CALIFORNIA FAMILY LAW FOR PARALEGALS, 5th Ed.

1
CALIFORNIA FAMILY LAW FOR PARALEGALS, 5th Ed.

• Chapter Seven
• Property Rights and Obligations

2
A. INTRODUCTION

• Historically, the California community property
  system traces its roots back to Mexico and Spain
  and their community property law, which was first
  adopted by the State of California in 1848.
• The California constitution (adopted in 1849)
  recognized and guaranteed the separate property
  rights of individuals and further instructed the
  legislature to devise a statutory scheme to
  define these rights and responsibilities.

3
A. INTRODUCTION

• In the early 1950s, wives finally won the right
  to manage and control their earnings during
  marriage, and in 1975 they won the right to
  manage and control the community property as
  equals to their husbands.
• These concepts of equal management and control
  over marital property are found in sections 1100
  et seq. of the Family Code under the heading,
  Management and Control of Marital Property.

4
B. GENERAL CONCEPTS

• Exclusive jurisdiction over the division of
  property in the context of Family Code
  proceedings is vested in the superior court.
• For purposes of making this determination, the
  property need not necessarily be located within
  the State of California.
• There are generally four basic categories of
  property over which the court has jurisdiction in
  this context community property, separate
  property, quasi-community property, and
  quasi-marital property.

5
B. GENERAL CONCEPTS

• All property acquired during the marriage by the
  parties while domiciled in this state that is not
  separate property is, by process of elimination,
  community property.
• Property acquired before the marriage (together
  with all rents, issues and profits) is separate
  property, as are certain other items that are
  simply deemed by statute to be separate property
  by their very nature (gifts and inheritances for
  example, together with certain categories of
  personal injury damages).

6
B. GENERAL CONCEPTS

• The term quasi-community property is used to
  describe property that would have been community
  property had it been acquired by the parties
  while they were married and domiciled in this
  state.
• Inasmuch as this is a very mobile society, many
  people will live in one state for some period of
  time during their marriage, acquire property
  there, relocate to California, and then
  ultimately seek a divorce.

7
B. GENERAL CONCEPTS

• Quasi-marital property refers to property
  acquired by the parties during a putative
  marriage, which would have been community or
  quasi-community property had the marriage in fact
  been valid.
• This property is divided upon dissolution as if
  it were community property, a concept that
  generally works to the benefit of the putative
  spouse.
• Many assets will be hybrids of one of the
  categories.
• A house purchased prior to the marriage and paid
  for with premarital funds will, following the
  marriage (assuming payments are made on the house
  with community funds during the marriage),
  acquire community property characteristics.

8
C. PROPERTY IN GENERAL

• The general definition of property includes the
  language everything which is capable of being
  owned.
• Real or personal, tangible or intangible, visible
  or invisible all of this falls within the
  context of property and can thus be recognized,
  valued, and divided by the superior court.
• See list on pages 238 and 239.

9
D. CHARACTIZATION OF MARITAL PROPERTY

• Living separate and apart is a fundamental
  requirement for a finding of post separation
  earnings and accumulations.
• The date of separation is a discretionary,
  factual determination to be made by the trier of
  fact (i.e., the judge).
• The determination of the date of separation is
  purely a function of case law.
• See cases on pages 240-242.
• The courts have stated the test for a date of
  separation to include the following basic
  factors see page 242.

10
D. CHARACTIZATION OF MARITAL PROPERTY

• The bottom line in these date of separation cases
  is that the trend of the courts is to favor later
  dates of separation.
• Some basic rules to follow in advising clients on
  what to do to ensure a date of separation can
  thus be summed up as follows.
• The party leaving must see page 243.

11
D. CHARACTIZATION OF MARITAL PROPERTY

• A conclusive presumption is one that cannot be
  rebutted, regardless of what the actual facts
  are.
• A rebuttable presumption, on the other hand,
  simply shifts the burden of proof to the party
  contesting the presumption.
• Providing the party can establish a sufficient
  basis for rebutting the presumption, however, it
  will be rebutted.
• Most presumptions are rebuttable rather than
  conclusive due in no small part to the draconian
  nature of the conclusive presumption.

