CA BAR – COMMUNITY PROPERTY

BAR exam question will involve characterizing assets in the context of:
 Divorce or separation
 Death of one of the spouses
 Assertion of creditor’s claim

Statutory definitions that apply unless the character of an asset has been altered by:
1. The parties’ agreement (premarital or during marriage); or
2. Parties’ conduct; or
3. How title was taken.

Separate Property (SP):

1. Property owned by either spouse before marriage; or
2. Property acquired during marriage by gift, will, or inheritance; or
3. Property acquired during marriage with the expenditure of separate funds; or
4. The rents, issue, and profits derived from separate property.

*source rule/ tracing – separate property issue determination method

 Community Property (CP): Property, other than separate property, acquired by either spouse during marriage. The most
common examples are (1) salary or wages earned by either spouse, and (2) the income from community assets.
1. Community property presumption:
a. All assets acquired during the marriage are presumptively community property.
b. Absent a showing of the parties’ agreement or that title was taken in a form that overcomes the
community presumption, the burden of proof that a particular asset is separate property is on the party so
contending.
2. California has extended its community property system:
a. As of 2004, the community property system applies to registered domestic partners upon filing a
Declaration of Domestic Partnership with the Secretary of State, retroactive to January 1, 2000.
b. Available to only:
i. Same sex couples
ii. Elderly opposite-sex couples receiving Social Security Benefits

BASIC PRINCIPLES
A. When does the economic community END?
1. Economic community ends when:
i. Permanent physical separation &
ii. Intent not to resume the marital relation (only need intent by one party! Byeeee!)
2. For community property not divided on divorce, the court retains continuing jurisdiction to award CP that
was not previously adjudicated, and on motion the omitted or unadjudicated CP will be divided 50-50 unless
the court finds that “the interests of justice require an unequal division.”
B. How is community property handled on divorce?
1. Absent a property settlement agreement, all CP must be divided equally.
2. Disparity in earning power can be considered only as to spousal support (alimony) and child support.
3. Generally, non-pro rata division is improper. Each and every community asset (and liability) must be divided
50-50.
i. Economic Circumstances Exception: you can have a non-pro rata division, giving particular asset
wholly to one spouse and “cash out” other spouse with other assets (with each spouse still getting
50% of the total value).
1. Examples of this exception:
a. Family residence – (very common) Family residence and loss of family home
would uproot couple’s minor children.
b. Closely held corporation – All 100 shares of closely held corporation are CP; W is
CEO of corporation.
c. Pension – Awarding all of H’s pension to H, other assets to W, so they can go
their separate ways.

