COMMUNITY PROPERTY OUTLINE

1. (4) Introductory Sentences

a. “California is a Community Property state. There is a Presumption that all

property acquired during marriage is Community Property. In California, all

property acquired during marriage is community property. Separate Property

is property acquired before marriage or after permanent separation, or

acquired by gift, bequest, devise or decent with rents issues and profits

thereon.”
b. Analyze the character of each item by asking: (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?), (3)

Presumptions (are there any legal presumptions that may affect the

character of the asset?) and (4) Disposition (what will be done with the

property?)

c. DATE OF MARRIAGE (4 Ways)

i. Married – Capacity, License, Witnessed ceremony, Registered with the

county recorder.

1. CA recognizes a marriage from another jurisdiction (Except for

same sex marriages)

2. Marriage can’t be void (no incest/pre-existing marriage)

3. Common Law marriages do NOT exist in CA

a. Exception – CA recognizes valid common law marriages

from another state.

4. Same-sex marriages are valid in CA

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 a. Thus, same sex married couples may claim CP rights as

Spouses, not Domestic Partnerships

ii. Domestic Partnership – All laws pertaining to married persons apply

to DP’s

1. Filing – Declaration of domestic partnership with the Secretary of

State

2. Includes – (1) unmarried Same Sex couples, or (2) Elderly who

receive social security benefits.

i. Quasi-Marital Property

1. Quasi-marital property – property acquired during a putative

marriage which would have been community property if the

marriage was NOT void. (Treat as CP)

2. Putative Spouse – When a spouse has an objectively reasonable

and good faith belief that they are married but through no fault

of their own they are not.

a. Rationale –created to deal with equitable situations.

ii. Marvin Actions – Contracts that allow you to get into Family Law

Court

1. Rule – Courts should enforce express contracts between non-

marital partners, unless the contract is founded on illegal sexual

services. If no contract exists, courts look to see if the parties’

conduct demonstrates a tacit understanding of an implied

contract.

2. Result – All property acquired during a Marvin Action will be

treated as CP.

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 3. Examples – Cohabitation with no marriage, Same Sex

Relationships.

d. DATE OF SEPERATION (DOS) – date when marriage is Irretrievably

Broken.

i. Irretrievably Broken – The economic community ends when:

1. Permanent physical separation, AND

2. Intent NOT to resume the marital relationship (only need intent

of 1 party)

a. i.e. look to whether the parties are maintaining the facade

of marriage

b. Note – Parties may agree as to the date of separation.

2. JURISDICTION OF THE COURT – The court has limited jurisdiction to determine

what is CP and divide it EQUALLY (50/50).

a. Court shall only confirm SP assets back to the SP holder

b. The court has NO right to divide SP (i.e. not a court of equity)

c. Continuing Jurisdiction – The court has continuing jurisdiction to award CP

that was not previously adjudicated. (i.e. royalties from a book written during

marriage)

3. EQUAL DIVISION REQUIREMENT – The general rule is that the court must

divide each and every community asset equally, unless there is a written

agreement to the contrary.

a. Exceptions:

i. Economic Circumstances Warrant – When economic circumstances

warrant, the court may award an asset of CP to one party and cash

out or order payments to the other party.

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 1. Use – This exception is used when a major item of community

property is NOT reasonably subject to division and there is a

critical need to maintain the asset.

2. Examples – Family residence, Closely held Business, Pension.

ii. Statutory Exceptions – one spouse can get more than 50%

1. Misappropriation – One spouse misappropriates CP either

before or during divorce.

2. Educational Expenses – the community is entitled to

reimbursement for actual costs incurred for educational

expenses (tuition and books) IF the education substantially

enhances your earning capacity

a. Defenses:

i. Community has already substantially benefitted. If

more than 10 years have elapsed since the degree

was awarded, there presumption is that the

community has substantially benefited.

ii. If the other spouse also received a CP funded

education

3. Tort Liability – the community is subject to the tort liability of

either spouse.

a. Act Benefiting Community – Liability is first satisfied from

CP, then SP

b. Act NOT benefiting Community – Liability is first satisfied

from the tortfeasor spouses SP, then CP. Innocent spouse is

NOT personally liable

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 4. Personal Injury Award – If there is a personal injury cause of

action from the DOM to the DOS there is a presumption that all of

award will be the CP

a. Note – what is important is date when injury occurred and

not when monetary recovery date is.

b. At Death – If the award is still existing unspent at the

injured spouse’s death, the PI award will be treated as SP.

