Community Property Outline 2 PDF

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Important Dates:  January 1, 1975: Married Woman’s Special Presumption; Equal Management and control for spouses  January 1, 1984: Family Code §2640:Anti-Lucas legislation (reimbursement scheme)  January 1, 1984: Reimbursement to the community who contributes to SP education  January 1, 1985: need express written declaration by spouse whose interests are adversely affected to transmute property from CP to SP  January 1, 1986: Premarital Agreement Actprenups must be in writing and signed by both parties  Prior to January 1, 2000: unmarried same-sex couples=unmarried cohabitants  January 1, 2000-July 1, 2003: could register as domestic partners  January 1, 2001 or 2002: Anti-Bonds legislationFamily Code §11615(c)  January 1, 2005: CA Domestic Partner Rights and Responsibilities Act of 2003 is passedCP laws now apply to Domestic Partners I.

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(Intro to CP) – Development of the CA CP System A. Intro California CP system applies to validly married couples and registered domestic partners. Three principles guide the CP system: Equity principle – spouses share an equal 50% interest in CP; Tracing principle – property takes on the character of its source; contractual modification principle – the CP system is a default system, which can be modified before marriage, during marriage and during the dissolution process. 1. Unless the couple makes an agreement to the contrary, all property acquired during marriage by time, effort, skill, energy, or knowledge of either spouse is CP that is owned equally by both spouses (CP presumption). 2. Characterization (CP or SP) is the heart of the CP question. (No property can be both). 3. 8 statutory CP scheme states (CA, NM, LA are different) Equal ownership and equal management and control; the rest are common law (CL) states who often use equitable distribution schemes to rectify some of the harsh results of a non-CP scheme – separate ownership and separate management & control: equitable distribution, norm is 50%. a. CP: Louisiana, Texas, New Mexico, Arizona, CA, Washington, Idaho, and Nevada b. CL: each spouse owns whatever he/she earns 4. CP is specified in the CA Family Code B. CP Defined 1. Property held in common by H & W, each having an undivided one-half interest in this property by virtue of their marital status. (Applies only H/Ws or domestic partners who are legally married and only to income and assets acquired during the marriage. C. Death of a Spouse At the death of a spouse: Modern Approach

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1. CP: Testate (by will), 50% of CP & 100% of SP; intestate (w/o a will), 50% of CP to surviving (total 100%) & 33%, 50% or 100% of SP to surviving spouse. 2. CL: testate, elective share, norm is 33% to 50%; intestate, norm is 33%, 50% or 100% of marital property to surviving spouse. Definitional Issues A. Basic Premise The basic premise of the CP system is that there are only two types of property: CP and SP. 1. Family Code 770 – Separate property is all property owned before marriage, acquired during marriage by gift or inheritance (lucrative title), and all property generated by such SP. 2. Family Code 771 – Separate property is all property acquired after the date of separation, and all property generated by such SP. 3. Family Code 760 – Community Property is all property, real or personal, wherever situated, acquired by a married person during marriage while domiciled in CA, and all property generated by such CP (onerous title).

Downer v. Bramet – Even though legally a gift, the transfer of property was made by H’s employer in recognition of H’s devoted and skillful services during his employment, therefore, compensation for services. Compensation for services performed during marriage is CP. III.

