Legal Counsel You Can Rely On

Marriage is a personal relationship arising out of a civil contract between two consenting persons. For a marriage to be legal the parties must have a valid marriage license. Marriage of Left (2012) 208 Cal.4th 1137, 146 Cal.Rptr.3d 181. Marriage is legal in California for both opposite and same-sex couples due to the landmark decision by the United States Supreme Court, Hollingsworth v Perry 570 U.S. 693 (2013). As a result of this decision, Proposition 8, an amendment to the California Constitution passed by voters in 2008 prohibiting marriages by same-sex couples, was permanently enjoined from enforcement. As of June 28, 2013, validly contracted same-sex marriages from other states are valid as marriages in California with all its rights, protections, benefits, and obligations. Additionally, same-sex spouses are now recognized by federal law. (U.S. v Windsor 570 US 744 (2013).)

Domestic Partners Receive Same Rights and Responsibilities as Spouses Under California Law

The California Domestic Partner Rights and Responsibilities Act of 2003 extends to registered domestic partners the same rights, protections, benefits, and obligations that apply to spouses under California law both during and on termination of the union. (Fam. Code § 297.5.) California laws governing the dissolution, nullity, or legal separation of marriage apply to the dissolution, nullity, or legal separation of a domestic partnership. (Fam. Code § 299(d).) Domestic partners are two adults who have chosen to share one another's lives in an intimate and committed relationship of mutual caring. A domestic partnership is established by filing a Declaration of Domestic Partnership with the Secretary of State. (Fam. Code § 297(b).) The following requirements must be met at the time of filing (Fam. Code § 297(b)):

1. Neither person is married to anyone else;
2. Neither person is in a domestic partnership with anyone else;
3. The two persons are not related by blood in a way that would prevent them from being married in this state;
4. Both are at least 18 years old;
5. Both persons are members of the same sex or are over 62 years of age; and
6. Both persons are capable of consenting to the domestic partnership. Any reference to the date of a marriage is deemed to refer to the date of the registration of a domestic partnership. (Fam. Code § 297.5(k)(1).)

No Federal Recognition of Domestic Partnerships—Tax Implications

Although California law treats domestic partners the same as married spouses in terms of their legal rights, protkections, benefits, and obligations upon dissolution of partnership, federal law does not recognize domestic partnerships. This discrepancy complicates characterization and division issues in dissolution cases. In California, the earnings of a domestic partner are considered to be community property and equally owned by the other domestic partner. However, the federal government does not recognize these earnings as community property; they remain the separate property of the earning partner. If these earnings are turned over to the other partner, they are considered a gift by the Internal Revenue Service and are subject to the federal gift tax if over a certain amount. In a dissolution of a long-term partnership, a separate property house toward which payments were made with the partners' earnings may have a community interest in the increased value based on the reduction of the principal, which the court would allocate to the community. If the house is sold, the separate property owner would be exposed to federal tax liability on all capital gains plus a federal gift tax on the amounts allocated to the other partner. A final tax pitfall involves federal gift tax liability on real property transfers.

While California law allows domestic partners to transfer real property to each other without incurring state taxes. Strong v State Board of Equalization (2007) 155 Cal.4th 1182, 1186, 66 Cal.Rptr.3d 657. The transfer of equity may incur substantial federal gift tax exposure.

Characterization of property refers to the process of classifying property as community, quasi-community, or separate for the purpose of community property law. Property must be characterized to determine the rights and liabilities of the parties with respect to a particular asset or obligation and as the first step toward the division of property on marital dissolution. (Marriage of Haines(1995) 33 Cal.4th 277, 291, 39 Cal.Rptr.2d 673.)
 

Community Property
 

Community property is real and personal property, wherever situated, acquired by a married person during the marriage while domiciled in California. (Fam. Code § 760.) This includes property outside of the state. The respective interests of a husband and wife in their community property during the marriage are present, existing, and equal interests. (Fam. Code § 751.)

Community Property With Right of Survivorship

A husband and wife may hold propey as community property with a right of survivorship. (Fam. Code § 750.) On the death of one of the spouses, such property passes to the survivor, without administration, under the terms of the instrument, subject to the same procedures as property held in joint tenancy. (Civ. Code § 682.1(a).) The transfer must expressly declare the document to be community property with right of survivorship, and it may be accepted in writing on the face of the document by a statement signed or initialed by the grantees. Before the death of either spouse, the right of survivorship may be terminated under the same procedures by which a joint tenancy may be severed. The community property with a right of survivorship provisions is not, however, applicable to a joint account in a financial institution to which Prob. Code § 5100 applies. This provision was operative on July 1, 2001, and applies to instruments created on or after that date. (Civ. Code § 682.1(c).) 

Quasi-community property
 

"Quasi-community property" means all real or personal property, wherever situated, acquired in any of the following ways (Fam. Code § 125):
 

• By either spouse while domiciled elsewhere that would have been community property if the spouse who acquired the property had been domiciled in California at the time of its acquisition.
• In exchange for real or personal property, wherever situated, that would have been community property if the spouse who acquired the exchanged property had been domiciled in California at the time of its acquisition. 

To constitutionally apply the California quasi-community property statute to parties domiciled elsewhere, two conditions must be met (Addison v Addison (1965) 62 C2d 558, 567–569, 43 Cal.Rptr. 97; Marriage of Roesch (1978) 83 Cal.3d 96, 106–107, 147 Cal.Rptr. 586):

1. Both parties must have changed their domicile to California; and
2. Subsequent to the change of domicile, the spouses must seek legal alteration of their marital status in California. Thus, when one party did not move to California, the court did not have jurisdiction over out-of-state property that was separate property in the other state. 83 Cal.3d at 106–107.

Separate Property

Separate property of a married person is property acquired:
 

1. Before marriage (Fam. Code § 770(a));
2. By gift, bequest, devise, or descent (Fam. Code § 770(a));
3. After separation (Fam. Code § 771(a)); or
4. After entry of a judgment of legal separation of the parties (Fam. Code § 772.) Except as otherwise provided by statute, neither husband nor wife has any interest in the separate property of the other. (Fam. Code § 752.)
    

If a gift in joint form was intended by the donor only for one spouse, that intent is sufficient to make it separate property. (Marriage of Camire (1980) 105 Cal.3d 859, 865, 164 Cal.Rptr. 677; see Marriage of Gonzalez (1981) 116 Cal.3d 556, 564, 172 Cal.Rptr. 179 (no evidence that gift in joint form was to one spouse).)

Presumption From Acquisition During Marriage
 

The Fam. Code § 760 provision creates a presumption that property acquired during marriage by either spouse, other than by gift or inheritance, is community property unless traceable to a separate property source. Per See v See (1966) 64 C2d 778, 783, 51 Cal.Rptr. 888; Marriage of Haines, supra, this is a rebuttable presumption affecting the burden of proof. It can be overcome by the party contesting community property status with virtually any credible evidence:

1. Tracing the asset to a separate property source,
2. Showing an agreement or clear understanding between the parties regarding ownership status, or
3. Presenting evidence that the item was acquired by a gift. Case law concluded that a preponderance of the evidence is all that is required to overcome this presumption, despite some inconsistency on whether clear and convincing proof is needed. (Marriage of Ettefagh (2007) 150 Cal.4th 1578, 1584–1591, 59 Cal.Rptr.3d 419.) 

A cause of action filed during marriage and based on a right accrued during marriage is community property even though the proceeds may be received after separation. (Marriage of Biddle (1997) 52 Cal.4th 396, 400, 60 Cal.Rptr.2d 569.) 

A copyright and the underlying artistic creation produced during marriage are divisible community property. (Marriage of Worth (1987) 195 Cal.3d 768, 773-775, 241 Cal.Rptr. 135.)
 

Presumption From Form of Title

There is a rebuttable common law presumption that the ownership interest in property is as stated in the title. Evid. Code § 662); (Marriage of Lucas (1980) 27 Cal.3d 808, 813, 166 Cal.Rptr. 853.) This presumption is overcome by evidence of an agreement or understanding between the parties that the interests were to be otherwise and may be rebutted only by clear and convincing proof. It cannot be overcome solely by (Id. 813–814):
 

1. Evidence as to the source of the funds used to purchase the property; or
2. Testimony of a hidden intention not disclosed to the other grantee when the conveyance was executed. When an interspousal transfer advantages one spouse, there is a presumption that the transaction was induced by undue influence. (Fam. Code § 721); (Marriage of Haines, supra; Marriage of Fossum (2011) 192 Cal.4th 336, 345–346, 121 Cal.Rptr.3d 1950.) The presumption of undue influence prevails over the presumption in favor of record title (Evid. Code § 662) because it is more specific and promotes the policy of protecting spouses. The initial burden of proof is on the advantaged party to show the transfer was not in violation of fiduciary duties; if the burden is not met, the presumption prevails and the transfer is set aside. (Marriage of Haines, supra, 297.)
    

When in conflict, the statutory community property presumption (property acquired during marriage is community property unless traceable to a separate property source) overrides the common law presumption that an ownership interest is as stated in the title. (See Marriage of Dekker (1993) 17 Cal.4th 842, 848 n8, 21 Cal.Rptr.2d 642.)
 

