LECTURE HANDOUT

COMMUNITY PROPERTY

PROFESSOR MICHAEL WATERSTONE

 COMMUNITY PROPERTY—CALIFORNIA

CALIFORNIA COMMUNITY PROPERTY

BY PROFESSOR MICHAEL WATERSTONE
LOYOLA LAW SCHOOL, LOS ANGELES

INTRODUCTION
It is easy to identify CP essay question on bar exam:
• Parties in fact pattern are identified as Herb and Wendy, Hank and Wilma
(H & W).

• Question ALWAYS ends “answer according to California law.”

• In all of my hypos (and on exam), story starts with H & W married and
domiciled in CA except where otherwise noted.

o Bar exam question will involve characterizing assets in the context

of divorce or separation, death of one of spouses, or assertion of
creditor’s claim.

I. BASIC PRINCIPLES
These statutory definitions apply unless the character of an asset has been altered by (i)
the parties’ agreement (premarital or during marriage); (ii) parties’ conduct; or (iii) how title
was taken.

Separate Property (SP):

• Property owned by either spouse before marriage; or

• Property acquired during marriage by gift, will, or inheritance; or

• Property acquired during marriage with the expenditure of separate funds.

• Example – W inherits $10,000 from mother’s estate, which she uses to buy
IBM stock. The IBM stock would be SP, because she used the inheritance
which was SP.

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• We call this “source” rule or “tracing.”

• The rents, issue, and profits derived from separate property.

Community Property (CP): Property, other than separate property, acquired by either
spouse during marriage. The most common examples are (i) salary or wages earned by
either spouse, and (ii) the income from community assets.

• Examples – Prize money won by W on quiz show is CP (acquired from

wife’s labor); Bonus paid by H’s employer which was wrapped in gift box is
CP (compensation, not gift).

There is a community presumption: all assets acquired during the marriage are
presumptively community property. Absent a showing of the parties’ agreement or that
title was taken in a form that overcomes the community presumption, the burden of proof
that a particular asset is separate property is on the party so contending.

California has extended its community property system – as of 2004, the community
property system applies to registered domestic partners upon filing a Declaration of
Domestic Partnership with the Secretary of State, retroactive to January 1, 2000. It is
available only to (i) same-sex couples, and (ii) elderly opposite-sex couples receiving
Social Security benefits.

• Everything same, except not H & W. (Harry and Hal, or Wilma and Wendy).

• In In re Marriage Cases (2008), the California Supreme Court held that the
California Family Code section providing that only a marriage between a
man and a woman is valid or recognized in California was unconstitutional
under the California state constitution. Subsequently, the voters approved
Proposition 8, amending the California Constitution to provide that “only
marriage between a man and a woman is valid or recognized in California.”
Proposition 8 was challenged in federal court and found unconstitutional.
Thus, same-sex marriage is legal in California.

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A. WHEN DOES THE ECONOMIC COMMUNITY END?

Hypo 1 - Hal and Wynn, having difficulties in their marriage, agree to a trial separation for
six months. Hal moves into his own apartment on May 10, 2005. When the trial period
ends November 10, 2005, Hal and Wynn discuss their future. Hal, who still is in love with
Wynn, begs her to “give me another chance,” but Wynn tells him that “the situation is
hopeless.” Wynn files for divorce in March 2006. Between May 10 and Nov. 10, 2005,
Wynn invests $15,000 of her earnings to buy 300 shares of Able stock. Between
November 10 and the time of filing for divorce, Hal invests $10,000 of his earnings to buy
Baker stock.

o When did the economic community end?

1. _______________________________________________ AND

2. ____________________________________________________.
When was this met in the hypo? _____________________________.

o Classify Able and Baker stock.

 Able stock (acquired between May 10 and Nov. 10) – _________

 Baker stock (acquired after Nov. 10th and before divorce filing) –
________________

Hypo 2 - Doctor Harry leaves Wanda and moves in with his nurse. Harry and the nurse
set up housekeeping on a houseboat in Marina Del Rey. Thereafter, Harry never had sex
with Wanda. But Harry occasionally went home to eat with Wanda and the kids, took
Wanda to dinner on several occasions, took Wanda along to medical association
meetings, and (classy guy) regularly took his laundry home.

o Does this show the intent of either party not to resume marital relation?

________________________________________________________

o Until divorce filed, earnings are ___________.

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Hypo 3 - During marriage to Hal, Wendy (a law professor) wrote a casebook published by
West Publishing Co. The book was not mentioned in the divorce proceeding. Six
months after the divorce Wendy receives an $8,000 royalty payment from West. Wendy
contends that the $8,000 is her SP because she owned the copyright and she now owns
the book. Is she correct?

o _____. The copyright and all royalty payments were ______.

For community property not divided on divorce, the court retains continuing
jurisdiction to award CP that was not previously adjudicated, and on motion the
omitted or unadjudicated CP will be divided 50/50 unless the court finds that “the
interests of justice require an unequal division.”

o But if Wendy wrote the book before marriage, royalty payments would be
________ even if received during the marriage.

B. HOW IS COMMUNITY PROPERTY HANDLED ON DIVORCE?

Hypo 4 - At the time of their divorce, H & W own the following assets as community
property: a house ($300,000); furnishings, cars, and other tangible personal property
($20,000); and stocks and bonds ($500,000), for a total of $820,000. H is an engineer;
W (who has only a high school education) has not worked since their first child was born.
Citing the disparities in earning power and career potential of the parties, and the fact
that W was awarded custody of the couple’s minor children, in making a division of CP
the trial court (a) divides the tangible personal property equally; (b) awards the house to
W; and (c) awards $200,000 of the securities to W and $300,000 to H. As a result, W
takes property worth $510,000 and H takes property worth $310,000.

• Is this proper?

o ______. Absent a property settlement agreement, all community

property must be ___________________________________.

o Disparity in earning power can be considered only as to

__________________________________________________.

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• Suppose, instead, that the court divided the tangible property equally
($10,000 each), awarded the house ($300,000) to W, and awarded
securities worth $100,000 to W and $400,000 to H, with the result being
that each ends up with assets worth $410,000. Was this non-pro rata
division proper?

General rule: ______. Each and every community asset (and liability) must
be ________________________.

o Economic Circumstances exception – can have non-pro rata

division, giving particular asset wholly to one spouse and “cash out”
other spouse with other assets (with each spouse getting 50% of
total value).

 Examples of this exception:

• Family residence – (very common) Family residence

and loss of family home would uproot couple’s minor
children.

• Closely held corporation - All 100 shares of closely

held corporation are CP; W is CEO of corporation.

