Marital (Community) Property Outline
UC Davis School of Law, Professor Ikemoto
I. Introduction of Marital Property
II. Transmutation: Contracts & Gifts
III. Definitional & Tracing Issues
IV. Evidentiary Presumptions in California Community Property Law
V. Classification of Property
VI. Management Issues
VII. Inception & Termination of Economic Community
VIII. Property Distribution at Divorce
IX. Analytical Outline
I. Introduction to Marital Property
A. What does marital ppty law do that ppty law does not?
1. Addresses rts/responsibilities of two ppl who are married to each other b/c they are married—not b/c they have executed a deed
a. Wirth v. Wirth (NY 1971): 30 year marriage. Both spouses worked. For 22 years, pooled earnings to pay household expenses and make investments. H’s salary went into a savings plan, and W’s salary into living expenses. Divorce. W claims savings acct, home, life insurance, retirement. H is the sole title holder of all. W argues a constructive trust—i.e. that she put in her $$ for “us"
(1) NY does not have marital ppty law @ time
(2) Ct: Need evid of the promise of repayment OR putting title in her name as well.
2. Addresses rts and responsibilities b/t married couples and 3d parties.
B. Two basic categories of marital ppty law: (1) C/L (most states); and (2) CP Statutory schemes (8 states + Wisconsin)
1. When law applies:
(1) Applies at divorce.
(a) During marriage—this only becomes CP if the couple agrees to have joint ownership. CP does not accumulate at marriage
(1) Applies during marriage, at death, or divorce
(2) Starts accumulating @ time of marriage.
2. Policy and Concepts
(1) Primary concern is the spouse @ divorce, and what their contributions are during marriage.
(a) assumes that spouses should have separate economic interest, and that they only take joint tenancy if they wish
(b) No clear assumption of equal contribution
(1) Marriage is an economic and equal partnership. Assumes that despite actual earnings, that spouses will share equally
3. Definition of Marital Ppty
(1) Hotchpot approach: Everything couple owns @ divorce is marital ppty—no matter how it is acquired. Ct has jx over everything.
(2) Marital and Individual Ppty: Distinguishes b/t ppty acquired before marriage (individual) and ppty acquired after marriage (community)
(1) All things earned during marriage = community. If a gift, then SP under § 770
4. Standard for Distribution
a. C/L: Equitable distribution @ divorce
b. CP: Split in jx
(1) Majority: Equitable distribution std @ divorce
(a) Basically leaves a lot to the discretion of the courts. Ct will try and match current needs and contributions of individual parties to the financial state
(2) CA + 2 states: Equal division, 50-50. No discretion over how CP divided at divorce
C. History of CA CP law:
1. 1970: Change to a no fault divorce system
2. 1975: Gender-neutral management rule
II. Transmutation: Contracts and Gifts
A. Premarital Agreements—
1. General Rule: Premarital agreements are enforceable except in extreme cases.
a. Reasons for Getting Premarital Agreements
(1) Planning for short-term marriage
(2) Protection against creditors
(3) If unequal wealth in the marriage, protects assets for the wealthier spouse
(4) Estate planning device—e.g. protect ppty for children of a prior marriage
(5) Eliminate conflict during the marriage (e.g. take out the trash once a week)
(6) State hopes and dreams (e.g. we’ll live overseas for one year)
(7) To control behavior that might cause divorce (e.g. “bad boy" clause—penalties if one partner commits adultry)
2. Common Law
a. Marriage of Dawley (1976): Betty and James agree on a temporary marriage, since they are expecting a child out of wedlock & Betty can lose her job as a teacher. Sign a premarital agreement (1) to keep ppty separate; (2) to get support for B, her other daughter, and child until majority. Married for 8 years. B challenges the agreement @ dissolution.
(1) Betty’s 2 arguments:
(a) Contrary to Public Policy b/c encourages divorce and is contrary to policy of upholding marriage if these agreements contemplate a dissolution at a specific date
i) Ct: Will only refuse to enforce a premarital agreement IF the terms itself promote divorce (objective basis).
aa) e.g. Limiting spousal support would violate this rule
bb) Marriage of Noghrey: Short marriage. Can’t find agreement at trial. Both signed an agreement that W would get the house + $500k upon divorce. H owned the house @ marriage. Thus, W does better under agreement than under CP.
Ct: Unenforceable b/c W does better upon divorce than staying in the marriage.
–So how to carry out intent of this agreement so that it will be enforceable upon divorce? A: Transfer ppty to W upon marriage. Then, at divorce it will be SP
(b) Undue Influence
i) Ct: No b/c both were in bad bargaining positions
ii) Differs from Estate of Nelson: (50-year old real estate broker marries his 22-year-old secretary. Has her agree to waive all CP rights, spousal support, attys fees.) Here, “shocks the conscience" w/ substantial difference in legal/financial sophistication, age difference.
aa) In comparison, Betty and James are educated, adults, professionals, older.
(2) Client advice:
(a) Should have a schedule of assets to help distinguish SP and CP. Also helps w/ creditors claims during marriage.
3. California Premarital Agreement Act (CPAA)
a. NOT APPLIED RETROACTIVELY. Thus, the C/L governs agreements before 1986.
(1) § 1611: No consideration needed to enter into agreements
(2) § 1612: Subject matter of statute: (a) Property…(7) etc. clause: “Any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty"; (b) cannot limit or waive child support
(3) § 1615: Standards for enforcement. Agreement can be invalidated
(a) If involuntarily entered into
(b) Shocks the conscience (unconscionability)—on the C/L std
i) Std: Reasonable person’s objective views whether the terms in the k encourage divorce.
c. Pendleton: Both parties sophisticated w/ formal education and substantial assets. K to waive spousal support.
(1) Ct: Waiver enforced under these facts. SPOUSAL SUPPORT WAIVERS ARE NOT PER SE UNENFORCEABLE. (differs from C/L approach where these waivers are neverenforceable.)
(a) CPAA is silent, so left this open to the courts to decide (according to CA S.Ct).
(b) Kennard dissent: No, rule should be applied at the time of execution—NOT the time of divorce. Doesn’t account for a change in circumstances during the marriage—e.g. health, one partner losing earning potential).
d. Barry Bonds case: Barry Bonds about to marry Sun. On the plane to the wedding, Bond’s lawyer presents Sun w/ agreement to waive spousal support upon dissolution of the marriage. Lawyer suggests Sun get independent counsel and she refuses.
(1) Ct: Agreement is enforceable. (Shocking b/c ppl thought that the agreement would’ve been knocked down)
(2) Strong reaction by the family bar + legislature, so amended CPAA
e. CPAA Amendments—2001
(1) § 1612(c): Cannot waive spousal support if BOTH parties did not have independent counsel, OR if the agreement was unconscionable at the time it was signed.
(a) Unconscionability: Time of enforcement changes to the time it was signed—to account for a change in circumstances (like Justice Kennard’s dissent in Pendleton)
(2) § 1615(c): Presumption that premarital agreement was not voluntarily executed unless in writing OR independent counsel, 7 calendar days to consider the agreement, fully informed of terms, not executed under duress/fraud/undue influence/lack of capacity.
(3) Criticisms of amendments
(a) Raises the costs of entering into a premarital agreement
(b) Premarital agreement is really only for ppl with attys
4. Statute of Frauds and Avoidance Techniques
a. § 1611: Premarital agreement shall be in writing and signed by both parties. No consideration is necessary.
b. EXCEPTION: FULL PERFORMANCE: Freitas v. Freitas: Surviving spouse (widow) vs. the decedent’s children from a prior relationship. Fighting over a life insurance claim. Alleged agreement: If W married him, then he promised to name her as beneficiary of the life insurance policy. He initially put her on the life insurance policy, then changed it to his kids later.
(1) Ct: W gets the money. Statute of frauds not required b/c this was a fully executed agreement. Enough evid to show decedent’s intent.
(2) FULL PERFORMANCE IS SUFFICIENT TO OVERCOME THE STATUTE OF FRAUDS FOR THE PREMARITAL AGREEMENT
c. EXCEPTION: ESTOPPEL: Estate of Sheldon: Decedent has two kids, Helen and Marion. Her will gives ½ of total estate to each child. Decedent marries Al when they are 78 & 80 years old. Both (allegedly) agreed that neither would take in the other’s estate. Al gets 1/3 of the estate, and gives his share to Helen. Helen argues that the agreement is not enforceable, Marion wants the agreement to be enforceable
(1) Al gets some under the omitted spouse statute: Spouse gets a share of the estate—even if they were left out of a will that was written before the marriage. Point is to effectuate the intent of the parties.
(2) Ct: Agreement enforceable. Estoppel is an exception to the statute of frauds argument. Al (i.e. Helen) is estopped from asserting that the statute of frauds must be in writing based on a theory of detrimental reliance—i.e. decedent agreed not to take his estate to her detrimental reliance.
(3) No full performance argument here b/c Al’s promise not to take anything was a negative promise.
B. Transmutation During Marriage
1. Generally, transmutation can be from CP to SP; SP to SP; SP to CP
2. Pre-1985 Transmutation (C/L period)
a. Estate of Raphael: Raymond and Bertha married. 9 months later, he inherited ppty from his mother (i.e. SP). He made an oral statement that they were sharing everything equally. They filed taxes together. Raymond dies. R’s brother, Harry, challenges the oral statement and notion that the house is CP. Issue: Was the inheritance changed into CP?
(1) Ct: Sufficient evidence (i.e. oral statements, taxes) + no evid to contradict what H meant when he made the statements
(a) Oral statements may be made w/o the intent of changing title or character of the ppty. H is dead.
