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Community Property/Marital Property
University of California, Davis School of Law
Ikemoto, Lisa C.

Marital Property (Prof. Ikemoto, Fall 2013)

I. INTRODUCTION

A. Before Marital Property Laws: Why They Came About

– Wirth (NY, 1971—13)

§ Takeaway Unfair results when distributed using normal property law.

§ Facts: Husband/wife pooled their earnings to pay expenses. Then husband decided to start a savings plan to save money “for our later years.” He diverted his own income into the savings plan, while the wife began paying for all of the household expenses using her income.

– Assets at divorce: House (acquired after marriage, but in husbands name); life insurance; the savings.

§ Issue: Could the court impose a constructive trust and declare the wife half-owner, given that husband was only able to save up the money/buy everything because she picked up the financial slack to pay the expenses?

§ Held: No. Husband takes it all.

– NY (at the time) applied basic property law—look at the title (everything in husband’s name).

– Constructive trust (equitable remedy) requires fraudulent inducement based upon an abuse of a relationship of trust. No fraud apparent here, the husband merely changed his mind (and that’s ok).

B. Community Property v. Common Law

Community Property

Common Law

Jurisdiction

California + 7 states

All remaining states

Triggering Event: When is Marital Property Acquired?

Rules begin to apply at time of marriage. Community property is acquired throughout the marriage.

Applies only upon divorce or dissolution.

During Marriage

Community property is accumulated and each person has rights in that property.

Rules of property (title) apply.

Upon Dissolution

California: Equal Division

Other States: Equitable Distribution

Marital Property triggered. Equitable Distribution.

Upon Death

Equal Division

“Elective Share” intestacy rules.

Defining Marital Property—what can or cannot be allocated by the court?

Two key questions:

(1) When was it acquired (before or after marriage)?

(2) How was it acquired?

Fam. Code § 760 Community Property

Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is CP.

Fam. Code § 770 Separate Property

(a) Separate property of a married person includes all of the following:

(1) All property owned before marriage.

(2) All property acquired by the person after marriage by gift, bequest, devise, or descent.

(3) The rents, issues, and profits of the property described in this section.

(b) A married person may, w/o consent of the person’s spouse, convey the person’s separate property.

Fam. Code § 771 Separation

After entry of a judgment of legal separation of the parties, the earnings or accumulations of each party are the separate property of the party acquiring the earnings or accumulations

Fam. Code § 125 Quasi-Com. Property.

All real or personal property acquired by either spouse while domiciled elsewhere, which would have been community property had they been domiciled in Cal.

Majority:

– Marital and non-marital property are distinguished by when it was acquired (before marriage is non-marital, after marriage is marital).

Substantial Minority:

– Hotchpot approach = everything held at divorce is marital property.

Standard of Ownership & Distribution

California + 2 CP States:

Equal Ownership.

Process:

(a) Determine what is CP.

(1) When was it acquired

(2) How was it acquired

(b) Split 50/50

Most CL and CP states:

Equitable Distribution.

Process:

(a) Determine what is CP.

(i) When was it acquired

(b) Apply equitable factors, including the age, background, earning ability of each party; duration of marriage; standard of living of each party during marriage; the present income of each party, etc. (see p. 19)

Painter (NJ, 1974—16)

– Demonstrates how Equitable Distribution works.

Recognized Forms of Joint Ownership (Mutually Exclusive)

California: (1) community property; (2) joint tenancy; (3) tenancy in common.

(1) marital property at divorce; (2) tenancy in common; (3) tenancy in the entirety; (4) joint tenancy.

Other Considerations

Support and property division are treated separately in California—they do not influence each other.

Spousal support, child support may play a role in determining equitable distribution of property.

Courts take into account future needs when dividing property.

II. BYPASSING THE COMMUNITY PROPERTY SYSTEM

A. Premarital Agreements

(i) Pre-1986: Common Law Rules

a. Public Policy

– Dawley (68)

ú Policy Rule Agreements violate state policy favoring marriage only if the terms facilitate, encourage, or promote divorce or dissolution. Objective.

· E.g. a spousal support waiver, where one party is far wealthier (no worries about paying upon divorce)

ú Facts: Woman gets pregnant. She fears losing her job, and man fears that she’ll file paternity suit. They agree to a temporary marriage, and create premarital agreement. Both disclaimed rights to community property (would all be separate property), and man agreed to give support to woman for about 1.5 years after (short) marriage. They actually stayed married for 7 years before divorcing

ú Issue: Did the agreement violate public policy b/c it was entered into with express anticipation of getting divorced?

ú Held: Agreement did not violate public policy; was valid.

– Noghrey (74)

ú Takeaway Example of agreement promoting divorce.

ú Facts: Prior to wedding, agreement stated that upon divorce, wife would get $500k plus a house.

ú Held: This promotes or encourages divorce.

· Large sum, only applies upon divorce (not death)

· Better to transfer it into CP from the husband’s SP upon marrying

– Dajani (77)

ú Agreement $1,666 would be paid to wife upon divorce was unenforceable (pursuant to Noghrey). Suggests the size of the amount doesn’t matter.