5. Negative Community – When community liabilities exceed

assets, the relative ability of spouses to pay the debt is

considered.

4. QUASI COMMUNITY PROPERTY – Property acquired in another state that would

be CP if it was acquired in CA but it was not.

a. Divorce– California Courts treat QCP as CP and it is subject to the equal

division rule.

b. Death – The surviving spouse has a one-half interest in the decedent’s quasi

community property. Decedent has NO rights in the survivor’s quasi

community property.

c. Property Acquired in another CP State – Treated as California CP and not as

QCP.

d. Jurisdiction – CA court has personal jurisdiction over the spouse and may

order him to execute any conveyance necessary.

5. DATE OF VALUATION

a. Rule – The court shall value assets and liabilities as close to the time of trial

at practicable.
b. Exception – Closely held business is valued at Separation. (i.e. spouse can’t

purposely lower value)

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6. GIFTS – The court has the ability to determine if the gift is truly a gift or if it is

given because of work preformed. If given for work performed than it is CP.
7. PRESUMPTIONS
a. “Married Woman’s Presumption” – BEFORE 1975, property that was

acquired during marriage in a (1) married woman’s name alone or in (2)

her name and a 3rd party, is presumed to be the wife’s SEPARATE property.
i. Funds – Does not matter where the funds came from. (i.e. could be ALL

CP)
ii. Rationale – Husband had control over assets. If the property is placed in

Wife’s name alone or in Wife’s name and a 3rd parties, it must be that he

intended to make it that way.

iii. Rebuttable Presumption – this presumption is rebuttable by the

husband as against the wife, but NOT as against third party bona-fide

purchasers.
iv. Special Note – If title in the Husband and Wife’s name, but not in joint

tenancy form, and not as husband and wife, the wife will receive ½ SP,

and the husband will receive ½ CP.

b. Community Property Presumption – All property, real or personal,

wherever situated, acquired by a married person during the marriage while

domiciled in this state is CP.

i. Rebuttable Presumption – Spouse may overcome the presumption by

preponderance of the evidence by tracing the separate property

acquisition of the property.

1. Comingled Funds – Difficult to prove acquisition with SP funds.

Must use one of two accounting methods to overcome the

presumption of CP:
a. Exhaustion – All of the CP funds have been exhausted from

the account.

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 i. Family Expense Presumption – Presumption that

expenditures for family expenses were made with CP

funds.
b. Direct Tracing Method – (1) Sufficient SP funds were

available, and (2) Spouse intended to use SP funds to buy

the asset.
c. Property Held in Joint Form – Property acquired by the parties during

marriage in joint form, including property held in TIC, JT, or husband and

wife, is presumed to be CP.

i. Presumption may be rebutted by:
1. Express statement in a deed or other documentary evidence of

Title stating SP, OR

2. Written Agreement declaring that the property is meant to be

SP

Essay Quote – “California allows spouses to opt out of CP characterizations by

agreement. Agreements made before marriage are governed by the Uniform

Premarital Agreement Act. Agreements made during marriage to change the

character of an asset are called Transmutations.”