(b) Differing reasons for filing taxes
(3) General rule: Cts less likely to find that the agreement is enforceable if the person dies in debt. If the marriage ends in divorce, then unlikely to find the agreement enforceable b/c this is a “he says/she says."
b. Marriage of Jafeman: House owned before marriage by H. Marriage. Then use CP funds towards the house. @ divorce, W argues that ppty was transmuted from SP into CP. W’s evidence: H referred to house as “our house" + using community funds towards the house to pay mortgage + lived in house during marriage + subjectively thinking that the house was “ours."
(1) Ct: Referring to house as “ours" + living their during marriage + W’s subjective idea = not enough to show intent to change character.
c. Estate of Nelson 50-year old real estate broker marries 22-year old secretary. Apt building bought before marriage by H, but H referred to ppty as “ours."
(1) Ct: Yes, transmuted to CP.
(a) This is commercial ppty owned by a real estate broker, who is pretty protective of his SP interests. Also, filed joint tax returns.
d. RULE OF EASY TRANSMUTATION (IN C/L PERIOD): Quality of evidence is low.
3. Post-1984 Transmutation – NOT RETROACTIVE
(1) § 852(a): Must be in writing by an express declaration that is made, joint in, consented to, or accepted by the spouse whose interest in the ppty is adversely affected
(2) § 852(b): Must be recorded
(3) § 852(c): Exceptions for gifts b/t spouses.
b. Estate of MacDonald: W dies. Ppty in issue is H’s IRA (normally considered CP). Kids’ evidence: consent agreement, of IRA, signed by W that agreed to have H’s kids be the beneficiaries
(1) Ct: under § 852(a), need an express declaration in writing that W knew she was giving up her CP interest.
(2) NO EXCEPTIONS to this s/f or express declaration yet.
(3) BLR à less litigation.
c. Summers: Couple purchases ppty w/ adult daughter as joint tenants. W files for bankruptcy, and creditors getting claims in. If house is CP, then creditor can get interests of both spouses. If house is SP, then creditor can only get W’s 1/3 interest. Creditor argues for a transmutation.
(1) Ct: TRANSMUTATION ONLY APPLIES TO MARRIED PPL—does not apply b/t married people and a 3d person. Here, title is joint tenancy, so presume joint tenancy.
a. Premarital agreements—in writing w/ exceptions of full performance and estoppel
(1) Before 1986 = C/L + s/f
(2) From 1986 = CPAA + C/L + s/f
(a) Before 1985 = C/L; no s/f
(b) From 1985 = § 850 et seq. + s/f + express declaration
c. Rationale for needing a s/f for premarital agreements, but not transmutations under C/L…ppl entering into marriage should be treated as fiduciaries. Assumption under C/L that married couples do not need to put everything in writing.
III. Definitional and Tracing Issues
A. Estate of Clark (1928): Dillard has 3 sons & gives each a share of D’s mineral interest. Edwin dies, leaving a possible will. Shortly after, D marries Eliza. During marriage, he contests E’s will. Lawsuit settles. D gets about $150k. D dies, leaving a will—left a trust for E, and the rest to his two sons. E decides to go for her elective share, arguing that D’s interest to his son’s settlement is CP.
1. Ct: SP. D’s claim came from his rt to contest the will based on the intestacy statute. D was named the sole heir of E’s estate. Rt did not come from the transfer of the land. As heir, D had standing to challenge the will—claim arose before D got married. Ppty acquired before marriage = SP
2. Key: LOOK @ HOW D ACQUIRED THE PPTY
B. Andrews v. Andrews (1921): H and W are caring for H’s elderly parents. Mother dies. Then H agrees to take care of father for the rest of his life and father agrees to leave all ppty to son. H then moves to alaska. Father remarries, and leaves an invalid will that leaves everything to son—only 1 witness to the signing of the will. (Under intestacy, surviving spouse gets the decedent’s share of CP + share of SP. If no intestacy, then H gets everything).
1. Only evid of the oral k is the W’s testimony. BUT…under WA state statute, if ppty interest at stake, then cannot testify. Thus, W cannot testify. Ppty passes via intestacy.
C. Downer v. Bramet: H has 1/3 interest in ranch that was transferred to him by his Er right after H and W separated. Transfer was set up as a “sale" for tax purposes. W claims H’s interest in the ranch. H claims this was a gift b/c no k said that Er had to transfer this to his Ees + no consideration present.
1. Ct: Reverses the nonsuit—i.e. saying there is enough evidence to go to trial.
2. Rationale: Only a business relationship b/t Er and Ee, not a personal relationship. The ranch was given in lieu of retirement benefits.
3. Here, ct looks beyond form to see whether ppty is truly community or truly separate—looks @ history of ppty + intent by using tracing.
IV. Evidentiary Presumptions in California Community Property Law
A. Background: The Framework of the California Evidence Code
1. Presumptions based on burden of proof = based on p.p.
2. Presumptions based on burden of evid = based on probabiliyt
B. The Presumption that Property Acquired or Possessed During Marriage is Community Property–
1. GENERAL C/L PRESUMPTION
a. Triggering facts: Ppty was possessed or acquired during the marriage
b. Presumed facts: CP
c. Rationale/explanation: Based on probability or desire to maximize CP
d. Rebuttal: Trace this back to SP by: (1) showing that ppty was acquired before marriage or (2) that ppty was acquired during marriage as a gift
2. Lynam v. Vorwerk: Couple got a joint bank account after married. 4 years later, H dies. W takes money from joint account. W dies. Two estates in lawsuit to see who is responsible to distribute it. If CP, then some money goes to H to distribute. If SP, then H’s estate distributes it all by themselves.
a. Triggering fact: possession at the end of marriage
b. Presumption: If in possession at the end of or during marriage, then presume that it was acquired during marriage (i.e. is CP)
(1) To rebut presumption, trace it back to SP (1) acquired before marriage OR (2) acquired as a gift during marriage.
c. Rationale for presumption: Assume that if ppty exists at the end of marriage, it was obtained during the marriage.
3. Mahoney: JB married for two months. Buys accident insurance policy for $1 at the airport. Dies on the plane. JB named his son as the beneficiary. Surviving spouse contests the policy as CP.
a. Remember: H can transfer his CP to anyone upon his death. BUT…if one spouse uses CP w/o the consent of the other spouse, then the other spouse may be able to retrieve their interest—what is being done here.
b. Triggering fact: acquired during the marriage
c. Presumption: If acquired during the marriage, then presume CP
d. Here, W has the burden of proof to show that the $1 came from community funds.
(1) Short marriage here, so enough to have a SP inference. Also, acct was in H’s name only.
(2) Burden of proof is lighter in a shorter marriage.
C. The Role of Title Generally
1. Tenancy in Common
(1) “To A & B…"
(2) Default: (1) ppty passing through intestacy & ppl end up as co-owners OR (2) language is not clear enough to create a joint tenancy
b. Can own in equal or unequal shares
c. Fully transferable
(1) Any tenant can transfer by gift @ death
(2) Can sell share
2. Joint tenancy w/ ROS
a. Created: “To A & B with the right of survivorship…"—must have clear and explicit intent.
b. Own in equal shares (no matter how much one person paid)
(1) Inter vivos (during life)
(2) Will destroy the joint tenancy’s ROS
(a) e.g. Joint tenancy with 3 interests (A/B/C). If A transfers during life to X, then have 3 co-owners. A’s transfer destroys the ROS. X will then be a tenant in common to B & C.
d. Right of survivorship upon death
a. During life, cannot unilaterally transfer his/her own interest
b. Upon death, either spouse can transfer their share of CP to anyone
c. Equal shares
d. Mutually exclusive from the others
(1) i.e. cannot have joint tenancy ROS w/ CP. It will be SP if characterized as joint tenancy ROS and tenancy in common
4. Survivorship CP—NEW
a. Explicit intent
b. Equal shares
c. No transferability
(1) During life, can’t sever CP interest.
(2) @ death, there is a right of survivorship
5. nb: No tenancy in entirety in CA
D. Forms of Title that Raise Presumptions of Gift or Agreement to Transmute
1. Married Women’s Special Presumption (MWSP)
a. § 803:
(1) Triggering facts: (1) Ppty acquired by a married woman; (2) acquired before 1975; and (3) instrument in writing
(2) Presumption: W’s SP
(3) Rationale: Back in the day, men had sole legal authority to manage or control CP. Thus, if ppty is put in W’s name, then must be an express intent to keep it for her. Assume that H intended a gift.
(4) Rebut presumption: No gift intended AND/ OR H didn’t have control over the transaction
b. Holmes v. Holmes (1915): W had title to ppty + pre-1975. H trying to rebut the presumption, arguing that the purchase price was paid w/ CP.
(1) Ct: W’s SP—even though purchased w/ separate funds.
(2) H can rebut the presumption by showing that it was not intended as a gift.
(3) THIS PRESUMPTION TRUMPS THE GENERAL PRESUMPTION
c. Louknitsky (1954): House acquired in the Bay Area. Title in W’s name only. Couple getting divorced. Issue: Can the presumption be rebutted?
(1) Ct: yes b/c facts show that W had control over the transaction. H and W were in the process of moving to the U.S. H was out of the country when she purchased the house. H could not have put his name on the deed, and thus, could not have intended a gift.
d. Hypo: Pre-1975…H is being pursued by creditors, so he transfers the deed to his wife. Enough to rebut the presumption?
(1) No b/c H intent was to by-pass the creditors, not give a gift
e. Dunn v. Mullan: Land in San Joaquin valley. Names of both spouses are on the title. H dies. W dies one day later. Ppty acquired by joint ownership. Look @ § 803(b): Presumption is that if a married woman + another person jointly own land, married woman’s share is hers as tenancy in common (i.e. SP)—unless otherwise stated.