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 ii. Statutory Exceptions “to equal 50-50 division on divorce” rule, with one spouse ending up with
more than 50% of total value:
1. One spouse misappropriates CP, whether before or during pendency of divorce.
2. One spouse has incurred educational debts; treated separately as separately incurred debt
(take law school loans with you!)
3. One spouse incurred tort liability not based on activity for benefit of the community.
4. Personal injury award is CP but on divorce is awarded to injured spouse (unless interests
of justice require otherwise).
5. “Negative community”: Community liabilities exceed assets; relative ability of spouses to
pay debt is considered (concern is protect creditors).
C. What rules govern lifetime and testamentary gifts of CP?
1. The power to manage CP is not equal to the power to give it away. Neither spouse can make a gift of CP
without the other spouse’s written consent.
i. If spouse 1 does make a gift of CP without spouse 2’s written consent, then spouse 2 can set the gift
aside in its entirety.
ii. On divorce, spouse 2 can take equal offsetting CP assets to recover her ½ CP.
iii. If finds out after spouse 1’s death:
1. Spouse 2 can set the gift aside as to her ½ CP.
2. Spouse 2’s recovery will be from either the donee (whoever spouse 1 made the CP gift to)
or spouse 1’s estate, whichever is easiest.
iv. Same results apply if spouse 1 was insured under a CP life insurance policy and names a 3rd party as
beneficiary (e.g., girlfriend).
1. Spouse 2 would be able to recover her ½ CP from either the beneficiary or spouse 1’s
estate.
2. Only Exception: If one spouse uses CP to buy US government savings bonds, federal law trumps and there is
federal preemption.
i. Spouse 2 would not be able to recover his/her ½ CP interest in the bonds even if spouse 1 purchased
them with CP and then gave it to 3rd party.
3. Widow’s election will: an election is required when the decedent’s will attempts to pass the survivor’s ½
interest in CP. (Often decedent believes that the community asset is his own SP). Surviving spouse must elect
between the will and her CP rights.
i. Take under the will:
ii. Take against the will:
1. Must relinquish all testamentary gifts in his/her favor by claiming CP rights.
2. Will is read as though died before deceased spouse.
D. What rules govern acquisitions on credit during the marriage?
1. Community Credit Presumption: funds borrowed during marriage, and goods purchased during marriage, are
presumptively community credit.
2. However, borrowed funds (and credit purchases) are classified according to the primary intent of the lender.
i. Look at where the lender is looking for satisfaction of the debt.
E. Confidential relationship raises fiduciary duty; presumption of undue influence.
1. Spouses are subject to fiduciary duties that arise from their confidential relationship, imposing a duty of the
highest good faith and fair dealing with each other.
2. If one spouse gains an advantage from a transaction, a presumption of undue influence arises. That spouse
has the burden of proof to show she/he did not breach her/his fiduciary duty.
3. Breach: Under a 2002 statute, a grossly negligent and reckless investment of community funds is a breach of
a spouse’s fiduciary duty.

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ALTERING THE CHARACTER OF ASSETS BY AGREEMENT
 Absent any contrary agreement, the statutory definitions of SP and CP control.
 But California has always allowed the parties to opt out of the CP and SP characterizations by agreement, either as to
particular assets or as to all acquisitions.
 These agreements can be made before marriage (and thus governed by the Uniform Premarital Agreement Act) or be
made during the marriage.
 When the character of an asset is changed (from SP to CP, from CP to SP, or from one spouse’s SP to the other
spouse’s SP) by agreement during the marriage, this results in a transmutation.
 Transmutation can be by:
o Gift (e.g. H gives jewelry inherited from his mother to W on her bday; jewelry is W’s SP); or
o Agreement
 No consideration is required for either a premarital agreement or for a transmutation during marriage.

