviving spouse (tenant) takes the entire property through the right of

survivorship.

Note 4: Another special presumption is the Married Woman’s Special Presumption. However, it is no longer relevant because it applies only to property acquired by a married woman before 1975.


Joint Deeds and the Effect of How Title is Taken

Joint Tenancy

o CA requires the words “____________________________________________” to create a

joint tenancy

o During marriage:

Each spouse holds an undivided _____________________________________________

and can unilaterally convey her interest _______________________________________

___________________________ of the other spouse

o Upon divorce, a joint tenancy is subject to the _____________________________________

_____________________________________________

o Upon death, the special presumption of title applies and the surviving spouse takes title to

the entire property by right of survivorship

Community Property With Right of Survivorship

o During marriage and upon divorce, it is a CP interest, but severable like a joint tenancy

o Upon death, the special presumption of title applies and the surviving spouse takes title to

the entire property by right of survivorship

Tenants in Common

o During marriage, the spouse holds ______________________________________________

proportionate to his share

o Upon divorce, the interest of a tenant in common is subject to the special CP presumption

o Upon death, special presumption of title applies and the deceased spouse’s interest passes

__________________________ or if none, _______________________________________.

Title in One Spouse's Name

o Title in the purchasing spouse's name alone does not rebut a CP presumption

Example 18: During marriage, Horace and Wilma use Wilma’s earnings to

purchase a cabin, putting title in Wilma’s name alone. The property is

presumed CP because it was acquired during marriage. The source of funds was

the earnings of a spouse which is CP. Putting title in Wilma’s name alone does

not rebut the CP presumption.

O During marriage, a spouse cannot make a gift of CP to himself without the other spouse's

consent.

Exam Tip 7: Rebut a CP presumption by tracing to a SP source, with proof of a valid agreement or of a gift, or by taking inconsistent joint title (e.g., joint tenancy).


CHAPTER 4: CHARACTERIZATION OF SPECIFIC TYPES OF ASSETS (PART 1)

EXAM APPROACH: Use the following approach to spot issues and organize the essay:

1. Identify any issues that could affect all assets (e.g., invalid marriage, prenuptial agreement, transmutation).

2. Organize the essay by each item or asset (if consistent with the essay’s call of the question).

3. Characterize the item or asset by applying the presumption of community property, separate property or quasi community property:

a. WHEN was the asset the acquired?

b. What is the SOURCE of the asset, i.e., what funds were used to acquire the asset?

c. What PRESUMPTION applies?

4. What ACTIONS, if any, took place after the asset was acquired? Will the presumption be rebutted?

5. Consider any SPECIAL CHARACTERIZATION RULES or presumptions that might apply (due to dates, title, and whether this is upon divorce or death).

Commingled Bank Accounts

Note 5: Look for this issue as part of Step 4 above—what ACTIONS took place after the asset was acquired?

Spot the issue: A bank account contains ________________________________________ funds

Commingling SP with CP results in a presumption that the account is ________.

A spouse claiming SP must rebut the presumption using one of two methods of

___________________________:

Direct Tracing

o The SP proponent must show that the _________________________ of the funds to

purchase the asset came from the SP deposits in the account, not the CP deposits.

o Two elements:

1. _________________________________________ SP funds were available at the

time of purchase; and

2. Proponent intended to use SP funds to purchase the asset.

Example 19: Spouse deposits his paychecks (CP) as well as inherited trust fund

payments (SP) into the same account. When the balance was $5,000, Spouse

deposited a $4,333.00 trust fund distribution check (SP) into the account. The

next day, Spouse buys stock for $4,333.00.

Issue? A commingled account. Rule: The account is presumed CP, thus the stock

will be presumed CP. Can Spouse rebut the CP presumption? Yes, by direct

tracing: (1) Sufficient SP funds ($4,333) were in the account, and (2) Did Spouse

intend to use SP funds to acquire the asset? Likely yes because the purchase is

the exact amount as the deposit from the day before.