(1) Ct: W’s estate = W’s separate ½ (under § 803b) + ½ CP [Thus, W ends up with a ¾ interest and H gets a ¼ interest]
(a) Thus, combined the general presumption w/ the MWSP
(2) Rationale: statute doesn’t speak to H’s interest
(3) In reaction to this case: § 803(c): “If acquired by H & W, AND the instrument describes them as husband and wife ? presume that they intended the ppty to be CP.
f. HYPO: Deed says, “To Henry and Wilma." This is before 1975.
(1) § 803b applies. MWSP applies to her ½, and the other ½ is governed by the general presumption, and is thus, CP
(2) Does NOT trigger § 803(c) b/c it must say, “To H and W, as husband and wife."
g. HYPO: Same facts as (f). But H can show that the ppty was purchased w/ his separate money.
(1) Does not rebut the MWSP + doesn’t show that he lacked control over the presumpion
(2) BUT…rebuts the general presumption that applies to ½ the ppty.
(3) Result: W gets ½ (MWSP) and other ½ is SP, that H gets
h. HYPO: Ppty acquired before 1975. Deed says, “To Herma (woman) and Will (man), as joint tenants with a right of survivorship."
(1) Rebuts the MWSP.
(2) § 803(b): Unless a different intention is expressed (i.e. joint tenancy kicks out the MWSP)
i. HYPO: Harry purchased a family home in 1970 w/ CP funds. Title put in W’s name b/c he was engaged in several risky business ventures and wished to shield the family home from the creditors’ claims.
(1) MWSP rebutted b/c H has a different intent (i.e. no gift)
j. H and W expecting child in 1972. In anticipation, H’s widowed mother moved into an apt and sold them her single family residence, deeding it “To Harold and Wilma Carter." Does it matter that H’s mother is willing to testify for her son in his divorce proceeding?
(1) § 803(b) applies here—Need evid to show (1) H did not have control OR (2) that H did not intend a gift.
(a) No evid to show H had no control (since this is his mother)
(b) No evid to show H did not intend a gift
(2) Mother’s testimony is irrelevant.
(a) If the mother controlled the entire transaction, then maybe her intent can control & thus, have a SP interest to each.
(b) To solve this problem, deed should’ve gone “To H and W as husband and wife" to trigger § 803(c).
(3) Result: ½ is W’s SP. Other ½ is CP. Thus, W ends up with ¾, and H ends up with ¼.
2. Property Held in Joint Title
(1) JOINT TENANCY PRESUMPTION
(a) Triggering facts: Title in joint tenancy + non-divorce situation–death or need to characterize ppty during marriage (e.g. bankruptcy)
(b) Presumption: Assume joint tenancy
(c) Rationale: Effectuate the intent of the parties
(d) Rebut: Other intent, understanding, or agreement
(2) In deciding what to put on the deed, party needs to think about: (1) tax; (2) death; (3) divorce
b. Joint Tenancy
(1) Schindler v. Schindler (1954): H and w bought a house after moving to CA. Deed says, ‘joint tenants.’ Getting a divorce. W is trying to get this as CP so that the ppty can be disposed of in the divorce (this is before no-fault divorce; thus, ct may award W, the injured party, damages by giving her more than ½ the house). W tried to rebut the presumption: (a) ppty paid for w/ community money, and (b) W had a secret understanding that the ppty was CP.
(a) Ct: Evid of paying in community funds is not sufficient alone.
(b) No need to have intent/understanding/agreement in writing, but NEED EVIDENCE OF A MUTUAL UNDERSTANDING
(2) Bowman v. Bowman: H and W own ppty in “joint tenancy." H and W thought that the ppty was “theirs." H knew it was joint tenancy, and that it would help to avoid probate, but not much else.
(a) Ct: Presumption rebutted. H and W thought of the ppty as “ours." Also had no idea what joint tenancy is.
(3) Levine: Couple marries. Title says, “joint tenancy w/ ROS." Marriage ends in death. If presumption holds, W is the sole owner of the house. H’s son from a previous relationship argues that the house is CP. Son’s evid: H was thinking that it would be joint tenancy if W predeceased him. H talked to this w/ his atty. Told atty that he wanted it to be CP if he was to predecease his son, so that son could get it.
(a) Ct: Presumption holds. Only shows the intent of one party.
(4) Tax implications of joint tenancy: IRS taxes you on the appreciation of the value of ppty. Purchase price is considered the base, and is used to measure taxable gain.
(a) e.g. Married couple buys ppty for $200k in 1960. (Thus, base is $200k). Last month, W dies. Her ½ interest goes to her surviving H. Fair mkt value of ppty is $2.2m (Thus, their gain is $1.8m, and will be their taxable income)
(b) Strategy: Reduce the gain by increasing the base.
i) So when W dies, then “step up" or increase the base of the ppty—i.e. eliminate the gap b/t the basis and fair mkt value of the ppty.
aa) If CP, entire base of the ppty gets “stepped up" (i.e. the base of the ppty will be $2.2m)…so little taxable gain when the house is sold
bb) If joint title or tenancy in common, then SP. Only the W’s ½ gets “stepped up" in base (Thus, the W’s ½ base is $1.1m, but H’s base is only $100k.) If H sells the house for $2.2m, then will have $900k in taxable gain.
(5) Implications of Joint Tenancy at Dissolution
(a) If CP, couple has fiduciary duty b/t themselves as to mgmt and control of the CP. If transfer the interest, must get permission. At divorce, judges do not have discretion to divide CP as anything but ½.
(b) If joint tenancy, any side can transfer the interest.
c. Separate Property Contributions to the Purchase Price of Jointly Titled Property
(1) Marriage of Lucas: Gerald and Brenda getting divorced. Ppty at issue: house and motorhome. B used part of her own trust to pay for the house (about 25%). The remainder was CP (75%). Deed said, “joint tenancy." B also used trust funds ($3k) to make improvements on the house. [in general, this is treated as a gift or reimbursement—doesn’t really go to the ownership of the house]. Value of house appreciated, nearly doubled in value.
(a) @ time of the case, CA Ct. App. dealing w/ this in 3 approaches:
i) Aufmuth: Will show a proportional ownership interest in the house which is determined by which funds went into the purchase price.
ii) Trantafello: Treat house as CP unless there was mutual agreement or understanding otherwise
iii) Bjornestad: Characterize the house as CP and reimburse the SP
(b) Held: Presumes CP—even if there is a SP contribution
i) “The act of taking title in a joint and equal ownership form is inconsistent with an intention to preserve a SP interest." Thus, If couple puts the house into joint and equal form, it must mean that it’s “ours."
ii) Evidence presented here:
aa) Testimony that they did not intend a gift to each other
bb) B had secret intent to keep the house as SP, but never told G
cc) No mutual understanding or agreement that the house would be anything but CP
(c) LUCAS PRESUMPTION [for ppty]
i) Triggering facts: (1) Ppty in joint tenancy, tenancy in common, CP. (2) Title in joint and equal form. (3) ONLY applies at divorce
ii) Presumption: CP
iii) Rationale: If title in joint and equal form, parties must’ve intended to share
iv) Rebuttal: Any evid of a mutual understanding or agreement otherwise.
aa) If there was found to be sufficient evidence that B retain a SP interest, then she would’ve received a proportional ownership interest which reflects the proportion of the purchase of the house.
(d) re: Money to make improvements (B’s $3k) LUCAS GIFT PRESUMPTION
i) Triggering facts: SP contribution
ii) Presumed: Gift to the community
iii) Rationale: It is the family home; seems like a natural intent to contribute home improvements to the community
iv) Rebut: Agreement or understanding that the money was not given as a gift, but that it was expected to be reimbursed.
(e) re: Motorhome. Couple bought the motorhome in January 1976, and divorce in December 1976. Traded in CP car and used $100 of CP funds. Brenda pays $9000 from her trust. Title is in B’s name only.
i) Held: SP. Applies gift presumption, and find that G gave up his share of the CP and didn’t object when B’s name was on the title
(f) Weird result of the case: This is not considered new law b/c there was a fiction of the C/L. Thus, the ct need not worry about retroactivity issues.
(g) Policy reasons for the Lucas presumption:
i) Favorable to assume CP at divorce b/c couple will have ½ interest, and ct’s authority will have to make an equal division
ii) If it is a house, it will be sold (unless there are minor children). If the house is characterized as joint tenancy ROS, parties still have a relationship based on the house—assume that this is not desirable
(h) Criticized b/c:
i) Bad for wealthier spouse if a gift is always presumed
ii) Property (i.e. cars, houses, stocks) is put in title. Safe to assume that parties thought about their title before making these decisions
iii) Evidentiary std is too easy—like the rule of easy transmutation—where any evidence is effective
(2) Anti-Lucas Legislation (1984)
(a) § 4800.1—Joint title presumption
i) Triggering facts: Ppty acquired during marriage in joint tenancy + divorce
ii) Presume: CP
iii) Rebuttal: Written agreement that the parties intended otherwise
iv) **But did not totally get over Lucas b/c Lucas presumption applies to ppty held in ANY joint title (CP, tenancy in common).
(b) § 4800.2—Anti-Lucas: Reverses gift presumption
i) Triggering facts: Applies at divorce, SP contributed to CP
ii) Presumption: Non gift—is reimbursement (dollar for dollar, no interest)
iii) Rebuttal: Written waiver of the right to reimbursement
(c) Legislature intended retroactivity.
(3) Marriage of Buol (1985): House taken in joint tenancy. W made all mortgage, tax, ins, maintenance out of SP. H was an alcoholic. W has a separate account from her earnings (which is CP, but they understood that this was her SP). House appreciated 10x. H and W understood the house to be hers. Issue: Can the anti-Lucas legislation be applied retroactively? Has W’s DP been violated (i.e. did it mess up W’s ppty interest)?
