MARITAL PROPERTY OUTLINE

  1. Background
  2. California’s system of marital property is a civil law, or “community property” system in its roots, but common law concepts and interpretations largely shaped it over the last 150 years.
  3. The husband, consistent with common law, had absolute right to control both the community property, his separate property, and wife’s separate property. Wife’s interest was considered a “mere expectancy” that was not realized until divorce or death. Although modified somewhat, this concept survived until 1975. Consistent with common law view of marriage of H and W as “one” person-the H.
  4. Basics
  1. In CA, there are only two types of marital property: community and separate. Characterization of property as one or the other has differing and material implications at divorce or death for the community.

Death

  1. If Spouse dies intestate: all of community property goes to surviving spouse, and all of separate property as well, if decedent spouse has no heirs. If there are heirs, surviving spouse receives ½ or 1/3 of decedent’s separate property.
  2. If Spouse dies testate (with valid will): may devise ½ of community property and all of separate property.

Divorce

  1. At divorce, CP is split 50/50 (with very rare exceptions). SP is undivided and is the, well, SP of that spouse.
  1. The Battleground: Characterization of Property as Separate or Community
  2. The simple definitions of CP and SP are obscured by two, competing, historical interests: the interest of the community, and the interests of the separate property owner.
  3. Community Property: “[A]ll property, real or personal, acquired during marriage (labor or effort of either spouse during M)…” CFC 760
  4. Separate Property: “All property owned before marriage, and all property acquired by gift,devise, or descent during marriage.” CFC 770
  5. “Rents, issues and profits” of separate property are also separate property (another char. Problem) George v. Ransom rule
  6. Does it F.I.T.
  7. Unlike 1st year property, who is on title, and in what form, is often not controlling. F.I.T. is an acronym that indicates, in order of descending importance, the factors that courts use to determine the SP/CP character of disputed property at death/divorce: (1) funds (tracing); (2) intentions (to overcome a source of funds showing, the intention to transmute to CP/SP must be in writing and express clear intention “express declaration in writing…by the spouse whose interest is adversely affected.” CFC 852 (since 1985); (3) title
  8. Legal Presumptions: property acquired during M is presumed to be CP. REBUTTABLE by F.I.T.
  1. Hypo: W owns farmland prior to marriage. At time of marriage land is worth $10,000. Soon after marriage, husband, a farmer, works the land, raising wheat, while W stays at home and maintains household/raises children. Based on the profits from the crops over 20 years, the couple saves $100,000. After 20 years, H and W divorce. At time of legal separation, the value of the land is $100,000. How to divide?
  2. Answer. There are two assets at issue here in re characterization. One is the farmland. The other is the bank account.

First the farmland: the farmland was, and is, the separate property of W and it was acquired before marriage, so there is no CP presumption; however, the positive change in value (90K) is a bit trickier. Depending on the reasons for the increase, the 90K must be apportioned by either the Van Camp or Pereira formula (more on this later, but for now suffice it to say that one formula is shifted more toward CP where there has been labor/efforts of community to gain at least part of the increase in value, and the other formula is designed to benefit the SP proponent where the rise in value is due to something other than efforts, labor, or skill of the community (like dumb luck/buying into real estate at proper moment in business cycle). Since we are speaking of land, and not a business, it seems, based on these limited facts, that W, the separate property proponent, will get most of the $ from the sale of the farm.

Second, the 100K. First of all, this $ was acquired during marriage, so it is presumptively CP. Also, this money seems to be the fruit of the labor/efforts of the community, not merely rents, isssues, and profits, which are SP. W can try to rebut this, but there doesn’t seem to be a good basis for doing so. She can’t trace this account to SP funds. Also, there is no evidence of a transmutation (“I”ntention), and title on the account is not controlling or even persuasive. The money from the account will be split 50/50.