Indirect Tracing (Exhaustion Method)

o Proponent must prove CP funds in the account were ________________________________

at the time of purchase due to paying for __________________________ expenditures

o Two presumptions apply:

1. Family expenses are presumed to be paid with ______________________________,

then SP funds as needed

2. SP funds used to pay family expenses are ___________________________________

_____________________ to the community

Example 20: Using the Example above, instead of buying stock, Spouse paid

bills for the mortgage, utilities and food totaling $6,000. Spouse then buys a

rare guitar for $3,000. Can the CP presumption be rebutted? Apply indirect

tracing. The CP funds on hand total $5k and were presumed to be used first to

pay family expenses. The $5k CP was exhausted upon paying the $6k in bills.

Answer is __________, Spouse can use the exhaustion method to show SP funds

must have been used to buy the guitar.

Goodwill of a Business or Professional Practice

Spot the issue: One spouse seeks a share of the goodwill of the other spouse’s business or

professional practice

Defined:

o Goodwill is an intangible quality that includes the __________________________________

and future business potential of a professional practice (the value beyond the physical

assets or labor invested).

Subject to Division

o Goodwill is an asset that can be acquired during marriage and is capable of division at

divorce.

o The business subject to goodwill ________________________________________________,

not merely a natural person

Valuation Methods

o Expert testimony can be used to prove the value of goodwill.

o The two most common methods:

___________________________________________ valuation (likely sales price of

goodwill); or

Capitalization of past _____________________________________________ compared

to typical peer performance


Degrees and Licenses

Spot the issue: One spouse seeks reimbursement for education expenses or claims an interest

in the other spouse’s education degree or professional license

Not Community Property

o Educational degrees and professional licenses acquired during marriage are not CP.

o The enhanced earning capacity of a degreed/licensed spouse ___________________ subject

to division.

Right of Reimbursement

o The community ______________________________________ to reimbursement if CP or

QCP funds were used to pay for education or training that ___________________________

_________________________ the spouse's earning capacity.

o Direct costs (e.g., books, tuition) are recoverable but ________________________________

________________________ paid by CP are not

Defenses of the Educated Spouse

o The spouse who received the education need NOT reimburse the community if:

_____________________________________________ has elapsed since the education

was received and the community benefited; or

CP was also used to pay for the other spouse's education; or

The education ___________________________________________ for spousal support.

Education Loans

o The community entitled to reimbursement if CP funds were used during marriage to

__________________________________ for a degree or license obtained ______________

_________________________________.

o Upon divorce, any outstanding education loans are assigned to the incurring spouse.

Example 21: During marriage, Howard worked to support Willa while she

attended law school from 2002-2005. Willa now files for divorce. Howard seeks

his CP share of her law license and professional practice and CP reimbursement

for law school expenses. Will Howard succeed? The law degree and license are

_____________________________________. CP reimbursement is allowed for

_________________________________________________________________

________________________________________________________________.

How can Willa defend? _____________________________________ presumes

the community has benefited and Howard will not succeed.


CHAPTER 5: CHARACTERIZATION OF SPECIFIC ASSETS (PART 2)

Retirement (Pension) Benefits

Retirement benefits accrue during marriage.

Both vested and unvested pensions are CP.

Allocation of the CP Share

a. Time Rule

If the retirement benefits are based upon the __________________________________

__________________ employed and were partly earned before marriage, courts apply

the "time rule" to determine the SP and CP interests.

How to determine the fractional share of the CP interest:

Numerator: Number of years employed ____________________________________

Denominator: Number of years __________________________________________

____________________________________________________________________

Example 22: Harold worked for Major Grocer starting in 1995 and was under a

pension plan. Harold married Winnie in 2005 and they divorced in 2010.

Harold will be eligible to retire in 2020. What is the CP share, if any?

Numerator: the # of years employed during marriage is ___________________.

Denominator: The total # of years under the retirement plan is ______________

CP share is ______________________________.

If the total benefit is $100,000, the CP share is ___________________________

of which Winnie will be entitled to ____________________________________.

b. Federal Preemption

Federal law preempts CA community property law.

The community does not have an interest in a federal pension plan, e.g., ERISA.

Once the federal benefit is paid out, ___________________________________ and the

SP interest of the payee spouse can be subject to a CP share if there is ______________

_______________________________________________________________________.

Distribution Methods

o If the spouse is not yet eligible for benefits at the time of divorce, the court will apply one of

two methods to award the CP share:

1) Division in-kind

The court _____________________________ jurisdiction to supervise payment

upon retirement.