Presumption for Property Acquired in Joint Form During Marriage

Property acquired by the parties during marriage in joint form (including tenancy in common, joint tenancy, tenancy by the entirety, or as community property) is presumed to be community property. (Fam. Code § 2581.) This presumption applies only for the purpose of division of property or legal separation. Property is "acquired during marriage" even when separate property title is changed to joint form during marriage as a lender requirement for refinancing. (Marriage of Neal (1984) 153 Cal.3d 117, 123–124, 200 Cal.Rptr. 341.) This presumption affects the burden of proof and may be rebutted only by either (Fam. Code § 2581):
 

1. A clear statement in the deed or other documentary evidence of title that the property is separate property; or
2. Proof that the parties made a written agreement that the property is separate property. Neither tracing nor oral or implied agreements are sufficient to rebut the presumption. However, the party contributing the separate property may be entitled to a reimbursement under Fam. Code § 2640. If the property was acquired in joint form before January 1, 1984, this presumption cannot be applied retroactively and a writing is still required to overcome the presumption of community property. (Marriage of Buol (1985) 39 Cal.3d 751, 754, 218 Cal.Rptr. 31.) 

If parties to a joint bank account are married, their net contribution is presumed to be and remain their community property, regardless of whether the deposit agreement describes them as married. P(rob. Code § 5305(a).) "Account" includes checking, savings, certificate of deposit, share accounts, and other like arrangements. (Prob. Code § 5122(a).) This presumption affects the burden of proof and may be rebutted by proof of either (Prob. Code § 5305(b)):
 

1. The sums on deposit claimed to be separate property can be traced from separate property, unless the married persons made a written agreement expressing clear intent that the sums be community property; or
2. The married persons made a written agreement, separate from the deposit agreement, that expressly provided the sums claimed not to be community property were not to be community property.
    

If an account is expressly described in the account agreement as a "community property" account, its ownership during the lifetime and after the death of a spouse is governed by the law governing community property generally, unless the terms of the account or deposit agreement expressly provide otherwise. (Prob. Code § 5307.) 

Rights Related to Property Acquired Before Marriage

Separate property of a married person includes all property owned by the person before marriage. (Fam. Code § 770.) The rents, issues, and profits of property owned before marriage are also separate property. (Fam. Code § 770(a).) Property earned before marriage but received during the marriage remains that person's separate property (e.g., veteran's educational benefits earned before marriage.) (Marriage of Shea (1980) 111 Cal.3d 713, 716–717, 169 Cal.Rptr. 490.) Military service credits purchased with community funds during the marriage based on pre-marriage military service are the husband's separate property because the right to the retirement benefits accrued during his military service, prior to the marriage. (Marriage of Green (2013) 56 C4th 1130, 1138, 1142, 158 Cal.Rptr.3d 247.) However, the wife was entitled to reimbursement for one-half of the community funds used to purchase the credits, plus interest. There is an exception if the terms of the account or deposit agreement expressly provide otherwise. (Prob. Code § 5307.) 

Rights Related to Property Acquired During Marriage

All real or personal property acquired by a married person during marriage while domiciled in California is community property. (Fam. Code § 760.) Rents, issues, and profits of property acquired during marriage are considered community property. (Fam. Code § 760.) 

Property to which one spouse acquires an equitable right before marriage is separate property, even though the right is not perfected until after marriage. (Giacomazzi v Rowe (1952) 109 Cal.2d 498, 500-501, 240 P2d 1020.) Thus, when a lease of real property is executed before marriage, it is separate property, and renewal of the term by exercise of an option to extend during marriage does not make the property community. (Marriage of Joaquin (1987) 193 Cal.3d 1529, 1532-1533, 239 Cal.Rptr. 175.) 

If the parties were married more than once, the property acquired during an earlier marriage is not property acquired during marriage for purposes of division of property in the most recent marriage. (Fredericks v Fredericks (1991) 226 Cal.3d 875, 878, 277 Cal.Rptr. 107.)
 

A community's right to partnership distributions is based on when the partner's efforts gave rise to his or her share of the profits. The focus is on when the services were performed rather than when the payment was received. (Marriage of Foley (2010) 189 Cal.4th 521, 528, 117 Cal.Rptr.3d 162.) 

Community Payments on Separate Property Acquired During Marriage

When community funds are used to make payments to acquire separate property, the community receives a proportionate interest in the property in the ratio that the payments on the purase price with community funds bear to the payments made with separate funds. (Marriage of Moore (1980) 28 Cal.3d 366, 371-372, 168 Cal.Rptr. 662.)
 

The separate property interest is credited with any prenuptial appreciation. (Marriage of Marsden(1982) 130 Cal.3d 426, 438-439, 181.) 

These guidelines are sometimes referred to as the "Moore/Marsden" rule.
 

Amounts paid for interest, taxes, and insurance are excluded because they do not contribute to capital. The amount of a loan taken to secure the property is a separate property contribution if it was secured by separate assets, or a community property contribution if secured by community assets. (Marriage of Moore, supra, 371-372.)
 

Community Efforts Toward Separate

Because income arising from a spouse's skill, efforts, and industry is community property, the community should receive a fair share of profits that derive from a spouse's devotion of more than minimal time and effort to the handling of his or her separate property. Apportionment is required not only for commercial enterprises but also when a spouse invests separate funds in real estate or securities. (Beam v Bank of America (1971) 6 Cal.3d 12, 17, 98 Cal.Rptr. 137.)
 

Community Estate Personal Injury Damages Awarded to Injured Party Without Offset
 

If a cause of action for damages for personal injuries arose during the marriage, personal injury damages are community property if received as (Fam. Code §780):
 

• In satisfaction of a judgment for damages for personal injuries, or
• Pursuant to an agreement for the settlement or compromise of a claim for such damages.

Such proceeds are community property even when they are received after the separation. (Marriage of Saslow (1985) 40 Cal.3d 848, 857, 221 Cal.Rptr. 546.)
 

However, if the cause of action arose after dissolution, legal separation, or while the injured spouse was living separate, the damages are separate property (Fam. Code § 781.) 

Although personal injury damages are characterized as community property, the court must assign these "community estate personal injury damages" to the injured party unless the court determines that the interests of justice require another disposition after taking into account the economic condition and needs of each party, the time that has elapsed since the recovery of the damages or the accrual of the cause of action, and all other facts of the case (Fam. Code § 2603(b).) If another disposition is required, the court must assign the damages to the respective parties in such proportions as is deemed just, but the court must assign at least one- half of the damages to the injured party (Fam. Code § 2603(b).)
 

This treatment is unique: damages are community property during marriage but assigned to the injured party upon dissolution. (Marriage of Delvin (1982) 138 Cal.3d 804, 807, 189 Cal.Rptr. 1.) These damages are an exception to the equal division requirement, and no offsetting award of other community property may be made. (Marriage of Jacobson (1984) 161 Cal.3d 465, 473-474, 207 Cal.Rptr. 512.) 

The only time proceeds from a personal injury award lose their character as community property personal injury damages is, in the absence of an express agreement, when such proceeds have been commingled with other community property and it is impossible to trace the source of the property or funds. (Marriage of Delvin, supra, 810; Fam. Code § 2603(a).)
 

Earnings While Living Separate and Apart

The earnings and accumulations of a spouse and the minor children living with, or in the custody of, the spouse, while living separate and apart from the other spouse, are the separate property of the spouse. (Fam. Code § 771(a); see Marriage of Green (1989) 213 Cal.3d 14, 20-21, 261 Cal.Rptr. 294 (the earnings on a small business after separation are typically awarded to the operator spouse as separate property.)
 

"Earnings" is broader than "wages" or "salary," encompassing income from a sole proprietorship based on labor and services without the aid of capital. (Marriage of Imperato (1975) 45 Cal.3d 432, 437, 119 Cal.Rptr. 590.) "Accumulations" means any property that a person acquires and retains, without regard to the means by which it is obtained. (Union Oil v Stewart (1910) 158 C 149, 156, 110 P 313.) 

"Living separate and apart" means that the parties physical separation is a result of a breakdown in the marital relationship. To determine that the parties are living separate and apart, the court must find that (Marriage of Norviel(2002) 102 Cal.4th 1152, 1158-1162, 126 Cal.Rptr.2d 148; (Marriage of Manfer(2006) 144 Cal.4th 925, 928, 50 Cal.Rptr.3d 785):

1. At least one spouse entertained the subjective intent to end the marriage; and
2. There is objective evidence of conduct furthering that intent, which must include living apart physically.
    

Intent is "objectively determined from all of the evidence reflecting the parties' words and actions." (Marriage of Manfer (2006) 144 Cal.4th 925, 928, 50 Cal.Rptr.3d 785, citing Marriage of Hardin (1995) 38 Cal.4th 448, 452-453, 45 Cal.Rptr.2d 308.) The conduct must evidence a complete and final break in the marital relationship. (Marriage of von der Nuell(1994) 23 Cal.4th 730, 736, 28 Cal.Rptr.2d 447.) 