12
1. PRESUMPTIONS RE CHARACTERIZATION

• Family Code section 760 state in pertinent part,
  that all property acquired by the parties during
  the marriage is presumed to be community
  property.
• This can be rebutted with an affirmative showing
  that the property was not intended by the parties
  to community in nature.
• The burden of carrying this proof is on the party
  contending that the property is not, in fact,
  community.

13
2. PROPERTY HELD IN JOINT FORM

• The focus of Family Code section 2581 is to
  clearly establish that whenever married persons
  take title to a piece of property such that both
  of their names are jointly set forth thereon,
  then the statutory presumption will be that this
  property is community in nature and, upon
  termination of the marriage, should be divided
  between them.
• The statute continues and indicates that this
  presumption may only be rebutted by a clear
  statement in the deed or other documentary
  evidence of title by which the property is
  acquired that the property is separate property
  and not community property, or by proof that
  the parties have made a written agreement that
  the property is separate property.

14
2. PROPERTY HELD IN JOINT FORM

• When a joint tenant dies, the property passes to
  the other joint tenant by right of survivorship.
• This means that the surviving joint tenant
  receives 100 percent of the property.
• If that same property is divided upon dissolution
  or legal separation, however, each joint tenant
  only receives 50 percent since the property must
  be divided equally.

15
3. TRACING

• In general, tracing allows the tracing party to
  rebut the general presumption of section 760 that
  property acquired during marriage is community in
  nature.
• This is done by tracing the source of the funds
  used to acquire the property to a separate
  property source.
• This concept of general tracing has less
  application with titled assets as these are
  controlled by section 2581.
• If section 2581 operates to presume that an asset
  is a community asset, unless that presumption is
  rebutted in accordance with the provision of that
  section, general tracing becomes irrelevant.
• See example on page 253.

16
4. TRANSMUTATIONS

• This term generally describes an agreement
  between the spouses to change the status of an
  asset from either separate to community or
  community to separate.
• It has long been recognized that the spouses are
  free to agree between each other to change the
  status of either a single asset or all of their
  assets in bulk in this manner.

17
4. TRANSMUTATIONS

• Family Code section 852 provides in pertinent
  part, as follows 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.

18
5. PERSONAL INJURY AWARDS

• If the cause of action giving rise to the
  personal injury claim arose during the marriage,
  then the recovery will be community property.
• If, however, the cause of action arose after
  either a judgment of dissolution or legal
  separation or while the parties were living
  separate from the other spouse, the recovery
  shall be characterized as the separate property
  of the injured spouse.

19
6. EARNINGS EMPLOYMENT BENEFITS

• To the extent that these are earned during the
  marriage by one of the spouses, they constitute
  community property.
• If someone performs services and is given
  compensation for those services, and those
  services are performed during the marriage and
  before separation, then that compensation will be
  deemed to be community property regardless of the
  form of compensation.

20
6. EARNINGS EMPLOYMENT BENEFITS

• Retirement benefits, pensions, and deferred
  compensation packages also fall within the
  context of earnings and accumulations because
  they constitute income that is earned currently
  but paid later.
• For purposes of the division of community
  property, income as a divisible community asset
  obtains its character as either separate or
  community not necessarily when the income is paid
  but rather when the income is earned.

21
7. GIFTS AND INHERITANCES

• Family Code section 770 specifically mandates
  that property received by gift, bequest,
  devise, or descent constitutes separate
  property.
• A gift, simply put, constitutes some item of
  value that is transferred by one person to
  another gratuitously and without receiving
  anything in return for the transfer.
• An inheritance is somewhat similar to a gift,
  except that it takes place after the death of the
  donor.
• A gift is made while the donor is living.

22
8. RENTS, INCOME, AND PROFITS

• All forms of income produced by an asset will
  maintain the character of the assets from which
  they flow.
• Family Code section 770 also mandates that the
  rents, issues and profits of property
  constitute separate property as well, when those
  rents, issues, and profits flow from the separate
  property of the spouses.

