Fall 2017 – Professor Ascher
Wills and Estates outline
Community Property
Texas, New Mexico, Arizona, Cali, Nevada, Idaho, Washington (Wisconsin and Alaska are weird).
Generally/Background
Texas Constitution Art. 16, Sec. 15 (pg. 867) – sets out separate and community property
FC 3.001 – Separate Property (pg. 919)
Property owned or claimed before marriage.
Property acquired by the spouse during marriage by gift, devise, or descent
Recovery for personal injuries sustained during marriage, but not lost earnings, medical expenses, or earning capacity.
Not included in statute but also (See Johanson handout page 10):
gains on separately held property
i. All corporate distributions other than cash dividends i.e. stock splits, stock dividends, stock options.
ii. Capital gains
Proceeds from separate property, known as the tracing principle. You must keep the funds separate though. This could also be assets purchased with proceeds from separate property, again the tracing principle.
Conflict of law separate property:
i. (1) Marital ownership of an asset is determined under the laws of the state (see (d) below) in which the couple was domiciled at the time the asset was acquired, and
ii. (2) that ownership is not altered when the couple thereafter moves to another jurisdiction. Stated another way, you don't lose property rights when you move to a new state.
iii. Division of property is different for divorce (quasi-property). See Johanson handout pg. 2.
iv. In a common law state the general rule is that the manner in which title is taken determines ownership.
If title is taken in H’s name, it is his property.
If title is taken in both spouses’ names, it is their property—either a tenancy in common, joint tenancy, or tenancy by the entirety (depending on the recitals and the law of the jurisdiction).
v. In community property states determining title is all about the time at which the deed was acquired and the funds with which it was paid for. In common law it’s all about the deed recital.
Exception in TX: If it is shown that community funds were used, but that the other spouse participated in the transaction in which title was taken in one spouse's name “as her sole and separate property” (or words of like effect), the asset conclusively belongs to the spouse's separate estate
FC 3.002 – Community Property (pg. 920)
Everything that is not separate property. Including:
Income from separate property [different from proceeds or gains on separate property]. Key word here is income, this would include cash dividends, rent, royalties.
i. Spouses can agree for income from separate property to remain separate property. Must be written.
QUESTION WILL BE IS MONEY INCOME (COMMUNITY) or PROCEEDS (SEPARATE).
FC 3.003 – Presumption of Community Property (pg. 921)
(b) – need proof by clear and convincing evidence to overcome this presumption.
E.g. H & W during marriage make a $50k purchase of land. $25k comes from H’s separate property, $25k comes from community property. Presumption is the land is a community asset. Need clear records of where the funds came from to determine the land is half H-Separate; half Community. If you have clear and convincing evidence then tenants in common.
i. FC 3.006 – Inception of title applies to marital estates. I think just codifies above example.
Presumption of Community Credit. – Johanson Handout pg. 3
Inception of Title Rule – Under this rule, the separate or community character of an asset is always determined at the time the asset is acquired.
E.g. H acquires land worth $100k, puts $10k down. Then he gets married to W. Remaining $90k paid from community property during the marriage. They even build a house on the property. H dies, the land is still his separate property**.
**Community estate may have a claim for reimbursement resulting from the expenditure of community funds.
Equitable Reimbursement Claims – FC 3.402 (Offsets) –
Basically, the claim for reimbursement is measured by “the enhancement in value to the benefited estate.”
2 Main Situations in Estate Practice:
Community funds used to pay premiums on a separately owned life insurance policy.
Community funds used to pay down mortgage or make improvements on one spouses separate property. (e.g. ‘5A’ above).
FC 3.402(a) – Claims for reimbursement include… (not exhaustive per Johanson) pg. 924; som highlights:
Closely held business interests (pg. 13 Johanson handout material)
Jensen v. Jensen – H held a bunch of stock in his company before marriage. Worked hard for company during marriage and received salary, and cash dividends from his stock. H and W divorce, and his stock is worth 10x what it was before marriage. W wants claim for equitable reimbursement for H’s time and effort expended (these are both technically community assets).