The “_____________________________” will be applied to the known benefit total

in order to calculate the percentage paid to CP.

2) Cash out: If a ____________________________________________ can be ascertained,

the non‐participant spouse is awarded cash or assets equal to the value of his CP share

of the benefits.

Stock Options

Exam Tip 8: Stock options are a frequently tested issue.

Subject to Community Property

o Stock options awarded by an employer are a form of compensation and will be CP to the

extent they ________________________________________________ during marriage, also

called “____________________________________________________________________.”

Exam Tip 9: When analyzing payments connected to employment (e.g., stock options, severance, worker's compensation, disability pay, etc.) determine whether they were paid as a replacement for earnings during the marriage.

o Stock options are CP if ________________________________________________________

______________________________________, even if not exercisable until after divorce.

Example 23: Wendy and Hector married in 2013. She immediately accepts a

position with Start-Up that includes stock options exercisable in 2019 if she is

still employed with the company. Wendy and Hector divorce in 2015. Wendy

claims the stock options are SP because she has not exercised them. What

result? The options earned during marriage ____________________________

________________________________________________________________.

Allocation of the CP Share—Time Rule

o Spot the issue: Stock options awarded before marriage or are not exercisable until a date

after divorce or separation

o Courts apply the "time rule" to determine the SP and CP interests. Determine the

fractional share of the CP interest:

Numerator: Number of years between when the stock option _____________________

________________________________________ and the date of the divorce/separation

Denominator: Number of years between when the stock option was awarded to when it

________________________________________________________________________

Example 24: Following the Example above, what is the CP share? Apply the

time rule.

Numerator: Stock option awarded in 2013 and divorce was in 2015 so the

numerator is _________________________.


Denominator: Option is exercisable in 2019 so the denominator is

__________________________________________.

CP share is _______________________________ SP share is ______________

____________. Under the equal division rule, Husband gets his 1/2 interest of

the CP share or ___________________________.

Disability and Severance Pay

Disability benefits

o Replacement analysis: Characterize benefits (including worker’s compensation benefits) by

what they are ____________________________________________________________—

earnings during marriage (CP) or earnings after divorce/separation (SP).

The analysis does not change because the rights accrued during marriage

Note 6: Comparison to retirement benefits: Disability pay received after divorce is SP under a wage replacement analysis but not so with retirement benefits. Retirement benefits accrue during marriage and are CP because they treated as deferred compensation.

Note: If disability benefits are taken in lieu of ___________________________________

______________________________, they are treated as CP to the extent the payment

is replacing a retirement benefit.

Example 25: Harold worked for Major Grocer starting in 1995 and was covered

by its disability insurance and had a pension plan. Harold married Winnie in

2005 and they divorced in 2010, a year after Harold suffered a back injury on

the job. Is Winnie entitled to a share of the disability benefit payments? ______

but only for income replaced before divorce. If Harold can no longer work and

retires due to injury, if he opts for disability retirement instead of his pension,

can Winnie claim a CP interest? _______, Harold cannot defeat Winnie’s CP

rights by opting to be paid disability over his traditional retirement benefits.

Severance pay

o Severance pay is paid upon termination of employment and is subject to a split of authority:

If the reason the employer awarded severance pay is a result of (or as a reward for) the

_________________________________________________________________, it is CP.

If it was paid to replace post‐termination future earnings, severance paid during

marriage is CP, but payments after divorce/separation are SP.

Life Insurance

Whole Life

o Whole life insurance is used as an investment vehicle and has a cash value

o Subject to __________________________________________________________________

based upon the SP:CP ratio of all premium payments


o At divorce—____________________________________________________ of the policy

distributed according to the pro rata share

o At death—proceeds characterized and distributed according to the pro rata share

o A non‐spouse beneficiary is limited to the deceased spouse's SP and ___________________

_________ share

Example 26: Wilma takes out a whole life insurance policy, naming her

masseuse Marco as beneficiary. Wilma pays the premiums with her earnings.

Upon her death, does her husband Hal have any rights to the policy? ________.