23
9. EDUCATION AND TRAINING

• There is a right of reimbursement for community
  contributions made to education or training that
  substantially enhances the earning capacity of
  the professional spouse.
• These reimbursement rights are not absolute.
• Family Code section 2641 provides that the
  community will be reimbursed for all
  contributions to the education and training of
  the party that have substantially enhanced that
  partys earning capacity.

24
9. EDUCATION AND TRAINING

• The question of whether the education or training
  has substantially enhanced the student spouses
  earning capacity is one of fact for the judge to
  decide.
• Family Code section 2641 limits this
  reimbursement right by providing that such
  reimbursement will only be appropriate if the
  community has not already substantially
  benefited from the education or training.
• In that regard, the statute further establishes a
  rebuttable presumption that the community has not
  substantially benefited from the community
  contributions to this education or training if
  they were made less than ten years before the
  commencement of the proceeding.

25
9. EDUCATION AND TRAINING

• Family Code section 26419(b)(2) makes it clear
  that any student loans incurred during the
  marriage for the education and training of a
  party shall not be included among the liabilities
  of the community for the purpose of division but
  shall be assigned for payment by the party.
• This essentially provides that student loans are,
  for all practical purposes, treated as the
  separate property of that spouse incurring the
  debt.

26
10. BUSINESS INTERESTS

• The interests of a spouse (or both spouses) in an
  ongoing business are indeed property, and is also
  capable of being valued for the purposes of
  division.

27
10. BUSINESS INTERESTS

• a) Valuation of the Business
• The term goodwill refers to that portion of a
  business that represents the likelihood that it
  will have repeat business.
• As a general rule, the concept of goodwill finds
  application in the context of sole
  proprietorships or business ventures in which the
  spouse who owns the goodwill owns a significant
  share of that business.

28
10. BUSINESS INTERESTS

• b) Valuation Methods
• The business must be valued in order for it to be
  divided or awarded in the context of the
  dissolution, and there a variety of methods.
• The law instructs us to use the simplest
  valuation method available.
• They include (going from most simple to most
  complex) see pages 264 and 265.

29
10. BUSINESS INTERESTS

• c) Date of Valuation
• Once the determination of the value of a business
  has been made, the next step is to consider the
  date at which the business will be valued.
• As a general rule marital assets are valued as of
  the date of the trial of the dissolution action.
• However, it is generally considered appropriate
  to value a small business, typically owned and
  operated by one person (one of the spouses), such
  as a professional practice (doctor, lawyer, etc.)
  or other small business, by using a date close to
  the date of separation as the valuation date.

30
10. BUSINESS INTERESTS

• d) Elements of Business Valuation
• Any business evaluation will involve that
  analysis of all of the myriad components of a
  business, the aggregate of which will constitute
  the valuation figure.
• These items include the following see pages 266
  and 267.

31
11. RETIREMENT BENEFITS

• a) Types of Plans
• The concepts of deferred compensation and
  retirement benefit plans all refer to
  compensation that is earned by the employee
  currently but paid at some later date.
• With a defined contribution plan, the ultimate
  amount of the benefits to be provided at
  retirement will not be known until the date of
  such retirement because they depend upon the
  future investment performance of the fund.
• The benefits are simply defined by a formula for
  contribution.

32
11. RETIREMENT BENEFITS

• With the defined benefit plan, the known variable
  is the amount of the benefit to received at
  retirement, and the required contribution over
  time is adjusted to meet that goal.
• Under either kind of plan, the employee spouse
  typically has the option to contribute his own
  funds to the plan in addition to those funds
  being contributed by the employer.

33
11. RETIREMENT BENEFITS

• b) Division of Retirement Benefits
• In the Marriage of Brown, the court opens the
  door for the valuation of both vested and
  non-vested rights in employer-granted pension
  plans.
• The court further indicated that to the extent
  that these rights are not vested and thus not
  capable of valuation with certainty, then the
  trial court is free to fashion a formula by which
  each spouse will participate in the benefits of
  the fund when (and most importantly if) those
  benefits are received by the employee spouse.
• This has given way to a significant body of law
  focusing not only on the valuation of pension
  plans, but on their division as well.