• Pension - Awarding all of H’s pension to H, other

assets to W, so they can go their separate ways.

• Statutory exceptions to “equal 50/50 division on divorce” rule, with one

spouse ending up with more than 50% of total value:

o One spouse misappropriates CP, whether before or during

pendency of divorce.

o One spouse has incurred educational debts; treated separately as

separately incurred debt (take law school loans with you!)

o One spouse incurred tort liability not based on activity for benefit of
the community.

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o Personal injury award is CP but on divorce is awarded to injured

spouse (unless interests of justice require otherwise).

o “Negative community” – community liabilities exceed assets;

relative ability of spouses to pay debt is considered (concern is
protect creditors).

C. WHAT RULES GOVERN LIFETIME AND TESTAMENTARY GIFTS OF

COMMUNITY PROPERTY?

Hypo 5 - Unbeknownst to Winkie, Hobie gives Apple stock (CP) worth $40,000 to his
deadbeat brother Buddy. When Winkie finds out about the gift (the stock is then worth
$100,000), what are her options?

• Winkie can _______________________________ because neither

spouse can make a gift of CP without the other spouse’s
_______________________.

o The power to manage CP is not equal to the power to give it away.

• Alternatively, on divorce, Winkie can take equal offsetting CP assets to

recover her ½ CP.

• What if Winkie only learns about the gift after Hobie’s death?

o Winkie can
______________________________________________.

o Winkie’s recovery will be from either ______________ or

___________________________; whichever is easiest.

• The same result would apply if Hobie, the insured under a $100,000 CP life
insurance policy, names a third party as a beneficiary (e.g., girlfriend).
Winkie can recover her ½ CP, from either the beneficiary OR Hobie’s
estate.

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• Only exception to party not being able to give CP away is when US

government savings bonds are involved.

o In this case, federal law trumps, and there is federal preemption.

o So even if Hobie uses $20,000 CP to buy United States Series EE

Savings Bonds in the name of “Hobie, payable on death to Buddy,”
Winkie cannot recover her ½ community interest in bonds.

Hypo 6 - Harry buys Blackacre with community funds. Not being totally familiar with
California’s community property system, and because the deed conveying Blackacre
names Harry as grantee, Harry thinks Blackacre is his SP. He dies leaving a will that says:

1. I, Harry, own Blackacre as my separate property. I devise fee simple title

therein to my sister Sally.

2. I give and bequeath all the rest, residue, and remainder of my property to
my wife Wanda if she survives me, otherwise to my brother Bob.

At the time of Harry’s death, Blackacre is worth $100,000. Harry and Wanda own
other community property worth $400,000.

• Did Harry have testamentary power to devise the entire interest in

Blackacre to Sally?

• _____. Each spouse has the power of testamentary disposition over

all of his SP, but only over ½ of the CP.

• Does this mean that Wanda gets to keep her one-half interest in Blackacre
and take Harry’s ½ CP under the second paragraph of will?

• _____. The key term is ________________________________.

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 Harry’s will purports to bequeath the entire interest in a

community asset. Wanda has therefore been put to a choice
(an “election”). She cannot read the will selectively (“I’ll take
the residuary estate under ¶2, but I protest the gift in ¶1”).
Rather, she has to read all of the will. If Wanda elects to take
under the will and receive her residuary estate, she will take
½ of Harry’s CP ($200,000), but she has to allow the will to
operate to devise Blackacre to Sally.

 Alternatively, Wanda can elect to take against the will, by

claiming her ½ CP in Blackacre. But she then must relinquish
all testamentary gifts in her favor. In this case, Harry’s will is
read as though Wanda died before him, meaning that Wanda
does not take Harry’s ½ CP in residuary estate under ¶2 of
the will.

 What will Wanda do? __________________________.

• If she takes under the will, she will wind up with

$400,000 (her ½ CP ($200,000) + Harry’s ½ CP
($200,000)). If she elects against the will, she will
wind up with $250,000 (her ½ CP ($200,000) + ½
Blackacre ($50,000).

D. WHAT RULES GOVERN ACQUISITIONS ON CREDIT DURING THE

MARRIAGE?

Hypo 7 - Hal buys a lot near Big Bear Lake for $50,000, paying $10,000 in community
funds and $40,000 with a loan from Bank. At the Bank’s insistence, Willow signs the
note for the loan along with Hal. The deed to the lot names “Hal” as the grantee.

• At the time of the purchase, the lot is at least 20% ____ because of the
$10,000 down payment from community funds. What about the other 80%
acquisition on credit?

o Funds borrowed during marriage, and goods purchased during

marriage, are presumptively community credit. This is the
________________.

o However, borrowed funds (and credit purchases) are classified

according to the ____________________________. We look at
where the lender is looking for satisfaction of the debt.
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• What would be the result if the lender was primarily relying on Hal or
Willow’s general standing in the community, or was relying primarily on
Hal’s personal creditworthiness or reputation?

o The note would be a ____ obligation, and the lot would be _____.

• What would be the result if the loan was secured by a mortgage on land in
Los Angeles worth $50,000 which Hal owns as his SP?

o The note would likely be a _____ obligation; the lot would be

____CP and _____ SP.

o But remember, the controlling test is primary intent of the lender.

Thus, it still could be shown that (e.g.,) Bank was primarily looking to
Hal’s credit standing, in which case the note and lot would be
_____.

E. CONFIDENTIAL RELATIONSHIP RAISES FIDUCIARY DUTY;

PRESUMPTION OF UNDUE INFLUENCE

Spouses are subject to fiduciary duties that arise from their confidential
relationship, imposing a duty of the highest good faith and fair dealing with each
other. If one spouse gains an advantage from a transaction, a presumption of
undue influence arises. That spouse has the burden of proof to show she did not
breach her fiduciary duty.

• Under a 2002 statute, a grossly negligent and reckless investment of

community funds is a breach of a spouse’s fiduciary duty.

• Example – if H invests community funds in Alchemy, Inc., a start-up

company with a “sure-fire formula to turn lead into gold,” it would be a
presumptive breach of H’s fiduciary duty.

II. ALTERING THE CHARACTER OF ASSETS BY

AGREEMENT
Absent any contrary agreement, the statutory definitions of SP and CP control.
But California has always allowed the parties to opt out of the CP and SP
characterizations by agreement, either as to particular assets or as to all
acquisitions.

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These agreements can be made before marriage (and thus governed by the Uniform
Premarital Agreement Act) or be made during the marriage. When, by agreement during
the marriage the character of an asset is changed (from SP to CP, from CP to SP, or from
one spouse’s SP to the other spouses’ SP), this results in a transmutation.
Transmutation can be by gift (e.g., H gives jewelry inherited from his mother to W on her
birthday; jewelry is W’s SP), or by agreement.