Premiums were paid 100% with CP so he gets the value of his ½ CP share.

Term Life Policy

o The majority of courts hold a term life policy has no present cash value before death.

o Upon death—characterize the policy based upon the source of funds (whether SP or CP)

used to make the ___________________ premium payment.

Example 27: Husband names Mom as beneficiary of his term life insurance

policy. The first half of premiums were paid with CP and the last half paid with

Husband’s SP. Upon his death, can Wife claim a CP share? ________________

__________________________.

CHAPTER 6: CHARACTERIZATION OF SPECIFIC ASSETS (PART 3)

Separate Property Business

Spot the issue: A spouse started a business before marriage or during marriage with SP funds

Increase in Value Due to Community Property

A SP business that increases in value during marriage becomes a commingled asset subject to a

CP share, because the _________________________________________________ is a CP asset.

Allocation of the CP Share

o Courts have discretion to apply one of two formulas when allocating the CP and SP share,

depending upon which formula will achieve _______________________________________

___________________________ between the parties:

Exam Tip 10: This issue is an exam favorite. Apply both formulas to analyze the CP share of a SP business, concluding with which one the court should apply.

a. The Pereira Formula

Applicable when the increase in value is due largely to the ________________________

______________________________ of the spouse

Favors the ______________________________ because the SP only gets an investment

return on the initial value


Exam Tip 11: Think "P" for "person," or "personal" services and effort.

Allocating the SP and CP share of the business:

SP = FMV at time of marriage + (fair rate of return on FMV × # of years of marriage)

CP = FMV at time of divorce/separation – SP (as calculated above)

Exam Tip 12: Use 10% as the fair rate of return on the exam.

Example 28: Winona owns and manages a cupcake bakery valued at $100,000

at the time of her marriage to Harvey in 2005. Upon divorce 10 years later, the

cupcake boom resulted in significant expansion and a business worth $1 million.

What are Harvey's CP rights in the bakery?

Source/when acquired? Before marriage. Presumption? SP. Action? W

continued to work at the bakery = CP contribution. Analysis:

Pereira: The FMV upon marriage is _______________________. Award interest

at 10%/year x ________ years of marriage = ____________________________.

The SP share will be $200,000 ($100,000 FMV + $100,000 fair return).

CP gets the balance (current FMV ________________________________ minus

_______________________________ = _______________________________.

Harvey will receive his 1/2 share of CP or _______________________________.

b. The Van Camp Formula

Use when the increase in value is due to the inherent value of the asset or investment

Favors the _____________________________ because the CP is merely reimbursed for

the value of its labor

Exam Tip 13: Think "V" for inherent "value," or "valuable" business or asset

Allocating the SP and CP share of the business:

CP = Reasonable value of spouse's services at _______________________________

______________ – family expenses paid

SP = FMV at time of divorce – CP (as calculated above)

o Family expenses are presumed to have been paid from CP unless the facts

reflect the CP on hand has been exhausted.

Example 29: Using the prior Example, under Van Camp the CP would be

attributed with a reasonable salary for 10 years less any family expenses paid

with CP. The balance ($1 million minus CP) will be the SP of Winona.

Example 30: What if Winona was paid $30k per year when the market rate for

an owner/baker in her position is a salary of $50k? Harvey can argue the

community was underpaid, and the court in its discretion, can award as CP an

_________________________________________________________________


to make up for the difference. Here, $200k ($20k x 10 years) less family

expenses.

The actual salary paid, if known, is relevant only if less than the fair market rate

because the goal is to make sure the community has been __________________

___________________________________________________.

Exam Tip 14: The fact pattern will not always provide sufficient facts to do the arithmetic. If that occurs, follow the example immediately above and describe the formula and how it should be calculated.

Community Property Business

Effect of Separation

o A business acquired during marriage (CP) that increases in value after separation becomes a

________________________________________ asset subject to a SP share, because the

labor of a spouse post‐separation is _____________.

a. "Reverse" Pereira Formula

CP = FMV of business at separation + (fair rate of return on FMV × # years of separation)

SP = FMV of business at divorce – CP (as calculated above)

b. "Reverse" Van Camp Formula

SP = Reasonable value of spouse's services during separation – family expenses paid

during separation

CP = FMV of business at divorce – SP (as calculated above)

Example 31: Wendy started a solo accounting practice during her marriage to

Hank. They separated a year later, after which time her practice tripled in

value. They divorced after a one-year separation. What are Hank's rights in the

practice?