(a) DP test: IS DP IMPLICATED? See who gets what under the existing law & compare to new rule. If a change, then would effect the ppty interest and have a DP issue.
i) Under law in existence, then if ppty if in joint and equal form, presume CP. But can be rebutted by testimony of H/W over the years, and their understanding that it was W’s SP
ii) Under anti-Lucas, presume CP. Need writing to rebut, which doesn’t exist here.
iii) Thus, there is a difference in ppty interests
(b) DOES RETROACTIVITY VIOLATE DP?
i) Then, does the retroactivity of the law promote a state interest? i.e. Needed to cure an injustice?
aa) Here, state interest: promote the equal distribution of ppty
bb) Retroactivity of the law does NOT promote the equal distribution of ppty
cc) (in comparison to old gender rules where man’s earnings were CP and woman’s earnings were SP during divorce. there, retroactivity is needed to cure the discrepancy involved)
ii) What is the extent of the disruption?
aa) Here, people relied on the old laws
(4) In Marriage of Fabian (1986): H and W purchased a motel during the marriage as CP. Years later, H uses $275k of SP to make improvements on the motel. Issue: Can § 4800.2 be retroactively applied?
(a) Ct uses same analysis of Buol.
i) Lucas presumption: Presume a gift. Anti-Lucas legislation: Reimbursement. Thus, CP loses out ? triggers DP
ii) Retroactive application violate DP? Ct: Yes
iii) Thus, no retroactive application of § 4800.2
(5) Amendments to Anti-Lucas Legislation (1987)
(a) § 4800.1(a)(1): Purpose of the law. (1) Standard of proof in establishing the character of ppty acquired by spouses during marriage in joint title form. (2) Methods provided by case and statutory law have not resulted in consistency. (3) More of state interest
(b) § 4800.1(b): In divorce, property acquired by the parties during marriage in joint form (i.e. NOT specific to joint tenancy) is presumed CP. Rebuttal: Writing of agreement otherwise
(c) § 4800.2: Deemed fully retroactive
(6) Estate of Blair (1988): H and W have a house in LaJolla, are preparing for divorce. Title in joint tenancy. Before divorce is final, W dies. Leaves ppty to her sister. H is selling house and trying to divide the proceeds. W’s estate is arguing CP, and H is arguing JT.
(a) W’s evidence: Statements from H and W in divorce papers stating that they thought of the house as CP. Also arguing there was a transmutation agreement.
(b) Held: Need to look at key dates to see whether there is a transmutation. If before 1985, then easy transmutation. If after 1985, then need writing w/ express declaration of transmutation.
i) Here, C/L JT presumption still exists, and will be applied if W’s estate cannot rebut.
ii) Bad result if H recovers all b/c the marriage ends in death
(c) CP w/ ROS is probably the best way to resolve this problem b/c then the survivorship ends at divorce. If the marriage ends in death, then survivor gets CP.
(7) Retroactivity of the 1987 Anti-Lucas Amendments
(a) In re Marriage of Hilke (1992): House purchased in 1969 as joint tenants. Couple is getting divorce. Divorce petition filed by W in 1989. Ct bifurcated the proceedings—divorce action and ppty division. W dies.
i) Ct: Marriage ended in divorce b/c W died after divorce proceedings. Thus, apply the JT presumption for divorce.
ii) Then, which presumption to apply? H wants C/L or Lucas, so that any evidence can be used. W wants anti-Lucas legislation
iii) Issue: Can the new presumption be applied retroactively if the ppty was purchased 20 years ago and title decided then?
iv) Held: Yes, apply this retroactively.
v) Analysis: Does this implicate DP by impairing a vested interest?
aa) No—retroactive application does NOT impair a vested interest
bb) Under old law, H would get JT w/ ROS (i.e. ½ + ROS). Under 1987 presumption, the ppty is CP unless rebutted w/ writing, so H still gets ½.
cc) Thus, the only difference b/t old rule and new rule is the right of survivorship (i.e. expectancy)
dd) Mere expectancy is not protected at law b/c it is not a vested interest.
(b) Marriage of Heikes (1995): H owned a home and vacant lot as SP. After marriage, H conveyed both parcels as JT. Now, divorce. H is arguing for a reimbursement of the mkt value of the ppty @ time he changed title. Issue: Can § 4800.2 (anti-Lucas gift presumption) apply retroactively?
i) DP analysis: Vested interest impaired?
aa) Under old law, the ppty would’ve been a gift w/o reimbursement. Thus, equal division of the houses
bb) Under new law, reimbursement. Thus, H would get his SP back.
cc) Thus, W’s interest is impaired
ii) Then, does the impaired interest implicate DP?
aa) Held: Yes
bb) No retroactive application of § 4800.2
cc) Reimbursement only applies for ppty acquired on or after 1/1/84.
? To determine this, look @ date of the SP contribution.
Thus, old rule if contribution occurred before 1984.
New rule if contribution was made after 1/1/84.
(c) 1994: Family Code changed these presumption numbers
i) Joint Title presumption: § 2580-81
ii) Reimbursement presumption: § 2640
(8) HYPO: An untitled Tiffany lamp now worth $40k was purchased for $4k by W during marriage w/ $2k of community funds and $2k of SP funds.
(a) General presumption triggered: Purchased during marriage, thus, is CP
(b) Rebut by tracing: Can trace by purchase price, here ½.
(c) Thus, Lamp is ½ SP, ½ CP
(d) W gets $30k (i.e. SP + her ½ of CP), H gets $10k
(9) HYPO: A vacation house now worth $200k titled in H’s name and purchased during marriage by H for $90k w/ $40k community funds and $50k inheritance received by H.
(a) Triggers general presumption: This is CP
(b) Rebutted b/c can trace 5/9 interest to H. CP interest is 4/9
(10) HYPO: House acquired in 1980. Home is now worth $400k, and is titled in JT. Purchased during marriage for $100k–$30k of W’s SP and $70k CP. Parties made no collateral agreement about W’s SP contribution.
(a) Determine which presumption applies, Lucas or 1984 anti-Lucas.
i) Would retroactive application impair a vested interest?
aa) In 1980, Lucas would apply = CP presumption. Under 1984, CP presumption
ii) Does retroactivity violate DP?
aa) Since there is no writing, the house is CP. (i.e. CP either way). Thus, retroactivity can be applied.
(11) HYPO, modified. Same facts, but parties made an oral agreement that W is to maintain a SP interest
(a) Presumption: Lucas or 1987 Anti-Lucas?
(b) Would retroactive application of 1987 presumption impair a vested interest?
i) Lucas: Presume CP, but is rebutted by any evidence otherwise. Here, rebuttal by evidence of the oral agreement would make house = 30% of current value is W’s; 70% is community’s
ii) 1987: Presume CP. No evid to rebut this b/c need a writing. Thus, each would get 50%
iii) Thus, if apply the statute retroactively, W’s vested interest is impaired b/c she gets less.
(c) Does impairment violate DP? Factors:
i) Is there a state interest? Here: yes, uniformity
ii) Is applying new statute necessary to achieve this state interest? Here: Probably not
iii) Reliance? Here: Not sure
(d) RESULT—I DON’T KNOW (NOTES: OCT 7)
(12) HYPO, modified. Same facts, but the parties made a signed written agreement that W is to maintain a SP interest.
(a) Will retroactive application impair a vested interest?
i) Lucas: Presume CP, but this is rebutted by the written agreement. Thus W’s SP interest = 30%, and CP interest = 70%.
ii) 1987: Presume CP, but rebutted by written agreement
iii) Thus, outcome is the same here. Ppty is a mixed characterization of ppty
iv) B/c this is a mixed asset, don’t get to the gift presumption.
(13) HYPO: A home now worth $400k acquired in 1985, titled as CP, and purchased during marriage for $100k w/ $30k of H’s SP and $70k of CP. The parties made no collateral agreement about H’s SP contribution.
(a) Joint title presumption—which one?
i) C/L does not apply b/c this is a divorce
ii) Lucas: Exists, presume CP—each would have a ½ interest.
iii) Anti-Lucas (1984): Does not apply b/c in 1984, anti-lucas only applies to joint tenancy
iv) § 2581 (1987): Presume CP. No rebuttal. Thus, each has ½ interrest.
(b) Thus, retroactive application will NOT impair a vested interest. Divide the house equally.
(c) Then, gift presumption or reimbursement presumption?
i) Anti-Lucas applies b/c this contribution was in 1985 (i.e. after 1984) & retroactivity is irrelevant.
ii) Presume: Reimbursement, but can be rebutted
iii) Here: presumption holds. This is characterized as an interest-free loan
(14) HYPO, modified. Same facts, but the parties made an oral agreement that H is to maintain a SP interest
(a) Would retroactive application of § 2581 impair a vested interest?
i) Lucas: Presume CP, and can rebut w/ evid of oral agreement. Thus, will have proportional ownership.
ii) § 2581: Presume CP, and no rebuttal b/c no written agreement.
iii) Thus, vested interest is here
(b) Then, does this violate DP?
i) Does the state interest justify impairing the vested interest?
ii) Reliance interest?
(15) HYPO, modified. Same facts, but parties made a signed, written agreement that H is to maintain a SP interest.
(a) Impairing of a vested interest?
i) Lucas: Presume CP, but is rebutted. Thus, have proportional ownership interest
ii) § 2581: Presume CP, but is rebutted. Still, have proportional ownership interest.
(b) B/c this is a mixed asset, don’t get to the gift/reimbursement presumption
(16) HYPO: House purchased in 1970. Deed says, “Ann and Bill as tenants in common." Now getting divorced.
(a) Which presumption to apply—both MWSP and Joint title presumptions are triggered.
(b) In practice, may use the prevailing view of applying the joint title presumption b/c it is more recent.
(17) HYPO, modified: Deed says, “To Ann and Bill."