Unlike most contracts, no consideration is required for either a premarital agreement or

for a transmutation during marriage.

A. PREMARITAL AGREEMENTS

General rule – Premarital agreements must be in writing, signed by both parties. Oral
agreements are invalid. There are two exceptions to this general rule.

• Exception #1 – Where oral agreement is _______________________ .

Hypo 8– To induce Winkie to marry him, Hobie orally agrees to name her as beneficiary
of his $100,000 life insurance policy. The parties marry, and Hobie changes the
beneficiary designation to make Winkie the beneficiary. Later, after a heated argument,
Hobie changes his policy to make his sister Sue the beneficiary. Hobie dies shortly
thereafter. Winkie now sues Sue, offering proof of the oral agreement; Sue contends that
evidence of the agreement is barred by the writing requirement for premarital
agreements.

o Winkie argues that her marrying Hobie in reliance on the agreement

is sufficient performance of the oral contract to make it an exception
to the writing requirement. Is she correct?

 _____. Marriage alone is not sufficient performance to make

it an exception to the writing requirement because that would
eliminate the writing requirement in every case.

o Winkie argues that evidence of Hobie’s actions is still admissible to

prove the existence of a premarital agreement as to the insurance.
Is she correct?

 _____. By naming her as beneficiary, Hobie did what he

promised and acted consistent with the existence of a contract.
This conduct substitutes for requirement of writing.
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• Exception #2 – ________________ based on ___________________.

Hypo 9 – Wanda (who is single) executes a will leaving all of her property to her nephew
Norman. Wanda later meets Howie. Howie agrees that if Wanda marries him, he will
make no claim against Wanda’s estate at the time of Wanda’s death. They marry. Wanda
dies, and Howie brings a claim for his share of the will against Wanda’s estate.

o In probate court, evidence of Howie’s oral promise is offered by

independent witnesses. Howie argues that the evidence is
inadmissible because of the premarital agreement writing
requirement. Is the evidence admissible?

 ______. Wanda relied on Howie’s promise, and he is now

estopped from asserting the writing requirement.

In a premarital agreement, what can parties agree to? ________________________.

• Parties can agree that after marriage, each party’s salary and wages will be
that party’s SP; that neither will claim a family allowance in other’s estate;
that an agreement will govern disposition of property on separation,
divorce, or death.

o Exception – Parties cannot agree to limit either party’s contribution

to _________________________. This is prohibited by statute.

There are two defenses to enforcement of a premarital agreement:

• Defense 1 - Not signed voluntarily

o Background – Marriage of Bonds (Cal. S. Ct. 2000): in 1987, on trip

to Montreal, BB meets Swedish masseuse. Whirlwind courtship;
BB’s lawyer drafts premarital agreement saying each keep earnings
as SP. She was told she could get attorney; declines, saying “that is
the way we do it in Sweden.” Flew to Vegas and married next day.
Marriage doesn’t last, she tries to render agreement unenforceable,
saying not signed voluntarily. Court held agreement enforceable,
reasoning it was an informal wedding and she could have
postponed it if she wanted attorney to review the agreement. Court
suggested that it would have been different if she was presented

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with take-it-or-leave-it agreement 30 minutes before formal

wedding. California legislature not happy.

o 2001 statute (response to Bonds) - A premarital agreement shall be

deemed not voluntary (and thus unenforceable) unless court finds
that party challenging agreement:

i. Was represented by independent legal counsel at time

agreement signed (or waived in separate writing); AND

ii. Was given at least 7 days to sign; AND

iii. If not represented by independent counsel, was fully

informed in writing (in language in which party proficient) of
terms and basic effect of agreement. Party must execute
document declaring that they got information and identifying
who provided it.

• Defense 2 – Unconscionability

o Unconscionability claims divide into two areas, those involving

spousal support and those involving anything else.

• Spousal support – in Pendleton v. Fierman (Cal. S. Ct. 2000),

the California Supreme Court held that right to spousal
support can be waived or modified in premarital agreement.

• CA Legislature Response (2001): Provision in

premarital agreement regarding spousal support is
unenforceable on one of two grounds:

a. Party challenging was __________________

at time signed; OR

b. Provision is ______________________ (even

if party represented by independent legal
counsel).

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• Anything else – Agreement unenforceable if unconscionable

when made AND (i) no full and fair disclosure of other party’s
property or financial obligations; (ii) right to disclosure not
waived in writing; and (iii) party challenging had no adequate
knowledge of other party’s property or financial
circumstances.

o By statute, unconscionability is a _______________ to be decided

by the ______, not a question for the jury.

B. MARITAL AGREEMENTS (TRANSMUTATIONS)

Before 1985, oral transmutations were permitted, whether by express agreement or

agreement in-fact.

After 1985, must be (1) in writing; (2) signed by spouse whose interest is adversely
affected; and (3) must explicitly state that a change in ownership is being made.

• Applies to all transmutations: SP into CP; CP into SP; one spouse’s SP into
other spouse’s SP.

• Usual exceptions to the writing requirement (e.g., estoppel, partial

performance, statute of frauds) do not apply.

• Only exception—gifts of tangible property of personal nature (e.g., inherited

jewelry) which “are not substantial in value taking into account the
circumstances of the marriage.”

(2/10 - $15K painting paid for with SP funds, given as gift to other spouse; still SP –
no transmutation)

Hypo 10 – Hal owns AT&T stock worth $80,000; Wendy owns Exxon stock worth
$20,000. Over breakfast one day in late 1984 or early 1985, Hal says, “I think it would be
a good idea for all of our stock to be owned as CP.” Wendy says, “Great!”

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• If conversation took place in 1984, what result?

__________________________ and ___________________________.

Rationale – spouses cannot be expected to act formally.

o Problem – in divorce proceedings, it becomes messy – no written

record.

• If conversation took place in 1985, what result?

____________________________________________________.

Hypo 11 – H executes will that says “I own no SP. All of my property, real and personal, is CP
of my wife and me.” H & W get divorced. In proceedings, H claims that some of his assets
are SP. W procures Xerox copy of H’s will, saying it shows a transmutation. Is H’s will
admissible in divorce proceeding as evidence of a written transmutation agreement?

• ______. By statute, in any proceeding commenced before the death of the

person who made the will or created a revocable trust, a statement in a will
or revocable trust as to the character of the property
_____________________ as evidence of transmutation.