During marriage = __________. Labor of a spouse after separation is

________. Apply "reverse" Pereira with these facts: Give CP the FMV of

business with fair rate of return for 1 year (length of separation). The SP is the

FMV of business at divorce minus the CP share. Hank’s rights are his ½ share of

the CP. Wendy gets her _____________________________________________.

Property Acquired on Credit

Spot the issue: One or both spouses borrowed money before or during marriage

Example 32: Hamish purchased a $200,000 cabin, making a $20,000 down

payment and obtaining a loan for the balance.


During Marriage

o Property acquired on credit or by obtaining a loan during marriage is presumed to be

________, rebuttable with evidence that the source of funds used was ________.

o Test: What is the primary _____________________________________________________?

Rebut the CP presumption with evidence the lender intended to rely _______________

_________________________________________________________ as collateral when

extending credit to purchase the asset

Some courts heighten the test to the "sole intent" of the lender

o The characterization applies to the property at the _________________________________

___________________________________________

Subsequent actions of the spouses in paying the loan may alter the character of the

asset.

Before Marriage

o Property acquired on credit or obtained through a loan before marriage is _________

a. Pay-off with CP funds

Pro rata apportionment: When an ___________________________________________

_______________________________ is made before marriage (SP), but CP funds are

used to pay down the debt during marriage, the CP estate acquires a pro rata interest in

proportion to the amount the _______________________________________________

________________________________________ by CP payments.

The rule also applies to property inherited during marriage (SP) upon which a

mortgage is later obtained and paid down with CP payments.

The CP estate does not get mere reimbursement but instead ______________________

______________________________________.

Example 33: Hamish purchased a $200,000 cabin the day before his marriage,

making a $20,000 down payment and obtaining a loan for the balance. Once

married, he continued making payments using his wages. Upon divorce, what is

the CP interest in the cabin?

Source/when acquired? Before marriage with down payment + loan.

Presumption? SP. Action? Hamish made payments with wages = CP.

Analysis? This is a commingled asset because of the SP down payment and the

CP loan payments. Hamish owns the cabin as his SP, but CP acquired a pro-rata

interest through CP loan payments. The CP interest is measured by the extent

the CP payments were applied to pay down the principal.


Exam Tip 15: Remember that payments for interest, taxes and insurance are not included.

CHAPTER 7: IMPROVEMENTS, TORT PROCEEDS & LIABILITY FOR DEBT

Capital Improvements

Definition: A permanent structural change or restoration that enhances property value

Spot the issue: A spouse spends funds on improving property (i.e., pays for a swimming pool)

Issue: When ____________________________________________________ has been improved

during marriage, the issue is whether the money spent must be reimbursed and/or whether an

ownership interest in the enhanced value is acquired.

SP Used to Improve SP of Other Spouse

o There is a statutory right to reimbursement, absent a written transmutation or

_______________________

o Prior to ______________________, a gift was presumed.

SP Used to Improve CP

o There is a statutory right to reimbursement (anti‐Lucas) if funds can be ________________

______________________________.

o Prior to ______________________ (Lucas) a gift was presumed.

CP Used to Improve SP

o Expenditure of CP does not alter the SP character of the property (there is no

“___________________”)

o Two scenarios:

1) Was CP used by a spouse to improve her own SP?

A spouse cannot ______________________________________________________

____________________. CP must be reimbursed

2) Was CP used to improve the other spouse's SP?

Traditional rule presumed it was a gift, absent an agreement to the contrary

More recent cases _____________________________________________________

o CP estate has a right to reimbursement for the greater of:

1) The funds spent; or

2) A pro rata interest in the ___________________________________________________

______________________________________________.

Example 34: Hal inherited an unimproved lot worth $75,000. He and his wife

Wynn used $100,000 of their wages to build a rental house on the lot. At


divorce, the market value of the property is $500,000. What are the CP rights in

the property? The property belongs to ________________________________.