A. Premarital agreements
a. In a premarital agreement, the parties can agree to anything.
i. Exception: Parties cannot agree to limit either party’s contribution to furnish child support. This is
prohibited by statute.
b. General rule: premarital agreements must be in writing, signed by both parties. Oral agreements are invalid.
i. Exceptions an oral premarital agreement may be enforced when (1) the promise has been fully
executed (performed) by the promisor, or (2) the promisor is estopped to assert the Statute of
Frauds. A promisor is estopped to assert the Statute of Frauds when the promise has relied to her
detriment on the oral premarital agreement. However, marriage alone does not raise estoppel.
1. Oral agreement is executed (meaning fully performed)
a. Marriage alone is NOT sufficient performance to make it an exception to the
writing requirement because that would eliminate the writing requirement in every
case.
b. Evidence of deceased spouse’s actions is still admissible to prove the existence of
a premarital agreement. (Spouse did what she/he promised and acted consistent
with the existence of a contract. This conduct substitutes for requirement of
writing.)
2. Estoppel based on detrimental reliance.
a. Evidence of oral promise offered by independent witnesses is admissible and
spouse estopped from asserting the writing requirement
c. DEFENSES to enforcement of a premarital agreement
i. Defense 1: Not signed voluntarily
1. A premarital shall be deemed not voluntary (and thus unenforceable) unless court finds that
party challenging the agreement:
i. Was represented by independent legal counsel at time agreement signed
(or waived in separate writing); AND
ii. Was given at least 7 days to sign; AND
iii. If not represented by independent counsel, was fully informed in
writing (in language in which party proficient) of terms and basic effect
of agreement. Party must execute document declaring that they got
information and identifying who provided it.
ii. Defense 2: Unconscionability
1. By statute, unconscionability is a matter of law to be decided by the court, not a question
for the jury.
2. Unconscionability claims divide into two areas: those involving spousal support and those
involving anything else.
3. Spousal support: The right to spousal support can be waived or modified in premarital
agreement.
a. Provision in premarital agreement regarding spousal support is unenforceable on
one of two grounds:
i. Party challenging was not represented by independent legal counsel at
time signed; OR
ii. Provision is unconscionable at time of enforcement (even if party
represented by independent legal counsel).
4. Anything else: Agreement unenforceable if
a. Unconscionable when made AND
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 b. No full and fair disclosure of other party’s property or financial obligations AND
c. Right to disclosure not waived in writing AND
d. Party challenging had no adequate knowledge of other party’s property or
financial circumstances.
B. Marital agreements (transmutations)
a. Before 1985, oral transmutations were permitted, whether by express agreement or agreement-in-fact.
i. Rationale – spouses cannot be expected to act formally.
ii. Problem – in divorce proceedings, it becomes messy – no written record.
b. After 1985, marital agreements (transmutations) must be:
1. In writing;
2. Signed by spouse whose interest is adversely affected; and
3. Must explicitly state that a change in ownership is being made.
ii. Applies to all transmutations: SP into CP; CP into SP; one spouse’s SP into other spouse’s SP.
iii. Usual exceptions to the writing requirement (e.g. estoppel, partial performance, statute of frauds) do
NOT apply.
iv. Only exception: gifts of tangible property of personal nature (e.g., inherited jewelry) which “are not
substantial in value taking into account the circumstances of the marriage.”
c. By statute, in any proceeding commenced before the death of the person who made the will or created a
revocable trust, a statement in a will or revocable trust as to the character of the property is NOT admissible
as evidence of transmutation.
EFFECT OF HOW TITLE IS TAKEN
A. Presumptions that arise from taking title in “joint and equal form”
1. "Joint and equal form” means the title lists both spouses names.
a. For Lucas or Anti-Lucas to kick in, we need the joint and equal form to be on a title document or a
deed – not just receipt.
2. LUCAS: In case involving death of one party, Lucas is law. Spouse has no SP ownership interest and no
claim for reimbursement, unless spouse can establish that there was an agreement that spouse was to have
SP interest or spouse was to be reimbursed.
a. By taking title as joint tenants, property was presumptively CP. Taking title in a form that raised a
P presumption was inconsistent with idea that W intended to reserve a SP interest. W’s subjective
intent irrelevant. Absent proof of an agreement that W was to have a SP interest, by taking title in
CP form W must have intended gift to community. Unless such an agreement is established, W has
no separate ownership interest and has no claim for reimbursement.
3. ANTI-LUCAS [CA legislature has passed 2 anti-Lucas statutes on the ownership and reimbursement issue
when the issue arises on divorce or separation.] – only expenditures of SP on CP trigger anti-Lucas.
a. Ownership (Family Code §2581): For purposes of division of property on divorce or separation,
property acquired during marriage in joint and equal form is presumptively CP, and is subject to
equal division on divorce.
i. CP presumption can be rebutted by:
1. Express statement in the deed or other instrument of title that the property (or
portion thereof) is SP; or
2. Written agreement by the parties that the property (or portion thereof) is SP.
b. Reimbursement (Family Code §2640): For purposes of division on divorce or legal separation,
spouse who made contributions of SP to the acquisition or improvements of CP is entitled to
reimbursement without interest for contributions to DIP down payment, improvements, or principal
payments on mortgage. But NO reimbursement for SP used to pay interest on mortgage, taxes,
insurance, or maintenance.
EFFECT OF PARTIES’ ACTIONS ON CHARACTERIZATION OF ASSETS
A. Installment purchase pre-marriage; debt paid down with CP post-marriage
1. Proration rule: installment purchase before marriage, payment with CP funds after marriage (or during
marriage spouse inherits land subject to mortgage and pays off note with CP funds), the community estate
takes a pro rata portion of the property, measured by the amount (percentage) of principal debt reduction
attributable to the expenditure of community funds.
a. Principal debt reduction attributable to CP
__________________________________________
Purchase price

b. Note: principal debt reduction attributable to CP – not mortgage interest, property taxes, or
insurance.