8. PREMARITAL AGREEMENTS (Uniform Premarital Agreement Act)

a. Scope of Agreement
i. Can waive nearly ANY rights and assets (i.e. spousal support and

property rights) EXCEPT:

1. Address child custody, visitation or support
2. Include anything that violates public policy (Encourages divorce)
b. Pre-nuptial Agreement Requirements
i. In Writing and Signed by both parties
1. Exceptions: (1) The executor promise is fully performed, or (2)

Estoppel based on detrimental reliance. (Note – Marriage alone

is not sufficient performance)

c. Defenses

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 i. Not Signed Voluntary – Must be signed Voluntarily or agreement is

Unenforceable unless:
1. Written in the language in which the person is proficient
2. Agreement is in its final complete form and given to the party 7

days before they sign it

3. Must be represented by independent legal counsel at the time

it was signed (OR waived in a separate writing)

a. If a party chooses to waive counsel a third person must

fully inform the party (signed in writing) of the terms and

basic effect of the pre-nuptial agreement.

ii. Unconscionability (2 Categories)
1. Waiver of spousal support – Not per se unenforceable but

Unenforceable IF:
a. Not represented by independent legal counsel at the

time it is signed, OR
b. The provision is unconscionable at the time of

enforcement. (i.e. not fair to someone who is in need of

spousal support)
i. Unconscionability will be determined at the time of

trial
ii. Thus, there is essentially NO waiver of spousal

support
2. Anything Else – Agreement is unenforceable if:
c. Unconscionable when made,
a. No full and fair disclosure of spouses assets and

liabilities or a written waiver of disclosure thereof, AND

d. The party challenging had NO adequate knowledge of the

other party’s property or financial circumstances.

3. By statute, Unconscionability is a matter of law to be decided by

the court.
9. TRANSMUTATION – A Transmutation Agreement is an agreement between

married persons that changes the character of property owned by one of the

parties, or the parties jointly, during marriage.

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 a. PRIOR to 1985 – Oral transmutations were permitted, whether by express

agreement or implied by conduct. Party must show substantial evidence of

the party’s intent to transmute.

i. Ex. Substantial evidence – “welcome to our new house”
b. AFTER 1985 (2 Step Analysis)
i. FIRST STEP – Analyze Elements
1. There must be a WRITING, (other than a will prior to death)
2. SIGNED by spouse whose interest is adversely affected, AND

3. The writing must state an EXPRESS INTENT to transmute

a. The writing must explicitly state that a change in

ownership is being made

b. i.e. an unequivocal intent to give up all rights and interest to

the property.

4. Gifts Exception – Gifts of tangible property of a personal

nature, which are not substantial in value, taking into account

the circumstances of the marriage, do NOT have to be in writing.

(i.e. jewelry, clothes)

ii. SECOND STEP – Undue Influence Presumption
1. Rule – A presumption of undue influence arises when one

spouse has gained an advantage over the other in a transaction.

2. To overcome the presumption, the spouse who gained has the

burden of proving that the non-gaining party knew what they

were doing and did so voluntarily.

10. SP CONTRIBUTION INTO CP ASSET – Must back the SP out of the CP.
a. Note – Anytime you have a transmutation, transmuting SP into CP, you will

have a SP into CP problem for a right of reimbursement – the two work hand

in hand.
b. Two Sets of Laws (Death or Divorce)

i. Lucas Case (Death) – If you put SP into a joint asset, it is presumed

to be a gift to CP. The only way to overcome this presumption is a

writing to the contrary.

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 ii. Anti-Lucas Legislation (Divorce)
1. Ownership §2581 – property acquired during marriage in joint

and equal form is presumptively CP, and is subject to equal

division on divorce. CP presumption can be rebutted by:

a. Express statement in the deed or other instrument of title

that the property (or portion thereof) is SP or

b. Written agreement by the parties that the property (or

portion thereof) is SP
2. Reimbursement §2640 – You will get dollar for dollar back off

the top of SP put into CP for the Down Payment,

improvements, or principle reduction (DIP) of that property.

Not for interest, taxes, dividends, insurance, or maintenance.

a. Dollar for dollar – You only get back THE money you

originally put in.

i. If property declines in value below your SP

contribution the spouse can only get up to the value of

the depreciated asset even if it later increases in

value.
ii. Even if property appreciates in value or if community

gets a benefit from the SP you only get back exactly

what you put in (the exact $$)

b. Back off the top – you get all your money back from a

declining value asset. The community takes the loss in

value. (i.e. You get the first dollars out)

c. Waiver –This will be applicable unless a party has made a

written waiver of the right to reimbursement or has signed

writing to the effect of a waiver.