34
11. RETIREMENT BENEFITS

• c) Special Issues Regarding Retirement Benefits
• 1) Disability Pay
• Disability pay is not in fact a retirement
  benefit.
• Rather, it is simply compensation for income that
  is lost by premature retirement that is a result
  of diminished ability to earn a living.
• Under these circumstances, the inquiry turns upon
  when the disability occurred, and exactly for
  what the disability payments are designed to
  compensate the employee.
• In general, disability benefits received after
  separation are the separate property of the
  recipient.

35
11. RETIREMENT BENEFITS

• 2) Joinder
• A joinder brings the pension plan into the
  dissolution action as a party litigant.
• Once that happens, the pension plan becomes
  subject to the powers of the superior court.
• If the pension plan chooses to ignore the orders
  of the superior court with respect to the manner
  in which it is to be divided, then various
  penalties and remedies will follow on behalf of
  the nonemployee spouse whose interests are
  adversely affected.

36
11. RETIREMENT BENEFITS

• 3) Qualified Domestic Relations Order
• A Qualified Domestic Relations Order (QDRO) is a
  document that requires approval from the pension
  plan administrator and the court in order to
  divide a pension plan amongst the two parties.

37
E. LIABILITY OF MARITAL PROPERTY

• Family Code sections 900 et seq. provide the
  basic rules with respect to the liability of the
  marital property for the debts of the parties.

38
1. LIABILITY OF COMMUNITY ESTATE

• The community estate is liable for a debt
  incurred by either spouse before or during
  marriage and prior to separation, regardless of
  who has the management and control over the
  community property.
• As such, even debts that are incurred by either
  spouse before marriage can be satisfied by the
  current community property.

39
2. LIABILITY OF SEPARATE PROPERTY

• As a general rule, a spouses separate property
  is liable only for that spouses own debts which
  he incurs both before and during marriage.
• That separate property is immune from liability
  for debts incurred by the other spouse either
  before or during the marriage.
• There is separate property liability for
  necessaries of life while the parties are living
  together and also while the parties are living
  separately.

40
3. DEBT LIABILITY

• Once a dissolution or legal separation matter has
  been concluded, the general rule is that all of
  the property that has been subject to the
  proceeding must be distributed to the spouses
  either as per the terms of a settlement agreement
  or as per the terms of a judicial decree.
• Not only will the court distribute the assets
  equitably to the parties, but it will also
  allocate an equitable share of the community debt
  to them as well.

41
4. TORT LIABILITY

• Family Code section 1000 establishes the
  statutory ground rules, which basically provide
  that if the tort is committed while the spouse is
  engaged in an activity for the benefit of the
  community, then the liability must first be paid
  out of community funds, and then (after the
  exhaustion of community property) from the
  separate property of the spouse who has committed
  the tort.
• If the liability did not occur during the course
  of an activity for the benefit of the community,
  then the preference is reversed This debt must
  first be satisfied from the tortfeasors separate
  property and then, to the extent there is an
  insufficient amount of such separate property,
  the debt will be satisfied from the community
  property.

42
F. MANAGEMENT AND CONTROL

• Family Code section 1100 through 1103 provide the
  statutory framework for defining the rights and
  obligations of spouses to each other with regard
  to the management and control over property of
  the marriage.
• Family Code section 1100 provides that each
  spouse is given equal management and control over
  the community personal property.
• This Code section also provides that each party
  has absolute power of disposition over the
  community estate as if that spouse was disposing
  of his own separate property.

43
G. THE DIVISION OF MARITAL PROPERTY

• 1. Dividing the Community Estate
• The easiest and most preferable method of
  division awards certain assets to one spouse and
  certain other assets to the other spouse, and in
  so doing tries to ensure that each spouse ends up
  with assets totaling the same amount of value.
• To the extent that one spouse ends up with a
  little more than the other spouse, then the court
  will order that spouse to make an equalizing
  payment to the other spouse so as to equal out
  the division of these assets.

