income from work
generally, all asets acquired during marriage, including income, are CP. the fact that income is placed in a separate account does not change the characterization of the property.
tort awards
a personal injury award that arose during marriage is CP during the marriage and SP of the injured spouse upon divorce. Exceptions to this rule are: money already spent, and the interests of justice require otherwise. Tort awards are not considered income.
Note: do not look upon when the settlement was received. look at the cause of action to determine characterization of settlement. cause of action before marriage or after divorce, awards are SP.
reimbursement for associated expenses
CP or SP of the non-injured spouse is entitled to reimbursement from injured spouse’s SP for related expenses (e.g. medical expenses).
retirement benefits
retirement pensions are CP to extent the benefits earned during marriage. It does not matter is benefits are received after divorce. To calculate CP, (# of years marriages while pension earned/total of # years receiving pensions) X total pension amount. The amount is CP and the rest is SP. Death does not terminate the interest for either spouse. The surviving spouse still receives benefits and has testamentary power of their share of continuing benefits. Exception to this is Employee Retirement Income Security (ERISA), which preempts CA law, ERISA benefits cannot be included in a will. If pensionable spouse is eligible to retire and does not, the court may order employer to pay non-employee spouse benefits as if employee has retired.
stock options
Stock options are treated as a form of compensation. If vests during marriage, then CP. - check MB book
severance pay
The courts are split on this. Some courts argue SP because it replaces future wages. Other courts argue CP because result of labor performed during marriage.
disability pay and worker’s compensation
this is treated as wage replacement. For policy ownership, if CP paid premiums, then CP owns policy. For disability payments, it depends on what the pay is intended for. if it is intended for marital earnings, then it is CP. If it is intended for to replace income after separation or divorce, then it is SP. If benefits taken in lieu of a pension, apply time rule to apportion between CP and SP.
business’s good will
a business’s good will is its reputation regarded as a quantifiable assset, e.g. calculated by payments made in excess of the FMV in an acquisition. Good will is CP to the extent that it is earned during the marriage.
education and training
an educational degree is not CP, even if the CP paid for it. At divorce, CP is entitled to reimbursement when: 1) CP funds paid the expense, and 2) education substantially enhanced spouse’s earning capacity. Defenses to this are: 1) the community substantially benefitted from the education, presumed after 10 years of marriage, 2) the other spouse also received CP-funded education, and 3) the need for spousal support reduced as a result of the education. The loans at divorce are assigned solely to the educated spouse.
bonuses
if bonus rewards work during marriage, then it is considered CP. If awards work after separation or divorce, then it is considered SP. If bonus is more likea personal gift, then SP.
life insurance
whole life insurance
a whole life policy provides lifetime coverage and contains a cash saving component, which policy owner can draw on. For determining ownership, both CP and SP have a prorated interest in the whole life’s cash value of the whole life policy (measured by extent by which estate paid interest). Take amount CP contributed over the total amount contributed and multiply it by the total cash value, this would be CP and the rest is SP. The non-cash value proceeds are determined by whichever estate paid the premium last.
term life insurance
A term life insurance has coverage for a specified term less than life anad does not accumulate a cash value. Policy is usually paid annually. The policy belongs to CP or SP depending on whiever estate that paid the most recent premium.
To devise CP of life insurance, decedent can only devise one half to a beneficiary other than their spouse unless there is written consent from spouse.
Note: when life insurance is tested and it is unclear if its term or whole, then analyze both and explain why it is more likely to be one or the other.
SP business greatly increases in value during marriage
when community labor is used to enhance the value of a SP business, the community is entitled to share in the increased value of the SP
CA courts use 2 approaches
Periera
Pereira is used when the increase in the value of the business is attributable to the spouse’s expertise and skill.
formula: SP component is the original principal value of the SP business, plus an annual rate of return calculated at 10%. The remainder is CP.
Example for help: Restaurant purchased in 2007 for $100,000. In 2013, H and W seek dissolution of marriage. Assuming that the purchase price was the FMV at the time, the SP portion is equal to $100,000 plus $10,000 per year for six years, or $160,000. The residual value, of $140,000 ($300,000 - $160,000) is CP. Thus, under Pereira, the restaurant is $160K CP and $140K SP.
Van Camp
Van Camp approach is used when the increase in value is due to the nature of the business and to market forces, and not personal effort of spouse.
- Formula: CP = Market salary (per year business in operation during the marriage) less any salary received (per year business in operation during the marriage) and less family expenses paid by CP (per year business in operation during the marriage). The remainder is SP.
- Exam Tip
1. Pereira is for //P//ersonal skills. Pay interest on the SP, the rest if CP.
2. Van Camp is for a ////v///aluable company. Look at the value of community labor. The rest is SP.
Exam Tip
fact pattern in which one spouse enters marriage with portfolio of stock also uses the approach above.
- Anytime SP business involved, establish why it is a SP business
- Do not assume business acquired during marriage is CP
- After establishing the business is SP, address both Pereria and Van Camp. Go through equations and calculations.
3 ways to terminate marriage
Permanent separation (e.g., separated + files for divorce) ends the MEC, as does divorce, or death of either spouse.
reversal of perreira and van camp (don’t need to memorize word for word)
Reverse Pereira and Van Camp will apply when SP contributes to a CP business after separation/dissolution. In regular situation, the business starts off as a SP business and CP helps out. In reverse situation, business starts as CP and SP helps out. Here, you do the same equations but you flip the variable you start with. So for Perreira, where you usually start with SP, here, you start with CP. And for Van Camp where you start with CP, here, you start with SP.