Living in separate residences is not determinative without evidence the parties intended a final break. (Marriage of Baragry (1977) 73 Cal.3d 444, 448, 140 Cal.Rptr. 779.) For example, even after the husband moved out, the spouses were not "living separate and apart" when the parties conduct did not evidence a complete and final break in the marital relationship. After he moved out, the parties maintained joint checking accounts, credit cards, and tax returns, and took title to an automobile jointly. 

Husband maintained close contact with wife including frequent visits to the home. He took wife on vacations, they went out socially, sent cards and gifts on special occasions and holidays, and continued having sexual relations. Husband continued to contribute financially to the community, and they attempted to reconcile. (Marriage of von der Nuell, supra, 736.) Along those same lines, parties were not "living separate and apart" after a decision to separate when they still lived in the same house while the husband took steps to prepare another house for his occupancy. (Marriage of Norviel, supra, 1158-1162.)

The First District Court of Appeal, however, held that the parties were "living separate and apart" while living in the same house for five years before the wife moved out. (Marriage of Davis (2013) 220 Cal.4th 1109, 163 Cal.Rptr.3d 695.) The date of separation was determined to be when strict segregation of the parties' individual finances had been imposed, and the parties "...had essentially become roommates and coparents, maintaining separate finances and cooperating only to the extent necessary to maintain the household and cover their children's expenses."(Marriage of Davis (2013) 220 Cal.5th 1109, 163 Cal.Rptr.3d 695 

The California Supreme Court has taken up on review the Marriage of Davis case (S215050) to determine whether, for the purpose of establishing the date of separation under Fam. Code § 771, a couple may be "living separate and apart" when they live in the same residence.It may be useful to bifurcate the date of separation issue, as it clarifies the economic impact and identifies the extent and value of the community or separate estate.

The burden of proof on the issue of the date of legal separation is the preponderance of evidence standard. (Marriage of Peters (1997) 52 Cal.4th 1487, 1490-1492, 61 Cal.Rptr.2d 493.)
 

Spouse's Efforts to Increase Community Property After Separation
 

When a spouse uses skill and effort to increase community assets after separation, the Pereira and Van Camp formulas must be applied in reverse. (Marriage of Imperato(1975) 45 Cal.3d 432, 438, 119 Cal.Rptr. 590.) 

The Pereira approach apportions a fair return of the increase to community property, with the excess being the spouse's separate property. The Van Camp formula determines the reasonable value of the spouse's services (less draws/salary) and apportions this sum as the spouse's separate property, with the balance to community property.

Post-Separateion Personal Injury Damages

The money and other property received or to be received by a person in satisfaction of such a judgment, or pursuant to an agreement for the settlement or compromise of a claim for such damages, is separate property if the cause of action for the personal injury damages arose either (Fam. Code § 781(a)):

• After the entry of a judgment of dissolution of a marriage or legal separation of the parties, or
• While either spouse, if he or she is the injured person, is living separate from the other spouse.

(See Marriage of Klug (2005) 130 Cal.4th 1389, 1398-1403, 31 Cal.Rptr.3d 327 (settlement proceeds from a legal malpractice lawsuit are injured spouse's separate property when the cause of action arises after separation; two elements of cause of action, duty and breach, occurred during marriage, but spouse did not sustain any loss or injury cognizable as damages until after separation).) 

If one spouse has a cause of action against the other spouse that arose during marriage, money or property paid or to be paid by one spouse to the party's spouse in satisfaction of a judgment of damages for personal injuries to that spouse or pursuant to a settlement agreement is the separate property of the injured spouse. (Fam. Code § 781(c).) 

When personal injury damages are the separate property of the injured spouse under Fam. Code §781(a), and expenses connected with the injuries have been paid from the other spouse's separate property or from community property, the other spouse is entitled to reimbursement of the separate property or the community property for those expenses from the damages received. (Fam. Code §781(c).) 

Acquired by Credit Purchase

The character of property acquired on credit is determined by the seller's intent to rely on the separate property of the purchaser or on a community asset. (Gudelj v Gudelj (1953) 41 C2d 202, 210, 259 P2d 656.) Thus, if a purchase during marriage is secured solely by separate property, the purchased property is separate. (Estate of Abdale (1946) 28 C2d 587, 592, 170 P2d 918.) Property purchased during marriage by a loan secured by the property is community property.

In the absence of evidence tending to prove that the seller "primarily relied" on the purchaser's separate property in extending credit, the presumption that property acquired during marriage is community is applicable. (Ibid.) A more recent case stated that the proper standard is whether the lender "solely" relied on separate property to rebut the community property presumption. (Marriage of Grinius (1985) 166 Cal.3d 1179, 1186-1187, 212 Cal.Rptr. 803.) 

When property is acquired by a postseparation loan secured by community property, the property is community. Only if the postseparation loan is unrelated to the community are its proceeds separate property. (Marriage of Stephenson (1984) 162 Cal.3d 1057, 1085, 209 Cal.Rptr. 383.)
 

Life Insurance

A life insurance policy purchased with community assets, or earned during marriage in the case of employer-provided coverage, is community property. (New York Life Ins. Co. v Bank of Italy (1923) 60 CA 602, 214 P 61.) The community interest in the proceeds is subject to the rule that a spouse cannot dispose of community personal property without fair compensation or the other spouse's written consent. (Fam. Code § 1100(b); see Grimm v Grimm (1945) 26 C2d 173, 175, 157 P2d 84.)
 

If both community and separate funds have been used to acquire a policy, the community and separate property interests in the proceeds must be apportioned between community and separate property in the same ratio that the amount of premiums paid from community earnings bore to the amount of premiums paid from separate property. (Biltoft v Wootten (1979) 96 Cal.3d 58, 60-62, 157 Cal.Rptr. 581.)
 

Term life insurance pays benefits only upon the insured's death during the term (no cash surrender value), leading to a split in authority regarding its community character.

• No Cash Value. The Second District Court of Appeal held that term life insurance is not property subject to division. The court reasoned that if the policy proceeds have not been paid, the term policy has no cash value that can be divided. (Marriage of Lorenz (1983) 146 Cal.3d 464, 468, 195 Cal.Rptr. 237.)
• Economic Value Approach. The Fourth District disagreed with the Lorenz case, and held that term insurance has an economic value subject to division. (Marriage of Gonzalez (1985) 168 Cal.3d 1021, 1023-1026, 214 Cal.Rptr. 634.) To properly determine the value of a term life insurance policy, the trial court might examine several factors, such as (Id. 1026):

• The face value of the policy;
• The amount of the premium;
• The life expectancy of the insured;
• Whether the policy is convertible to whole life insurance;
• Replacement cost; and
• When, if ever, the policy "vests" and is deemed fully paid.

Apportioning a group term policy requires determining the benefits the employed spouse would have been entitled to had employment terminated at separation; that percentage is the community property portion. (Bowman v Bowman (1985) 171 Cal.3d 148, 160, 217 Cal.Rptr. 174.)
 

The First District has held that term life insurance covering a spouse who remains insurable is community property only for the period beyond the date of separation for which community funds are used to pay the premium. If the insured dies during that period, the proceeds of the policy are fully community. Otherwise, if the insured remains insurable, a term policy does not constitute a divisible community asset because the policy is of no value after its expiration, and the community has fully received what it bargained for. (Estate of Logan (1987) 191 Cal.3d 319, 325-326, 236 Cal.Rptr. 368; see Marriage of Elfmont(1995) 9 C4th 1026, 1034, 39 Cal.Rptr.2d 590 (dicta).) If the insured becomes uninsurable during the term paid with community funds, then the right to future insurance coverage that cannot otherwise be purchased may be a community asset to be divided on dissolution. (Estate of Logan, supra; see Marriage of Elfmont, supra, 1034.) With respect to group term policies, however, the Third District Court of Appeal held that a renewal "right" held by an uninsurable spouse was not a divisible asset but only an expectancy when the renewal right depended both on the employee's continued employment after the dissolution and the employer continuing to offer the policy. (Marriage of Spengler (1992) 5 Cal.4th 288, 297-299, 6 Cal.Rptr.2d 764.)

Citing Estate of Logan, supra, 321, the Fifth District Court of Appeal held that the characterization of term life insurance proceeds are entirely community when the final premium is paid solely with community property. (Marriage of Burwell (2013) 221 Cal.4th 1, 23, 164 Cal.Rptr.3d 702.) It further held that in determining whether the proceeds are entirely separate property depended on several factors (Id. 23-24 Cal.Rptr.3d 702): 

• The insured was insurable at the end of the last term paid for by community funds; and
• Either (a) the insured could have purchased a comparable policy at a comparable price, or (b) the policy did not contain a premium cap when the separate estate began paying the premiums.
   

When these factors do not exist the proceeds are part community and part separate and must be allocated between community and the separate estate by a formula established by the court. (Id. 24, 26): 

Federal law preempts state law for military life insurance beneficiaries, giving the serviceman the absolute right to designate the beneficiary, which prevails over any community property claim. (Ridgway v Ridgway 454 US 46 (1981).)

The property rights of husband and wife prescribed by statute may be altered by a premarital agreement or other marital property agreement. (Fam. Code § 1500.)