44
G. THE DIVISION OF MARITAL PROPERTY

• The court also can award assets in kind to the
  extent that they lend themselves to such
  division, i.e., shares of stock.
• Somewhat related to an in-kind division is the
  conversion of title to a property from whatever
  its status during marriage was to tenancy in
  common.
• The fourth method involves simply selling the
  properties and dividing the money equally.
• The fifth method typically employed by the courts
  simply contemplates a reservation of jurisdiction
  over the issue until such time as the asset can
  be valued and divided.

45
2. DIVISION OF RETIREMENT PLAN BENEFITS

• It is incumbent upon the trial court to determine
  the value of only the community interest in
  retirement plans.
• As such, plan increases and contributions
  resulting from pre-marital and post-separation
  efforts of the employee spouse are not to be
  included in the calculation of the community
  value.
• Once these values have been determined, it then
  becomes necessary for the court to actually
  divide the present value of the community
  interest so determined.

46
2. DIVISION OF RETIREMENT PLAN BENEFITS

• Such division can take two distinct forms either
  the employee spouse cashes out the nonemployees
  interest in the plan pursuant to one lump sum
  payment of money, or the employee and nonemployee
  spouse will continue to participate in the plan
  until such time as the employee spouse is first
  eligible for retirement, at which time the
  monthly proceeds of the plan will divided between
  the parties pursuant to the ratio derived at the
  time of trial.

47
3. DIVIDING DEBTS AND LIABILITIES

• When dividing community debts there is a
  statutory system of preference.
• Family Code sections 2620 to 2627 establish this
  system in some detail, as follows see pages 289
  and 290.
• Debts incurred by a spouse prior to the date of
  marriage or following the date of separation are
  confirmed to that spouse without right of offset.
• Similarly, debts incurred by a spouse during the
  period of marriage are simply divided equally, as
  is all other community property.

48
H. SPECIAL ISSUES REGARDING MARITAL PROPERTY

• 1. Tracing and Commingling
• The concepts of tracing and commingling find most
  of their application when requests for
  reimbursement are being made.
• The term commingling is simply a way of
  describing what happens when separate property
  and community property becomes so mixed together
  that a person can no longer tell one from the
  other.

49
1. TRACING AND COMMINGLING

• This is where the concept of tracing comes in.
• The term tracing simply describes the procedure
  employed to determine the source of these funds
  that have been so commingled.
• To the extent that the parties can demonstrate
  either a separate or community property source
  for the funds that have been commingled then the
  spouse who contributed the separate property may
  obtain reimbursement.

50
1. TRACING AND COMMINGLING

• Property that is commingled does not necessarily
  lose its character simply by virtue of
  commingling.
• Of course, if funds have been so commingled that
  it is virtually impossible to trace them back to
  their source, then the entire fund will be
  presumed to be community.
• There are two basic methods of tracing that the
  courts will use when assets have been commingled.

51
1. TRACING AND COMMINGLING

• Direct tracing to the extent that the spouse
  claiming a separate property interest in a
  commingled asset can directly trace its
  acquisition (or a portion thereof) to a separate
  property source, then that spouse will be
  entitled to recover that separate property share
  from the community.
• Family expense or recapitulation to the extent
  that an asset was acquired at a time when the
  community expenses had exceeded the community
  income, then (and to that extent) the balance on
  the acquisition of the asset must have been
  supplied from a separate property source.

52
2. APPORTIONMENT

• The concept of apportionment deals with sorting
  out the separate and community aspects of any
  given asset.
• Apportionment occurs most often in current family
  law practice in two specific situations.
• The first involves a diversion of community
  assets for the improvement or management of a
  separate property asset, and the second situation
  arises out to mixed interests in real property,
  typically the family home.