11. CP CONTRIBUTION INTO SP ASSET (Each asset has its own formula

(businesses, houses, stock, etc)

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a. BUSINESS – Concern is that own business is your efforts, but when married

it’s not your efforts, it’s the community doing it. Community is entitled to

being reimbursed.

i. 2 Formulas (Pereira / Van Camp) Do Both on Bar

1. Pereira Analysis (Personal Skills and Efforts caused increase in

value)

a. SP Formula – SP spouse will receive their original SP

investment (+) a Reasonable Rate of Return (10%) on the

SP investment compounded annually

i. Everything else is CP. (i.e. the excess is attributed to

CP labor)

b. When to Apply –Use where the spouses time, skill and effort

are major factors in growth of the business. Look for

instances where the spouse contributed creative ideas,

develops new techniques or works long hours with only a

modest salary.
c. Community Benefits
2. Van Camp Analysis (Valuable company or asset)
a. Formula – Reasonable value of your services per year

while working (x) the # of years the spouse worked while

married (–) the compensation the community has already

received.
i. Reasonable value – How much would similar

executives make.
b. When to Apply – Use where capital investment was the

major factor in the business’s growth, and the spouse’s

skills and efforts were a lesser factor. Look for instances

where the spouse was paid a substantial salary or bonuses

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 (i.e. meaning the community has already been

compensated)

c. Separate property benefits

ii. Goodwill – Goodwill of a professional practice acquired during

marriage is CP.

1. Goodwill are those qualities that generate income beyond that

derived from the (1) professional’s labor and (2) a reasonable

return on capital investments.

2. Expert Testimony – Goodwill is primarily established by expert

testimony.

3. Artificial Limits – Artificial limits set in contracts are factors but

not conclusive.

b. INSURANCE
i. Whole Life Insurance – Insurance with a cash value and investment

feature.
1. Proration Rule Applies – Amount of payments made by CP / Total

amount of payments made. This gives you the formula to

determine what percentage will be SP.

ii. Term Life Insurance – Pure insurance with no cash surrender (i.e. Car

Insurance)
1. Final Payment Rule – Last premium payment received determines

the character.
c. RETIREMENT PLANS (2 Categories DCP and DBP)
i. Defined Contribution Plan (Savings Account)
1. A savings account contributed to by the employee and the

employer.
a. I.e. 401k, 403b, employee stock option plan (Actual dollars)

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 2. RULE – Everything contributed in a defined contribution plan

between the DOM and the DOS is community property. (i.e. even

funds contributed by the employer)

a. Value as of the Date of Judgment – If the defined

contribution plan has DECREASED IN VALUE then the

amount of CP has decreased.

ii. Defined Benefit Plan (Promise to pay a Pension at a certain age)
1. Employee Retirement Income Security Act (ERISA)
a. Terminable Interest under ERISA – ERISA gets rid of the

terminable interest rule which says that the interest of the

non participating spouse dies at their death. (i.e. The

pension will continue to be paid until both parties die)

b. Survivor Benefit Plan under ERISA – If the participating

spouse predeceases the non participating spouse, the

payment will continue to the non participating spouse until

her death.
2. Qualified Domestic Relations Order (QDRO) – If a non

participating spouse divorces the participating spouse, her CP

interest is recognized, and the nonparticipating spouse may get a

QDRO and receive payments from the plan.

iii. MUST DO A BROWN AND GILMORE ANALYSIS

1. BROWN
a. Proration Rule – # of months employed while married / # of

months employed (date of employment to date of

retirement)
2. GILMORE – (USE if spouse continues to work after Date of

Maturity)
a. Maturity is a date set by the employer when the pension is

first payable
b. Gilmore election may be made any time after the Date of

Maturity
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 c. Formula: (CP % that the spouse must pay OUT OF POCKET)
i. # of months employed while married / Total # of

months employed until Gilmore election.

3. Pros and cons of Gilmore election:
a. Pros: client (unemployed spouse) may want the money now
b. Cons: The average salary in the last three years of

employment could skyrocket – then the unemployed spouse

would be out that increased share.

