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ANSWER A TO ESSAY QUESTION 1

California is a community property state. This means that all property earned during marriage by a spouses's efforts, labor or skill is deemed community property. All property earned before marriage or after separation, or property that is acquired by devise or inheritance during marriage is separate property. A transformation in form of the property does not change its characterization. In order to determine whether property is community property or separate property, a court will trace back to the original form of the property. At divorce, courts will divide the community assets 50-50 and in kind, if possible, unless special rules provide otherwise.

1. The Home

If a home is purchased with both separate and community funds, and there is no joint title presumption, then, at dissolution, both the separate and community property estates will receive the pro rate share of the home's value at divorce. (Marriage of Moore) When Herb purchased the home in 1979, he contributed $5,000 as the down payment. He additionally paid $1000 of the loan amount prior to marriage. Therefore, his separate property contribution was $6,000 at the time of the marriage. The purchase price of the home was $50,000.

Therefore Herb should receive 6/50 (or 3/25) of the appreciation value of the home (i.e., 3/;25 of $150,000) in addition to his separate property contribution of $6000, at divorce.

As stated above, community property is that property which has been earned as a result of a spouse's efforts, skill.or labor during marriage. Here, the facts indicate that during the next 20 years, from 1979-1999, the community paid off the rest of the loan which had a balance of $44,000 at the time of the marriage. Therefore, the portion that the community contribution of the home was 44/50 or 22/25. The community property pro rata share is 22/25 of the appreciation of $150,000 plus $44,000.

2. Mutual Fund

Source of the monies that purchased the mutual fund was the $10,000 that

for the sale of her painting. Given that this painting was the result of her skill,

during marriage, it is community property.

orally agreed that the $10,000 would be her sole and separate property. Had taken place prior to 1985, it would have been a valid agreement and this would have been transmuted to separate property simply by this oral waiver, after 1985, all agreements between spouses to transmute any property

it from community property to separate property, from separate property to

or even from the separate property of one spouse to the separate property

must be in writing. Further, this writing must have a clear and express

is being transmuted. Therefore, when Herb and Wanda made the

the proceeds from Wanda's painting sale be separate property, it had no

Therefore, notwithstanding their oral agreement, the $10,000 from the

remained community property.

property law, if a spouse deposits community monies in her name

property in her name alone or,.as is the case here, invests in a mutual fund

it is irrelevant as to the characterization of the property. Here, when

$10,000 in a mutual fund in her name alone it did not have any effect on

the community property character of the money. The mutual fund therefore is community property.

The current value of the mutual fund is $45,000. As community property it should therefore

be divided 50-50, with $22,500 going to each spouse. If the court would determine that this

is not in the interests of justice, or that this division would greatly devalue this appreciating

asset, it may determine that Wanda gets all of the $45,000 mutualj'und and offset Herb with

a community asset of equal value.

3. The cabin

Herb and Wanda bought their cabin during their marriage. Therefore, the funds used, and the

asset acquired (the cabin\ are presumptively community property. In addition to making a

down payment of $25,000, they also took out a note secured by a d1led of trust for $50,000.

It is important to note here that given that they both signed the not~ and that they took title

as joint tenants, the lender most likely intended that it was making a loan to the community.

Therefore the loan was a community liability (not separate liability of one of the spouses).

Herb and Wanda took title as joint tenants. Since 1989, courts have held that when a married

couple takes title as joint tenants it is presumptively community property. At divorce, any

separate property contributions will not go toward a pro rata share at dissolution. At divorce,

the separate property contributor is only entitled to reimbursement for payments made toward

principal and improvements. A spouse will not be reimbursed for separate property that has

been used for payments of taxes and insurance.

sed the $50,000 of his inheritance to pay off the note, he was using separate

use property acquired by inheritance, regardless of whether one is married, is

erty. In addition, he also used $20,000 of his separate property for an

At divorce, he can be reimbursed for this $20,000 he used for the improvement

the $50,000 that went toward principal payments on the loan. The remaining

mmunity property. Herb and Wanda will each take their Y. community property

tal of $40,000 each.

Answer B

Wanda v. Herb

California is a community property ("CP") state. All property acquire~ ~luring marriage is presumptively community property. All property acquired before "illJ'Ir iage or after

permanent legal separation is presumptively separate property ("SP"). Additiq

1i!llly, all property

_acquired through gift, devise, or bequest is also considered SP.