Building a house enhanced the value, so the CP is entitled to a ______________

_____________________________ in the $425k _________________________

__________________.

Example 35: Using the Example above, how would the answer change if only

Hal used his wages to improve the lot? ____________________________. Or if

only Wynn did? _________________________________. More recent case law

supports reimbursing the CP.

Tort Recovery

Division upon Divorce

a. Injury before marriage

Personal injury proceeds are the __________________ of the victim spouse

Reimburse CP or the SP of the other spouse for payment of any ____________________

______________________________ expenses

b. Injury during marriage

Personal injury proceeds for a claim arising during marriage are _______.

Upon divorce, all proceeds are assigned to the __________________________________

_________________, unless:

The proceeds have been commingled with CP and are not traceable; or

The proceeds have been spent; or

Justice requires awarding a portion to the non‐injured spouse, but at least

______________________ of the proceeds must be assigned to the injured spouse.

Personal injury proceeds from an inter‐spousal tort are the _____ of the injured spouse.

Division upon Death

o Tort proceeds for personal injury are characterized as _____ at the death of either spouse.

Liability for Debt

Spot the issue: Look for a creditor in the fact pattern seeking to recover against the CP and/or

SP assets for repayment of a debt.

Exam Tip 16: A debt can arise from a contract, tort, judgment or other obligation.

Timing

o Liability for a debt depends upon ________________________________________________

_________________________________ (e.g., when a contract was made, the tort occurred,

or an obligation arose)


o Liability of the community for a debt ends upon ____________________________________

____________________________________.

Allocation upon Divorce

o Upon divorce, the court will assign the debts and liabilities to the parties.

o Equal Division Rule: CP debts are divided ______________________.

Exceptions:

If the CP debts exceed _____________________________, excess debt may be

assigned in court's discretion.

Education loans obtained before or during marriage are assigned to the spouse who

took out the loan.

Debt incurred during marriage but not for the benefit of the community can be

assigned to the spouse who incurred the debt (e.g., secret gambling debt of a

spouse)

Incurred Before Marriage

a. Liability

The SP of the debtor spouse ____________________________________ are liable for a

spouse's debt incurred before marriage, including child and spousal support.

The SP of the non‐debtor spouse __________________________________________ for

the other spouse’s premarital debt.

Example 36: Howie owes child and spousal support to Ex-wife from a previous

marriage. Howie is unemployed but his wife Wendi is employed. Can Ex-wife,

as a creditor, seek payment from Wendi's income to pay for Howie's child and

spousal support obligations? ________________________________________.

Exam Tip 17: Responsibility for pre‐marital child support obligations is a frequently tested issue.

b. Exception

CA allows a non‐debtor spouse to shield her wages against recovery for the debtor

spouse's pre‐marital debt by placing _________________ in a strictly SP bank account

to which the debtor spouse ________________________________________________.

c. CP Right of reimbursement

Absent a _______________________ waiver, the CP estate is entitled to reimbursement

for payments made on premarital debt, if SP of the debtor spouse __________________

___________________________________________________________________ at the

time the payment was made.


Example 37: Using Example above, what if Howie was unemployed but had a

SP investment account at the time Wendi made support payments? SP of the

debtor spouse was available. CP is entitled to ___________________________.

Incurred During Marriage

a. Liability

SP of the debtor spouse and the CP are liable for debts incurred during marriage.

SP of the non‐debtor spouse is ________________________________ for debts of the

other spouse.

b. Necessaries of Life Exception

Each spouse is personally liable (CP and SP) for “necessaries of life” (living expenses such

as food, housing, clothing and medical care) incurred ____________________________

_______________________________________________________________________.

After the date of separation, absent a _____________________________________

________________________, liability is limited to debts incurred for

“_________________________ necessaries of life” (expenses for basic necessities).

Right of reimbursement: Absent a written waiver, the non‐debtor spouse who used SP

funds to pay for a debt incurred by the other spouse can be reimbursed, if ___________

____________________________________________________________________ was

available at the time payment was made.

Upon divorce, the non‐debtor spouse is liable only if the court assigns the debt to him.