The Uniform Premarital Agreement Act (Fam. Code §§ 1600-1617) applies to any premarital agreement executed on or after January 1, 1986. (Fam. Code § 160)1.

The validity and effect of premarital agreements made before January 1, 1986, is determined by the law applicable to the agreements before that date. (Fam. Code § 1503.) In general, prior law requires a writing. Former Civ. Code § 5134.

A minor may make a valid premarital agreement or other marital property agreement if the minor is emancipated or is otherwise capable of contracting marriage. (Fam. Code § 1501.)

Writing Requirement

A premarital agreement must be in writing and signed by both parties. (Fam. Code § 1611; see Hall v Hall (1990) 222 Cal.3d 578, 584-585, 271 Cal.Rptr. 773 (the act is a statute of frauds law requiring that the agreement be in writing to be enforceable).)

Exceptions to Writing Requirement

Under the prior writing requirement, former Civ. Code § 5134, there were exceptions to the writing requirement when the party seeking to enforce the oral agreement performed his or her part of the bargain and in so doing irretrievably changed his or her position. (Hall v Hall, supra, 578, 585-586, 271.) The exceptions to the statute recognized under the former law are equally applicable to the Uniform Premarital Agreement Act. It is true that the act does not specifically reference any of the traditional exceptions to the statute of frauds. Equally true, however, is that the act does not preclude them. Also, nothing in any of the legislative materials nor in the reports of the Commissioners on Uniform State Laws makes any reference to the exclusion of traditional exceptions. To the contrary, the report of the executive secretary of the California Law Revision Commission recognized the continued viability of exceptions to the statute of frauds. (Hall v Hall, supra, 587.)

Under former law applicable to the Uniform Premarital Agreement Act, marriage itself or mere payment of money was not sufficient performance to take an oral prenuptial agreement out of the writing requirement of the statute, because these acts could reasonably be expected in any marriage. However, relief because of the partial or full performance of the contract was usually granted in equity on the ground that the party who has so performed has been induced by the other party to irretrievably change his or her position and that to refuse relief according to the terms of the contract would otherwise amount to a fraud on his or her rights. For relief to be granted because of partial performance of an oral prenuptial contract, the acts relied on must be unequivocally referable to the contract. Although done in performance of the contract, acts which, admit to an explanation other than the contract (such as the performance of husbandly or wifely duties) are not generally acts of partial performance that will take the agreement out of the statute of frauds. (Hall v Hall, supra, 586.)

When a wife relied on an oral premarital agreement by quitting her job and applying for early social security, such partial performance was sufficient detrimental reliance to allow enforcement of the contract. However, entering into the marriage and paying $10,000 to the other spouse would not have been sufficient partial performance because these acts could reasonably be expected in any marriage. (Hall v Hall, supra, 586-587.)

Consideration and Effectiveness

A premarital agreement is enforceable without consideration. (Fam. Code § 1611.) A premarital agreement becomes effective on marriage. (Fam. Code § 1613.)

Subjects of Agreement

Parties to a premarital agreement may contract with respect to all of the following (Fam. Code § 1612(a)):

• The rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located.
• The right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property.
• The disposition of property on separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event.
• The making of a will, trust, or other arrangement to carry out the provisions of the agreement.
• The ownership rights in and disposition of the death benefit from a life insurance policy.
• The choice of law governing the construction of the agreement.
• Any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty.

Amendment

After marriage, a premarital agreement may be amended or revoked only by a written agreement signed by the parties. The amended agreement or the revocation is enforceable without consideration. (Fam. Code § 1614.)

Enforceability

A premarital agreement is not enforceable if the party against whom enforcement is sought proves either of the following (Fam. Code § 1615(a)):

• That party did not execute the agreement voluntarily. 
• The agreement was unconscionable when it was executed, and before execution of the agreement, the factors set forth in 7.c. applied to that party.

Voluntariness

A premarital agreement is not enforceable if the party against whom enforcement is sought proves that the party did not execute the agreement voluntarily. (Fam. Code § 1615(a.)

Per Fam. Code § 1615(c), the court must find that a premarital agreement was not executed voluntarily unless it finds in writing or on the record all of the following:

• The party against whom enforcement is sought was represented by independent legal counsel at the time of signing the agreement or, after being advised to seek independent legal counsel, expressly waived, in a separate writing, representation by independent legal counsel. (See Marriage of Cadwell-Faso & Faso (2011) 191 Cal.4th 945, 956-957, 119 Cal.Rptr.3d 818.)
• The party against whom enforcement is sought had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.
• The party against whom enforcement is sought, if unrepresented by legal counsel, was fully informed of the terms and basic effect of the agreement, as well as the rights and obligations he or she was giving up by signing the agreement, and was proficient in the language in which the explanation of the party's rights was conducted and in which the agreement was written. The explanation of the rights and obligations relinquished must be memorialized in writing and delivered to the party prior to signing the agreement. The unrepresented party must, on or before the signing of the premarital agreement, execute a document declaring that he or she received the information required by this paragraph and indicating who provided that information.
• The agreement and the writings were not executed under duress, fraud, or undue influence, and the parties did not lack capacity to enter into the agreement.
• Any other factors the court deems relevant.

Unconscionability

A premarital agreement is not enforceable if the party against whom enforcement is sought proves that the agreement was unconscionable when it was executed, and before execution of the agreement, all of the following applied to that party (Fam. Code § 1615(a)):

• That party was not provided a fair, reasonable, and full disclosure of the property or financial obligations of the other party.
• That party did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided.
• That party did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.
• An issue of unconscionability of a premarital agreement must be decided by the court as a matter of law. (Fam. Code § 1615(b).)

Parole Evidence

Parole evidence, such as an oral statement, is extraneous to a written agreement. Although parole evidence may be used to interpret a term in the agreement, the statute of frauds requires that the contract itself not be the product of parole evidence. The whole object of the statute would be frustrated if any substantive portion of the agreement could be established by parole evidence. Thus, parole evidence was not admissible to establish a premarital agreement when the writing only indirectly indicated a desire to be governed by the rules of the Islamic religion. Marriage of Shaban (2001) 88 Cal.4th 398, 405-407, 105 Cal.Rptr.2d 863.

Right To Transfer Property

Either husband or wife may enter into any transaction with the other, respecting property, that either spouse might enter if unmarried. (Fam. Code § 721(a).)

Per Fam. Code § 850, married persons may by agreement or transfer, with or without consideration, do any of the following (Fam. Code § 850):

• Transmute community property to separate property of either spouse.
• Transmute separate property of either spouse to community property.
• Transmute separate property of one spouse to separate property of the other spouse.

Such an agreement or transaction is sometimes called a postnuptial agreement.

A transmutation is subject to the laws governing fraudulent transfers. (Fam. Code § 851.) Furthermore, a postnuptial agreement that transmutes separate property to community property for estate planning purposes also transmutes the property for characterization purposes on a dissolution. Property is either transmuted, or it is not; property cannot be "conditionally" transmuted. Marriage of Lund (2009) 174 Cal.4th 40, 52, 94 Cal.Rptr.3d 84.

Writing Requirement

A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected. (Fam. Code § 852(a).)

A writing signed by an adversely affected spouse is not an "express declaration" unless it contains language that expressly states that the characterization or ownership of property is being changed, independent of any extrinsic evidence. The statute does not require use of the term "transmutation" or any particular language. 

A provision that the grantor gives any interest he or she may hold in the asset to the grantee is sufficient. (Estate of MacDonald (1990) 51 Cal.3d 262, 273, 272 Cal.Rptr. 153 (signing consent portion of an IRA beneficiary designation did not change the community nature of the deposits into the account).) See Marriage of Barneson (1999) 69 Cal.4th 583, 590, 81 Cal.Rptr.2d 726 (an instruction to stock broker to "transfer" stock into the name of the spouse, without more, was not sufficient to be an express declaration of change of ownership); Estate of Bibb (2001) 87 Cal.4th 461, 468-469, 104 Cal.Rptr.2d 415 (deed granting separate property from a husband to the husband and wife as joint tenants was a sufficient writing to transmute the property to joint tenancy community property); Marriage of Starkman (2005) 129 Cal.4th 659, 28 Cal.Rptr.3d 639 (documents conveying a spouse's separate property assets to a family revocable trust were not sufficient to create a transmutation of the separate property into community property).)

Unlike a conventional statute of frauds, Fam. Code § 852(a) is not subject to the traditional exceptions to the requirement of a writing. (Marriage of Benson (2005) 36 C4th 1096, 1100, 32 Cal.Rptr.3d 471.) For example, a spouse may not introduce extrinsic evidence under the doctrine of equitable estoppel to prove an oral transmutation of property. (Marriage of Campbell (1999) 74 Cal.4th 1058, 1062-1064, 88 Cal.Rptr.2d 580. See Marriage of Benson, supra, 1104-1111 (part performance of an oral agreement to transmute marital property is not an adequate substitute for an express written declaration).) 

