San Joaquin College of Law

Community Property--Interim Exam Mar 98/Cartier

The following events took place in California.

Immediately after their marriage in 1983, Jack and Diane purchased a home (H and W, as joint tenants). Diane provided the down payment from her premarital savings; the reminder of the purchase price was obtained by a note secured by a deed of trust. In early 1984, Diane used the remaining balance of her premarital savings to purchase a commercial building (in W’s name, a married woman, as her separate property). She then obtained a small business loan to purchase exercise and other equipment to be placed in the commercial building where she began operating a fitness club. As a condition of approving this loan, the lender required Jack’s name to be added to the title on the commercial property. Although title was changed to “Jack and Diane, as tenants in common,” the parties orally agreed that the commercial property would be Diane’s separate property, that she would rent the building to the fitness business, and that the rent proceeds would be her separate property. Each month, Diane deposited the fair rental value of the business property into the parties’ joint checking account along with her salary from the business. In mid-1984, Jack suffered a work related injury and was placed on permanent disability. He has taken $200 each month from the disability income to fund a mutual fund account in his name. The remainder of the disability funds, together with the funds deposited by Diane, have been depleted paying community bills, including the uninsured portion of Jack’s medical expenses. In 1992, Jack’s injury was enhanced by a botched corrective surgical procedure. A lawsuit filed against the surgeon and others resulted in a five hundred thousand dollar settlement that was received in 1997. After the settlement funds were placed in the parties’ joint checking account, Diane, without Jack’s knowledge or consent, withdrew $100,000 (the fair rental value of the commercial building from 1984-1987) and opened a stock account in her name with a local brokerage. Between 1993 and 1998, Jack has been involved in the operation of the fitness club and, because of his efforts in marketing the facility to the physically challenged, the client base has increased and the value of this asset has increased significantly. Jack, at no time, received any salary for his services to the fitness club.

In a dissolution of marriage action filed in 1998, what community and/or separate property interests exist in relation to the following assets:

             1.          The house? DISCUSS.

             2.          The commercial property? DISCUSS.

             3.          The fitness club? DISCUSS.

             4.          The mutual fund in Jack’s name? DISCUSS.

             5.          The stock account in Diane’s name? DISCUSS.

             6.          The remaining funds from the settlement of Jack’s lawsuit? DISCUSS.

Answer according to California law.