Tort liability

o Spot the issue: A spouse commits a tort—usually negligence, e.g., driving while intoxicated

o Rule: If a spouse commits a tort during marriage, the SP of the spouse __________________

is liable.

o Issue: In what order will the debt to a tort plaintiff be satisfied?

o Test: Did the tort occur during an activity undertaken _______________________________

_______________________ of the community?

If yes, the claim is paid first from ________ and then from the ________ of the

tortfeasor spouse

If no, the claim is paid first from the _______ of the tortfeasor spouse, then the ______

The focus is on the __________________________________ benefit to the community.

Example 38: On his way home after a night out with Mystique, his mistress,

Husband stops to buy groceries and hits and injures Paula. Paula obtains a

judgment against Husband. In what order may Paula satisfy her judgment?

__________________________________________________________. Buying

groceries benefits the community, even though Mystique does not.


Exam Tip 18: Liability for tort is a frequently tested issue.

CHAPTER 8: FIDUCIARY DUTY; MANAGEMENT AND CONTROL; DIVISION OF ASSETS

Fiduciary Duty

Spot the issue: A spouse engages in conduct to gain an unfair advantage over the other spouse

Rule: By nature of their ________________________________________________ relationship,

spouses owe each other a duty to act in the highest good faith and fair dealing in regards to

______________________________________________________________________ of the CP,

including:

o Duty to ________________________________________________________________ and

information

o Duty to _____________________ and provide access to records of assets and debts upon

request

o Duty to ______________________________________________ before making a gift of CP

or transferring CP real property

Remedies for breach and impairment of the non‐consenting spouse's one‐half CP interest

include:

o An accounting

o Adding the spouse's name to the title

o Receiving a ___________________________________________________ of the CP

o Forfeiture of an asset if ________________________________________________________

__________________________________

Time limitation:

o Within ________________________ of learning of a breach of duty during marriage; or

o Upon divorce or death of a spouse

Example 39: Wife won the lottery. The very day she won, she filed for divorce.

Wife never disclosed the lottery winnings to Husband or the court. Upon

learning of Wife's winnings, Husband sought a CP share. What result? The

winnings are CP and Wife can be ordered _______________________________

__________________________________________ to Husband as a remedy for

breach of her fiduciary duty to disclose her assets.

Equal Management and Control

The husband and wife have _______________________ rights to manage and control CP

Includes the right to buy and sell CP and incur CP debt

A spouse need not obtain the other spouse's consent, subject to exceptions below


1. Exceptions

a. Bank accounts

Banking laws limit control of an account to the party named on the account.

b. Gifts and Transfers of Personal Property

A gift, or disposal for less than reasonable value, of community personal property to a

third party requires _______________________________________________________

_______________________________________________________________________.

Household goods: Conveyance, encumbrance or sale of household furnishings, family

clothing or any personal property used as the family dwelling requires

_______________________________________________________________________.

Example 40: Husband and Wife decorated their home with antiques. When

Friend admired an expensive vase during a visit, Husband gave it to him.

Husband improperly gifted CP. He disposed of community personal property for

less than reasonable value without the written consent of Wife. Husband

violated the fiduciary duty for failing to get Wife’s consent.

Remedy:

During marriage—non‐consenting spouse may ____________________________

______________________________________ and sue to recover the property,

subject to equitable defenses such as ratification, estoppel and waiver

Upon death or divorce—non‐consenting spouse may void the gift, but recovery is

limited to his ________________________________________________________

c. Community Business Assets

A managing spouse in charge of a CP business has “_____________________________”

management and control (instead of equal).

Prior _____________________________ notice to the other spouse is required before a

sale, lease, exchange or encumbrance of ______________________________________

__________________________________ of the personal property used in the business.

Remedy—The non‐managing spouse may pursue a remedy for breach of fiduciary duty.

d. Real Property

Both spouses must sign any instrument to sell, convey, encumber or lease (for a period

longer than 1 year) any community real property.

Property held by spouses in joint tenancy is the SP of each spouse, so a spouse

___________________ convey or encumber his 1/2 interest without the other

spouse's consent.


Attorney’s Lien Exception: One spouse may encumber community real property as

security for payment of ____________________________________________________

for the spouses' annulment, divorce or separation.