This specific rule governing transmutations of property requiring an express declaration prevails over the more general presumption of Evid. Code § 662 of ownership from title. (Marriage of Barneson, supra, 593; see Estate of Bibb, supra, 470 (Fam. Code § 852(a) prevails over more general presumption of Veh. Code §§ 4150.5 and 5600.5 that a vehicle registered in the name of two co-owners is held in joint tenancy).)

Writing Not Required for Agreement Prior to 1985

The requirement of an express declaration does not apply to or affect a transmutation of property made before January 1, 1985, and the law that would otherwise be applicable to that transmutation continues to apply. (Fam. Code § 852(e).) Prior to that date, a transmutation agreement could be oral. (Estate of Wieling (1951) 37 C2d 106, 108, 230 P2d 8080. Thus, despite the statute of frauds, a party could orally transmute separate real property into community property. (Marriage of Schoettgen (1986) 183 Cal.3d 1, 5-9, 227 Cal.Rptr. 758.)

No Effect on Commingled Property

The written transmutation requirement in Fam. Code § 852(a) is inapplicable when separate property and community property are commingled or otherwise combined. (Fam. Code § 852(d); Marriage of Weaver (2005) 127 Cal.4th 858, 470-471, 26 Cal.Rptr.3d 121.)

Notice to Third Parties

A transmutation of real property is not effective as to third parties without notice thereof unless the transmutation is recorded. (Fam. Code § 852(b).)

Gifts of Personal Nature

The writing requirement does not apply to a gift between the spouses of: 

• clothing, 
• wearing apparel, 
• jewelry, or 
• other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value, taking into account the circumstances of the marriage. (Fam. Code § 852(c).) See Marriage of Steinberger (2001) 91 Cal.4th 1449, 1464-1466, 111 Cal.Rptr.2d 521 (fifth anniversary ring valued at over $13,000 was of substantial value); Marriage of Buie (2010) 179 Cal.4th 1170, 102 Cal.Rptr.3d 387 (automobile is not an article of personal nature.)

Waiver of Right to Annuity or Benefits

A waiver of a right to a joint and survivor annuity or survivor's benefits under the federal Retirement Equity Act of 1984 (Pub L 98-397) is not a transmutation of the community property rights of the person executing the waiver. (Fam. Code § 853(b).)

General Fiduciary Duty of Spouses

Each spouse must act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships that control the actions of persons having relationships of personal confidence as specified in Fam. Code § 721. (See Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.4th 1252, 1257, 130 Cal.Rptr.3d 327 (where non-managing spouse has prima facie evidence that community assets have disappeared while under the control of the managing spouse post-separation, the managing spouse has the burden of proof to account for the missing assets); (Fam. Code § 1100(e).)

The duty continues until such time as the assets and liabilities have been divided by the parties or by a court. (Fam. Code § 1100(e).)

This duty includes the obligation to do the following on the request of the other spouse (Fam. Code § 1100(e); Marriage of Walker (2006) 138 Cal.4th 1408, 1420-1421, 42 Cal.Rptr.3d 325):

• Make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable; and
• Provide equal access to all information, records, and books that pertain to the value and character of those assets and debts.

Fiduciary Duty With Regard to Interspousal Transactions

In transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. (Fam. Code § 721(b); see Marriage of Walker(2006) 138 Cal.4th 1408, 1416-1419, 42 Cal.Rptr.3d 325 (duty applies to transactions involving separate and community property).)

This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Corp. Code §§ 16403, 16404, and 16503, including, but not limited to, the following (Fam. Code §721(b)):

• To provide each spouse with access at all times to any books kept regarding a transaction for the purposes of inspection and copying.
• To render on request, true and full information of all things affecting any transaction that concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.
• To account to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse that concerns the community property.

When an interspousal transfer unfairly advantages one spouse, there is a presumption that the transaction was induced by undue influence. (Marriage of Burkle (2006) 139 Cal.4th 712, 730-734, 43 Cal.Rptr.3d 181 (presumption of undue influence in a postmarital agreement did not arise when both spouses enjoyed advantages).) The burden of rebutting the presumption of undue influence is on the spouse who acquired an advantage or benefit from the transaction. That spouse must overcome the presumption by a preponderance of the evidence establishing that the disadvantaged spouse's action was freely and voluntarily made, with full knowledge of all the facts, and with a complete understanding of the effect of the transaction. Marriage of Mathews (2005) 133 Cal.4th 624, 628-632, 35 Cal.Rptr.3d 1 (husband rebutted the presumption by establishing that the quitclaim deed was executed freely and voluntarily, and in good faith, and for the purpose of obtaining a more favorable mortgage interest rate); Marriage of Balcof (2006) 141 Cal.4th 1509, 1519-1522, 47 Cal.Rptr.3d 183.

This presumption prevails over the presumption in favor of record title in Evid. Code § 662 because of the policy of protecting spouses and because the presumption of undue influence is more specific. (Marriage of Delaney (2003) 111 Cal.4th 991, 996-998, 4 Cal.Rptr.3d 378.; see Marriage of Fossum (2011) 192 CCal.4th A4th 336, 121 Cal.Rptr.3d 195 (husband did not rebut presumption).)

The presumption may not be invoked to establish a transmutation that fails to comply with Fam. Code § 852(a). Absent a transmutation by an express declaration, there is no basis for applying the presumption of undue influence. Marriage of Benson(2005) 36 C4th 1096, 1111-1112, 32 Cal.Rptr.3d 471.

Effect of Will

A statement in a will of the character of property is not admissible as evidence of a transmutation of the property in a proceeding commenced before the death of the person who made the will. (Fam. Code § 853(a)).)

Written Joinder or Consent to Nonprobate Transfer

A written joinder or written consent to a nonprobate transfer of community property on death that satisfies Fam. Code § 852 is a transmutation and is governed by the law applicable to transmutations and not Prob. Code §§ 5010-5032. (Fam. Code § 853(c)); (Prob. Code § 5022(b).)

Community Property Must Be Divided Equally

The community estate must be divided equally among the spouses (Fam. Code § 2550.) The "community estate" includes both community property and quasi-community property. (Fam. Code § 63.)

In dividing the property equally, the court must distribute the assets and the obligations of the community equally so that the residual assets awarded to each party after the deduction of obligations are equal. Marriage of Walrath (1998) 17 Cal.4th 907, 924, 72 Cal.Rptr.2d 856; Marriage of Olson (1980) 27 Cal.3d 414, 421, 165 Cal.Rptr 820. The court has broad discretion to determine the manner of division. (Marriage of Duncan (2001) 90 Cal.4th 617, 631, 108 Cal.Rptr.2d 833.)

When dividing a community estate, the court may not make adjustments for future tax consequences of the property division, unless the consequences are "immediate and specific." "Immediate and specific" tax consequences include those that have already occurred or those that will occur in conjunction with the division. (Marriage of Fonstein(1976) 17 Cal.3d 738, 747-750, 131 Cal.Rptr (after making equal division, court may not speculate about what either or both of the spouses may possibly do with his or her equal share and engraft on the division further adjustments reflecting situations based on theory rather than fact).)

Authority To Confirm Separate Property

The court does not have jurisdiction to dispose of either spouse's separate property, but it has authority to confirm separate property to the owner spouse. (Marriage of Hebbring (1989) 207 Cal.3d 1260, 1275, 255 Cal.Rptr. 488.)

Exceptions to Equal Division Requirement- Agreement of the Parties

The parties may agree in writing or by oral stipulation in open court to divide the property, and the division is not required to be equal. (Fam. Code § 2550.) Thus, the parties are free to divide their community assets in any fashion they wish and need not divide it equally. (Meha v Reed (2003) 31 Cal.4th 657, 666, 3 Cal.Rptr.3d 390; Marriage of Cream (1993) 13 Cal.4th 81, 87, 16 Cal.Rptr.2d 575.)

An executed, private oral agreement to divide the community property is not enforceable in a dissolution proceeding. (Marriage of Maricle (1990) 220 Cal.3d 55, 58, 269 Cal.Rptr. 244; see Marriage of Elkins (1972) 28 Cal.3d 899, 903, 105 Cal.Rptr. 59 (undisclosed, oral side agreement constitutes a deception on the court and violates public policy).) A party may ratify such an agreem ent even after being advised by his or her attorney not to do so, but the court must be satisfied that the decision is knowingly and intelligently made. (Marriage of Maricle, supra.)

The fact that a single attorney prepared the agreement as a scrivener after disclosing the potential conflict of interest did not make the agreement invalid in the absence of any showing of fraud, duress, undue influence, or breach of confidential relationship. (Marriage of Egedi (2001) 88 Cal.4th 17, 22-24, 105 Cal.Rptr.2d 518.)

Each party must serve the other with a preliminary declaration of disclosure unless one of the parties waives the other's noncompliance. (Fam. Code §§ 2104, 2107(b).) This preliminary declaration is not filed with the court except on court order.

However, the parties must file proof of service of the preliminary declaration of disclosure with the court. The preliminary declaration must identify all assets owned by the party, as well as his or her percentage ownership in each, and must state his or her income and expenses. Before or at the time the parties enter into an agreement for the resolution of property issues, each party or attorney must serve on the other party a final declaration of disclosure and a current income and expense declaration, unless the parties mutually waive the final declaration of disclosure.

