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Community Property/Marital Property
University of California, Hastings School of Law
Carrillo, Jo J.

Community Property Outline

Carrillo – Fall ‘10

1. General definition of marital property systems

a. All States have marital property systems

i. Marital property – a marital property system can be defined as an ownership/redistributive system that allows a married couple to acquire property [and debt] without regard to assigning ownership at acquisition

1. The rationale behind a marital property system is implied contract

2. In California – the law presumes an implied contract between spouses whose terms are that if there is a dissolution of the marital partnership, any property that the partners acquired during marriage will be divided in a systematic, rational, fair, and equitable way.

b. Types of marital systems

i. Universal marital property

1. Treats all property how and whenever acquired as marital property

ii. Common law

1. Assigns ownership on the basis of title:

a. Whichever spouse has title to an asset owns that asset even as against the other spouse

b. Earners own earnings and assets purchased from earnings

c. Default – separate ownership

d. Married partners must opt into a unified property interest on an asset-by-asset basis

i. At divorce:

1. title alone no longer controls. To combat unfairness, States have enacted equitable distribution statutes – permit courts, in their discretion, to equitable divide the property of either or both spouses at dissolution.

a. Equitable doesn’t always mean 50/50

ii. At death:

1. Title alone still controls, but to prevent the disinheritance of a spouse, States have passed elective share statutes that permit a surviving spouse to elect a statutory distribution plan over a deceased spouse’s testamentary plan.

2. Typically, a surviving spouse can claim anywhere from 5% to 33% of a deceased spouse’s estate, depending on the JX, the length of the marriage, and the way in which property is held.

iii. A minority of common law JX follow a “hotchpot” approach that gives a court the power to redistribute at divorce, all property how and whenever acquired.

iii. Community Property

1. This system creates a unified property interest in the marital community by operation of law.

2. Rather than opt in to a unified marital interest – as spouses in common law JX have to – spouses in community property JX must OPT OUT of the unified property interest.

Type of System

Unified Interest: Opt In/Opt Out

Distribution @ Divorce

Distribution @ Death

Universal

Opt out

All property when or wherever acquired is divided in half

Same as divorce

Common Law

Opt in

Title controls, but see equitable distribution statute will be applied

Title controls, but surviving spouse can elect statutory share instead of testamentary gift

Community Property

Opt out

50/50 split of CP

50/50 split of CP

c. California Community Property

i. What is the California approach?

1. In California, CP is the default system for all married couples

2. Couples can OPT OUT of the CP system before marriage by agreement or during marriage by transmutation

a. This means that although CP system is the default, the State has no preference as to how two partners in marriage hold property

i. CFC 760 – defines “community property” as property acquired during marriage

1. CFC 761 – trusts in the CP system [PB 16]

ii. CFC 770 – defines “separate property” as that acquired before marriage or during marriage by gift, bequest, or devise. Rents, issues, and profits of SP remain SP. Similarly, rents, issues, and profits of CP remain CP.

3. During marriage: spouses assume fiduciary duties of care and trust toward each other, spouses have the right to equal mgmt, and the CP estate is liable for debt incurred by either spouse before or during marriage with some exceptions

4. At divorce: a 50/50 split of CP is the rule, but each spouse can carve out a proportional SP % with proof of SP ownership.

5. At death: the surviving spouse takes the decedent spouse’s CP under intestacy rules, but either spouse has the right to devise his/her ½ of the CP to a spousal or non-spousal beneficiary under the law of wills

ii. Examples:

1. Wirth: W manages all earnings of H & W for 22 years. One day, H tells W he wants to deposit his earnings in his own account. Meanwhile W uses her earnings to pay for family expenses. At divorce, H has a savings account and investments titled in his name and funded with his earnings, whereas W’s earnings were used to pay for family expenses.

a. Issue: Can W claim an ownership share in the assets titled in H’s name [the savings and investments that H bought with his earnings]?

i. Under a title system – Wirth holds that H owns the account titled in his name. To change this result, W must prove fraud. In Wirth the court declines to find fraud because W knew – or could have discovered – that H was depositing his paychecks in his own accounts, and W acquiesced.

ii. Under Cal. CP – H’s earnings, however titled, fall within the definition of CP 760. Plus, the community estate is charged with family expenses & debt. The CP is responsible for any debt incurred in support of the family. And the CP is responsible for caring for the children. Thus under Cal’s CP system, W’s ability to reach H’s savings and investments [despite being titled to H only] is a routine matter of identifying the count and doing basic math.