  1. Transmutation
  2. Background
  3. Prior to 1985, a transmutation during marriage(changing character from CP to SP, or SP to CP, or SP of H to SP of W, etc.,) could be oral or implied as well as written. As of 1/1/1985, must be written and must be express (This informality only applied to transmutations during marriage. An attempted oral/implied transmutation prior to marriage would not be valid).
  4. A transmutation from CP/SP to JT always required “written evidence.” Reason? Graver consequences: if property is transmuted from JT to CP, the community must share control, incl. encumbrance/sale/transfer. With transmutation from CP to SP/JT, the owning spouse has absolute control of all or their half.
  5. Form v. Substance: Pre-1985 (still controls transmutations prior to 1/1/1985.)
  6. Downer v. Bramet, p. 146: H’s employer gave H the “gift” of a ranch after separation but before divorce. Ct. looked at all circumstances of this “gift” and determined that it had really been given in lieu of a pension. Since a pension would be community property, this “gift” was not really a gift, but remuneration for the husband’s efforts during M, which are CP.
  7. To the extent that this “gift” remunerated H for time worked prior to marriage to W, this would be separate property, and the value of the “gift” would be apportioned accordingly.
  8. Jafeman, p. 116: Even prior to 1985, the ct. req. evidence of transmutation from the adversely affected spouse. Private, unshared intentions of either spouse, but esp. benefited spouse, are of no consequence. Consistent w/ this, mere use of one spouse’s SP doesn’t effect a transmutation. (Compare: in Nelson, p.117, n. 1, the court did find a transmutation by oral agreement. Consistent w/ Jafeman? Yes: (1) divorce v. death case (divorce frowned upon at this time); (2) tax returns; (3) expressed desire of deceased to provide for his wife; (side note: W also wasn’t being greedy here).
  9. Lucas, 27 Cal. 3d 808, 814: Ct held that H transmuted his interest in a motor home by silence where (1) the purchase agreement was in H’s name, but the ensuing title/reg was in W’s name.
  10. Pre 1985 Summary
  11. oral and written ev. Of transmutation okay
  12. transmutation occurs when agreement is made
  13. both real and personal property can be transmuted
  14. informal
  15. more difficult to prove an oral/implied agreement at divorce than death
  16. Really, the Sp.’s intent controls, not the “agreement” (that is, such a transmutation is really like a gift situation).
  1. Post 1/1/1985: written evidence of transmutation required
  2. Significant features (see CFC 850-853)
  3. writing required by sp whose interest is adversely affected.
  4. Commingling exception (i.e., a transmutation can be shown by evidence of commingling w/o an express declaration in writing. CFC 852(d) states that the commingling statutes will control here, not 852. Black letter, but commingling is a closely defined and narrow area. More on commingling later.)
  5. No consideration required
  6. Will is not evidence in a divorce proceeding
  7. Does not apply to transmutations occurring before 1/1/1985.
  8. In re applicability of CFC 850-53: the important date is the date of transmutation, not date of property acquisition!
  1. New law strictly interpreted:
  2. Marriage of MacDonald (death case): A form contract stating: “I consent to the designation of beneficiary” was not enough to indicate a transmutation. Ct held that “magic words” such as “transmutation,” “CP,” and “SP” were sufficient, but not required. Stated that clear but non-lawyer speak was okay: “I hereby give any interest I may have in this account to the account holder.”
  3. Marriage of Barneson (divorce case): H’s instruction to his stockbroker to transfer certain securities his wife’s name insufficient to show a transmutation.
  4. Exception to statute of frauds (detrimental reliance/promissory estoppel); Marriage of Campbell, 74 Cal. App. 4th 1058: H’s agreement to transfer his interest in family home was explicit and in writing. He did not dispute this. But he said it was done in exchange for W’s waiver of interest in his retirement account. This waiver, or transmutation, was not in writing. Court of Appeals found that there was an exception to SOF here: H had partially performed, and relied upon W’s promise to his detriment. H won. But even so, he lost a $400K asset in exchange for free and clear ownership in a pension fund of $91K.
  1. Gift exception: Per CFC 852(c). Requirements: (1)“a gift between spouses of clothing, jewelry, wearing apparel, or other tangible articles of a personal nature that are (2) used solely or principally by the spouse to whom the gift is made, and (3) is not substantial value taking into consideration the circumstances of the marriage.
  2. Comment: all three elements must be satisfied. Ct has held that the gift exceptions does not apply, even though all other circumstances are met, if the value of the gift is disproportionate to community’s standard of living (Steinberger, diamond ring). Compare the Johnny Carson hypo. Unlike Steinberger, the value of gift is not an issue (since, quite arguably, the value of a car isn’t much to the marriage/lifestyle of Johnny Carson). The question is whether a car is a “gift…of a tangible article[] of a personal nature.”
  1. Evidentiary Presumptions
  2. General Community Property Presumption
  3. Property acquired during marriage is presumed to be community property (rebuttable). Comes from case law (and before that back to Spanish Civil Law), but has since been codified.
  4. [Brief primer on the mechanics of evidentiary presumptions: (1) presumptions are not themselves evidence; thus, facts must be presented to raise the presumption, e.g. “house acquired during M” raises presumption that house is CP; (2) the presumption, once raised, is rebuttable, not conclusive. This means that the opponent of CP characterization can present evidence that demonstrates SP character; (3) if presumption not rebutted, it becomes conclusive; (4) if presumption is successfully rebutted, then the rebuttal (SP) becomes conclusive. The person opposing the presumption (SP proponent) has the burden of proof (bp is usually preponderance, but sometimes clear/convincing).]
  5. Sometimes, if the marriage has been a long one, and there is little evidence regarding the property, such as even the date of acquisition the presumption is extended to property possessed during marriage. This definitely favors the CP proponent and puts a tall burden on the SP proponent. Lynam v. Vorwerk, 13 Cal. App. 507. See also Marriage of Stone, p. 153 (RP in favor of CP in re untitled bank account where marriage was very long. Also a death case, not divorce).
  6. Short marriages/an aberration: in Mahoney, 71 Cal. App. 2d 65 (1945), the ct. agreed w/ SP proponent (son) who argued that the $1.00 used to purchase an insurance policy, where the decedent had only been married a few months, was earned before marriage, and thus was SP. So, in a narrow sense, the court here stated that mere “possession during marriage” was not enough. N.B.: (1) the result might have been different here w/ a longer marriage/the lack of need to bend equity to help 16 yr old son, or (2) better lawyering: wife’s counsel should have argued that the insurance policy (forget about the $1) was acquired during marriage, and thus put the burden of tracing funds upon the son.