Introduction to Premarital Agreements (PA) Individuals in intimate relationships, married or unmarried, may contract w/each other regarding many aspects of their relations. 1. Marvin Agreements (unmarried cohabitants) 2. Premarital agreements (contemplation of marriage) 3. Transmutation agreements (during marriage) 4. Martial settlement agreements (dissolution of the marriage)  Couples can opt out of the CP system, but cannot alter the fundamental nature of marriage, i.e., obligations of mutual respect, fidelity, and support. – Family Code 720  Prior to marriage, the individuals do not occupy a confidential relationship w/each other. A confidential relationship will arise upon marriage. – Family Code 721(b) A. Pre CA Premarital Agreement Act (CPAA) Marriage of Dawley – A premarital agreement is enforceable, even if at the time of execution the parties anticipated dissolution of their marriage. The terms of the premarital agreement cannot promote or encourage dissolution of marriage. Marriage of Noghrey – The agreement did not define the character of property acquired during marriage or to ensure the SP character of property acquired during marriage or to ensure the SP character of property acquired prior to marriage, but required H to give W a very substantial amount of money only upon the occurrence of a DV. B. Principles of Contractual Modification Parties may entirely or partially avoid the CA CP system by agreement. [CA Family Code §1500] (premarital or antenuptial agreements) 1.

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a) Premarital agreements made on or before January 1, 1986 are regulated by CA’s modified version of the Uniform Premarital Agreement Act. [CA Family Code §§1600-1617] (1) Good faith required (2) No consideration required (3) Statute of Frauds requirement: there must be a writing signed by both parties. [CA Family Code §1611] Freitas v. Freitas – an executed oral agreement is a defense to the statute of frauds requirement (in writing and signed by both parties). The agreement may be inferred from performance. Parol evidence may be inferred from performance. (a) BUT, an oral premarital agreement may be enforced when : (i) the executory promise was fully executed by the promisor (an executory promise is one that not yet been performed, when it is performed , the promise is executed) (ii) the promisor is estopped to assert the SOF because the other party relied to his/her detriment on the oral premarital agreement (getting married or staying married is not grounds for estoppel though), or (iii) adoption or ratification during the marriage (pre 1985) (4) Subject matter of a premarital agreement Family Code § 1612(c) was added in 2002. (i) Marriage of Pendleton & Firemen (2000). CA Supreme Court held that spousal support waivers are not per se unenforceable. (ii) The burden of proof rests on the party against whom enforcement is sought. A spousal support waiver is not enforceable if such party is: (a) Not represented by independent counsel @ time of execution; or (b) Unconscionable @ time of enforcement (5) Agreement is unenforceable if: (a) Agreement limits support duties (b) Agreement promotes divorce (In re Marriage of Noghrey) (c) Unconscionable and non-disclosure (i) If the party against whom enforcement is sought proves that: (i) it was unconscionable when executed; and (ii) the party did not and could not have had adequate knowledge of the wealth of the other party, and did not waive her right to disclosure of such wealth [CA Family Code §1615(a)(2)] (d) Involuntarily executed (e) *See new requirements in Family Code §1615 (c), subsection (c) which were added in 2001 in response to Marriage of Bonds (*very important) (i) This § provides that an agreement was not executed voluntarily unless the court finds all of the following:

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(a) The party against whom enforcement is sought

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was represented by independent counsel when she signed the agreement or, after being advised to seek independent counsel, expressly waived such representation in a separate writing; (b) At least seven days before it was signed, the agreement was presented to the party against whom enforcement is sought and that party was advised to seek independent legal counsel; (c) If unrepresented by legal counsel, the party against whom enforcement is sought was fully informed, in writing prior to the signing of the agreement, of the terms of the agreement and the rights she was giving up by signing the agreement, and was proficient in the language of the explanation and the agreement; (d) The agreement and the other required writings were not executed under duress, fraud, or undue influence; and (e) Any other factors the court deems relevant. All of these factors must be met! Policy Considerations (prenups) a) In re Marriage of Noghrey [1985] (1) Facts: There was an agreement that said if divorce, H gives ½ of his assets and $500,000 or whichever is greater to the W. (2) Rule: An antenuptial agreement, the terms of which encourage or promote divorce, is against PP and is unenforceable. (a) *A promise to give a substantial amount of $ or property only in the event of divorce, facilitates such an event and would be in violation of PP; whereas agreements that define the legal rights of the spouses with respect to property acquired before or after doesn’t violate the PP. (3) *Consideration is not required for a prenup and there cannot be illusory consideration in the form of a K for preexisting marital duty. b) Marriage of Bonds [CA SC; 2000] (1) Issue: Did Sun enter the agreement voluntarily? (2) Rule according to the Bonds Court: In premarital agreement situations, the parties are not in a confidential or fiduciary relationships and the burden is on the party challenging the agreement to show a lack of voluntariness in entering the agreement. (3) Sun had the burden of showing that she didn’t enter the agreement voluntarily and the Court found she didn’t meet that burden.

