San Joaquin College of Law

Community Property–Interim Exam 1002/Cartier

Time Allotted: 1 hour 20 minutes.

In 1992, Rob and Pam, both domiciled in Ohio, began living together and thereafter held themselves out as husband and wife. The couple paid their living expenses from Rob’s earnings. Pam placed her net earnings from 1992-1996 (approximately $20,000 / year) in a savings account in her name. In 1996, Pam took $50,000 from the savings account for a down payment on a house located in Chico, California and took title in her name alone. Rob and Pam promptly moved to California and took up residence in the Chico house. All payments on the Chico house have been made from Rob’s earnings. After moving to California, Pam took all the money remaining in the savings account and purchased various stocks in her name. By actively managing her portfolio, she has achieved substantial profits which have been reinvested in the market. When the couple learned that Ohio does not recognize common law marriages, Rob and Pam married in a California ceremony in November 1997. In 1999, Rob took his annual bonus check from his employment ($15,000) to remodel the kitchen in the Chico house. The remodel increased the value of the residence $20,000. Shortly thereafter, Pam sought to refinance the Chico house. At the lender’s insistence, title to the Chico house was placed in the names of “Rob and Pam, husband and wife, as joint tenants.” In 2000, Pam inherited an expensive ivory sculpture that she gave to Rob for his 40^th birthday. The sculpture is displayed in the Chico house. Last year, Rob suffered a stroke. He is receiving disability payments which are expected to continue until 2015 when he will be eligible for a longevity retirement based on 20 years of service. Pam has filed for a dissolution of marriage in California.

What are the respective interests of the parties in the following assets:

1.          The Chico house? DISCUSS.

2.          The stock portfolio? DISCUSS.

3.          The sculpture? DISCUSS.

4.          Rob’s disability/pensions benefits? DISCUSS.

Answer according to California law.

San Joaquin College of Law

Community Property – Interim Exam 1002 Sketch Answer / Cartier

             The characterization of the assets depends on the marital status of the parties while domiciled in Ohio. The facts recite that the parties began living together and held themselves out as husband and wife. Since Ohio does not recognize common law marriages, it appears the couple were nonmarital partners. If one or both of the spouses had a good faith belief in the existence of a valid marriage, California would recognize a putative relationship. An argument could be made that the parties thought they were married since they got married in California when they learned Ohio did not recognize common law marriages. Their subjective belief alone, however, is not sufficient to establish a putative marriage. The belief must also be objectively reasonable. Property acquired during the putative relationship would be classified as quasi-marital property if it would have been community property had the marriage been valid. Even if this law applied, there is another problem. For purposes of dividing property on a dissolution , California will treat as quasi-community property any asset that would have been community property had the parties lived in California when the property was acquired. In the absence of a valid marriage in Ohio, there might be quasi-marital property BUT there would be no community property. The quasi-community law might not apply.

1.          The Chico house

             For purpose of division in a dissolution of marriage, all property acquired during marriage in jointly held title is presumed community property, absent a writing. Here, regardless of whether the parties were married in Ohio, they married in California in 1997. Shortly thereafter, at the time of the refi, the title of the house was placed in the names of “Rob and Pam, husband and wife, as joint tenants.” This change of title constitutes an acquisition during marriage so that the jointly held title presumption of Family Code § 2580 applies, absent a writing. In the absence of a writing, the Chico house is community property. Family Code § 2640 allows for a tracing right of reimbursement for a spouse who contributes separate property toward the cost of acquisition of a community asset.

             Property is characterized based on the law of domicile at the time of acquisition. Since Pam purchased the house with her earnings and took title in her name, it appears that this asset was hers. Although the facts say Rob’s earnings were used to make payments on the house prior to the California marriage, in the absence of an agreement, he acquired no interest in the house. Pam is entitled to reimbursement of the separate property equity interest in the Chico house on the date of marriage in 1997. After marriage, however, Rob’s earnings, which are community property, were used to make payments. Consequently, the community acquires a pro rata ownership interest based on the formula set forth in Marriage of Moore:

             cp contribution  

             purchase price   x appreciation during marriage + cp contribution = community interest

Note: Moore apportionment for community funds applied to a separate assets exists only to the date placing the title in joint form. After that date, community funds are being applied to a community asset. 

             The facts also tell us that Rob used a community property bonus to improve the Chico house while it was still Pam’s separate property. Traditionally, when a spouse having management and control of community property used it to improve the other’s separate property, a gift was presumed. Recent cases reject the presumption of gift and suggest the community is entitled to reimbursement OR a pro rata interst using the formula of IRMO Moore (above).

             [If the court deems the parties were involved in a putative relationship, the house, Rob’s earnings and the bonus would be presumed community property (or quasi-marital property) since all property acquired during marriage is presumed community property. Under this scenario, there would be no separate property interest to be reimbursed. Note: the presumption that property taken by a married woman by a writing is her separate property pre-1975 would not apply since the Chico house was acquired in 1996.]

2.          The stock portfolio

             Pam’s earnings before marriage were hers. She used her pre-m earnings to purchase stock. Under the tracing doctrine, the character of the source determines the character of the ultimate asset. But if a separate asset is enhanced in value during marriage by the effort, skill and industry (community assets), the community acquires an interest in the asset. The community interest is determined by applying the formulae of Pereira and VanCamp. Under Pereira, the separate property invested is afforded a reasonable rate of return; the residue is community property. Under VanCamp, the community is reimbursed the fair market value of community property labor expended to enhance the value of the asset (less any amount already receive); the residue is separate property. If the greater factor in the enhanced value the courts may favor Periera. If the greater factor is market conditions, the court may favor VanCamp.

             [If her earnings were quasi-marital property, as discussed above. the stock would be quasi-marital property and might be treated as quasi-community property at dissolution.]

3.          Sculpture

             While all property acquired during marriage is presumed community, one spouse can rebut this presumption by tracing to a separate property source. Property received by inheritance is separate property. The sculpture inherited by Pam is her separate property. Was her purported 2000 gift of the sculpture to Rob for his birthday sufficient to transmute the property?

             After 1/1/85, transmutations of property must be in writing signed by the party whose interest is adversely affected UNLESS the item is 1) an item of a personal nature, 2) intended for the use of the recipient, and 3) is not consequential in value taking into account the circumstances of the marriage. While the facts are note entirely clear, one could argue that a sculpture displayed in a house is not an item of a personal nature and that it was not intended for the use of the recipient. Further, since the facts tell us it was an “expensive” sculpture, it might be consequential in value. Unless all three of these conditions are met, the transmutation fails and the sculpture remains Pam’s separate property.

4.          Disability/Pension

             Disability payments received during marriage that replace community property earnings are considered community property. Post separation, disability payments that replace separate property are treated as separate property. Until Rob reaches retirement age, his post-separation disability income is separate property. His longevity pension, however, is community property, to the extent it was earned during marriage. Courts generally use a time rule to fix the community interest:

             years worked during marriage

             total years of employment

             Base on a California marriage in 1997, the community interest is 4 years/20 years.

             [If the court recognizes a putative marriage, the numerator of the fraction would reflect the years worked both during the putative relationship and during the lawful marriage.]