2. Painter: H has more money than W at divorce. Much of H’s money apparently was acquired by inheritance/gift, meaning that proportionally, H’s assets that are subject to equitable distribution at divorce are considerably less than those he actually owns. The assets W has at divorce are nearly the entirety of her holdings. The couple has 3 kids who will remain in W’s custody. H & W live apart for 18 months before the dissolution petition is filed. H contests the concept of equitable distribution:

a. Under a title system: H asks 3 LEGAL QUESTIONS: (1) are the words “equitable distribution” impermissibly vague and thus unconstitutional? (2) If not, what of H’s property is subject to equitable distribution, and what is exempt? (3) when does a marriage end for the purposes of equitable distribution?

b. Cal. CP system: W gets a present, vested interest in all CP as it is acquired, so no issues of vagueness arise; routine application of 760 and 770 for both spouses will define the community estate as a matter of right, not equity. The community ends when the couple first begins to live apart.

iii. Review:

1. Get a rough view of where Cal fits in the marital property options

2. Understand that CP in Cal is a default system – not all CP systems are this way – ie: Alaska allows an elective system

3. Read and know CFC 760 & 770

a. Property acquired DURING the marriage by whatever means is generally CP

b. Property acquired BEFORE the marriage, or DURING the marriage by gift, bequest, devise, or descent is SP – as are rents, issues, and profits from those SP sources.

4. Know that Cal follows equal mgmt principles

a. Each spouse has the right to possess and manage the CP, though only the SP owner has the right to possess and manage his SP

5. Know that in Cal, spouses are held to a fiduciary duty to each other with respect to the CP [but not the SP]

2. Professional Degrees – CFC § 2641

a. How does Cal handle community contributions to education/training?

i. CFC 2641 – gives the community estate an affirmative r

and W won’t be entitled to a reimbursement for the costs of H’s nursing education.

vii. Can 2641 be altered by written agreement?

1. Spouses can customize, but without a written agreement CFC 2641 is the community’s exclusive remedy.

viii. What about student loans?

1. A student loan isn’t a community estate liability – they are assigned to the student spouse

a. Loans that are not designated student loans are community debts even if the proceeds were used for educational purposes

ix. Does 2641 apply retroactively [before 1985 when enacted]?

1. Yes:

a. Decisional law says so – Marriage of Watt

b. Practically speaking, because the statute tests the time between the last contribution to education and the divorce proceeding, retroactivity is no longer an issue today in 2010

3. Planning Before Marriage: Premarital Contracts

a. What is a premarital agreement?

i. A premarital contract is a K entered into by prospective spouses – governs aspects relevant to marital property and/or duties. This is relevant because pre-marriage parties contract at arms length despite any emotional intimacy

1. Pre-marriage partners aren’t yet in a confidential relationship toward each other; nor do they have the statutorily imposed fiduciary duties that arise at the creation of a valid marriage/domestic partnership

ii. Premarital contracts are governed by CFC §§ 1600-1617

b. What can prospective spouses contract over?

i. Anything – only one topic explicitly off limits: child support [CFC 1612(b)]

1. Other than child support, anything goes if it doesn’t violate criminal law or public policy [CFC 1612(a)(7)]

c. What are common premarital contract terms?

i. Two categories of regularly used terms:

1. Spousal support waivers – § 1612(a)(7), tested for enforceability under § 1612(c) and again under § 1615

2. Property provisions – § 1612(a)(3), tested for enforceability under § 1615

a. Eg: W and H sign a premarital contract. Both waive any future spousal support claims. They also agree that the separate property investments H brings to the marriage will be redefined as CP at the start of marriage.

i. The first term is allowed by §1612(a)(7) and testable specifically under §§ 1612(c) and 1615

ii. The second term is allowed by § 1612(a)(3) and testable under § 1615

d. Who uses premarital contracts?

i. Any two prospective spouses – keep in mind that even spouses who don’t own much in the way of property can benefit from a PMA – Example:

1. W wants to marry H and plans to use her student loans to pay for educational expenses. But she also needs to use student loans to pay for general family expenses. W knows that if she and H divorce, the student loans will be assigned to her, not the community. W proposes they enter into a PMA that will flip the ordinary rule of CFC 2641. Instead of assigning all student debt to W, the PMA will provide that in the event of divorce any student loan funds used for community living expenses will be assigned to the community. There is also a provision for how records will be kept. H agrees in exchange for benefit of using W’s student loans.