III. EFFECT OF HOW TITLE IS TAKEN

A. PRESUMPTIONS THAT ARISE FROM TAKING TITLE IN “JOINT AND
EQUAL FORM”

“Joint and equal form” means the title lists both spouses names – “Harry and Wanda
Smith,” “Harry and Wanda Smith, husband and wife,” “Mr. and Mrs. Harry Smith,” or
“Harry and Wanda Smith as joint tenants.”

Hypo 12 – In 1978, H & W purchase a home for $60,000, using $15,000 of W’s SP and
$45,000 of CP. Title is taken as “Harry and Wanda Smith.” W later contributes $10,000
of her SP for improvements.

• When H dies, W seeks to “trace” and show that the house is ¼ SP because
of her down payment. W also seeks reimbursement for improvements
made with her SP.

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o Marriage of Lucas (Cal. S. Ct. 1980) On similar facts, held that by

taking title as joint tenants (which by statute made house CP),
property was presumptively CP. Taking title in a form that raised a
CP presumption was inconsistent with idea that W intended to
reserve a SP interest. W’s subjective intent was irrelevant. Absent
proof of an agreement that W was to have a SP interest, by taking
title in CP form W must have intended gift to community. Unless
such an agreement is established, W has no separate ownership
interest and has no claim for reimbursement.

o In case involving death of one party, Lucas is still law. So W has

_____________________________________________, unless
she can establish that there was agreement that W was to have SP
interest or W was to be reimbursed.

• In divorce action, W seeks to “trace,” and show that the house is ¼ W’s SP
because of down payment, and W seeks reimbursement for improvements
made with her SP.

o The California legislature has passed two anti-Lucas statutes on the

ownership and reimbursement issue when the issue arises on
divorce or separation.

o Ownership (Family Code §2581) – For purposes of division of

property on divorce or separation, property acquired during
marriage in joint and equal form is presumptively CP, and is subject
to equal division on divorce. CP presumption can be rebutted by:

 Express statement in the deed or other instrument of title that

the property (or portion thereof) is SP; or

 Written agreement by the parties that the property (or portion

thereof) is SP.

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o Reimbursement (Family Code §2640) – For purposes of division on

divorce or legal separation, spouse who made contributions of SP to
the acquisition or improvement of CP is entitled to reimbursement
without interest for contributions to Down payment, Improvements,
or Principal payments on mortgage (acronym is “DIP.”). But no
reimbursement for SP used to pay interest on mortgage, taxes,
insurance, or maintenance.

o So if no express statement in the deed or other writing indicating

any SP interest, W ______________ be able to claim ¼ of the
house as SP because of the down payment, but ______________
receive reimbursement (without interest) for her contributions to DIP.

Hypo 13 – Using $25,000 of CP funds and $25,000 of his SP funds, Harry purchases a
vacation property for $50,000 cash. On divorce several years later, property is worth
$90,000.

• If the deed names “Harry and Wanda Smith, husband and wife,” as
grantees, the anti-Lucas statutes apply. On divorce, the property is
__________________________ (unless H’s SP ownership interest is
specified in deed or is recognized in separate written agreement between
H & W). H is entitled to reimbursement without interest for DIP.

• But if deed names “Harry Smith,” as grantee, the anti-Lucas statutes do not
apply because property was not taken in joint and equal form. Under the
source rule and tracing, the property is ____________________.

Hypo 14 – Using $5,000 in CP funds and $5,000 of Wanda’s SP, Harry and Wanda
purchase a Picasso painting for $10,000. Although the receipt names “Mr. and Mrs.
Harry Smith” as the buyers, there is no title document. The parties later divorce.

• The Picasso is ____________________________ under the source rule.

• The anti-Lucas statutes do not apply because no title document or deed is

involved. A receipt is not enough.

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IV. EFFECT OF PARTIES’ ACTIONS ON

CHARACTERIZATION OF ASSETS
A. INSTALLMENT PURCHASE PRE-MARRIAGE; DEBT PAID DOWN WITH
CP POST-MARRIAGE

Hypo 15 – Wanda, who is single, buys house for $100,000, paying $20,000 down and
signing a note (secured by a mortgage) for the $80,000 balance. Thereafter, until her
marriage to Harold, Wanda makes mortgage payments that reduce the loan balance by
$10,000 (to $70,000). After the marriage, Wanda continues to make the mortgage
payments out of her salary (CP) until the note is paid in full. Wanda dies leaving a will that
devises “all my property” to her nephew Norman. The house is now worth $500,000.
Who takes what?

• ___________________________ – installment purchase before marriage,

payment with CP funds after marriage (or during marriage W inherits land
subject to mortgage and pays off note with CP funds), the community
estate takes a pro rata portion of the property, measured by the amount
(percentage) of principal debt reduction attributable to the expenditure of
community funds.

• numerator: principal debt reduction attributable to CP $70,000

denominator: purchase price $100,000

• The house is: _______________. House ($500,000) is $350,000 CP;

$150,000 Wanda SP. Norman winds up with $325,000 (1/2 of W’s CP
($175,000) + W’s SP ($150,000)).

o Note – CP component measured by amount of principal debt

reduction attributable to community funds, not mortgage interest,
property taxes, or insurance.

Hypo 16 – Same facts, except that note not paid off in full when Wanda divorces Harold
(or one of them dies). Wanda buys house for $100,000, paying $20,000 down and
signing a note (secured by a mortgage) for the $80,000 balance. Thereafter, until her
marriage to Harold, Wanda makes mortgage payments that reduce the loan balance by
$10,000 (to $70,000). At the time Wanda and Harold get divorced, the house is valued
at $500,000, and the principal balance of the note has been reduced to $50,000. Thus
the principal balance has been reduced by $20,000 with community funds (Wanda’s
salary). Between Wanda and Harold, who takes what?
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o Same proration rule – the community estate takes a pro rata portion of the
property, measured by the amount (percentage) of principal debt reduction
attributable to the expenditure of community funds.

o numerator principal debt reduction attributable to CP $20,000

denominator purchase price $100,000

o The house was: ________________________. House ($500,000) is

$100,000 CP, $400,000 Wanda’s SP. Wanda ends up with $450,000 (her
SP ($400,000) + her ½ CP ($50,000); Harold winds up with $50,000 (his ½
CP).

Hypo 17 – In 1994, Hugh, while single, takes out a $100,000 whole life insurance policy
(cash value; investment feature) that names his mother as beneficiary. Hugh pays the
first annual premium of $2,000 and all subsequent premiums out of his salary. Hugh
marries Wilma in 2000 (having made six premium payments before the marriage), and
dies in 2004 (having made four additional premium payments during the marriage)
without changing the beneficiary designation. Who takes the policy proceeds?