[***If the CP presumption is raised, why is the SP proponent limited to tracing funds to prove her case? Why not proof of title? Because the courts and legislature have recognized that the form of title often has little to do with the intentions of the couple in re ownership, but may be done for convenience or tax reasons, for example. Intentions of the party (from F.I.T.) are the paramount factor only in the event of a [valid] transmutation (as above, CFC 852).]

  1. Apportionment
  2. It is often the case that the CP presumption is rebutted only partially; that is, that tracing reveals that an asset was purchase partly with SP funds, and partly with CP funds. The outcome here is logical: the asset is divided in ratio to the purchase funds. Any increase or decrease in value is accordingly distributed as well.
  3. Example: tiffany lamp. Purchase for $1000. $600 SP, $400 CP funds. At divorce, lamp is worth $10K. W (the SP proponent/owner) gets $6000 as her SP and ½ of $4000, the CP value, with appreciation, or $2K each to W and H. Grand total: $8K to W, $2K to H.
  1. Married Woman’s Special Presumption, CFC 803
  2. If property, real or personal, was acquired by a married woman, in an instrument in writing, prior to January 1, 1975, it is presumed to be her separate property.
  3. Logic: Equal control and mgmt of property between H and W did not exist until 1/1/1975, so this was an equitable attempt at leveling the playing field a little bit.
  4. Limitations: (1) applies only to married women; (2) applies only to property acquired before January 1, 1975, and (3) must be via an instrument in writing.
  5. An anomaly among presumptions: all others we have learned lean toward community property. This presumption favors separate property.
  6. Rebuttable not by funds (tracing), but by credible evidence of H’s intentions (if H used community funds to buy a sailboat, put it in W’s name, put a ribbon on it, and wrote a big “happy bday” sign, it would be tough to rebut). So “F.I.T.” doesn’t fit in this particular area.
  7. Case example: Louknitsky (Olga and Vladimir. He was out of country. Title in her name seemed a matter of necessity, not a gift. So Marr. Women’s presumption successfully rebutted.
  1. The role of title
  2. As above, property is not determinative of characterization (usually) where the property is acquired during M and titled in one spouse’s name (the CP presumption); however, when the property is title jointly (either JT, CP or CPWROS), there is a different analysis
  3. JT is, in one sense, neither separate property nor community property. In another sense, though, it is really equal, undivided shares of separate property. They can be sold w/o the consent of the other joint tenant, and pass to the surviving tenant upon the death of the other (“right of survivorship.”)
  4. As of 1/1/1984 property titled in joint tenancy between spouses is presumed CP at divorce. This is a rebuttable presumption
  5. The rebuttal: by funds? No. Taking title is itself considered an agreement. Siberell, 214 Cal. 767 (1932). Following this logic, courts have reasoned that “an agreement can only be rebutted by an agreement.”
  6. The rebuttal agreement (that the property is the separate property of one spouse, despite the JT form of title) must be “In a separate writing or in a clear statement in a deed or title.” CFC 2581
  7. Compare the implications of JT, and the method of rebutting it (intentions via written agreement) versus taking title as CP (tenants in common, or CPWROS), where the CP presumption is rebutted by tracing…
  8. Reimbursement

a.The Cal. Legislature, in response to a high profile case where a spouse’s seemingly SP became CP at divorce when held as JT (Lucas), also wrote CFC 2640 (formerly 4800.2): a right of reimbursement at divorce for the spouse who contributed SP funds to a property titled in JT. In order to get reimbursed, the moving spouse must trace the funds to a separate property source.