(a) Apply the MWSP (§ 803b) b/c this is before 1975 & title is in the woman’s name
(b) This is also not an express joint title
(18) Tracing SP contributions for purposes of § 2640 reimbursement
(a) In re Marriage of Walrath (1998): Couple own a house, but have a lot of debt on the house. One spouse contributes $50k of SP (thus, getting equity in the house). At the time of refinancing, the equity in the house was $300k. They borrow against the house to buy a second house for $250k. Divorce. Vacation home has appreciated from $250k ? $400k, but home has depreciated to $250k. Issue: Wife wants to use the reimbursement presumption to have a stake in the second home based on the theory that her $50k was used to get the loan to buy the second house.
i) Held: OK. Can trace the SP contribution to the first house to the second house.
ii) Formula used to determine how much:
- Set up a ratio: W’s contribution / equity at the time of refinancing
- Here: 50k / 300k = 1/6
- (Given the refinancing debt, there is no equity in the primary home)
- Result: W gets 1/6 the purchase price of the vacation home. ($41k)
d. Community Property with a Right of Survivorship
E. Improvements: Gift Presumptions and Statutory Treatment
1. Marriage of Warren (1972): Married couple. W has undeveloped real estate as SP. Community uses $38k to build on the real estate. Getting divorced.
a. nb: H had legal authority to control the CP here b/c this is pre-1975. Thus, he authorized contribution of the community funds.
(a) If manager uses CP to improve other spouse’s SP ? gift presumption
(b) If manager uses CP to improve own SP ? reimbursement presumption
b. Amount reimbursed: Whichever is larger: Dollar for dollar OR the current value
(1) Rationale: Preventing self-dealing
2. Jafeman (1972): H owned the house before marriage. During marriage, couple lived in the house, referring to it as “our house." W managed the money. she wrote checks to pay the mortgage, improvements.
a. Held: Community is entitled to reimbursement ONLY IF the expenditure was made w/o finding the wife’s consent.
3. Gift presumptions under equal management (1974 +)
a. If SP contribution was before 1984 ? gift presumed. Rebuttable by any evid establishing otherwise.
b. If SP contribution was after 1984 ? reimbursement presumed. Rebuttable by a writing only.
F. The Family Expense Presumption
1. Definition: Includes living expenses needed to live @ that family’s std of living.
a. Test: Common benefit—i.e. all expenses to live at the std of living for the common benefit of the family.
(1) This includes family vacations
b. See v. See : Illustrates the rationale for the gift presumption—i.e. that there is a duty or mutual obligation to support the family. This is to reflect the standard of living of the couple, and their decision to participate in that std of living.
2. Context of the application of this rule: Bank account held during marriage w/ SP and CP in it. At the end of marriage, need to divide the account.
a. Assume that money drawn to pay for family expenses is CP
b. Once the CP money is exhausted, use SP to pay for family expenses.
c. If SP is used for family expenses, presume a gift to the community.
3. HYPO: How much of the money remaining on 3/2/03 is W’s SP?
|1/1/03||H and W marry and W opens checking acct|
|2/1/03||W deposits her January paycheck||$2000|
|2/1/03||W deposits her stock dividends (that she owns prior to 1/1/03||$500|
|2/5/03||W writes a rent check for $1000. She w/draws $500 for monthly food and other household expenses||-$1500|
|2/15/03||W writes a check for H’s medical expenses = $900||-$500 (b/c part of the mutual obligation and care)||-$400 (take SP b/c the CP expenses have been exhausted. this is not reimbursable)|
|3/1/03||W deposits February paycheck||$2000|
A: $100 of SP remains on 3/2/03
V. Classification of Property
A. Tracing Property Purchased from a Commingled Fund
1. See v. See: Joint acct was shared and used during the marriage.
a. Start @ general presumption—i.e. that all $$ was CP
b. Burden is on the spouse claiming SP to show that the money was SP
(1) Need contemporaneous records—
(a) e.g. Bank accounts
(b) e.g. Sales receipts
(2) Here, Laurence needed to keep records. He didn’t, so he loses his claim.
(3) Ikemoto: This is a tough burden, so the general presumption will hold in most cases.
c. Trial ct: Used the total recapitulation method to determine SP:
(1) Add up all community deposits during marriage
(2) Add up family expenses.
(3) Subtract family expenses from the community deposits
(4) Anything remaining is SP—i.e. includes anything bought during the marriage that are not family expenses (e.g. stock)
(5) THIS METHOD WAS REJECTED BY THE CA S.CT
d. CA S.Ct: Need to look @ WHEN the asset was purchased & whether there was community money in the account AT THE TIME OF PURCHASE.
(1) HYPO: Characterize the deposits and withdrawals
|1/02||Deposit community income||$50k|
|6/02||Withdraw $20k to redecorate family home.||-$20k|
|8/02||Purchase stock = $20k|
(a) As of 8/02, the only money in the acct was CP. Thus, the stock is CP
(b) Under the total recapitulation method, the stock would’ve shown to be SP.
(2) HYPO: Characterize the deposits and withdrawals.
|11/02||Deposit from sale of W’s separate ppty bonds||$30k|
|12/02||$50k for family expenses—H’s triple bypass operation||$20k (exhaust this fund first)||$30k (presume this as a gift to the community)|
2. Marriage of Mix (1975): Esther, lawyer and Richard, musician. One child. Esther was the primary breadwinner. They have a piece of ppty that Esther is claiming as SP. She had a little bit of cash before the marriage, and title is in her name.
a. General presumption applies here.
(1) MWSP does not apply b/c E is the mgr of the couple’s funds, which is the reason her name is on the deed.
b. 2 methods of tracing:
(1) Direct Tracing:
(a) Show two sources of money
(b) Show that at the time of the purchase or withdrawal, there was SP was available to pay for it.
i) Think: (1) availability and (2) ability to use this money.
(c) Also, show intent was to pay for the item w/ SP
(2) Exhaustion method (See v. See): Show that no CP money was available at the time of the purchase. Then can logically conclude that SP was used
c. Ct here uses direct tracing by W’s evid, a schedule of source of separate funds, and balance of SP funds after each expenditure.
(1) Ikemoto: This isn’t really direct tracing. Just use the law from this case.
3. Marriage of Frick (1986): H owns Mikado Hotel and other real estate before the marriage. H’s personal account = salary earned during marriage (CP) and rent for Mikado (SP). Money is being taken out to pay the loan on the hotel. At divorce, W is trying to show that b/c money is used to pay the mortgage, the community accumulated an ownership interest. H tries to use the total recapitulation; W tries to show annual recapitulation
a. Held: Rejcts Marriage of Mix as an example of direct tracing
(1) Here, not enough evidence for direct tracing. H loses.
4. HYPO: At the beginning of marriage in January 2000, H had a savings account that contained only his $20k inheritance from his aunt. After marriage, the following deposits/ withdrawals were made. Characterize the stock at the end.
|$20k H’s separate ppty deposit||$20k|
|$2k W’s medical expenses||-$2k|
|2002||$1k to pay for new suits for H||-$1k|
|Columbia stock purchased for $3k.||-$3k|
a. Under direct tracing, to determine if stock is CP or SP, must show: (1) availability of funds; (2) intent.
b. If no evidence of intent, then it comes out of the CP and stock is CP (based on the general presumption.)
|2003||$1k to pay for trip (family expense)||-$1k|
|Xerox stock purchased for $6k|
c. At the time of the Xerox stock purchase, have both CP and SP
(1) Can’t use the exhaustion method b/c there is CP available
(2) Only $3k of CP available. Use that. Then, the rest of the funds come from SP
d. At the end of the account, have $14k—all SP
B. Apportionment of Business Profits
1. Issue: When one spouse has a SP business. During the marriage, the spouse works at the business—i.e. profits from the business are a result of community laboring. @ end of the marriage, trying to figure out how much of the business is community and how much is separate
2. Beam v. Bank of America: H was a financial mgr. He acquired inheritance, and used this SP to invest during the marriage. Possessed $3.3m from the marriage, and family expenses come from this. Thus, $1.85m available at divorce. Issue: how much is SP and how much comes from the labor during marriage?
a. 2 methods of tracing:
|1. Calculate value of SP portion. Take original SP value of biz or capital x rsbl rate of return over the course of the marriage.||1. Calculate the value of the community labor over the years|
|2. Take the current value of the biz and subtract the current value of the SP.||2. Apply the family expense presumption. Subtract family expenses from the current value of CP (?)|
|3. Balance of #2 = current value of the CP portion of the business.||3. Take the current value of the biz and subtract the current value of CP = current value of CP|
b. Here: Pereira method—Basically calculating the SP portions.
(1) Take initial SP value.
(a) Trial ct used 7%–the legal rate of interest
(b) No compound interest b/c the money is being taken out of the account throughout the marriage.
(2) Figure out how much the initial value is worth now (i.e. the rsbl rate of return during marriage)
(a) Here, cash earned as a result of the investment
(3) Take the current value of the business – value of SP interest= value of CP interest in the business
(4) No family expense presumption here b/c Pereira reflects the facts that the family expense has been used over the years.
c. Here: Van Camp method—Start @ value of CP labor
(1) Determine the total value of H’s services
(a) Here: H’s rsbl salary = $17k.
(b) Multiply salary times the duration of the marriage (here: 21)
(2) Subtract the family expenses
(a) Here: $24k/ year
(b) Thus, family expenses were greater than his labor.
(3) Subtract the CP portion from the current value of the business, and the remainder is SP
d. Result: W loses under both formulas
(1) Rationale: Family expenses used up all the CP. Were only living at that std of living b/c of H’s independent wealth.