Titled in name of one spouse: If the community real property is titled in the name of

only one spouse, transfer to a bona fide purchaser (BFP) is ________________________

________________________ but is subject to recovery by the other spouse.

Remedy:

1. During the marriage—the nonconsenting spouse has _________________________

to void a transfer (and refund the BFP), or may pursue a remedy for breach of the

spouse's fiduciary duty

2. Upon divorce or death—recovery limited to one‐half CP interest

Example 41: During marriage, Wife purchased a building for her business and

took title in her name alone. Wife later sold the building to Buyer who was

unaware Wife was married. Eleven months later Husband learns of the sale

and seeks a divorce. What are Husband's rights? The sale of CP real property

required written consent of both spouses. Husband can _________________

__________________________ because only 11 months has passed, but must

reimburse Buyer if a BFP. Upon divorce, Husband is limited to recovering his

one-half CP interest.

Division of Property at Divorce

Equal Division Rule

o CA applies the equal division rule and divides CP and QCP ___________________________

__________________________ absent a contrary agreement or applicable exception.

a. Jointly-held property

At divorce, all jointly‐held property is presumed to be CP, including joint tenancy

Note 7: Compare during marriage each spouse holds a SP interest in a joint tenancy.

b. Quasi-Community Property

QCP is treated the ______________________________ CP upon divorce

Exceptions to Equal Division (summarized from above):

o Breach of fiduciary duty (e.g., deliberate misappropriation)

o Liability for debt:

If CP debts exceed the CP assets, the court may choose not to divide the debt equally

and assign the debt to a spouse according to the party's ability to pay.

Debts for education loans are assigned to the spouse that received the education.


Debt incurred before marriage or after separation (except for necessaries of life) is

assigned to the spouse who incurred the debt.

Debt incurred during marriage but not for the benefit of the community can be

assigned to the spouse who incurred the debt (e.g., secret gambling debt of a spouse).

Tort liability not for the benefit of the community is assigned to the tortfeasor spouse.

o Tort damages of one spouse go to the injured spouse upon divorce

Preemption

o Federal benefits including Social Security, military life insurance, ERISA, and federal disability

are not subject to CP rules until paid to the recipient spouse.

Division of Property at Death

Generally

o Each spouse has testamentary control over his or her SP and _________________ of the CP

o The surviving spouse succeeds to his or her one‐half interest in both the CP and QCP.

o Non-probate transfers a surviving spouse might receive include property held in joint

tenancy, life insurance, and pension plan proceeds.

Example 42: Husband names Mom as beneficiary of his military life insurance

policy. Upon his death, Wife attempts to claim a CP interest in the benefits.

Will she win? ___________ Because federal law preempts CA community

property laws, Wife will not receive any portion of the death benefit.

Surviving Spouse's Election

o Spot the issue: A spouse’s will bequests a CP asset to a third party

o If the decedent spouse attempts to pass the surviving spouse's one‐half CP interest by will,

the surviving spouse must elect between ______________________ and her ______ rights.

Special Title Presumption Controls

o Title is presumed to be that intended by the parties (e.g., joint tenancy remains a SP interest

at death)

o Upon death of a spouse, the ____________________________________________________

will be triggered and pass the decedent's interest in a joint tenancy or "CP with right of

survivorship" to the surviving spouse/tenant

Quasi-CP

o QCP is treated the ___________________________ CP upon the death of the titled spouse.

o Death of a spouse not holding title to the QCP asset does not trigger QCP.


Intestate Succession

a. Community Property

The __________________________________________________ inherits the deceased

spouse's one‐half interest in the CP.

b. Separate Property

If the decedent has no heirs:

____________________ the decedent's SP goes to the surviving spouse.

If the decedent has no children or issue, but has surviving heirs (parents, siblings, or

issue of siblings):

________________ of the SP goes to that group of relatives; and

________________ of the SP goes to the surviving spouse.

If the decedent has only one surviving child (or issue of that child):

________________ of the SP goes to the child; and


If the decedent has 2 or more surviving children or issue of those children:

________________ of the SP goes to the children or their issue; and


BEST OF LUCK ON THE BAR EXAM!

[END OF HANDOUT]

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