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B. Community funds used to improve SP
 Anti-Lucas statutes do not apply here (only apply SP on CP).
 Real property doctrine of fixtures applies here – expenditures for improvements become part of the property and
do not give the community a proportionate share of the ownership of house.
 Expenditures of CP does not change ownership character of house.
 However, can bring a claim for reimbursement for the community.
 The community gets the greater of the CP expenditure or the increase in value.

1.Community funds used to improve OWN separate property

i. When a spouse uses CP to improve his own separate property, no gift is presumed because a spouse
may not make a gift to himself of the other spouse’s interest in CP.
ii. Community is entitled to the greater of either:
1. Reimbursement of the cost of the improvement; or
2. The amount by which the improvement increases the value of the realty.
iii. Policy: to make sure that the separate estate does not profit at the expense of the community.
iv. Same reimbursement rule applies when one spouse uses community funds to preserve his separate
estate (insurance, taxes, maintenance).
2. Community funds used to improve OTHER SPOUSE’S separate property
i. Traditionally, a gift presumed when a spouse uses community funds to improve other spouse’s
separate property.
1. The gift presumption may be overcome only by evidence of an agreement to reimburse.
ii. SPLIT of authority – argue both ways!
1. No reimbursement: CP expended on other spouse’s SP give rise to presumption of gift to
separate estate; presumption of the gift can be overcome only by evidence of an agreement
to reimburse community estate.
a. If there is such an agreement, the precise terms, if any, control the amount of
reimbursement.
b. If reimbursement agreement does NOT specify otherwise, the reimbursable
amount is the cost of the improvement.
2. Reimbursement: Absent reimbursement agreement, rejects presumption of gift and grants
reimbursement.
C. Commingled bank accounts
 Mere fact that SP funds are comingled with CP funds does NOT transform or transmute the SP into CP.
 BUT the burden of proof is on owner of separate funds to show that each asset was purchased with SP funds.
1. TWO important presumptions:
i. Family expense presumption: It is presumed that available community funds were used to pay for
family expenses (food, housing, clothing, recreation, etc.) Thus, separate funds are deemed to have
been used to meet family expenses ONLY when community funds are exhausted.
ii. When separate funds are in fact used to pay family expenses, a gift to the community is presumed
with no reimbursement intended. To defeat this presumption, there needs to be an agreement to
reimburse.
2. To satisfy burden of proof, TWO tracing methods:
i. Exhaustion Method – the SP proponent may show that at the time he purchased the asset whose
character is contested, the community funds in the account had already been exhausted by payment
of family expenses. Therefore, the asset must have been purchased with his separate funds.
ii. Direct Tracing Method (quick in quick out) – the SP proponent may show that at the time the asset
was purchased:
1. There were sufficient separate (as well as community) funds available, and
2. He intended to use those separate funds to purchase a separate property asset.