• In classifying ownership of whole life insurance policies,

____________________________.

• Therefore, the life insurance policy was ____________________ and

___________________. Wilma will get ____________________.

Hypo 18 – Same facts, except that the $100,000 life insurance policy was a term life
insurance policy (pure insurance with no cash surrender value (car insurance)); the
annual premiums were paid by H’s employer (or could be H paid first premium with SP).
H marries W, and dies in 2004 (having made final payments with community funds).

• The term insurance policy was ____ SP and _________ CP.

• Rule for term insurance is that the last premium determines the character.

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B. COMMUNITY FUNDS USED TO IMPROVE SP

Hypo 19 – Hobie owns a house at the time of his marriage to Winkie. Thereafter, Hobie
spent $50,000 out of his salary (CP) to add a family room to the back of the house, to put
in a swimming pool, and to build a redwood deck around the pool. These improvements
increase the value of the house from $200,000 to $280,000. Winkie has filed for
divorce. Do these expenditures for improvements give the community a proportionate
share of the ownership of the house?

• ______. This situation is governed by the real property doctrine of

_____________. The improvements become part of the property.
Expenditure of CP does not change ownership character of house.

• What are Winkie’s rights?

o Winkie can bring a claim for ________________ for the community.

The community gets
_______________________________________________.

• The Anti-Lucas statutes do not apply because ___________________

trigger anti-Lucas.

Hypo 20 – Suppose, instead that Winkie owned the house as her SP. Thereafter, Hobie
spent $50,000 out of his salary (CP) to add the family room, swimming pool, and
redwood deck. Those improvements increased the value of the house and land from
$200,000 to $280,000. In a divorce proceeding, is Hobie entitled to assert a
community reimbursement claim for the expenditure of community funds on Winkie’s
separate property?

• There is a split of authority! You need to argue both ways!

o No reimbursement –These facts (CP expended other spouse’s SP)

give rise to presumption of gift to W’s separate estate; presumption
of gift can be overcome only by evidence of an agreement to
reimburse community estate.

o Reimbursement – Other cases rejected presumption of gift and

granted reimbursement.

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Hypo 21 – Henry and Wanda own a house as CP. The deed names “Henry and Wanda
Harris” as grantees. Thereafter, Henry spends $50,000 of his SP to add a family room,
swimming pool, and redwood deck. The improvements increase the value of the house
from $200,000 to $280,000. In a divorce proceeding, can Henry assert a
reimbursement claim?

• _______. This situation is governed by ________________________.

When asset is held in joint and equal form, and SP is expended to improve
CP, upon divorce, the party who expended SP would get reimbursement
(without interest) for DIP (down payment, improvements, principal
payments).

o If issue arises on death of one of the spouses, the situation would be

governed by _______________, and there would be
_____________________________ unless there was proof of an
agreement to reimburse.

To recap the reimbursement rules triggered by improvements:

• If H expends CP to improve own SP (feathering his nest), community has

reimbursement claim for the greater of the cost of improvements or the
enhanced value.

• If H expends CP to improve other spouse’s SP, there is a split of authority

on whether there is reimbursement or not.

• If H expends SP to improve community property, we are governed by anti-

Lucas statutes (divorce) or Lucas (death).

C. COMMINGLED BANK ACCOUNTS

Hypo 22 – Herb owned substantial SP at the time of his marriage to Wilma, including
$200,000 in a savings account on which Herb was the only authorized signatory. During
the marriage (which ended in divorce after 15 years), Herb deposited his salary checks
and additional separate funds into the account. From time to time, Herb made
withdrawals and wrote checks to pay family living expenses, and also to buy various
assets, title to which was taken in Herb’s name. At the time of the divorce action, the
amount on deposit is $60,000. Herb seeks to prove that all assets purchased from the
account are his SP by recapitulation accounting: he totals all family living expenses over
15 years of marriage, and shows that family living expenses exceeded 15 years of
community income by a substantial margin. Therefore, Herb argues that all CP must
have been exhausted, and he “must have” used SP to purchase assets.

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 Is Herb correct? ____. The mere fact that SP funds are commingled with
CP funds does not transform or transmute the SP into CP. But the burden
of proof is on H to show that each asset was purchased with SP funds.

o Problem with recapitulation theory is that it does not show that CP

funds were unavailable when each asset was purchased.

o There is a family expense presumption – It is presumed that

expenditures for family expenses (food, housing, clothing,
recreation, etc.) were made with community funds (to the extent they
were available), even though separate funds were available.

 But because of commingling and inadequate records, some

family expenses may have been paid with SP funds, in which
case the presumption is
______________________________________________.

To defeat this presumption, H would need an ______________.

 To satisfy his burden of proof, Herb can use one of two accounting methods:

o ________________________________:

 E.g., Herb’s records show that on 9/20/95 the account

balance dropped to $3,000; that H deposited $20,000 of his
separate funds on that date; on 9/22 Herb wrote a $5,000
check to pay his daughter’s tuition bill at private school
(exhausting CP), and that on 9/24 Herb withdrew $10,000 to
buy 200 shares of stock.

o ______________________________________________;

 E.g., at a time when $15,000 was in account, Herb deposited

$12,000 of SP funds; two days later he wrote a $12,000
check to buy 200 shares of stock. Direct tracing requires that
(a) sufficient separate funds were available, and (b) that H
intended to use SP funds to buy the asset.

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 COMMUNITY PROPERTY—CALIFORNIA

V. CHARACTERIZATION PROBLEMS RAISED BY

CERTAIN ASSETS
A. BUSINESS OWNED BEFORE MARRIAGE GREATLY INCREASES IN
VALUE DURING THE MARRIAGE

Hypo 23 – Wendy owned a computer software company in San Jose worth $100,000 at
the time of her marriage to Hal in 1986. When the couple divorce in 1996, the business is
worth $4 million.

Hal contends that a substantial portion of the business is CP. He points out that because
of the increased volume of business in the 1990’s, Wendy worked long hours and on
weekends; they rarely took vacations; that Hal stayed home to watch their daughter; that
Wendy drew a modest salary; and thus the great increase in the business was from W’s
labor (a community asset).

Wendy contends that the increase in value stemmed from her incredibly good fortune
and timing; that only an idiot couldn’t have made a fortune when the computer and
microchip business exploded in San Jose in the 1990’s; that she had hired two Cal Tech
graduates whose ideas contributed to the business’s growth; and that the salary and
bonuses she drew out of the business were substantial – far above the going rate for
similar positions. Therefore, since the business was her SP at the time of the marriage
the business is entirely her SP.
Who wins?

