1991 COMMUNITY PROPERTY SHOUT OUTLINE By Kell Bodholt I. General presumption that all property acquired during marriage is CP. A. This is a strong presumption, but can be rebutted. 1.Presumption overcome by showing; a.Gift, inheritance, of funds from SP. 2.Clear-and-convincing evidence, but if equal, CP preference. B. Title to property has nothing to do with whether its CP or SP. 1.If source is SP -> remains SP. 2.Expenditures of CP funds on property viewed as gift to SP owner. a.Generally CP funds on SP creates right of reimbursement. C. Statutory Presumptions 1.JT = presumes CP. a.JT rules have to be met for TP to set up JTWRS (overt approval of parties). 2.TC = presumes CP. 3.Possession of property = presumes CP by acquired during marriage (brief = weak presumption). D. Major Exceptions 1.Gifts = SP, unless made jointly to H & W. a.Very strong presumption of CP. Overcome by donor's intent. 2.Gifts form H->W = SP of recipient. a.Jewelry = SP. b.Shower gifts = SP, prior to marriage, co- ownership & intent of donor. II. SP may become CP A. Source of acquisition 1.Direct tracing Family Expense required, recapitulation is insufficient in WA. See v. See. a.Direct Tracing: Com. funds can be traced back to source with out breaking chain. b.Family expense: At time of acquisition, community funds have been exhausted and the remaining funds must have been SP funds. c.Recapitulation: Excess of community property expenditures over community property funds over its entire existence. d.Presumption is that CP funds are used for CP expenses, and SP funds are used for SP expenses. (1)If commingled account, likely impossible to overcome the presumption. B. CPA'S 1.One prong: property acquired before marriage = CP. 2.Second prong: future acquired property = CP. 3.Statutory prong: Avoids probate, and takes effect upon death. a.Overcomes beneficiaries designations in retirement plans, insurance policies, wills. Ex:H's parents gift prop. to H & J. H dies, W & J own prop. as Tenants in common. The CPA caused all acquired prop. including JTWRS property to be co-owned. 4.Modification of CPA's a.H gifted to W, ct decided H intended to change terms of CPA. b.Waiver of CPA-> by proceeding to probate. c.Divorce does not nullify CPA retroactively. III. Rents, profits (income) from CP = CP A.Rents, profits (income) from SP = SP (American rule). 1.Note: Id. = CP (Spanish rule). B. Allocation Problems Ex:H owes SP prior to marriage. No improvements by either spouse(s). Increased in value from $40,000 to $100,000. Result = SP increase. Ex:WA-H owns stock, SP. Dividends, interest are SP so long as not commingled (Id. = CP). C. Where spouse adds value to SP (business owned prior to marriage, or RE) Increase in value is attributable to spouse(s) must be established. 1.Elam: Share in the appreciation = value of the CP efforts + inflation. 2.Miracle: Reimbursement = Total CP funds used on SP, then offset fair rental value used by the community. 3.Brady: Share in the appreciation, offset by fair rental use by the community. D. Real Estate/Incorp. Bus. - Elam = share in appreciation. E. Incorp. bus. = if adequate salary, community has been reimbursed. If inadequate = Total increase in value. IV. Assets acquired with CP & SP A. SP improved with CP = SP (rt. of reimbursement). B. CP improved with SP = CP (gift, rt. of reimbursement). C. If SP & Com. credit or SP & CP = prop. ownership is proration. Note:If SP funds used must be able to trace to SP, otherwise entire prop. CP. V. PI during Marriage = SP A. WA rule; 1.PI damages received during marriage = SP of injured spouse, except for lost wages = CP, expenses to community (medical bills) = CP. 2.Loss of consortium = SP. 3.Lost earnings after marriage = SP 4.Retirement benefits = CP, because viewed as compensation to employee, thus earnings which are CP. VI. GOOD WILL = CP A. One spouse provides education and has not benefitted from that education. 1.Wa. has not determined if prof. degree is prop. to be separated. 2."Just and equitable" division. Result; a.Funds expended for degree. b.compensation for what she would have received from degree if stayed married. c.Loss for failure to obtain a degree. Note:If married for a long time, may be enough benefit to community such that no recovery. VII. Management & Co-management A. General rule: Either spouse can manage CP, except joinder is required for; 1.Gifts of CP. 2.Real Estate. 3.Business assets, except sole-management, then ordinary business transactions joinder not required. 4.Household furnishings, appliances. B.Power of Atty: may waive joinder requirement. C.Personal property, no joinder, i.e., can encumber family car, etc... D. Estoppel, Implied Consent, Ratification (joinder). 1.Estoppel would prevent spouse claim transaction void because of no joinder merely for a failure to sign. If she had knowledge, and consented. 2.If spouse does not know -> Community not liable. E. Life Insurance Policy 1.Character is determined by; a.Cash Policy: If 9 payments CP and 1 payment SP, proration, i.e., 9/10's CP, and 1/10 SP. b.Term Policy: Last payment determines character. 9 prior CP payments, and last payment SP, Policy is SP. c.Generally; naming non-spouse as beneficiary, only prevents 1/2 of proceeds from going to other person. 1/2 goes to benef. VIII. Liability of CP for debts A. Rule: SP of non-debtor spouse is never lia. for debts of the debtor spouse, whether SP or CP. Exception; 1.Alimony (maintenance) 2.Child support 3.Tort 4.IRS B. Community debts through Tortious acts of spouse. 1.Act which benefits community = Community debts. 2.Tort Creditor: a.SP + 1/2 CP of tortious spouse. b.Sale of personal property. c.Non-tortious spouse has equitable lien and collected upon death or divorce. 3.K-Creditor: SP of debtor spouse only. 4.Pre-marriage Tax: a.1/2 CP of spouse b.Sell RE->1/2 to IRS, 1/2 to "good spouse." 5.Pre-marital separate debts a.If judgment within 3 yrs. of marriage = "earnings and accumulations" (no RE). b.Child support/alimony = earnings & accumulations + 1/2 RE, PP. IX. Separate & Apart A. "Will to union" ends -> Community ends in WA. (some jx's require separation agreement) 1.Still co-management of cp assets. B. IRC 1041: No gain/loss occurs on the transfer of property incident to a divorce. Ex:W -> ownership of home subject to a lien of $30,000 to H. W sells home -> gain taxed to W only, H gets $30,000 tax free. Ex:H & W join ownership, H to get $30,000 of proceeds, 1/2 taxed to H, 1/2 taxed to W, no matter amount of gain. C. Basis change 1.CP -> both halves get basis change = FMV. 2.SP -> only the decedents prop. gets basis change. X. Widow's Election A. WA = Item Theory: Each spouse owns an undivided 1/2 interest in each item of CP. 1.Can't devise (will) more than 1/2 of each item of Cp to someone other than spouse. 2.A widow's election = waiver of CP rights to an item. Ex:G gives house to S, lake house to J by will. a.Under will: S gets house, J gets lake house. b.Widow election: S gets house, and S & J tenants in common.