3. Determining when to use which formula:
a. Look @ whether the increment of the value of the business is attributable to the (1) character of the capital investment OR (2) if the increase of the business value is due to the personal activity, ability and capacity of the spouse
(1) Pereira = personal skill/ability.
(a) This allows for the highest valuation to CP
(b) Caps the value of the SP capital by using the “rsbl rate of return". Thus, anything over and above the reasonable rate will be passed along to the community
(2) Van Camp = When character of the capital is the primary contributing factor to the increase in valuation.
(a) This method really brings up the average value of the labor
(b) Definition of “character of the capital":
i) e.g. Gilmore: H is a car dealer. He didn’t put much personal effort into the business. But the social context of the time where most dealers were making lots of money.
4. Tassi v. Tassi (1958): H owned a wholesale meat business. Before dying, H took money out of the business to set up a trust account for his bro and wife. Now bro and wife are arguing b/c W argues that bro took some CP. Co was SP before marriage, but H worked at the business throughout marriage. H never took out a salary for himself.
a. Bro’s argument: Business started w/ $400-$500 in capital before marriage. Immediately after marriage, H invested $27k into the business (this is presumed CP). But bro argues that it was a lot of money, and it was at the beginning of the marriage, thus, the $27k must’ve had another [SP] source.
b. W’s argument: There was a transmutation. Joint tax returns were filed
(1) Ct rejects this b/c saying that it did not show anything as to the intent of the parties.
c. Held: Ct uses the Van Camp formula and figures out a reasonable salary
(1) Rationale: The character of the capital is the primary reason for increase in valuation—e.g. H had good will w/ customers he obtained before the marriage, and the meat business was doing very well.
C. Credit Acquisitions
1. Characterizing the loan
a. Gudelj: H has a ¼ interest in a cleaners, purchased during the marriage for $11.5k—
(1) re: $1.5k in cash = SP b/c from gift from mom
(2) re: $10k in credit.
(a) Trace borrowed money by looking at the intent of the lender.
(b) Test: Did the lender rely on the SP or CP in granting the loan?
(c) Evid here:
i) Promissory note signed by H. This is a factor, but not determinative
ii) H’s mom’s ppty sold for $30k. BUT…no proof that the lender knew about this asset.
(3) Held: Presumption of CP holds
b. Ford: Kenneth is claiming SP to two pieces of real estate. Bought farms as tenant in common w/ his bro. Evid: Transaction #2: Bro sells the Walnut Township Farm for $105k. During the marriage, Kenneth borrows this money, thus, his ownership is based on a credit-basis.
(1) General presumption applies.
(2) K needs to show that lender relied on his SP when granting the loan.
(a) Here: Facts suggest that the lender was relying on K’s ownership of another farm—which is SP.
c. Real estate loans.
(1) Info needed to obtain a real estate loan:
(a) Tax returns
(b) Bank & Investment accounts
(c) Other sources of income
(f) Family status
(2) POINT: To trace the loan back to SP, must prove that the info the lender relied upon was based on SP.
(3) CA Anti-deficiency statute: For purchases ONLY (i.e. not refinancing)…If you default on the mortgage, and the bank forecloses on you, they can only go after the house.
(a) If the house depreciates and is then worth less, then the bank cannot go after you for more.
(b) Thus, the lender is using the house being purchased as security for the loan. Lender is relying on the fact that the house will appreciate.
(c) POINT: These statutes may make it more difficult to trace
d. Marriage of Grinius (1985): Restaurant real ppty in dispute. The couple opened the restaurant during marriage. Loans were acquired during the marriage. H is trying to trace the real estate to SP based on info that the lender knew. Issue: How to apply the std that the lender relied solely on SP or solely on CP?
(1) Ct here: Lender must’ve relied solely on the SP—very difficult to rebut the general presumption
(2) Other cts use: Primarily
D. Apportionment of Ownership v. Reimbursement by the Titled Estate
1. Marriage of moore (1980): W buys house before marriage. Pays $16,640.57 (down) + $40k (loan) = $56640.57 (total). Pays $245.18 of loan before marriage, and $581.07 after separation. During marriage, $5986.20 is paid off. Balance of loan @ dissolution $33k-ish. FMV = $160k. Issue: How much of the house is CP and how much is SP?
a. CA Rule: Proportional ownership
b. Held: The loan MUST be counted in thinking about proportional ownership interest (i.e. not just the balance of the loan).
c. Other issue here: Should interest, taxes, ins., etc. go towards the payment of principal of the loan?
(1) Held: NO. Rationale:
(a) Equity/ownership is free and clear of debt. The community actually paid a lot more, but it doesn’t really go towards the ownership interest in the house.
a. Sitch: H and W getting divorced. House is possessed during the marriage, which triggers the general presumption. The burden is on W to trace, showing that some payments are from SP.
(a) Down: SP
(b) Loan: SP (b/c acquired bf marriage + lender only relied on SP credit)
(c) Part of the principal of the loan: SP
(d) Part of the principal of the loan: CP (about $6k)
(2) Calculate W’s interest:
(a) Characterize all payments on the ownership or acquisition of the house
(b) Set up a ratio for the SP interest—
i) Down payment + Loan [SP – part paid off by community]
Historical Value of the house
ii) Thus, here, W paid about 89% of the acquisition cost of the house
$16,640.57 + [$40k-$5986.20]
(c) Then, figure out who owns what/how much of the appreciation of the house (i.e. current FMV)
i) Take the % from earlier formula x Appreciation during marriage
ii) Here: 89 x 103,359.43 = $92,434.34
(d) Then, add the appreciation + amount to the equity of the SP contributions (i.e. the down payment + SP contributions to the principal of the loan) = SP equity interest
i) Here: $92434.34 + $17,466.82 (down payment, payment of principal before marriage, payment of principal during the separation period) = $109,901.16
(3) Figure out the CP apportionment interest:
(a) Set up ratio: Amount of CP contribution/ Purchase price of house
i) Here: $5986.20/ 56,640.57 = 10.57
(b) Then, figure out appreciation apportionment
i) Here: 10.57 x 103,359.43 = 10,925.09
(c) Then, add the community’s apportionment, including the appreciation
i) Here: 10,925 + 5,986.20 (community equity—i.e. payments towards the loan) = $16,911.29
(4) Check your work
(a) Add the interests.
(b) Should come out w/ the FMV of the house
a. H and W, married two years, purchased a house for $100k in 1980. H used his inheritance to make the $20k down. H borrowed $80k from the bank for a 30-term loan. The note was secured by a mortgage. H took title in his name alone. H and W divorcing. FMV of the house is $300k. Principal debt has been reduced to $48k.
(1) Characterize the contributions:
(a) Down = SP
(b) Loan = CP (this is based on the general presumption, which is not rebutted)
(c) Issue here: Who owns what of the appreciation?
(2) To figure the SP interest:
(a) 20k / 100k (purchase price) = 20% interest
(3) To figure the CP interest:
(a) 80k (i.e. principal still owed + principal paid off) / 100k = 80% interest
(4) Figure out amount of interest in the appreciation
(a) SP: 20% of 200k (i.e. the amount the house appreciated) = 40k
(b) CP: 80% of 200k = $160k
(5) Then, total the value of the equity interest in the house
(a) SP: 40k + 20k = 60k
(b) CP: 160k + 80k = 240k
i) nb: The $240k is not all equity
ii) For equity: $240k – 48k
b. One month before she met Herbert in 1980, W purchased a home for $100k. She paid $20k down and assumed an $80k mortgage. W took the title in her name alone. Two months later, she married H. W continued to make mortgage payments from her earnings. Last week, H and W decided to seek a divorce. FMV of house is $400k. Since their marriage, the principal debt has been reduced to $48k. (Assume that the principal reduction attributable to W’s first mortgage payments is de minimus.)
(1) Characterize the payments:
(a) Down = SP
(b) Loan = SP
(c) Principal of the contribution = CP (not sure)
(2) Figure out the SP
(a) Down payment + Loan balance / Purchase price
(b) Here: $20k + 48k / 100k = 68%
(c) **This demonstrates the importance of getting the loan balance onto your side b/c it will increase the interest**
(3) Figure out the CP:
(a) $32k/ 100k = 32%
(4) Figure out the appreciation interest
(a) SP: 68% of $300k = $240k
(b) CP: 32% of $300k = $96k
(5) Add the interests to get the total value
(a) SP: 240k + 20k (down) + 48k (remaining loan balance) = 272k
(b) CP: 96k + 32k = 128k
c. In 1980, H, a single man, purchased a home for $100k. He put $20k down and financed the remainder of the purchase price with an $80k mortgage. In 1985, H married W, at which time the FMV of the home was $180k. Last month, he and W decided to divorce. The house is now worth $400k. Since 1980, the mortgage debt has been reduced by a total of $32k. The debt reduction during marriage was $30k.
(1) Characterize payments:
(a) Down = SP
(b) Loan = CP (based on the general presumption, can be rebutted)
(c) Outstanding balance = SP
(d) 30k payments towards the house = CP
(2) Figure out who owns what of the appreciation:
(a) SP: 20k (down) + 50k (amt paid before marriage) / 100k = 70%
(b) CP: 30k / 100k = 30%
(3) **Tip: The numerators of the SP and CP interest should add up to the purchase price of the loan. Don’t forget to include the loan balance!**
(4) Figure out the appreciation: Before and during the marriage
(a) Up until the marriage: SP
i) Here, 80k
(b) During the marriage
i) 300k (total appreciation) – 80k (accumulated before marriage) = 220k
ii) SP: 70% of 220k = $154k
iii) CP: 30% of 220k = $66k
(5) Add all the interests:
(a) SP: 154k + 20k + 2k + 80k (i.e. appreciation before marriage) = 202k [also need to add the balance of the loan]
(b) CP: 66k + 30k = 96k
4. WHEN to use the formula
a. House acquired before marriage AND during marriage, community contributed to the principal of the debt; OR
b. House acquired during the marriage and both SP and CP funds used AND this situation does not trigger other presumptions; OR
c. Jointly titled ppty, but raises a presumption AND there is evidence to rebut the presumption (i.e. evidence of a mutual understanding or agreement to hold proportional ownership interests)
VI. Management Issues
1. Historically: Men manage the community
2. 1950s: Women got control over their earnings
3. 1970s- present: No more MWSP and either spouse can control the CP
a. General rule: Don’t need consent for transaction w/r/t CP. Either spouse can act unilaterally about CP (although there are specific exceptions).
b. § 1101: Imposes a fiduciary duty on the spouse w/r/t management and control of the ppty
(1) But, this has become convoluted. Thus, if a breach, then flag the issue and move on.