• There are two relevant tests: Pereira and Van Camp. You need to discuss
both.

• For Pereira, think P ___________________________________.

o Use where spouse’s time, skill, and effort are major factors in growth
of business. Look for instances where spouse contributed creative
ideas or develops new techniques, and/or worked long hours and
only drew modest salary.

 E.g. - H owned modest real estate business at time of

marriage; worth $3 million at time of divorce. H claimed he
was passive investor who got caught up in the real estate
boom, but the court found that H was unusually skillful in
developing raw land, supervising financing and construction,
and negotiating lucrative leases of commercial properties.
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o Pereira formula – P ______________; the rest is __________.

 Pay interest (legal rate of 10% annum) on value of business at

time of the marriage.

• In Hypo 23, if H & W had been married for ten years, W

is entitled to the initial $100,000 (value of business at
time of marriage) plus $100,000 in interest (10 x 10,000
(interest at 10%)). Therefore, the business is 5% her SP
($200,000/$4,000,0000) and the balance is CP.

• For Van Camp, think V ___________ C ______________________.

o Use where capital investment was the major factor in the business’s
growth, and spouse’s skills and efforts were less of a factor. Look for
instances where spouse was paid substantial salary and large bonuses
(meaning the community was compensated).

 Ex. – H owns Ford dealership at time of marriage in 1947,

business grows dramatically due to increased demand for
cars after WWII.

o Van Camp formula – V ______ C_____________; the rest is ____.

 Start with value of spouse’s services at market rates (how much

would executives in similar positions be compensated on the
market?) MINUS family expenses paid from community funds
EQUALS community component. The balance is SP.

• In Hypo 23, if H&W married for 10 years, and the

market rate for executives in comparable positions
was $100,000 and living expenses were 80,000/year,
the value of the community component would be
$200,000. The business would be 5% CP
($200,000/$4,000,000) and the balance W’s SP.

• $100,0000 x 10 years = $1,000,000 value of

community labor
- $80,000 x 10 years = - $800,000 family expenses
paid from CP
community component: $200,000
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• California Supreme Court has said that court is not bound either to adopt
Pereira or Van Camp. May select whichever formula will achieve
substantial justice between the parties.

B. PENSION BENEFITS

Hypo 24 – H had worked for Shell Oil Co. for 10 years at the time he married W in 1982;
the marriage ended by divorce in 1992, and H will be eligible to retire in 2002. In all of
these years, H was a participant in Shell’s qualified pension plan, where the pension
benefit is measured by years of service. H was not eligible for retirement at the time of
the divorce action. W contends that a portion of the pension benefit is CP. Is she right?

• __________. Employee retirement benefits accumulated during marriage,

whether or not vested at the time of divorce, are

______________________________________________.

• Use a proration rule:

Numerator: ________________________ 10
__________
Denominator: _________________________ 30

Pension would be _________.

• Given that H is not yet eligible for retirement, in awarding W a share of the
benefit, what form should the decree take? Two options:

o 1 – “_________________________________” – if and when

received, she gets her share (1/6, which is half of 1/3 CP share).

o 2 – “_________________________” – by awarding other assets of

equal value.

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Hypo 25 – Same facts as Hypo 24 (H had worked for 10 years before marriage, 10 years
during marriage), except that H was eligible for retirement at the time of the divorce
action. W seeks payment of her community share of H’s pension benefit even though H
has not retired. Is she entitled?

• ______ Since H could have retired at the time of the divorce, his retirement
benefit had ________________________.

o H’s election not to retire ________________________________.

• If a nonparticipant spouse (“NPS”) in a qualified pension plan divorces a

participant spouse, her community property interest is recognized; under
federal law she can get a qualified domestic relations order (“QDRO”) and
receive payments from the plan.

o What if the marriage ended by death rather than divorce. Does the
NPS have a devisable interest in a qualified plan if she predeceases
the participant?

 _________. There is federal preemption under the

Employment Retirement Income Security Act (“ERISA”), which
trumps CP laws. Her interest is terminated when she
predeceased the participant.

Hypo 26 – Same facts as Hypo 24 (H had worked for 10 years before marriage, 10 years
during marriage), but H was also covered by Shell’s disability insurance program. Shortly
before the divorce, H suffers an on-the-job injury and is given disability retirement; under
the Shell plan H received disability pension of $900/month. Also, H is awarded a
workers’ compensation benefit of $150/week. W claims a community interest in the
disability and workers’ compensation benefits, arguing that these benefits were derived
from H’s labor, and should be treated the same as pension benefits. Is W right?

• ____________. Disability retirement benefits and workers’ compensation

benefits are treated as ____________________________________.

• Thus, disability retirement and workers’ compensation benefits are

classified according to ____________________________________.

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o What if H could elect to take, at his option, either a regular

retirement benefit at $1,200/month or disability retirement at
$900/month; H chooses disability retirement. Does W have CP
interest in H’s retirement benefit?

 ________. H cannot elect to defeat her community interest.

• What about severance pay?

o No clear rule (Courts of Appeal are split) – argue both ways!:

 H’s severance pay is SP because it replaced lost earnings which

after a divorce or permanent separation would be H’s SP; OR

 H’s severance pay is CP because it arose from a collective

bargaining agreement and was thus earned by employment
during marriage.

C. STOCK OPTIONS

A stock option gives an employee (typically an executive) an option to purchase shares

of the company’s stock at a set price on a certain date in the future. Stock options
typically provide that they are not “vested,” and that the option-holder must be employed
by the company as of the date the option becomes exercisable for the option to vest. If
the option is awarded during marriage but does not vest until after the economic
community has ended, the proration formula that is used in determining what portion of
the option is CP and what portion is SP depends on the primary intent of the employer
in granting the option.

Hypo 27 – Hank, married to Wynn, was employed by the Ajax Company on June 10,
1998. On June 10, 2004, Ajax Company granted Hank a stock option entitling him to
purchase 5,000 shares of Ajax common stock if he is still employed by the company on
June 10, 2008. Hank and Wynn are divorced in 2006; the economic community ended
when Hank and Wynn separated (with an intent not to resume the marital relation) on
June 10, 2006.

• The divorce court determines that the stock options were awarded
primarily to reward Hank for his past services, as a form of deferred
compensation. The court should employ the Marriage of Hug proration
formula, under which the starting point for both the numerator and
denominator of the fraction is the date of employment. The fraction is then
multiplied by the number of shares of stock that can be purchased under
the options:
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Numerator: years from the date of employment to date economic community ends
Denominator: years from date of employment to date options become exercisable

____ years employment to date economic community ended

_________________________________________________ = _____ CP

_____ years employment to date option becomes exercisable

Subject to equal division on divorce.