*Legislature went ballistic and added (c) to §1615 added the requirements stated above in 2001. This § is not retroactive. (Marriage of Howell – 2011) (4)

An unenforceable spousal support waiver is severable from an otherwise enforceable premarital agreement. IV.

Transmutation During Marriage

A transmutation is an interspousal transaction or agreement that works a change in the character of property. Essentially an agreement b/t married persons regarding transaction related to one or multiple properties that change the characteristics of property. Family Code § 850: Subject to Sections 851 to 853, inclusive, married persons may by agreement or transfer, with or without consideration, do any of the following: (a) Transmute community property to separate property of either spouse. (b) Transmute separate property of either spouse to community property. (c) Transmute separate property of one spouse to separate property of the other spouse. Family Code § 851: Fraudulent Transfer laws apply. Family Code § 852: (a) A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected. (Be signed by both parties/ full and part performance applies to premarital agreements) (b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded. (c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage. (d) Nothing in this section affects the law governing characterization of property in which separate property and community property are commingled or otherwise combined. (e) This section does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation shall continue to apply. 1. FormalitiesTransmutation a) Pre-1985, Oral and implied agreements are enforceable (Estate of Raphael and Marriage of Jafeman) b) After January 1, 1985, a signed writing is required which expressly declares that a change in ownership of the property is being made [Family Code §852: signed by person who is adversely affected] The writing must expressly state that the document was effecting a change in character or ownership of the property and extrinsic evidence is not admissible (Estate of MacDonald) (1) Exception: A writing is not required of personal gifts (like jewelry, clothes, stocks) between spouses which are relatively insubstantial in value in light of their circumstances. (Marriage of Steinberger) [Family Code §852(c)] 5

(2) A declaration of character of property in a will is not

admissible evidence of a transmutation before the death of the testator (compare with a characterization of property in an inter vivos trust which is admissible to show transmutation) c) Marriage of Benson – Presumption of undue influence cannot be raised to establish a valid transmutation. In this case the husband raised the presumption and the court said that it cannot be raised unless there was a valid transmutation and that this presumption cannot create a valid transmutation. d) Marriage of Barneson – Transfer is clearly not synonymous w/ transmutation … A transmutation may be effected by means of a transfer, but a transfer is not necessarily a transmutation. e) Starkman v. Holtemann – This case was about a husband and a wife that transmuted property as part of an estate plan and then later divorced. The husband argued that the transmutation was revoked and the court said no, that an estate plan may be revocable, but a valid transmutation is not. f) Marriage of Vali – property purchased from third parties w/funds of an inconsistent character constitutes transmutations; therefore, the requirements of FC 852(a) must be satisfied for a valid transmutation. g) Estate of Bibb [2001] (1) Facts: The son, Dozier, from the first marriage, filed a petition to establish the estate’s ownership of the property lot, apartment building, and Rolls Royce. He contended that the property had not been validly transmuted from his dad’s SP to CP because the DMV records and grant deed didn’t clearly state the change. (2) Rule: Need a writing that satisfies the SOF, clear and unambiguously states the change of status of the property independent of extrinsic evidence, and is consented to by the party who rights are adversely affected. Grant deed fulfills this element [Family Code §852(a)] (3) Held: Yes, the grant deed signed by the H transferring his SP interest in real property to himself and his W as joint tenants satisfies the express declaration requirement of the Family Code. BUT, no, an unsigned computer printout of DMV registration, indicating that the Rolls Royce was reregistered in the names of the H or the W (needs to be more specific than A or B) does not satisfy the requirements for a valid transmutation under the Family Code. (a) *Extrinsic evidence is not allowed here h) Marriage of Steinberger [2001] *Important exception to the §852 (a) writing requirement (1) Facts: James gave Buff a diamond ring in celebration of their fifth wedding anniversary. When the couple filed for divorce, Buff claimed that it was her SP. (2) Rule: Under Family Code §852, gifts of personal property that are substantial in value, taking into account the circumstances of 6

