San Joaquin College of Law
Community Property – December 2006 /Cartier
H and W married in California in 1996. That same year W started teaching with the local school district. In 1998, when W’s father became ill in Illinois, her father asked W to come take care of him. Father promised to make it worth her while. H and W moved to Illinois to take care of W’s father. When her father died in 2000, he left one-third of his estate to his son and two-thirds to W. After father’s death, H and W returned to California and used the inheritance for the down payment on a residence with title taken in the names of H and W, “as joint tenants.” W withdrew funds from her State Teacher’s Retirement Account to start a consulting business that has substantially increased in value. H obtained an M.B.A. in 2004 and went to work for a major corporation. As part of H’s employment package, he was given the option to purchase 1,000 shares of the employer’s corporation stock upon successful completion of five years of employment. H and W began experiencing marital difficulties in 2005. They agreed to live separately for a while and to seek individual counseling in an effort to save their marriage. Although W continued to reside in the residence, H made all payments on the residence from his earnings. Without H’s knowledge, W underwent breast augmentation and butt-lift surgeries. Insurance covered some of the costs but W’s unpaid medical bills exceed $30,000. Soon after W’s bandages were removed, she filed for a dissolution of marriage. H seeks your legal advice.
What community and/or separate property interests (or liabilities), if any, exist regarding the following:
1. The California residence? Discuss.
2. W’s consulting business? Discuss.
3. H’s M.B.A. degree? Discuss
4. The stock option (exercisable in 2009)? Discuss.
5. The $30,000 owing for W’s surgical procedures? Discuss.
Answer according to California law.
San Joaquin college of Law
Community Property – Sketch Answer Final Exam Dec. 2006 /Cartier
Here is a brief summary of what I was hoping to see in the answer.
1 THE CALIFORNIA HOUSE was acquired during marriage in joint tenancy. Jointly held property acquired during marriage is presumed community property for purposes of division on a dissolution of marriage, absent a writing. If either spouse contributes separate property toward the cost of acquisition (including down payments) of such a jointly held asset, the contributing spouse has a tracing right to reimbursement, unless the right is waived in a writing. Since property received by inheritance is separate property, W will claim reimbursement for the money inherited from her father that was used for the down payment. H should claim that the “inheritance” was actually compensation for services since the couple took care of father. Property received in exchange of community property labor is community property. IN THIS CASE, SINCE THE PARTIES WERE DOMICILED IN ILLINOIS, property that would have been community property had the parties lived in California at time of acquisition, would be characterized as quasi-community property (QCP) for purpose of division at divorce in California. QCP is generally treated like community property. [Since father left his son 1/3 of his estate and W 2/3 of the estate, the obvious issue is whether the gift to W was part cp and part sp]. The facts say, while W continued to reside in the house, H made all payments from his earnings. If he made payments post-separation, he may seek Epstein credits (Fam C 2626) and Watts charges (seeking ½ the fair rental value from wife IF . . . .).
2. THE CONSULTING BUSINESS was started during marriage using funds withdrawn from W’s retirement that was earned during the marriage. Property acquired during marriage is presumed community property (GCP) unless there is an agreement OR unless the start-up funds can be traced to separate property. Here, the GCP will control. During the marriage, the use of cp labor in a cp business has no significant implications {i.e. the is NO Pereira / Van Camp issue]. If after separation one spouse enhances the value of a community asset with separate property labor, a REVERSE Pereira / Van Camp issue is presented (or the court could authorize an alternative valuation date).
3. THE MBA degree is not divisible as community property in California. Since the education was received within the last 10 years, the community is entitled to reimbursement for monetary contributions to the “but for” cost of the education IF the education substantially enhanced the earning capacity of the educated spouse.
4. THE STOCK OPTION was received as compensation for employment. Employment bonuses may be community property if compensation for services during marriage OR separate property if intended to buy loyalty post-separation. Here, since the option will be exercisable after separation, upon completion of five years of service, the right to purchase is partly community and partly separate property. The apportionment formula is DATE OF EMPLOYMENT to DATE OF SEPARATION (1 year) / DATE OF EMPLOYMENT to DATE WHEN OPTION CAN BE EXERCISED (5 years). Parties are separated when they come to a parting of the ways with no present intent of carrying on a marital relationship. The actual date of separation on these facts is ambiguous but the resolution will impact your analysis of the stock option here, of the house above, and the debt below.
5. W’s MEDICAL BILLS. Generally, the community is liable for all debts of either party whenever incurred. H’s separate property is not liable for debts incurred by W during marriage UNLESS for necessaries of life during the marriage OR for common necessaries after separation unless living apart by an agreement that provides for no support. Cosmetic surgery, on these facts, do not constitute necessaries of life common necessaries. Consequently H’s sp should not be liable. While community liability exists, the court may assign the debt to W if the debt was incurred in anticipation of separation or not for the benefit of the community.