53
2. APPORTIONMENT

• a) Pereira and Van Camp
• This first area in which the concept of
  apportionment has regular application is the use
  of community property assets for the improvement
  of a separate property asset with specific
  emphasis on that community property asset which
  is found in a spouses time, energy, skill,
  talent, and labor.
• And when this valuable community asset is
  diverted (or devoted) to that spouses separate
  property asset, it becomes necessary to determine
  to what extent, if any, the community obtains an
  interest in that asset as a result of this
  diversion.
• See example on pages 294 and 295.

54
2. APPORTIONMENT

• The courts have developed two basic approaches to
  solving this problem, both of which were defined
  by case law.
• These are known as the Pereira and the Van Camp
  methods, so named after the cases in which the
  methods were first devised.
• The case of Pereira v. Pereira focused on the
  courts finding that the principal source of
  gains in that case was the skill and labor of the
  spouse.

55
2. APPORTIONMENT

• Following the Pereira approach, the court will
  allocate a fair rate of return on the separate
  property investment and call that separate
  property.
• Any excess in value over this amount so
  determined will, by process of elimination,
  belong to the community as arising out of the
  owner spouses labor and efforts.
• See example on page 295.

56
2. APPORTIONMENT

• The other approach to apportioning these mixed
  interests in this context is defined by the case
  of Van Camp v. Van Camp.
• Under the Van Camp approach the court will
  determine how much the owner spouses effort and
  labor was worth and assign that figure to the
  community property, with the balance of the
  increase in value being characterized as separate
  property by process of elimination.
• See example on page 296.

57
2. APPORTIONMENT

• b) Moore/Marsden
• The second area in which apportionment is
  commonly used concerns acquisitions of both
  separate and community property, most often with
  respect to purchases involving the family
  residence and assets purchased before the
  marriage.
• The issue of apportionment in this context comes
  up when somebody purchases an asset before
  marriage, makes some of the payments (thus
  acquiring a slightly larger interest in the house
  before marriage), gets married, and then
  continues to make these monthly payments using
  community property funds.

58
2. APPORTIONMENT

• In circumstances such as this, it is necessary to
  apportion the interests between separate and
  community so as to preserve the reimbursement
  rights of the respective parties.
• An additional component necessary to a thorough
  understanding of this aspect of an apportionment
  analysis requires an understanding of the manner
  in which acquisitions on credit are paid off over
  time.
• See examples on pages 297 to 300.

59
3. REIMBURSEMENT CLAIMS

• In the Epstein case, the court found that it
  would be appropriate to allow the spouse making
  the post-separation contribution to be reimbursed
  for those amounts unless the spouses had agreed
  between each other that payments would not be
  reimbursed.
• Pursuant to the Watts case, if one spouse has
  exclusive use of a community property asset
  post-separation, then the community may be
  entitled to a reimbursement on the value of that
  exclusive use between the date of separation and
  the date of trial.

60
4. QUASI-COMMUNITY AND MARITAL PROPERTY

• Under certain circumstances the property
  accumulated by person living together as husband
  and wife can fall into two additional categories
  beyond those already discussed.
• These categories are quasi-community and
  quasi-marital property.
• The concept of each is essentially the same
  property which, but for the occurrence of some
  particular set of circumstances, would otherwise
  be treated as community property.
• Family Code section 125 defines quasi-community
  property as follows see page 302.

61
4. QUASI-COMMUNITY AND MARITAL PROPERTY

• Family Code section 2660 governs the division of
  property located outside the State of California
  (which by definition would include
  quasi-community property).
• That section provides as follows see page 303.
• Quasi-marital property is similar to
  quasi-community property.
• With respect to quasi-marital property, the
  extenuating circumstance is the fact of the
  invalidity of the marriage.

62
4. QUASI-COMMUNITY AND MARITAL PROPERTY

• This innocent spouse has been given the name
  putative spouse and the property involved, which
  would have been community property but for the
  invalidity of the marriage, is deemed to be
  quasi-marital property.
• Family Code section 2251 addresses this
  circumstance.
• This section provides that see page 304.