– Bellio (77)

ú Agreement that $100,000 would be paid to wife upon divorce was found enforceable. The man was very wealthy, the wife impoverished (and would give up alimony from former husband upon re-marrying). Court distinguished Noghrey. Suggests contextual analysis is proper.

b. Subject Matter: What Can Go Into an Agreement? (Influenced by Public Policy)

– Rule Spousal support waivers violate public policy.

– Rule No waiving or limiting child support due to public policy.

– Terms to promote sense of certainty in case of dissolution

– Protection of property you get during marriage against new spouse

– To provide for kids from previous marriage, like to defeat intestacy laws

– “Bad boy clause” – if you are unfaithful, you pay money.

– Protection against creditors or future creditors that could go after community property (if one party owes money, creditors can’t touch CP)

c. Procedural Enforcement Standards: Is it Enforceable in Court?

– All contract standards apply: undue influence, fraud, unconscionable terms, etc.

– Dawley (68)

ú Undue Influence Agreement is unconscionable if one party takes a grossly oppressive and unfair advantage of another’s necessities or distress.

· Standard of Review Substantial Evidence.

ú Rule Fiancés are not in a confidential relationship for the purpose of determining fraud, undue influence, etc

d. Statute of Frauds: Applies

– Must be in writing and signed (with few K-law exceptions)

(ii) Post-1986: California Premarital Agreement Act (CPAA)

a. Provisions

CPAA 1610

Definitions

Premarital Agreement is an agreement b/w prospective spouses made in contemplation of marriage and effective upon marriage.

“Property” is an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings.

CPAA 1611

Statute of Frauds

A premarital agreement shall be in writing and signed by both parties. It is enforceable without consideration.

– Exceptions to SoF Writing Requirement:

(1) Full Performance – The act of complying makes the agreement enforceable.

▫ Freitas (102)

– Rule Full performance if it appears that a party fulfilled a promise b/c of the promise. This hinges on whether there are other reasons to explain their course of action.

– Facts: Oral agreement that after marriage, husband would make wife the beneficiary of his life insurance policy. Husband did so after marriage. Later, husband removed her from the policy.

– Held: Enforceable, despite being oral (not in writing).

(2) Equitable Estoppel

▫ Sheldon (103)

– Rule Equitable estoppel is a defense to the statute of frauds where one party to the agreement relied upon the other party’s promise.

– Facts: Al married Florence. Florence died. Florence’s will (written before marriage) left all to her children from prior marriage/didn’t mention Al. By statute, Al would still get half of the estate. Al assigned his share to Florence’s Child A. Child B argued that before marriage, Al and Florence agreed (orally) that neithe

rily and expressly waive, in writing, any right to the disclosure of the property or financial obligations of the other party beyond the disclosure provided.

(C) The party did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.

(b)

Agreement presumed involuntary unless party against whom enforcement is sought:

– Had ind. counsel or waived in writing

– If unrepresented:

· Had 7+ days to consider it

· Fully informed of terms & rights, in writing before signing

· Proficient in the language

· Unrepresented person declared in writing on or before signing that they received the info required by this law.

– terms, effect, rights given up, and was proficient in the language, and

An issue of unconscionability of a premarital agreement shall be decided by the court as a matter of law.

(c) [Defines Voluntary/Overrules Bonds] For the purposes of subdivision (a), it shall be deemed that a premarital agreement was not executed voluntarily unless the court finds in writing or on the record ALL of the following:

(1) The party against whom enforcement is sought was represented by independent legal counsel at the time of signing the agreement or, after being advised to seek counsel, expressly waived, in a separate writing, representation by independent legal counsel.

(2) The party against whom enforcement is sought had not less than seven calendar days b/w the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.

– Cadwell-Faso (99)

▫ Rule The seven-day requirement for voluntariness (1615) does not apply when both parties are represented by counsel.

(3) The party against whom enforcement is sought, if unrepresented, was fully informed of the terms and basic effect of the agreement as well as the rights and obligations he or she was giving up by signing the agreement, and was proficient in the language in which the explanation of the party’s rights was conducted and in which the agreement was written. The explanation of the rights and obligations relinquished shall be memorialized in writing and delivered to the party prior to signing the agreement. The unrepresented party shall, on or before the signing of the premarital agreement, execute a document declaring that he or she received the information required by this paragraph and indicating who provided that information.

(4) The agreement and the writings executed pursuant to paragraphs (1) and (3) were not executed under duress, fraud, or undue influence, and the parties did not lack capacity.

(5) Any other factors the court deems relevant.

CPAA 1616

Effect of Void Marriage

If a marriage is determined to be void, an agreement that would otherwise have been a premarital agreement is enforceable only to the extent necessary to avoid an inequitable result.

CPAA 1617

Limitation of Actions

Any statute of limitations applicable to an action asserting a claim for relief under a premarital agreement is tolled during the marriage. However, equitable defenses limiting the time for enforcement, including laches and estoppel, are available to either party

B. Transmutation During Marriage

(i) Pre-1984: “Rule of Easy Transmutation”

a. No Formal Requirements

– No Statute of Frauds

– Unlike premarital agreements (which had some requirements, including SoF prior to 1986) b/c before marriage you deal at arm’s length. Within marriage, there’s presumed trust and confidentiality and fiduciary duty.

ú No intruding into the marriage to make them make everything official: “it’s our car. But let’s sign a document to prove it.”

b. Cases