• Suppose, instead that the divorce court determines that the stock options
were awarded primarily to encourage Hank to remain with the company.
The court should employ the Marriage of Nelson proration formula, under
which the starting point for both the numerator and denominator of the
fraction is the date the options are granted. The fraction is multiplied by
the number of shares of stock that can be purchased under the options:

Numerator: years from date options are granted to date economic community ends
Denominator: years from date options granted to date options become exercisable

___ years from date option granted to date economic community ends

_________________________________________________ = ___ CP

___ years from date option granted to date option becomes exercisable

Subject to equal division on divorce.

D. GOODWILL OF A PROFESSIONAL PRACTICE

Hypo 28 – Winkie is a CPA with a solo practice. At the time of her divorce from Hobie,
she is netting $100,000/year after expenses. If she went on the job market, she could
earn $60,000/year as an associate. Winkie’s firm has $100,000 in capital assets; at a
10% return, these assets would earn $10,000/year. Hobie contends that the “goodwill” of
Winkie’s professional practice, which Winkie opened a year after marriage to Hobie, is
community property. Is Hobie right?

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• _____. Goodwill of a professional practice (to the extent acquired during

the marriage) _____________________________________________.

o Goodwill are those qualities that generate income beyond that

derived from (1) the professional’s labor; and (2) reasonable return
on capital and physical assets.

o Goodwill is primarily established by expert witness testimony as to

its value.

Hypo 29 – Winkie is a partner in a small firm. The partners have a buy-sell agreement
which provides that any partner who dies or leaves the firm will receive $5,000 for his or
her interest in the partnership. Winkie contends that the buy-sell agreement puts a
$5,000 cap on the value of her goodwill in the partnership for purposes of division on
divorce. Is she right?

• ______. It is a factor but not conclusive.

E. EDUCATIONAL EXPENSES

Hypo 30 – Hobie and Winkie are married shortly after Hobie graduates from USC with a
degree in history and Winkie graduates from nursing school. They both want to go to
medical school, but realize they cannot both do so at the same time. Because Winkie’s
prospects for employment as a nurse are better than Hobie’s, they decide that Winkie
will work the night shift in an emergency room while Hobie gets his MD. Four years (and
$120,000 in GSL) later, it is graduation day. Hobie tells Winkie he has good news and
bad news. The good news is that he will finally be a doctor. The bad news is he is filing
for divorce. Is Hobie’s professional degree “property” that is subject to division on
divorce?

• _____. To what then is Winkie (actually the community) entitled?

o ________________________________________ if the education

_______________________________________________.

o Is reimbursement available if the educational expenses were

incurred before marriage and the loans were paid with community
funds after the marriage? _________________________

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• Defenses to reimbursement of community estate for educational expenses:

o Community has already substantially benefited from the earnings of

the educated spouse. If more than 10 years have elapsed since the
degree was awarded, the presumption is that the community has
substantially benefited, meaning that unless presumption is
rebutted, no reimbursement.

o OR if other spouse also received a CP-funded education.

• What about $120,000 in GSL loans used to finance H’s education?

o They are __________________________________________.

VI. TORT AND CONTRACT LIABILITY; MANAGEMENT

PROBLEMS
Hypo 31 – During marriage, Winkie is injured in an automobile accident in which her
husband Hobie was the negligent driver. Winkie collects $75,000 in a settlement with
Hobie’s insurance company.

• Where the other spouse was a tortfeasor, the tort recovery is ________.

o Why? Otherwise, he would benefit from his wrongful act.

Hypo 32 – Suppose, instead that Winkie was injured in an automobile accident in which
a third party was the negligent driver. Two years later, Winkie collects $100,000 in a
settlement with the driver’s insurance company.

• Where damages are recovered from a third party, the tort recovery is
________.

o However, in a property division on divorce or legal separation, the

$100,000 will be awarded __________________________, so
long as the $100,000
________________________________________.

o This will be the result unless the interests of justice, including

economic need, require otherwise.

 But on either spouse’s death, the $100,000 will be treated as

_________.

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Hypo 33 – Same facts as Hypo 32, except that Winkie was the negligent driver. She
suffered a judgment of $200,000, of which $100,000 was covered by liability insurance.
In recovering the remaining $100,000, what assets can the judgment creditor reach, and
in what order?

• The rule is that ___________________________________________.

• But we also need to look at what money creditors are able to recover first.

o If W was performing an act for the benefit of the community (e.g.,

driving to work, or driving the kids in a car pool),

 The liability is first satisfied from _____, and then from ______.

o If W was not performing an act on behalf of the community (e.g.,

driving to SP vineyard to talk to foreman, or driving to liaison with
her boyfriend)

 The liability is first satisfied from _____, and then from

________.

• Can a judgment creditor reach H’s SP?

__________________________________________.

Management Rules:

• General Rule – equal management powers – Each spouse has equal

management and control over all community property, and thus has full
power to buy or sell CP and contract debts without the other spouse’s
joinder or consent.

o Personal Belongings Exception – One spouse cannot sell or

encumber personal property used in family dwelling (furniture,
clothing, etc.) without written consent of other spouse. Transaction
voidable by other spouse at any time.

o Business Exception – Applies when a spouse operates a business

interest that is all or substantially all community personal property
and has primary management and control of all the business. While
this spouse can act alone in all transactions, if the spouse sells,
leases, or otherwise encumbers substantially all of the personal
property used in the business, must give written notice to other
spouse.
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Hypo 34 – Hank and Winona own a ranch as CP, but title to the ranch is in Hank’s name.
Hank sells the ranch to Bob (or leases it for more than one year), telling Bob that he is
single. Winona learns about the sale 10 months after the sale. She demands that Bob
reconvey the ranch to Hank and Winona, and offers to refund the purchase price. Can
Winona void the transfer?

• _______. For conveyances of CP real property, ___________________.

There is a _________________________________.

o What about Bob’s rights as a bonafide purchaser? ____________.

o What if Bob knew or should have known that Hank was married?

___________________________________________.

• General rule – Neither spouse can transfer or encumber their ½ interest in

real CP (house). Only entire interest can be transferred or encumbered.

o Exception – A spouse can unilaterally encumber her ½

interest in real CP to pay the family attorney representing her
in a divorce action –
_____________________________________________.

Hypo 35 – During marriage, H incurs debts of $40,000 owed to various suppliers in

connection with his business, and incurs $30,000 in medical expenses (not covered by
insurance) by reason of illness.

• Can CP be reached in satisfaction of $40,000 business debt?