B. The New Law
1. Real Property Management
a. § 1102: Governs the management and control of the real ppty
(1) § 1102(a): Except as provided…either spouse has the management and control of the community real ppty, whether acquired prior to or on or after 1/1/75, BUT both spouses, either personally or by a duly authorized agent, MUST JOIN in executing any instrument by which that community real ppty or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered
(2) § 1102(b) Nothing in this section shall by construed to apply to a lease, mortgage, conveyance, or transfer of real ppty or of any interest in real ppty b/t H and W
(3) § 1102(c). Notwithstanding subdivision (b):
(a) § 1102(c)(1): The sole lease, k, mortgage, or deed of H, holding record title to community real ppty, to a lessee, purchaser, or encumbrancer, in good faith w/o knowledge of the marriage relation, shall be presumed to be valid if executed prior to 1/1/75
(b) § 1102(c)(2): The sole lease, k, mortgage, or deed of either spouse, holding the record title to community real ppty to a lessee, purchaser, or encumbrancer, in good faith w/o knowledge of the marriage relation, shall be presumed to be valid if executed on or after 1/1/75.
i) Rationale: Protects those creditors who take w/ good faith of record title
ii) e.g. If title is in A’s name—but this is really CP—and A goes and mortgages the house unilaterally. This would violate § 1102, but protects the creditor.
(c) § 1102(e): can unilaterally encumber community real ppty to pay your lawyer’s fees in the event of separation or dissolution
i) This was added after the Roder case
(4) Lezine v. Security Pacific Financial Svcs (1996): H and Gloria own a house. H takes out a loan. G does not agree. H forges her name on a quit claim deed (i.e. meaning that G releases all interest in her house). H takes out a loan $200k against the house. G finds out and seeks a divorce.
(a) Trial ct: Set the quit claim deed aside, and issues a money judgment against H for $200k
i) Thus, the remedy for violating the joint control rules in a major action: Void the transaction entirely
(b) Bank’s interest: [H and G still married at this point]. Bank records the money judgment. Thus, this becomes a lien against the house. Then, they do a ppty distribution.
i) Result: G gets the house, but is subject to the $200k lien.
ii) Rationale: This rule is protecting creditors
(c) Criticism: Isn’t the bank in a better position to protect their resources to verify the quit claim deed?
i) Ct here: Not required
ii) Under § 1102, G’s remedy is to have the mortgage voided.
iii) BUT…the bank can still go fwd to enforce the judgment lien on the house—even though the bank could’ve prevented this mess in the first place.
2. Personal Property Management
a. General rule: Either spouse has mgmt or control over the CP
(1) Gifts: Neither spouse can give away CP as a gift, or dispose of community personal ppty for less than fair and rsbl value…w/o written consent of the other party
(a) Spreckels (1916): Clause and Anna married over 50 years, and have 5 kids. All ppty is CP. Clause gives $$ to 2 of 5 kids. Dies. Gives some $$ to A, and excludes those two kids. Upon C’s death, A learns of transfer of $$ to sons. Anna asks one of her sons to pursue a claim. Anna makes a will that leaves everything to other 3 kids. Dies. Upon A’s death, 3 kids sue to reclaim A’s rt to the CP. Result:
i) At the moment that C gives away $25m to two sons, the gifts are voidable at that point b/c the other spouse (A) would have the option to void the gift. If A had sued at that point and had chosen not to ratify the gifts, she would’ve gotten back the entire $25m as CP
aa) Rationale: This is during the marriage
ii) BUT…after C dies, A only gets ½ interest ($12m)
aa) Rationale: At C’s death, the marriage is over. She can recover her $12m, but the other $12m is regarded as a testimentary transfer to her sons.
iii) Anna dies before the first claim is litigated, and at that point, her will gives the rest of the $$ to the other 3 kids.
aa) Ct holds that A ratified the prior gift from C to two sons.
bb) Ct reasons that leaving everything to the 3 kids must mean that she agreed w/ what C did, and is now just trying to make everything equal.
(b) Fields: H makes gifts of $500k. Dies. W sues after death to recover the gifts—W can sue H’s estate or the donees. If W wins, her remedy is ½ the gifts. The other ½ will be treated as testimentary transfers
i) If W wins, then the estate’s remedy is to go after the donees.
(2) Cannot sell, convey, or encumber community personal ppty used as the family dwelling, or the furniture, furnishings, or fittings of the home, or the clothing or wearing apparel of the other spouse or minor children…w/o written consent of the other party
(3) Business that is all or substantially all CP, but one spouse has the primary mgmt and control of the business or interest. The managing spouse may act alone in all transactions, but shall give prior written notice to the other spouse of any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the personal ppty used in the operation of the business.
c. § 851: Bank accounts (financial provision)
(1) Bank accts held in one name are ONLY for the benefit or access of that person—even if the bank account contains CP.
d. HYPO [Wilcox case]: Emilia seeks your advice. Her husband has placed all his earnings in a bank acct in his name alone. E understands that she is supposed to be able to manage CP, even though she has no labor mkt earnings. E has no complaint about the quality of T’s management of his community earnings. He is a prudent mgr and is saving for the couple’s retirement. Nevertheless, E would like to use some of the savings for current consumption. Advice?
(1) W can argue breach of fiduciary duty w/r/t management and control (§ 1101)
(a) But, really here, E does have the rt of management and control. She just can’t exercise that right. So, really, not a strong case for breach of fiduciary duty
(2) § 1101(c): Remedy: E can sue H during marriage to have her name added to the account
(a) Legislative history shows that you do not need a breach before getting to the remedy.
C. Creditor’s Rights
1. Grolemund (1941): H gets into an accident by himself. The ct holds that the CP is liable for the judgment against H
a. General rule: liability follows control
b. HYPO: If W had gotten into the accident, would she be liable? Probably not b/c this was before 1975, where only H has control.
2. Family Code: Liability of Marital Ppty
a. § 902: Definition of a debt: Obligation incurred by a married person before or during marriage based on k, tort, or otherwise
b. § 903: Debt is incurred at the following time:
(1) @ time k is made
(2) @ time tort occurs
(3) in other cases, @ time the obligation arises
c. § 910: General rule: Community is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has mgmt/control of the ppty andregardless of whether one or both spouses are parties to the debt or to a judgment for the debt
(1) nb: “During marriage" does NOT include separation
d. § 911: EARNINGS of a married person during marriage are NOT liable for a debt incurred by the person’s spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit acct in which the person’s spouse has no rt of withdrawal and are uncommingled w/ the ppty in the community estate…
(1) In short, the CP is liable, but may be allowed to shelder some of the CP debts incurred before marriage
(2) “Earnings" does not apply to non-earnings of the debtor spouse
(a) e.g. Can shield paychecks themselves, but not dividends
(b) BUT…the earnings must be held in non-debtor’s spouse’s own bank account.
e. § 913: SP is liable for debt incurred by the holder before or during the marriage—but is not liable for the debts of the spouse
f. § 914: Married person is personally liable for the following debts incurred by the person’s spouse during marriage: (1) necessaries; (2) common necessaries
(1) This does not include the country club expenses of one spouse!
(2) § 914(b): Provides an order of satisfaction. Thus, if P’s SP is used to pay the debt incurred by O, at a time when CP is available, then P can seek reimbursement from the community
g. § 915: Support obligations before or during the marriage.
(1) § 915(a): A child or spousal support obligation of a married person that does not arise out of the marriage shall be treated as a debt incurred before marriage
(2) § 915(b): If CP is applied to the satisfaction of a child/spousal support obligation incurred before marriage, at a time when nonexempt SP is available (but not used), the community estate is entitled from reimbursement from the SP
h. § 1000: Liability for death or injury
(1) § 1000(b): Order of satisfaction [assuming no joint liability]
(a) If the liability of the married person is based upon an act or omission which occurred while the married person was performing an activity for the benefit of the community, the liability shall first be satisfied from the community, and then from
(b) If the liability of the married person is NOT based on an act or omission which occurred while the married person was performing an activity for the benefit of the community, the liability shall first be satisfied from the SP of the married person and second, from CP
i) Thus, the community is not entirely sheltered.
i. HYPO: A incurs the debt before marriage. Which statutory provisions apply?
(1) § 913: SP is liable for the debt incurred before marriage. But B’s SP is not liable for the debt incurred by A during the marriage.