4. Disability Benefits &Workers Compensation
a. SP – Disability benefits and workers compensation are SP.
b. May only choose one – If you are eligible for your DBP and a

disability benefits or worker’s compensation you may only

choose one or the other. You cannot choose to receive

disability payments and the DBP.

c. Can’t defeat CP interest – The court may also look beneath

the title to determine if they are disguised retirement

packages.
d. Severance Pay – No clear rule. Argue that it is CP and SP.
d. STOCK OPTIONS
i. Stock option: The option to buy shares of stock in a company at a preset

strike price no matter how much the stock goes up.

ii. Vesting date: You have to be employed with the company at the date the

stock vests or you will lose them. This forces the employee to stay

working for the company because if you leave you will lose a lot of

money. Thus, the company will stagger the vesting dates over an

extended period of time to keep the employee working.

iii. Need to choose which of TWO FORUMLAS to use:
1. Hug Formula
a. CP% = Date of Employment (–) Date of Separation

Date of Employment (–) Date of Vesting

b. When used: If you are hired with the idea that stock option

is an inducement to come and work for company because of

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 ability and skill. The idea is that this was due to

performance in past or a community effort.

2. Nelson Formula:
a. CP % = Date of Granting (–) Date of Separation

Date of Granting (–) Date of Vesting

b. When used: Stock options granted WHILE employed not as

an inducement for you to come work for the company.

3. THEN take the community property % (x) the number of

shares (x) (Current Value (–) Strike price)

e. REAL PROPERTY – Moore / Marsden
i. Community and Separate are entitled to: (3 Things)
1. Reimbursement back for the PRINCIPAL REDUCTION
a. Including down payment and all principal reduction
2. Reimbursement back for IMPROVEMENTS
a. Spouse improving his OWN SP house with CP funds –

Community has a claim for reimbursement due to the real

property doctrine of fixtures. The community gets the

greater of the value of the improvement, or the increase

in value of the home.

b. Spouse improving the OTHER spouses SP house with CP

funds – Split
i. Some courts find reimbursement, some find NO

reimbursement.
3. A pro rata share of the CAPITAL APPRECIATION
a. FORMULA - CP % of capital appreciation:
i. CP Principal Debt reduction / Original Purchase price
ii. THEN take the Current Value of the house (-) the

value at DOM (x) CP % of Capital appreciation.

iii. Note – Pre marital capital appreciation is the sole

and separate property of the separate property holder.

12. DEBTS (Must analyze Before, During, or After Marriage)
a. Before Marriage (pre-marital debts) – Community estate is liable for ALL

debts created before or during the marriage.

i. i.e. You marry their debts; it does not matter what type of debt that it is.

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 ii. Note – If debt still exists at date of separation the debt will revert back

to the SP of the one who incurred it, otherwise it will remain community

until it is paid.
b. During Marriage – Presumption that debts created during the DOM and

DOS are CP
i. Only a presumption – can be overcome by a preponderance of the

evidence
ii. Ways that the community debt presumption has been overcome:
1. Intent of the Lender – If the primary intent of the lender was to

only bind one of the spouses then it is SP. (Not SP if based on

spouses credit score)

2. Debt created in anticipation of dissolution of marriage (hiring an

attorney, credit cards, moving) (regardless of how long before

separation)
3. Debt created NOT for the benefit of the community –Debts for

anyone other than the husband or wife (i.e. gifts to 3rd party lovers

or others)
4. Debt created for an intentional AND wrongful act (illegal acts /

DUI)
a. Must be intentional and wrongful
c. Post Marriage (Between the DOS and date of Judgment) – The

community remains liable for any debts created from the DOS to the date of

Judgment for the necessaries of life of any spouse or child. (i.e. medical

expenses)
13. MANAGEMENT
a. Separate Property – Each spouse has exclusive management and control

over his SP. Quasi CP is SP for the purposes of management and control.
b. Community Property – Each spouse has Equal management and control

over CP. Either spouse acting alone may buy, sell, spend, or encumber all CP.
i. Exceptions:

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1. Real Property – BOTH spouses must join in executing any

instrument that sells, conveys, encumbrances or leases

Community Real Property.

a. Anything dealing with real property including renting the

property out for a year or longer needs to be in writing

with BOTH spouse’s signatures.

b. Void Transaction – May void the transfer for up to 1 year is

purchaser was a BFP. Can void the transaction with NO

SOL if the purchaser had notice.

c. Exception – Spouse may unilaterally encumber her ½

interest in real CP to pay the family law attorney

representing her in the divorce action.