Deliberate Misappropriation

If one party deliberately misappropriated community assets to the exclusion of the interest of the other party in the community estate, the court may divide the community unequally to the extent necessary to reimburse the other party. This award is an additional award or offset against existing property. (Fam. Code § 2602.)

The negligent mishandling of community assets and debts does not constitute "deliberate misappropriation." (Marriage of Schultz (1980) 105 Cal.3d 846, 855, 164 Cal.Rptr. 653 (negligence in failing to defend debt collection action was not deliberate misappropriation); Marriage of Partridge (1990) 226 Cal.3d 120, 125-126, 276 Cal.Rptr. 8 (negligent failure to keep adequate business records and to pay estimated income taxes was not deliberate misappropriation).) Rather, such actions may constitute breaches of the fiduciary duty between spouses to manage and control marital property.

Community Less Than $5000 and Party Cannot Be Located

The court may award all the community estate to one party on conditions it deems proper if (Fam. Code § 2604):

• The net value of the community estate is less than five thousand dollars ($5000), and
• The other party cannot be located through the exercise of reasonable diligence.

Community Property Personal Injury Damages

"Community estate personal injury damages" must be assigned to the party who suffered the injuries unless the court determines that the interests of justice require another disposition after taking the following into account (Fam. Code § 2603(b)):

• The economic condition and needs of each party;
• The time that has elapsed since the recovery of the damages or the accrual of the cause of action; and
• All other facts of the case.

"Community estate personal injury damages" means all money or other property received or to be received by a person (Fam. Code § 2603(a)) in satisfaction of a judgment for damages for the person's personal injuries, or pursuant to an agreement for the settlement or compromise of a claim for the damages, if the cause of action for the damages arose during the marriage but is not separate property as described in Fam. Code § 781.

This provision assigning personal injury damages to the injured party is an exception to the equal division requirement, and no offsetting award of other community property may be made. (Marriage of Jacobson, supra ; Marriage of Morris (1983) 139 Cal.3d 823, 826, 189 Cal.Rptr. 80.)

If another disposition is required, the community estate personal injury damages must be assigned to the respective parties in such proportions as is determined to be just, except that at least one-half of the damages must be assigned to the injured party. (Fam. Code § 2603(b).) Thus, the court has discretion in exceptional circumstances to assign community property personal injury damages in such proportions as the court determines to be just, as long as the injured spouse receives at least half. Factors that the court might consider include the duration of marriage after injuries occurred, the effect of injuries on the noninjured spouse, and whether a major portion if not the entirety of the award is necessary to make the injured spouse whole. (Id. 474.)

Money or other property is not "community estate personal injury damages" if it has been commingled with other assets of the community estate. (Fam. Code § 2603(a).) See Marriage of Devlin (1982) 138 Cal.3d 804, 810, 189 Cal.Rptr. 1 (property retained its character as "community estate personal injury damages" when it was not commingled and was used to purchase land and mobile home for residence of injured spouse.)

Civil Damages for Act of Domestic Violence by One Spouse Against the Other

If there is a judgment for civil damages for an act of domestic violence perpetrated by one spouse against the other spouse, the court may enforce that judgment against the abusive spouse's share of community property. (Fam. Code § 2603.5.)

Attempted Murder of Spouse

When a spouse is convicted of either attempting to murder the other spouse, or of soliciting the murder of the other spouse, the victim spouse is entitled to an award of 100 percent of the community property interest in his or her retirement and pension benefits. (Fam. Code § 782.5.)

Debts in Excess of Assets

When community debts exceed community assets, the community estate does not have to be divided equally. The court can assign the excess of debt as it deems just and equitable, taking into account factors such as the parties' ability to pay. (Fam. Code § 2622 (b).)

Division of Jointly Held Separate Property

At the request of either party, the court may divide the separate property interests of the parties in real and personal property held by the parties as joint tenants or tenants in common. This authority extends to such property wherever situated and whenever acquired and thus to out-of-state property. The property must be divided together with, and in accordance with the same procedure for and limitations on, division of community estate. (Fam. Code § 2650.)

The power to divide the interests includes the power to inquire into the extent of the interests and divide the property accordingly. Thus, when jointly owned property was acquired prior to the marriage with a loan from one spouse to the other, the court had the right to order the loan repaid as a part of the division of the property. Marriage of Gagne (1990) 225 Cal.3d 277, 283-285, 274 Cal.Rptr. 750.

Methods of Division - Court's Duty and Discretion to Value and Divide Community Property Equally

Determination of the value and division of community property is a nondelegable judicial function. Marriage of Cream (1993) 13 Cal.4th 81, 84, 16 Cal.Rptr.2d 575. When dividing community property, the court is vested with the discretion to choose a method of division that is not only mathematically equal, but practical and equitable as well. Marriage of Fink (1979) 25 Cal.3d  877, 885, 160 Cal.Rptr. 516.

The court may make any orders it considers necessary to carry out the purposes of the Family Code governing the division of community property. (Fam. Code § 255)3.

Types of Division-In-Kind Division

When feasible, community property assets may be divided by awarding one half to each party. Marriage of Cream (1993) 13 Cal.4th 81, 88, 16 Cal.Rptr.2d 575. This is called an "in-kind" division.

An equal in-kind division avoids valuation problems. It eliminates the need to place a disproportionate risk of loss on either party, is impervious to charges of favoritism, and apportions the risk of future tax liabilities equally. Marriage of Brigden (1978) 80 Cal.3d 380, 391, 145 Cal.Rptr. 716.

Asset Distribution or Cash Out

Community property may be divided by assigning some assets to one party and other assets of equal value (which may include an equalizing promissory note) to the other party. This method of division is sometimes called "asset distribution" or "cash-out." Marriage of Cream (1993) 13 Cal.4th 81, 88, 16 Cal.Rptr.2d 575.

The court has discretion to use a secured promissory note to equalize the division of property if it is for a relatively short period at a reasonable interest rate. (Marriage of Bergman, supra.)

Sale and Division of Proceeds

The court may order that community property be sold and the proceeds divided. Marriage of Cream (1993) 13 Cal.4th 81, 88, 16 Cal.Rptr.2d 575.

Division of Family Business

When the asset at issue is a family business that either party is capable of operating, and each seeks its award and can purchase the other's share, a sale to a third party should not be ordered. Although the business may be difficult to value, and it may be even more difficult to decide the spouse to whom it should be awarded when both have been operating the business and both want it and can purchase it, it will usually be an abuse of discretion not to award it to one of the spouses. Marriage of Cream (1993) 13 Cal.4th 81, 89-90, 16 Cal.Rptr.2d 575.

If only one spouse has the ability to run the business, however, the business must be awarded to that spouse. See Marriage of Burlini (1983) 143 Cal.3d 65, 70, 191 Cal.Rptr. 541 (coin laundry business); Marriage of Smith (1978) 79 Cal.3d 725, 751, 145 Cal.Rptr. 205 (sign-making business.) But a nonoperating spouse may be awarded a business if no special expertise is required to operate it. Marriage of Kozon (1986) 185 Cal.3d 1258, 1262-1263, 230 Cal.Rptr. 304 (award of fast food franchise upheld when nonoperating spouse would be able to run franchise after attending training program run by franchisor; other spouse did not have any special training when he began to run the franchise and he did not establish that his years of experience were necessary to its operation.)

A business should not be ordered sold if the business has no saleable value and its only asset is the goodwill value of the operator spouse. Marriage of Winn (1979) 98 Cal.3d 363, 365-367, 159 Cal.Rptr. 554.

If the business requires a professional license, such as a contractor, attorney, or accountant, it must be awarded to the licensee.

Conversion to Tenancy in Common

The court may order conversion of community property to tenancy in common, such as when the sale of the family home is deferred. Marriage of Cream (1993) 13 Cal.4th 81, 88, 16 Cal.Rptr.2d 575. The court may not, however, order the property to be held in joint tenancy. Marriage of Stallworth (1987) 192 Cal.3d 742, 747 n2, 237 Cal.Rptr. 829.

Division of Out-of-State Real Property

If the property subject to division includes real property situated in another state, the court must, if possible, divide the community property and quasi-community property in such a manner that it is not necessary to change the nature of the interests held in the real property situated in the other state. (Fam. Code § 2660(a).) The reference to not changing "the nature of the interests held" pertains to the manner in which record title is held. Marriage of Fink (1979) 25 Cal.3d 877, 884, 160 Cal.Rptr. 516.

If it is not possible to divide the property without changing the nature of the interests, the court may do any of the following in order to effect a division of the property (Fam. Code § 2660(b)):

• Require the parties to execute conveyances or take other actions with respect to the real property situated in the other state as are necessary.
• Award the money value of the interest in the property that the party would have received if the conveyances had been executed or other actions taken.