(2) § 911: B is not liable for debt incurred during the marriage. B can also shelter B’s earnings
(3) § 910: A’s earnings are liable—i.e. this is any CP not sheltered by § 911 is vulnerable to the collection of debt
j. § 432: Summary of what ppty is liable and whether there is a reimbursement rt.
|Incurred BEFORE marriage before one spouse||Incurred DURING marriage by one spouse acting alone||Incurred AFTER separation, but before divorce|
1. Debtor spouse’s SP2. D’s earnings during marriage (excluding earnings of non-debtor spouse if exercise § 911 w/ sep. acct)
? No rt of reimbursement
|1. All CP under § 9102. D’s SP||1. D’s SP|
|Debt for Necessaries||N/A—If debt incurred before marriage, see above||
1. CP2. SP of D
3. SP of non-debtor spouse
? Rt of reimbursement (if SP of non-debtor spouse used)
1. CP2. SP of both spouses
? § 915: If CP used when SP is available, then community has rt of reimbursement
|Child or spousal support obligation||1. SP of debtor spouse2. CP||Statutory language unclear. (assume: this is a debt incurred before marriage)||(assume: this is a debt incurred after the marriage, thus, only the debtor’s SP is liable. CP is not liable)|
|Tort Debt||1. Debtor spouse SP2. D’s earnings during marriage (see above—like debt incurred before marriage)||
Inquiry: What kind of activity was the spouse engaging—benefits the community or not?This determines the order of satisfaction.
CP can be secondarily liable if it was not for the benefit of the community
|1. Tortfeasor’s SP is liable.|
VII. Inception and Termination of the Economic Community
1. Termination of the economic community—When the couple is living separate and apart. If the couple doesn’t separate until divorce, then the cumulation will end at divorce.
B. Lawful Marriage
1. Legal marriages, including marriages formed inside and outside CA
a. CA does NOT allow C/L marriages to be formed w/in their borders.
(1) But, if a couple is married via C/L in a state that recognizes these marriages, the marriage will be recognized in CA
(a) Definition: Marriage which the couple hasn’t been through formal requirements of marriage—e.g. witness ceremony, license, register w/ the state
(b) 12 states recognize C/L marriages
b. Basic requirement: Mutual agreement to be married to each other, and to hold selves out as married
(1) Doesn’t matter how long
(2) Historical background: Recognize these marriages from the prairie days when there wasn’t anyone around to marry others and no state registries.
(3) Criticism: How to prove that the couple “hold themselves as married."
2. State Domestic Partners
(1) 18+ years old
(2) Neither can be married or in another partnership
(3) Neither can be related by blood
(4) Must share the same residence
(a) This is not a requirement of heterosexual marriages
(5) Each agrees to be responsible for each other’s living expenses
b. People who take advantage of these laws:
(1) Same sex couples
(2) Couples in which one partner is 62 years old, and eligible for SS
(a) Rationale: Seniors lose SS benefits if “partner" dies—even if of the opposite sex
c. January 2005: Amendment to state domestic partnership laws—couples who are state registered domestic partners will get the application of CP laws
(1) Can opt out from the new rights
(a) Why couples would want to opt out or into these rights
i) Keep SP as SP
ii) Rights are always changing, so ppl may not want the new rights
C. Putative Spouses
1. This is now a statutory doctrine (§ 2251) that applies at divorce.
a. This statutory doctrine does not apply if the marriage ends in death
(1) If the marriage ends in death, apply the C/L
a. Void or voidable marriage
b. Good faith belief by 1+ partners that there is a valid marriage
3. Rationale for this doctrine:
a. Ppty is quasi-marital in character
b. Partnership notion
c. Cts use this to come up with an equitable result
4. State of Vargas: Juan married one wife in 1929, and bought a house (marriage total: 40 years). Married another wife (total: 24 years). Didn’t spend too much time at either home. Juan died, and both wives found out. Issue: How to divide Juan’s estate
a. Held: First wife, Mildred, is the legal spouse. Second wife, Josaphine, is his putative spouse. Split the estate 50-50.
(a) Josaphine had a good faith belief that she was the wife.
5. Expansion of the putative spouse doctrine
a. Wagner: H and W exchange personal vows. Live together and have a child. W files a wrongful death suit. Issue: Does W have standing to bring this suit?
(1) Held: No need to require a ceremony. Here, there was good faith that they were married.
b. Estate of Lesley: Two ppl get married in MX, but don’t register the marriage in MX. [Thus, marriage is really not good in either MX or CA.] W dies. Husband argues that he had a good faith belief that they had a valid marriage, and wants her SP under intestacy.
(1) Held: Ok under the putative spouse doctrine. Spouses should be treated as spouses.
(2) Ct broadly reads the meaning of “spouse."
6. Good Faith Requirement
a. Spearman: Applies an objective std.
(1) BUT…districts are split
(2) Probably a good idea to forum shop here
7. HYPO: A marries B. Divorce, but the divorce is invalid. A then marries C. A, then has a good faith belief that he was good to go. A dies. Issue: Who gets the estate, B (legal spouse) or C (putative spouse)?
a. CP: Economic community ends once A and B live separate and apart.
(1) Thus, define these CP rts by time
(2) B gets ½ of CP
b. A’s ½ becomes his SP
(1) C would get the ½ of A’s “SP"
c. Then, once A marries C, their community starts upon marriage and ends upon death.
d. This is much more complicated if A dies intestate.
D. Licensing Same-Sex Domestic Relationships
1. Happens at the state and local levels
a. Local domestic partnership laws extend Ee benefits to the domestic partners of city Ees.
2. Varies by scope
a. Core rights
(1) Hospital visitation
(2) Jail visitation
E. Unmarried Cohabitation
1. Marriage of Cary (1973): If a marriage-like relationship, then they’ll get marriage-like rts under CP
2. Marvin v. Marvin: Living together, but not married. Woman was claiming rts.
a. Held: W may have some rights, called palimony
(1) At the split, she was entitled to anything they acquired during their relationship, including his earnings
(2) These rts are derived from k—NOT CP
(a) Basically: If living together, can have a k—except to the extent that sex is used as consideration
i) This is called “marriage versus sexual services"
ii) Legal std: To the extent that the relationship makes us more uncomfortable, the more likely that the court will find that the consideration is sex.
aa) Also, to the extent that the ct adheres to gender stereotypes, the ct will factor this in as well.
bb) Practical advice to client: use the word “love" –to refute evidence that the consideration was sex.
(b) Other k doctrine applies:
i) need writing
ii) std exceptions to the statute of frauuds
iii) equitable return of ppty rts
b. Couple are not putative spouses & no domestic partnership laws at this time.
c. e.g. Maglite flashlight founder: Founder and his lady-friend separate. W argued that she was working for the company, and claimed that she was entitled to a share of the profits. She claimed that the maglite purse lights were her idea
(1) Result: She gets a little, but not equal share
(2) Rationale: Not enough evidence to show an equal partnership
(a) But criticized: She was stereotyped as a money grabbing female leech.
VIII. Property Distribution at Divorce
A. Jurisdiction of the Court
1. Robinson v. Robinson (1944): Splitting up. Lower ct took the real estate as his SP, but gave the W a life estate in the ppty.
a. Ct. App: Rejects this
(1) At divorce, the court only has jx over the CP—i.e. to allocate it
(2) The most the ct can do w/ the SP is confirm that it is SP
(a) Exception: Family Code § 2650
i) At divorce, if either party makes a request, the ct can dispose of SP that is held in joint tenancy or tenancy in common.
ii) Rationale: At divorce, couple will still have this relationship based on the ppty
(b) This interacts w/ § 2581 (joint title presumption)—Usually the presumption will hold and will be characterized as CP. At that point, the ct has jx to divide up the ppty
i) § 2650 is when the presumption does NOT hold—i.e. when there is sufficient evidence that the ppty was meant to be SP
B. Equal Division Requirement
1. General rule: At divorce or at death, ppty is to be distributed equally
a. Called an in-kind distribution (for divorce)
b. Meaning: Each spouse has a ½ interest in each item of CP
(1) Valuation may shift in each item
(a) In-kind distribution allocates the risk equally—i.e. that the item may increase or decrease in value
(2) Ensuring that the tax consequences are also equal
2. EXCEPTION: § 2601: Ct must make a substantially equal division
a. This allows unequal distribution of CP where economic circumstances warrant.
b. When applied:
(1) On-going family (i.e. CP) business
(a) Rationale: Likely be deadlock when two owners are divorced spouses
(2) Family home where one spouse has primary custody over the kids
(a) Rationale: Necessity, provide kids w/ stability
c. Methods for the ct to name the off-set:
(1) Ideal sitch: House to spouse w/ primary custody of kids. Enough CP to give to the other spouse
(2) Reality: May continue co-ownership of the house w/ a court order that the house can’t be sold until the kids turn 18
(a) Criticism: No longer sharing equal value b/c non-custodial spouse cannot get any money until the kids reach majority. May also be a problem when the house is the only primary asset of the couple.
(3) Alternative: Give the house to the person w/ primary custody and make that person buy the other person off—usually be refinancing the house, and using those proceeds to pay the other person off.
3. Marriage of Brigden: Divorce. H has a block of stock from his company. H wants all of it b/c he argues that it is tied to job security (i.e. his own control over the company, that it provides him with a “power base") H’s share isn’t a majority share or a controlling share. H set up a payment plan for him to compensate her
a. Held: No, equal division.
(1) This is a publicly traded stock
(2) May have a different result if this was a close corporation OR if enough CP to cover the value of the stock
b. re: Payment plan.
(1) Ct: No b/c H had all the say-so when he would pay her—W couldn’t pick times to get payments. H, as an insider, would be able to choose times that would benefit him.
4. Marriage of Connelly: Block of stock. W agreed that the H should have the stock at divorce (trial ct). But now, she is challenging the amount of the off-set. W was given a promissory note at the time of trial. Since trial, stock has appreciated tremendously.
a. Ct: Arrangement is ok. Distinguishes this from Brigden. W accepted the promissory note knowing what it meant and what the risks might be (i.e. that the stock might appreciate)—but the H also took a risk that the stock would depreciate.
(a) Better to allocate the risk of loss to the spouse who is financially able to w/stand the loss.
(b) Here, H worked outside the home and W inside the home. Ct says that W doesn’t have the ability to w/stand that loss. H is really taking on the risk