2. Personal Property FMV – A spouse may not gift, transfer or

sell any personal CP for LESS than fair market value, without

the written consent of the other spouse.

a. i.e. Don’t have to tell your spouse as long as you get FMV

for the CP
b. Set Aside – Spouse can set aside the gift in its entirety
c. Offsetting Payment – A Non-breaching party is entitled to

one-half of, or an amount equal to one half of, any asset

transferred below FMV.

d. Learning of Transfer After the Death of the Breaching

Spouse – May set aside the gift as to her ½ of the CP or

recover an offsetting payment from Donee or breaching

spouses estate.
e. Exception – A spouse may give away CP through a US

government savings bond because Federal Law preempts

CA law.

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 3. Personal Belongings – The CP household furnishings or

clothing of a spouse or minor child may NOT be transferred

without the written consent of the other spouse.

a. Voidable – The transaction is voidable by the other spouse at

ANY time.
4. Business Exception – Spouse can act alone in all transaction,

but if the spouse sells, leases, or otherwise encumbers

substantially ALL of the personal property used in the

business, the spouse must give written notice to the other

spouse.
14. FIDUCIARY DUTIES (Every case will include a breach of fiduciary duty)
a. Spouse’s Fiduciary Duty
i. Loyalty – Each spouse owes a higher duty to the community than to

themselves and neither spouse shall take any unfair advantage of the

other.
ii. Investments – A grossly negligent and reckless investment of

community funds is a breach of a spouse’s fiduciary duty. (i.e. investing

in a start-up company)
iii. Undue Influence – If a spouse gains an advantage from a transaction, a

presumption of undue influence arises. That spouse has the burden

to prove that she did not breach her fiduciary duty.

iv. Note – No rule to act in a practical manner (i.e. May blow all CP on

Johnny Walker Blue)

b. Fiduciary Duty Owed While Suing One Another – Each spouse owes

fiduciary duties to each other from the DOS to the date of distribution of

assets to all activities that affect the assets and liabilities of the other party
i. Disclose all assets and investment opportunities – Also makes an

affirmative obligation on the parties to disclose in writing under penalty

of perjury all assets, liabilities and investment opportunities the parties

have or may have an interest in from the DOS to the DOJ.

1. This includes any financial matters that may affect the family
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 c. Remedy for Breach of Fiduciary Duty
i. Offsetting Payment – A Non-breaching party 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 attorneys fees and court costs

for any breach.

ii. Punitive Damages – If a spouse can prove by clear and convincing

evidence that a party breached a fiduciary duty with fraud, malice or

oppression, he may recover punitive damages

2. TAX ISSUES
a. Domestic Relations Tax Reform Act (DRTRA) – In dissolution proceedings, the

division of assets between the parties is a NON Taxable event. (Domestic

Partnerships are not recognized)

b. Attorney is Liable to Determine Tax Consequences – The responsibility to

determine the true value of assets after tax consideration belongs to the

attorney.
3. FEDERAL BENEFITS
a. Federal Benefits are not divisible by California State Courts UNLESS

Congress has created an Enabling Statute to allow the division.

i. Federal Benefits: FICA, social security, federal insurance, military

pensions
ii. i.e. Anything that comes out of the federal government remains

separate property.
4. CREDITORS – After divorce, a creditor cannot reach CP awarded to a spouse

unless that spouse:

a. (1) Incurred the debt, or (2) was assigned the debt by the court.
5. WIDOW’S ELECTION – Surviving spouse may either chose 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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