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CHARACTERIZATION PROBLEMS RAISED BY CERTAIN ASSETS
A. Business owned before marriage greatly increases in value during the marriage (most commonly tested)
a. TWO relevant tests: Pereira and Van Camp – discuss BOTH!
i. Pereira (think Personal skills and effort) – formula: Pay interest on SP; the rest is CP.
1. Pay interest (legal rate of 10% annum) on value of business at time of marriage.
2. The balance is CP.
ii. Van Camp (think Valuable Company or asset) – value community labor; the rest is SP.
1. Start with value of spouse’s services at market rates (how much would executives in
similar positions be compensated on the market?) MINUS family expenses paid from
community funds EQUALS community component.
2. The balance is SP.
B. Pension benefits
a. Employee retirement benefits accumulated during marriage, whether or not vested at the time of divorce, are
CP a form of deferred compensation.
b. Use proration rule:
i. Years of service while married
_____________________________ = CP
Total years employed to retirement
c. If spouse is not eligible for retirement yet, in awarding spouse 2 a share of the benefit, the decree could take 2
forms:
i. “If and when received” decree: if and when received, spouse will get her share (half of the CP
share).
ii. “Cash her out” decree: by awarding other assets of equal value.
d. If employee could retire/ is eligible for retirement at time of divorce, employee’s election to not retire at the
time of divorce cannot defeat spouse’s present right.
e. If a nonparticipant spouse (“NPS”) in a qualified pension plan divorces a participant spouse, her community
property interest is recognized; under federal law she can get a qualified domestic relations order (“QDRO”)
and receive payments from the plan.
f. DEATH v divorce?
i. There is a federal preemption under the Employment Retirement Income Security Act (“ERISE”),
which trumps CP laws. Interest is terminated when predeceases the participant.
g. Disability pension/ workers’ compensation benefits
i. Disability retirement benefits and workers’ compensation benefits are treated as wage replacement.
Thus, they are classified according to when received, not when earned.
ii. Note: employee cannot elect to defeat spouse’s community interest.
C. Stock options
a. If option is awarded during marriage but does not vest until after the economic community has ended, the
proration formula that is used in determining what portion of the option is CP and what portion is SP depends
on the primary intent of the employer in granting the option.
b. Two proration formulas:
i. Marriage of Hug: if divorce court determines that the stock options were awarded primarily to
reward Hank for his past services, as a form of deferred compensation, Marriage of Hug formula
should be used. The fraction is then multiplied by the number of shares of stock that can be
purchased under the options.
1. Years from the date of employment to date economic community ends
Years from date of employment to date options become exercisable

[Note: subject to equal division on divorce]

ii. Marriage of Nelson: if divorce court determines that the stock options were awarded primarily to
encourage employee to remain with the company, the court should employ the Marriage of Nelson
proration formula. The fraction is multiplied by the number of shares of stock that can be purchased
under the options.
1. Years from date options are granted to date economic community ends
Years from date option granted to date option becomes exercisable

[Note: subject to equal division on divorce]

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 D. Goodwill of a professional practice
a. Goodwill of a professional practice (to the extent acquired during the marriage) is CP subject to division on
divorce.
i. Goodwill = those qualities that generate income beyond that derived from (1) the professional’s
labor; and (2) reasonable return on capital and physical assets.
ii. Goodwill is primarily established by expert witness testimony as to its value.
b. Buy-sell agreement which provides that any partner who dies or leaves the firm receives X amount of money
does NOT put a cap on the value of goodwill in the partnership for purposes of division on divorce. It is
merely a factor, but not conclusive.
E. Educational expenses
a. Community is entitled to reimbursement for the cost of education if the education enhanced spouse 2’s
earning capacity.
b. Reimbursement is available if the educational expenses were incurred before marriage and the loans were
paid with community funds after the marriage.
c. Defenses to reimbursement of community estate for educational expenses:
i. Community has already substantially benefitted from the earnings of the educated spouse. If more
than 10 years have elapsed since the degree was awarded, the presumption is that the community
has substantially benefited, meaning that unless presumption is rebutted, no reimbursement.
ii. OR if the other spouse also received a CP-funded education.
d. Loans used to finance education are assigned solely to the party who incurred the debt.