A court of one state cannot directly affect or determine the title to land in another. However, a court, with the parties before it, can compel the execution of a conveyance in the form required by the law where the property is located and where such a conveyance will be recognized. Rozan v Rozan (1957) 49 C2d 322, 330, 317 P2d 11; see Marriage of Ben-Yehoshua (1979) 91 Cal.3d 259, 269-270, 154 Cal.Rptr. 80 (judgment awarding undivided interest in foreign property as declaration of entitlement to property with no direct effect on the title to the property in the foreign country)

Awarding Single Assets to One Party

When economic circumstances warrant, the court may award an asset of the community estate to one party on such conditions as the court deems proper to effect a substantially equal division of the community estate. (Fam. Code § 2601.) The economic circumstances that would warrant an award of an asset to one spouse are limited to circumstances when the asset is not subject to division without impairment. Marriage of Brigden (1978) 80 Cal.3d 380, 392, 145 Cal.Rptr. 716. For example, it was proper to award all of the community interest in stock in a closely held corporation to the spouse who was employed by the corporation when there was evidence that the other owners would dissolve the corporation if the nonemployee spouse was awarded any of its stock. Marriage of Clark (1978) 80 Cal.3d 417, 420-421, 145 Cal.Rptr. 602.

Impairment may also be found when trying to split an ongoing family business, or trying to divide a family residence used by the custodial spouse when there is no adequate replacement, or when trying to split shares of a close corporation that is essential to one party's ability to earn a living. (Marriage of Burlini (1983) 143 Cal.3d 65, 70-71, 191 Cal.Rptr. 541; (Marriage of Brigden, supra, 392-393.)

It is within the court's discretion to award a single asset, such as a painting, to a spouse who has a special attachment to it. (See Marriage of Fink (1979) 25 Cal.3d 877, 886, 160 Cal.Rptr. 516.)

But when a stock is traded on a national exchange and its possession is merely helpful to one spouse, economic circumstances do not warrant awarding the entire block to that spouse. (Id., 393.)

High-risk assets, such as uncertain, nonincome producing stock, may be awarded to the spouse who is better able to bear the risk. Marriage of Connolly (1979) 23 Cal.3d 590, 603, 153 Cal.Rptr. 423.

When a major asset is not divided but awarded to one party, the other party must be compensated in some manner so as to maintain the required equal division. If there are not sufficient other assets, notes from the spouse awarded the asset to the other spouse may be used, but the note must be valued at its "market value," which value may be less than its face value. Marriage of Tammen (1976) 63 Cal.3d 927, 930, 134 Cal.Rptr. 161.

Liquidation to Avoid Risk

At any time during the proceeding, the court has the authority, on application of a party and for good cause, to order the liquidation of community or quasi-community assets so as to avoid unreasonable market or investment risks, given the relative nature, scope, and extent of the community estate. (Fam. Code § 2108.) The application cannot be granted unless the appropriate declaration of disclosure has been served by the moving party. (Fam. Code § 2108.)

The court does not have the authority to order an asset sold and the proceeds released to one party to pay the debts of the other party's business without determining the rights of the other party or protecting his or her community property interest in the asset that was sold. Lee v Superior Court (1976) 63 Cal.3d 705, 711, 134 Cal.Rptr. 43.

Omitted Community Property

The court has continuing jurisdiction to award community estate assets or community estate liabilities that have not been previously adjudicated by a judgment in the proceeding to the parties. A party may file a postjudgment motion or order to show cause in the proceeding in order to obtain adjudication of any community estate asset or liability omitted or not adjudicated by the judgment. In these cases, the court must equally divide the omitted or unadjudicated community estate asset or liability, unless it finds on good cause shown that the interests of justice require an unequal division of the asset or liability. (Fam. Code § 2556.)

Reservation of Jurisdiction

The court has the authority to expressly reserve jurisdiction to make a property division at a time after the judgment of dissolution or legal separation. (Fam. Code § 2550.) For instance, this may be done to supervise the distribution of an asset, such as pension rights. It should also be done when the value of certain property depends on a future event, such as whether a lease would be renewed (Marriage of Munguia (1983) 146 Cal.3d 853, 858-859, 195 Cal.Rptr. 199) or whether contingency fees would be paid (Marriage of Kilbourne (1991) 232 Cal.3d 1518, 1524-1525, 284 Cal.Rptr. 201.)

Methods Other Than by Judicial Decision

Although valuation and division of community property is a nondelegable duty of the court, parties may stipulate to alternative methods of division. Marriage of Cream (1993) 13 Cal.4th 81, 91, 16 Cal.Rptr.2d 575. Thus, the court in Marriage of Cream explains that "[t]he court has no role in approving or disapproving property divisions agreed to by the parties. [its] only role with regard to a proper stipulated disposition of marital property is to accept the stipulation and, if requested, to incorporate the disposition into the judgment." The date that the "division" of property occurs is the date the agreement is made and not the date the agreement is subsequently incorporated into the judgment. (Litke O'Farrell v Tipton (2012) 204 Cal.4th 1178, 139 Cal.Rptr.3d 548.)

The Marriage of Cream case lists alternative methods of resolving property division and valuation disputes frequently suggested by family law judges and lawyers, and stipulated to by parties. These methods may only be used as a substitute for a judicial determination if both parties stipulate to their use. Alternative methods of valuation and division include:

• In-Kind Division
• Trade-off Division
• Piece-of-Cake Division
• One Values, the Other Chooses
• You Take It or I Will Take It
• Appraisal and Alternate Selection
• Sale
• Sealed Bid
• Interspousal Auction
• Arbitration
• Mediation
• Real Property
• Combination

The Cream court explicitly rejected the use of an interspousal auction in that particular case because one of parties repeatedly objected to it and because the trial court erred in laying the ground rules for the conduct of the auction.

Arbitration

The issue of the character, the value, and the division of the community estate may be submitted to arbitration for resolution under CCP §§ 1141.10 et seq if (Fam. Code § 2554(a))

• The parties do not agree in writing to a voluntary division of the community estate of the parties; and
• The total value of the community and quasi-community property in controversy in the opinion of the court does not exceed fifty thousand dollars ($50,000).

The decision of the court regarding the value of the community and quasi-community property to be arbitrated is not appealable. (Fam. Code § 2554(a).)

The court may submit the matter to arbitration at any time it believes that the parties are unable to agree on a division of the property. (Fam. Code § 2554(b).)

Division of Retirement Benefits - Both Parties Must Receive Full Community Share

The court must make whatever orders are necessary or appropriate to ensure that each party receives his or her full community property share in any retirement plan, whether public or private, including all survivor and death benefits.(Fam. Code § 2610(a).)

Order for Direct Payments

The court may order a retirement plan to make payments directly to a nonmember party of his or her community property interest in retirement benefits. (Fam. Code § 2610(a)(4).)

Limits on Court's Authority

The court may not make any order that requires a retirement plan to do either of the following (Fam. Code § 2610(b)):

Make payments in any manner that will result in an increase in the amount of benefits provided by the plan, or Make the payment of benefits to any party at any time before the member retires.

Fam. Code § 2610 may not be applied retroactively (Fam. Code § 2610(c)):

To payments made by a retirement plan to any person who retired or died prior to January 1, 1987, or To payments made to any person who retired or died prior to June 1, 1988, for plans subject to Fam. Code § 2610(a)(3) (state public employee pensions.)

Methods of Division

The court has broad discretion in the division of the community property interest in a spouse's defined benefit retirement plan and can exercise the discretion in either of two ways (Marriage of Bergman, supra.):

Cash-out method. The court determines the present value of the pension based on actuarial evidence. It then determines the community property interest in the present value based on the percentage of the party's employment while married and before separation. Finally, the court awards the pension right to the employee and awards offsetting assets, an equalizing payment, or both to the other spouse.

In-kind division. The court determines the percentage of the pension that is community based on the spouse's employment during marriage and before separation. It orders one-half of the community portion paid to the nonemployee spouse as it is received. The court may reserve jurisdiction to supervise payments as they become due.

The Supreme Court has expressly stated that it did not intend to specify any preference between the two methods and that the trial court retains discretion to choose the method. (Marriage of Brown (1976) 15 Cal.3d 838, 848, 126 Cal.Rptr. 633; see Marriage of Bergman, supra.)

Postponing Division. There is a split in authority as to whether a court has the option of a third method of division—reserve jurisdiction to divide the pension until the retiree is actually receiving it. The Bergman Court held that a court does not have jurisdiction to postpone division in this way. It found that Fam. Code § 2550, authorizing property division at a later time, only authorizes bifurcation of issues and does not allow the court to reserve jurisdiction indefinitely to divide a community asset.

In Marriage of Ramer (1986) 187 Cal.3d 263, 275, 231 Cal.Rptr. 647, and Marriage of Carl (1977) 67 Cal.3d 542, 546, 136 Cal.Rptr. 703, they approved a trial court's reserving jurisdiction to divide a pension.

Dividing Benefits When Spouse Could Retire - Spouses' Rights and Elections

If a nonemployee spouse is entitled to receive the community portion of the employee spouse's pension benefits when the employee spouse retires, the nonemployee spouse is entitled to the benefits at retirement age whether the employee spouse actually retires and receives benefits. Postponing would deprive the nonemployee spouse of the immediate enjoyment of an asset earned by the community during the marriage. Marriage of Gillmore (1981) 29 Cal.3d 418, 424, 174 Cal.Rptr. 493.