__________. Spouses have _____________________, and either
spouse can ________________________.

o Can CP be reached if debt was incurred by H before marriage to W?

 __________, with one exception: The earnings of a

nondebtor spouse cannot be reached for premarital debts if
held in a separate account (in which the other spouse has no
right of withdrawal) and not commingled with other CP funds.

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o Can W’s SP be reached in satisfaction of $40,000 business debt?

 ________. W is _____________________________.

• Can W’s SP be reached in satisfaction of H’s $30,000 medical bills?

o ________. The Family Code provides that each spouse has the
duty to support the other spouse and minor children. This means
that each spouse is personally liable for the other spouse’s

____________________________________________________.

o If CP funds are available to pay medical bills,

____________________________________________________.

o Can W’s SP be reached in satisfaction of $30,000 in H’s medical

bills if (when debt incurred), W & H had separated and economic
community had ended?

 _____. For purposes of Family Code, _____________.

Hypo 36 – In a property settlement agreement entered into by Hobie and Winkie as part
of their divorce, stocks and bonds (which were CP) are awarded to Winkie. At the time of
the divorce, H owed $40,000 to a supplier. After the divorce, the supplier obtains a
judgment against Hobie, but only collects $10,000 from him. The supplier then seeks to
reach the securities awarded to Winkie. What result?

• After divorce, a creditor cannot reach CP awarded to a spouse unless that

spouse:

o __________________ or ______________________________.

VII. MULTISTATE PROBLEMS/CONFLICT OF LAWS

Hypo 37 – Henry and Wynn, married in Kansas (a non-community property state) in 1990,
moved to California in 1998, bringing with them 2,000 shares of IBM stock which Henry
had acquired from his salary. They also own a farm in Kansas (the deed names Henry as
grantee) acquired from Henry’s salary. Wynn has never been employed. After their
move to California, they get divorced. At the time of the divorce, there are 2,400 shares
of IBM stock in Henry’s name (resulting from stock dividends) and the Kansas farm is
worth $40,000. What division of these items should be made in the divorce proceeding?

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• The 2,400 shares of IBM stock are ______________________________

_____________________________________.

o Rule – Property acquired while the couple was domiciled in a non-

community property state, which would have been classified as
community property had it been acquired under the same
circumstances in California, is quasi-community property.

 On these facts, with respect to the IBM stock, Henry is the

acquiring spouse, and Wynn is the non-acquiring spouse. On
divorce, quasi-community property is treated the same as
true community property, and divided 50/50.

 But if Harry inherited property in Kansas, it is not quasi-CP

because it would be SP if acquired in California.

• The farm in Kansas:

o For purposes of division on divorce, “foreign” real property is

_______________________________________________.

o What about the fact that California has no jurisdiction over Kansas
land?

 No problem. In making 50/50 division, a California court

could award the Kansas land to Henry and other assets of
equal value to Wynn, OR require Henry to execute any
conveyances that are necessary (court does have personal
jurisdiction over Henry).

Hypo 38– Same facts as Hypo 37, except that the marriage ends not by divorce but by
Henry’s death. Henry leaves a will that bequeaths “all my property” to the couple’s
daughter Dorkie. Henry is survived by Wynn and Dorkie. What distribution?

• As to the 2,400 shares of IBM stock, as Henry was the “acquiring spouse,”
__________________________________________________________.

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• As to the farm in Kansas (“foreign real property”), for purposes of division

on death, foreign real property, ________________________________.

Hypo 39– Same facts as Hypo 38, except that it is Wynn (the “non-acquiring spouse”)
who dies, leaving a will that bequeaths “all my property” to daughter Dorkie. Does the
non-acquiring spouse have any power of disposition over quasi-CP if she dies before the
acquiring spouse?

• __________. The quasi-CP system gives protection only if

_________________________________________________________.

o Rationale - if Henry and Wynn had continued to live in Kansas, on

Henry’s death Wynn would be protected from disinheritance by
Kansas’s elective share statute. The quasi-CP statute is designed to
replace that protection.

Hypo 40 – Same facts as Hypo 39, except that the couple moved to California not from
Kansas but from Texas (another CP state). Are the IBM stock and Texas ranch quasi-CP,
meaning that Wynn, as the non-acquiring spouse, has no ownership interest to pass by
will?

• ______. Both are _________________________________________.

true CP,

VIII. PROPERTY ACQUIRED OUTSIDE THE MARITAL

RELATION
Hypo 41 – Hobie Gates and Winkie Waters are living together in California, but they are
not married. Pooling their resources 50/50, they buy a house, taking title in the name of
“Hobie Gates and Winkie Waters, husband and wife.” How is title held?

• California does ____________________________________________

(where people live together and hold themselves out as married).

o Exception – Where common law marriage

____________________.

• Do Hobie and Winkie hold title to the house as CP? __________. Only
spouses and registered domestic partners can have CP. They own it as

___________________________________.

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Hypo 42 – Marvin and Michelle have gone out for five years. When Michelle asks about
marriage, Marvin replies, “Out of the question. I’ll tell you what, though. If you will move
in with me, cook and clean for me and … provide other services, we can have all of the
benefits of marriage anyway.” Michelle does so, even though it means forsaking a
promising acting career. Ten years later, they split. In the meantime, Marvin has
accumulated assets worth $400,000 from selling tax shelters. What are Michelle’s
rights?

• The property relationships between Marvin and Michelle are governed by

________________________________________________________.
Would need to do contract analysis as to whether contract existed on these
facts.

o As long as the contract is not based solely on sexual services.

Hypo 43 – After Daphne moved from Texas to California, she met and fell in love with
Luther, an attorney. When Daphne asked about marriage, Luther (knowing it to be false)
told Daphne that they did not need to go through a ceremonial marriage because
California recognizes common law marriages. On that basis, Daphne moved in with
Luther, and they lived together as husband and wife for ten years – when Daphne learns
the truth and moves out. During their ten years together, Daphne and Luther acquired
property worth $200,000 from Luther’s earnings.

• In a relationship with Luther, Daphne is called a ___________________.

o The test is whether she _________________________________

that they were lawfully married.

o If so, the assets acquired by Luther and Daphne are called

_____________________, and when they split, the assets are split
________________________________.

 One California Court of Appeal case has held that if Luther

was “bad faith partner,” he is not entitled to ½ property
earned by her labor (which would otherwise be CP, subject to
50/50 split).

• If Daphne was aware that they were not lawfully married, their relationship
is characterized as unmarried cohabitants. Absent a contract (express or
implied), Luther _________________________ and Daphne
_________________________________________________.

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