TORT AND CONTRACT LIABILITY; MANAGEMENT PROBLEMS

1. Tort and Contract Liability
a. Where the other spouse was a tortfeasor, the tort recover is SP.
i. Reasoning: otherwise, tortfeasing spouse would benefit from his wrongful act.
b. Where damages are recovered from a third party, the tort recovery is CP.
i. However, in a property division on divorce or legal separation, the tort recovery will be awarded
entirely to the injured spouse so long as the recovery $ can be traced and was not already spent.
ii. This ^ will be the result unless the interests of justice, including economic need, require otherwise.
iii. But on either spouse’s death, the recovery will be treated as CP.
c. CP is subject to the tort liability of either spouse.
i. However, look at what money creditors are able to recover first.
ii. If spouse 1 was performing an act for the benefit of the community, the liability is first satisfied
from CP, and then from spouse 1’s SP.
iii. If spouse 1 was not performing an act on behalf of the community, the liability is first satisfied from
her SP, and then from CP.
iv. Judgment CANNOT reach spouse 2’s SP.
2. Management Rules
a. General rule – equal management powers: each spouse has equal management and control over all
community property, and thus has full power to buy or sell CP and contract debts without the other spouse’s
joinder or consent.
i. Personal Belongings Exception: one spouse cannot sell or encumber personal property used in
family dwelling (furniture, clothing, etc.) without written consent of other spouse. Transaction
voidable by other spouse at any time.
ii. Business Exception: Applies when a spouse operates a business interest that is all or substantially
all community personal property and has primary management and control of all the business.
While this spouse can act alone in all transactions, if the spouse sells, leases, or otherwise
encumbers substantially all of the personal property used in the business, must give written notice to
other spouse.
b. For conveyances of CP real property, joinder of both spouses is required. There is a one-year statute of
limitations.
i. If purchaser knew or should have known that the selling/ leasing spouse was married – then there is
no statute of limitations.
c. General rule – neither spouse can transfer or encumber their ½ interest in real CP (house). Only entire
interest can be transferred or encumbered.
i. Exception Family Attorney’s Real Property Lien: a spouse can unilaterally encumber her ½
interest in real CP to pay the family attorney representing her in a divorce action.

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 d. CP can be reached if debt was incurred by debtor spouse before marriage to nondebtor spouse.
i. Exception: earnings of a nondebtor spouse cannot be reached for premarital debts if held in a
separate account (in which the other spouse has no right of withdrawal) and not commingled with
other CP funds.
ii. Nondebtor spouse’s SP cannot be reached in satisfaction of debt (business debt) if not personally
liable.
e. Family Code provides that each spouse has the duty to support the other spouse and minor children. This
means each spouse is personally liable for the other spouse’s contracts for necessities (medical bills, hospital
stays).
i. Nondebtor spouse’s SP can be reached in satisfaction of medical bills.
ii. If CP funds available to pay the medical bills, wife can be reimbursed from the community estate.
iii. For purposes of family code, couple is still H&W until divorce so nondebtor spouse’s SP can be
reached in satisfaction of bills even if separated.
f. After divorce, a creditor CANNOT reach CP awarded to a spouse unless that spouse incurred the debt or was
assigned the debt by the court.

MULTISTATE PROBLEMS/ CONFLICT OF LAWS

1. Rule: property acquired while the couple was domiciled in a non-community property state, which would have been
classified as community property had it been acquired under the same circumstances in California, is quasi-
community property.
2. On divorce, quasi-community property is treated the same as true community property and divided 50-50.
3. For purposes of division on death, quasi-community property is treated the same as true CP.
4. For purposes of division on death, foreign real property is controlled by the jurisdiction it was acquired in.
5. The quasi-community system gives protection only if the non-acquiring spouse survives the acquiring spouse!
a. Rationale: if the couple had continued to live in the non-community property state, upon the acquiring
spouse’s death, non-acquiring spouse would be protected from disinheritance by the non-community property
state’s elective share statute. The quasi-CP statute is designed to replace that protection.
6. If the couple moves to CA from another CP state, then the property is not quasi-CP, it is TRUE CP – so non-acquiring
spouse has ownership interest to pass by will.

PROPERTY ACQUIRED OUTSIDE THE MARITAL RELATION

1. California does not recognize common law marriages (where people live together and hold themselves out as
married).
a. Exception: where common law marriage is validly contracted in another state.
2. Property relationships between unmarried couple governed by contract law (express or implied) from conduct. Need
to do K analysis whether K existed, as long as the K is not based solely on sexual services.
3. Putative spouse
a. Test: Whether putative spouse had a subjective belief that they were lawfully married.
b. If so, the assets acquired by the couple are called quasi-marital property and when they split, the assets
are split 50-50.
4. If spouse aware that not lawfully married, their relationship is characterized as unmarried cohabitants. Absent a
contract (express or implied), each individual keeps what he acquired.