b.NB 1: The reimbursement is taken at the dollar value of the contribution at the time of purchase, thus the other spouse benefits fully from the appreciation in the property. Amounts to “an interest-free loan.”

c.NB 2: This analysis only applies to purchases on or after 1/1/1984. For purchases before this date, the cp/sp analysis is accomplished through Lucas.

d.The Two Step Process: Step 1 is characterization of the JT property by “intention” (agreements), starting w/ form of title. Once the property has been characterized as JT, and thus CP at divorce, Step 2 looks to the source of funds to find reimbursement. So there is a bit of schizophrenia in the analysis. Results from Legislature/court’s attempts to balance community v. separate interests.

  1. Written Agreements/Successful Rebuttal:
  2. Under 4800.1, you first characterize. If there is a written agreement that rebuts the JT in favor of either SP, or combined SP/CP, then you never go to step 2 (4800.2), which applies only where the characterization is of JT as CP. In this latter case, the property, including appreciation, would either be solely separate property or apportioned.
  1. Pre 1984: Lucas
  2. O/w/I agreements to rebut CP presumption (of JT title) are admissible. 4800.1 & 4800.2 cannot be retrospectively applied (due process). Thus, any form of agreement as SP or SP/CP would change the characterization.
  3. BUT: if there is no agreement at all to rebut the JT title, then the property will be considered CP, there is no right to reimbursement, and the separate property contribution is regarded as “a gift to the community.
  4. Other forms of joint title and Anti-Lucas.
  5. In 1984, CFC 4800.1/2, the Legislature only addressed joint tenancies. Thus, until 1987, o/w/I agreements to rebut CP presumption (where title was in CP form) were admissible. The irony: For this period of time (1984-1987) joint tenancy was a more secure form of assuring CP division at divorce than CP itself!
  6. In 1987, the Legislature amended 4800.1 to apply to all joint titles, regardless of form,.\ INCLUDING COMMUNITY PROPERTY, TENANTS IN COMMON, AND COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP So from 1987 on, the analysis for property titled as CP is identical to JT.
  7. What about the period of 1984-87? Another anomaly. During this period, o/w/I agreements were still admissible to rebut CP presumption; that is, 4800.1 did not apply. HOWEVER, 4800.2, which was applicable to all property characterized as CP, was. So even if a proponent of SP (where property was titled as CP) couldn’t prove a SP agreement by o/w/I, he or she was still entitled to reimbursement for SP funds used for purchase of property. Favors SP; sort of like two bites at the apple.
  8. Comment (Goldberg’s): Why did the Legislature try so hard to make 4800.1 retroactive? They wanted uniformity. Why did courts strike the various attempts of legis. Down? Lack of due process/unfair surprise. The Maginot Line is, what was the law at the time of the property acquisition. Whatever law exists at this time, if later applied in litigation, would meet the “reasonable expectations of the parties.
  9. This position was expounded in Marriage of Buol. Goldberg’s personal view is that, in re 4800.1, the presumption (of CP at divorce) is retroactive, but the rebuttal is not. That is, to be fair, equitable, and in line w/ constitutional rights, a litigant who acquired property prior to 1984 ought to be able to rebut the CP presumption w/ the type of evidence allowed pre-1984, namely o/w/i agreements.
  10. ??? Goldberg said in lecture that an agreement could be demonstrated by “tracing funds” for property titled as CP up until 1987 (Does this mean that tracing funds is tantamount to an implied agreement?)
  11. @??? Ask Goldberg about equal v. unequal (equitable) distribution. Is this testable, or just a thought-provoking concept broached at beginning of the course?
  1. Unique features of CPWROS: requires “clear statement in the transfer document.” Acts as CP at divorce, but as JT at death.
  2. Unique features of tenants in common:
  3. Tenants can own unequal shares, and this is expressed in the deed. This expression, in fact, is sufficient to rebut the CP presumption of jointly titled property.
  4. There is no survivorship component. At death of a tenant, that share will be dealt with by testacy (inheritance) or intestacy law (to her heirs if no will, and to anyone else, if in a will). (Cross reference this with testacy/intestacy law).
  5. Reimbursement under 2640 (4800.2): Three key elements
  6. “Contributions to the acquisition of property” can mean, of course, contribution toward the purchase price. But it can also mean:
  7. down payments
  8. payments for improvements
  9. payments to reduce the principal of a loan used to finance or improve the property

This does NOT include payments for (considered “expenses”):