The Home

The issue is how a home should be divided upon dissolution of a m(\(rillge when that

home was acquired by one spouse before marriage, but the balance of the pr:' omissory note

I was paid off during marriage with community funds. As a general rule, the ·taif market value

I of the house is divided into SP and CP based on the proportionate shares of tt1~ purchase price

that were expended. Here, Herb ("H"l made a $5000 down payment befor~J ..;uirriage (thus,

from SP), and by the time of marriage he had paid an additional $1 0@0 of th~ ~1ote, leaving a

I balance of $44,000. This balance was paid by H and Wanda ("W") during t)l~ course of the

marriage using CP. Thus, H contributed 12% of the purchase price fr(ll'l'l SP and the

I corpmunity contributed 88% of the purchase price ($44,000 out of $50,000 purchase price).

Upon dissolution, H will be entitled to 12% of the fair market value of the twuse (12% of

$200,000), and the remainder of the fair market value is community property. ·This result is

reached to enable each spouse to obtain a proportionate amount of equity ir

• ~he house.

The Mutual Fund

The issue is whether there has been a valid transmutation of propert~. As a general·

rule, property acquired through the labor of one spouse during marriage is pre~urned to be CP.

I • Here, W received $10,000 as a result of the labor she used to paint the water~phlr. Thus, this

$10,000 is presumptively CP. However, as II' modification to this presumption ~iuiparties can

agree to change the form of property from CP to SP (or from SP to CP), if th~~ agreement is

made in a valid, legally enforceable·way. Here, Hand W orally agreed that the F 10,000 would

be W's SP. As a general rule, oral transmutations made on or after Janua1v 1, 1985 are ~ot legally enforceable. To be enforceable, the oral agreement must be in writing

by the party whose rights are affected. Here, the agreement was made in 1 g95

~I; thus, it does not work to transmute the $10,000 from CP to SP.

'next issue is determining, through the method of tracing, what happened to the

6-s a rule, property can be traced to later locations and then divided into SP or CP.

~ested the $10,000 in a mutual fund in her name alone. Since there is no issue of

' emption (as there would be if W used the money for a U.S. savings bond, for

:he money can be property traced to the mutual funds and the entire current value

' js ($45,000) will be treated as CP to preserve H's interest in W's labor during

1 issue is how title to property should be divided when SP is expended on the

1nt of CP. As a general rule, under the Marriage of Lucas, title' to property taken in

( property form is presumptively CP, and one·spouse may not be reimbursed for

)ended out of SP on contributions to CP upon death of one of the spouses. histead

ig a reimbursement, a presumption arises that the SP contribution was a giff to the

.I However, upon divorce, the rule is different. Upon divorce, title taken in CP fdrm

I ;umptively CP, but a spouse contributing SP for down payments, improvements, c;>r

I >ayments on a mortgage is entitled to reimbursement' without interellt for ttiese

ons under the Anti-Lucas Statutes (as long as the contribution was made post-

!ere, H and W hold title in one of the community property forms -namely, ·a joint

11 joint tenancy is treated as a community property form of ·title for purposes of

1ut is treated differently for death). Thus, in CP fom, the property is presumptively

lng each spouse to a 'h CP interest. This conclusion' is buttressed by the facts that

I were used·tO make the down payment, the cabin· was purchased during marriage,

lboth signed the note as joint tenants.

The only issue remaining is whether H can receiv e rel.m burse111en.t for the mo

spent on improving the cabin. As a general rule propert . . ney he

' Y rece1vecj through inheritance is

presumptively SP. Here, H received $50,000 from his moth .

. er as an lrhentance (SP). Under

the Anti-Lucas statutes, as explained above, SP contributed to CP f .

. . ·.or an Improvement or

pnnclpal payment can be reimbursed without interest . He re, H' s SP ($20,000) was used to

add a room (an improvement) to the cabin. Furthermore H

. . ' spent ~.50,000 to pay off the

pnnclpal .o wed on the mortgage. Thus, H can tie reimbur.s ed Witho ut . . m~erest for $70,000, and

the remamder of the fair market value of the cabin w'lll b e t reated as ~P.