When jurisdiction has been reserved to divide the retirement benefits and the employee spouse becomes eligible for retirement, he or she may (Marriage of Cornejo (1996) 13 C4th 381, 383, 53 Cal.Rptr.2d 81):

Retire and thereby commence drawing from the stream of income that then begins to flow, with the result that the nonemployee spouse may start to draw his or her share of the community property interest as well; or

Continue to work and thereby forgo the income he or she would have drawn, with the result that the nonemployee spouse is compelled to forgo what would have been his or her share as well.

If the employee spouse continues to work, the nonemployee spouse may (Ibid.):

• Wait to draw his or her share when the employee spouse commences to receive benefits (with the possibility of increase as a result of a greater age, longer service, and/or higher salary); or
• Demand immediate payment to compensate for what would have been his or her share (without such possibility of increase). This choice is sometimes called a "Gillmore election."

If the nonemployee spouse decides on immediate payment, the employee spouse is given another choice. He or she may (13 C4th at 383):

• Make arrangements to meet the demand for immediate payment; or
• Simply retire and allow the nonemployee spouse to draw his or her share.

Methods of Awarding Retirement Benefit Rights

If the nonemployee spouse elects to receive the retirement benefits when the employee could have retired, the court can order that the community interest be bought out by valuing it and awarding half in cash. Or it can order that the employee spouse begin to pay the other spouse a share of the retirement payments on a monthly basis. Marriage of Gillmore(1981) 29 Cal.3d 418, 429, 174 Cal.Rptr. 493.

When the nonemployee spouse elects to receive the retirement benefits, the nonemployee spouse forfeits any right to share in the increased value of those benefits in the future based on further employment or wage increases. Marriage of Castle (1986) 180 Cal.3d 206, 215-216, 225 Cal.Rptr. 382. The nonemployee spouse is entitled, however, to share in any increase in benefits that would have been received had the employee spouse actually retired on the date he or she elected to receive the interest, such as automatic cost-of-living adjustments. Marriage of Scott (1984) 156 Cal.3d 251, 254-255, 202 Cal.Rptr. 716.

When the Right to Payment Accrues

If the retirement date occurs and the election is made after the dissolution proceeding, the nonemployee spouse is entitled to receive payment from the date on which he or she files a motion seeking immediate payment. Marriage of Cornejo (1996) 13 C4th 381, 385, 53 Cal.Rptr.2d 81.

If the employee spouse is entitled to retire at the time of trial, the nonemployee spouse may, if he or she chooses, elect to receive immediately his or her community interest in the benefit that would have been paid had the spouse actually retired at time of trial. Or, the nonemployee spouse may choose to wait until the actual retirement and share at that time in the retirement benefits, based on the community's interest in the plan calculated as of the date of the parties' separation. Marriage of Castle (1986) 180 Cal.3d 206, 216, 255 Cal.Rptr. 382.

Waiver of Right To Make Election

The rights to make a pension election may be waived in a marital settlement agreement as long as the intention to do so is express and unequivocal. However, the agreement on its face must manifest a clear intention of the parties that the employee spouse has full control over the date that payments to the nonemployee spouse begin. Marriage of Crook (1992) 2 Cal.4th 1606, 1611, 3 Cal.Rptr.2d 905.

Death and Survivor Benefits

The court must make whatever orders are necessary or appropriate to ensure that each party receives his or her full community property share of all survivor and death benefits, including any of the following (Fam. Code § 2610(a)(1), (2)):

• Order the disposition of any retirement benefits payable on or after the death of either party in a manner consistent with the equal division requirement of Fam. Code § 2550.
• Order a party to elect a survivor benefit annuity or other similar election for the benefit of the other party, as specified by the court, in any case in which a retirement plan provides for such an election. However, no court shall order a retirement plan to provide increased benefits determined on the basis of actuarial value.

Even if the pension plan does not provide for survivor benefits to a divorced spouse, a divorced spouse is entitled to be compensated for his or her half of the community of which he or she was a member, which could be a prorated share of death and survivor benefits (Marriage of Carnall (1989) 216 Cal.3d 1010, 1024-1026, 265 Cal.Rptr. 271), or a valuation of the pension to be divided that includes the value of any death and survivor benefits. Marriage of Nice (1991)Cal.3d 230 Cal.3d 444, 452, 281 Cal.Rptr. 415.

Note also that community property interests are ordinarily inheritable. (Prob C § 100; Sousa v Freitas (1970) 10 Cal.3d 660, 665, 89 Cal.Rptr. 485. Thus, the estate of the deceased spouse, or of the deceased former spouse, is also entitled to its community share of survivor benefits. A surviving spouse and a decedent-spouse's estate share an interest in the decedent-spouse's pension benefits, which upon his or her death, become survivor benefits. See Marriage of Powers (1990) 218 Cal.3d 626, 642, 267 Cal.Rptr. 350.)

Courts must protect both the rights of the surviving spouse as well as the rights of the deceased spouse's estate.

Federal Military Service Members and Federal Employees

Federal law allows former and current military service members to elect a survivor annuity for a former spouse or former spouse and children. 10 USC § 1450. A court may order the election to be made. 10 USC § 1450(f)(4).) If the service member fails to make the election as required by court order, it is deemed made if the former spouse makes a written request within one year of the date of the court order. 10 USC § 1450(f)(3).) The election cannot be changed without a further court order or agreement of the former spouse. 10 USC § 1450(f)(2).) The annuity terminates if the former spouse remarries before age 55. 10 USC § 1450(b).)

A former spouse of a federal civil service employee is entitled to a survivor annuity to the extent provided for in (5 USC § 8341(h)(1)):

An election by the civil service member spouse (see 5 USC § 8339(j)(3)); and

The terms of any decree of divorce or annulment or any court order or any court-approved property settlement.

The survivor annuity terminates if the former spouse remarries before age 55. 5 (USC § 8341(h)(3)(B).)

ERISA Preemption of Private Pension Plans

The Employment Retirement Income Security Act (ERISA) supersedes any and all state laws insofar as they relate to any private employee pension plan. (29 USC § 1144(a), (b)(7); Marriage of Baker (1988) 204 Cal.3d 206, 218, 251 Cal.Rptr. 126; See Schwab v Debickero (2010) 593 F3d 916 (surviving spouse protections in ERISA do not apply to individual retirement accounts (IRAs) even if the IRA funds originated from an ERISA-protected pension plan).) ERISA provides that a private employee pension plan may not be assigned or alienated except by a "qualified domestic relations order" (QDRO). 29 USC § 1056(d).)

State courts have concurrent jurisdiction with the federal courts to enforce rights under ERISA. (Marriage of Pilatti (1979) 96 Cal.3d 63, 67, 157 Cal.Rptr. 594; Marriage of Lionberger (1979) 97 Cal.3d 56, 64, 66, 158 Cal.Rptr. 535; Marriage of Mantor (1980) 104 Cal.3d 981, 985, 164 Cal.Rptr. 121.)

If a court order to an ERISA pension plan does not meet QDRO requirements, the court order may give rights to a spouse that may be enforced on meeting QDRO requirements. A QDRO may thus render enforceable an already-existing interest, such as rights accrued against a plan before benefits become payable. (Trustees of Directors Guild of America v Tice(9th Cir 2000) 234 F3d 415, 421.)

ERISA also preempts any state law that allows a former spouse to make a testamentary transfer of any pension plan benefits that are undistributed on the death of the former spouse. (Boggs v Boggs (1997) 520 US 833, 117 S Ct 1754, 138 L Ed 2d 45; Branco v UFCW-Northern California Employers (9th Cir 2002) 279 F3d 1154, 1157-1158.)

When any domestic relations order is received by a plan, the plan administrator must promptly notify the participant and each alternate payee of the receipt of such order and the plan's procedures for determining the qualified status of domestic relations orders. The plan administrator must also, within a reasonable period after receipt of such order, determine whether such order is a QDRO and notify the participant and each alternate payee of such determination. (29 USC § 1056(d)(3)(G)(i).)

The administrator of the plan must wait 18 months after receiving a domestic relations order that does not qualify as a QDRO before it can pay the benefits to the person or persons who would have been entitled if there were no order. During the 18 months, the plan must separately account for the benefits. (29 USC § 1056(d)(3)(H).)

During the 18 months, the order can be amended by the court that issued it to qualify as a QDRO. (29 USC § 1056(d)(3)(H).) to make this determination, meaning either can review and approve the order as a QDRO. The 18-month period begins on the date the first payment would be due to the alternate payee. (Id. 296.) There must be an intentional act with knowledge of the right being waived. (Marriage of Carpenter (2002) 100 Cal.4th 424, 428, 122 Cal.Rptr.2d 526.)

1. Writing "for a gift" on the deed was not sufficient for waiver when the spouse testified that it was done to avoid payment of a documentary transfer tax, and he was unaware of the statute requiring reimbursement. (Marriage of Perkal, supra.) Nor was a premarital agreement that separate property would remain separate sufficient for a waiver when separate property was used to purchase a community asset after the marriage. An agreement silent on the right to reimbursement cannot constitute a waiver. (Marriage of Carpenter, supra, 427-428.)