Court ruled stock all stayed with H, preserving inception of title rule.
But also held wife:
i. Could get reimbursement for value of time, toil and talent expended by H to enhance his separate estate
ii. Beyond that reasonably necessary to manage and preserve the estate (if H is just spending enough time and energy to keep the status quo, nothing to be reimbursed for).
iii. Reimbursement amount is reduced by compensation received for the spouse’s time, toil and talent (salary, bonus, dividends, other fringe benefits – these were community benefits and accordingly half hers).
NONREIMBURSIBLE CLAIMS – FC 3.409
Payment of Child Support, alimony, or spousal maintenance
Living expenses of a spouse or a child
Contributions of property of nominal value
Payment of a liability of nominal value
Payment of a student loan owed by a spouse
Offsetting – one major exception – #2 on pg. 5 of Johanson handout
Basically, if H owns primary or secondary residence separately, he cannot claim an offset from the community estate (mortgage/rent payments coming from community funds) for letting W live there rent-free during the marriage. He could do this for a car he was still paying off with community funds after marriage. It’s H’s duty to let W have a place to live, and vice versa.
Commingling of Separate and Community Property; Tracing
Commingled bank account—“community out first” presumption.
E.g. Joint bank account, $1700 in community funds; W deposits another $3500 separate funds. $2070 left in account at time of divorce – presumed to be all separate funds.
Lowest Intermediate Balance Rule
E.g. Joint bank account, $10k community funds; W deposits $20k separate funds. Many more withdrawals and deposits are made with community funds over the years. At one point account balance drops to $14k. At time of divorce ac
etc.
Judges use the same “just and right” method in deciding what to do with community property overlooked during divorce proceedings. Community property cannot exist after divorce; only among spouses. Common remedy for overlooked property is Tenancy in Common.
Intestate Succession – If H dies, W keeps her half of the community property no matter what. She has a present one-half interest in that property, she is not an heir. (Will discuss TX intestate succession scheme infra.)
Testamentary Disposition – Testator has full power of disposition over separate property and .5 Community Property. No Dower, Curtesy etc. in TX.
Lifetime Gifts of Community Property –
Texas law only allows one spouse to make “reasonable” gifts of community property without the other spouse’s consent or participation. If it’s an unreasonable gift the other spouse may have a claim for reimbursement. Separate Property is up to the individual’s sole discretion
Fraud on the Spouse – excessive or capricious gifts made with intent to defraud the wife are void or at least voidable on her insistence. While a showing that the donor intended to defeat the spouse's community rights will enable her to challenge the transfer, proof of actual intent to defraud need not be established. The circumstances surrounding the transfer and the amount of the gift may support a finding of “constructive fraud.” Factors considered:
Relationship of donee to spouse – is it a relative? (presumptively fraudulent to nonrelative. See example 17, pg. 17, Johanson Handout) Long-time employee? Girlfriend?
Amount of gift in relation to entire community estate
Whether spouse was “made whole” out of remaining community assets (or spouse’s separate estate e.g. gift of community asset to child from former marriage, wills separate property to wife).
Spouse’s remedy for fraudulent gifts.
If challenges gift during donor’s life time, whole gift can be recovered
If challenges gift after donor’s death, half of gift can be recovered, beneficiary keeps the other half.
Estate of Bray – Cal. Ct. of Appeal, 1964 – casebook pg. 194 – Father set up joint bank account, and bought savings bonds in his and his son’s name. Intended for son to have these funds. Upon death, W (not son’s mother) claims the bank account were unauthorized gift of community property, and she gets half. There was some controversy as to whether it was a gift or if the son provided consideration through his work for dad’s company. Son received a salary for work, so court determined bank account and bonds were a gift. Wife able to recover half of the gift.
Notes to this case have good examples
Uniform Marital Property Act – Casebook 202