the marriage, will not be considered converted to SP without the writing required by §852. (3) *cards accompanying the gift doesn’t count as the writing *must know the financial worth of the couple to determine this issue Buie v. Neighbors – the gift of the Porsche to H did not fall w/in the FC 852(c) gift exception to the in writing by an express declaration requirement of 852(a) b/c the Porsche was not property of a personal nature. i)

Confidential Relationship During Marriage Family Code § 721(b) - in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. 1. Presumption of Undue Influence a. If a spouse obtains an advantage over another spouse, the transaction is presumed the result of undue influence exerted upon the disadvantaged spouse. b. If the presumption of undue influence is raised by the disadvantaged spouse, the burden rests upon the advantaged spouse to rebut the presumption of undue influence. c. The presumption of undue influence overcomes all other presumptions that arise as to the characterization of property. i. Strongest presumption to protect both spouses. ii. Doesn’t matter if 852(a) was complied w/ if this presumption is raised it goes onto the person it was raised about to show undue influence. d. Marriage of Haines – in transaction b/t themselves, spouses are subject to the rules governing fiduciary relationships, imposing duty of the highest good faith and fair dealing. To rebut the presumption of undue influence, the advantage spouse has the burden to prove that the transfer was freely and voluntarily made, and w/ full knowledge of all the facts, and w/ a complete understanding of the effect of the transfer. e. Delaney – This case concerns the conflict b/t legal presumptions i. If Family Code 721(b), the presumption of undue influence, and Evidence Code 662, the form of title presumption, are in conflict, the presumption based on the confidential relationship b/t spouses must prevail. ii. If Family Code 721(b), the presumption of undue influence, and Family Code 2581, the presumption that property held in joint form @ divorece is CP, are in conflict, the presumption based on the confidential relationship b/t spouses must prevail. V.

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Characterization of Property 1. Characterization of property – is the process of determining whether property is community property, separate property, or a blend of both community property and separate property.

2. Evidentiary Presumptions – Presumptions, which establish the burden of proof, serve certain functions: This presumption once raised will establish character of evidence. a. Reflect probability b. Access to the evidence c. Policy preference 3. Community Property Presumption a. The general CP presumption applies to property acquired during marriage – Family Code §760 b. First, the CP proponent must demonstrate that the property was acquired during marriage. c. Second, if the CP presumption is raised and demonstrated that CP was acquired during marriage, the SP proponent has the burden of rebutting the presumption by tracing to a SP source or producing an enforceable agreement. d. Generally, the CP presumption applies to property acquired during marriage that is untitled or titled in one spouse’s name alone. i. The title presumption trumps CP presumption, unless it is only in one spouse’s name alone. Not all titled property is subject to title presumption. e. The CP presumption applies during marriage and in disputes b/t spouses or a surviving spouse and a decedent spouse’s estate. 4. Property Acquired v. Possessed During Marriage a. The general CP presumption is raised by proof that the property was acquired during marriage. b. Poof of possession during marriage is not sufficient to raise the CP presumption or determinative as to acquisition during the marriage. i. Lynam v. Vorwerk – in a long-term marriage (>10years), however, evidence of possession may be circumstantial evidence of acquisition during marriage, i.e., a reasonable inference. ii. Fidelity v. Mahoney – in a short-term marriage (...