April 13th Notes

Litigation Specialties: Family Law
April 13, 2010

NEWS
Planning to makeup the class online with a quiz
-will get back to us on the details


-Judi's lectures will be available by request
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Characterization of Property
-definitive in nature
-divorce, estate transition
-1869 became a statute

Why characterization of property?
-more equitable for the parties involved
-marketing tool
-trying to get women out into the west coast
-worked, meant women got to keep their property for the work they did
-rights
-devise what we own
-award on dissolution who owns what in what capacity
-management & control of property
-rights of creditors
-tort liability

Characterization Schemes
-basically 2
1. Separate property states
-you only have separate property

2. Community property states
-9 states
-AZ, CA, ID, LA, NV, NM, TX, WA, WI
-each is different
-you have both separate and community

Community Property
-property that is acquired onerously by a married couple domiciled in a community property state
-need to break down each word and piece
-property means anything you own
-onerously means "to labor" working in some fashion for it
-married couple  you must be married
-domiciled in the state
-WA 1st enacted in 1869
-unchanged till 1972 (amended to establish equality of management)
-the right to manage and control the property was vested with the husband and now it was set for both
-modeled on CA statute
-doesn't come from English Common law
-comes from Spanish law

WA Statutes - Separate Property
-How does WA define Separate Property?
-RCW 26.16.010
-before the marriage it was separate
-limited ways to get separate property after marriage
-inheritance, gift, death

WA Statutes - Community Property
-How does WA define Community Property?
-RCW 26.16.030
-"waste basket approach"
-everything leftover goes into this pile

Characterization
-process by which separate property is distinguished from community property
-must be married to have community property
-in married
-community property
-separate property of each spouse
-includes joint ownership owned by one party as his/her separate property
-joint tenancy with rights to survivorship
-tenancy in common

Management and Control 
-right to use, transfer, abandon, lease, expend, assign, create a security interest in, mortgage, dispose of, institute or defend a legal action regarding, buy, consume, exchange, encumber, sell, donate, dictate the manner by which the property will or will not be used

Who manages the community property?
-1972 both spouses
-RCW 26.16.030
-both spouses signature to acquire, sell, gift, encumber, assign

Can character be changed?
-yes
-transmutation
-separate to community requires a community property agreement
-bilateral by contract
-formalities required
-prenup, post nup
-writing signed by both parties, some states, acknowledgement and recording
-consideration
-marriage sufficient for prenup but post nup
-undue influence
-confidential relationship of fairness and good faith
-public policy
-if it contemplates divorce in past held to violate public policy
-unilateral by gift

Unilateral Gifts
-gift separate property to community possible in all 9 states
-gift from community to separate possible in some states
-it is in WA

WA Statutes Wills
-How much can each spouse devise or bequeath?
-RCW 26.16.030(1)
-no more than one-half

Can one spouse give away community property?
-RCW 26.16.030

Can one spouse give his or her interest in the community property to the other spouse?
-RCW 26.16.050
-full half or that is it

position on gifting community property to other spouse

Middle position
-person property  can do this orally
-realty must be done in writing

Determine what is separate property 
-focus is on acquisition date
-before marriage is separate
-during marriage

Problem
-what about the increase in value during marriage?
-rents profits

Guye v. Guye
-property appreciation during marriage was acquired before marriage and thus cp
-court analogized appreciation to rents, profits which remain SP and half that is SP
-mere change in asset's value does not affect its character natural enhancement in value in sp
-not a result of labor only a result of time
-does not satisfy definition

In re marriage of Elam
-3 estates involved: husband SP, wife SP, and CP
-family home wife SP
-used CP funds to improve
-husband argued the home was CP now that they co-mingled
-Issue: when one estate contributes to another estate, what happens?
-rights of reimbursement arises in favor of the contributing estate
-character of underlying property does not change
-arises an equitable lien
-did not change it into CP, gives right to reimbursement
-was given 50% of the CP appreciation
-better to have all receipts, burden on person with equitable lien to prove where the money came from to improve the house

In re marriage of Johnson
-home: husband's SP
-CP funds used to make mortgage payments, minor improvements on home, no appreciation in value
-no proportional CP interest because no increase in value

In re marriage of Miracle
-similar to Johnson
-some value change due to market and improvements
-no equitable lien if non-owner spouse received benefits from use of property
-termed offset or reciprocal benefit
-reasoning complaining party received a compensating benefit a place to live

Gifts
-improvements
-made with donative intent, then no right of reimbursement arises for donor

Summary of CP value increase/contributions
-appreciation
-pure appreciation only
-appreciation assumes character of underlying asset
-appreciation due contributions
-prorate portion of the appreciation to the estate making the contribution

Equitable Lien
-right to receive some sum of money when the property is sold
-does not create an estate or property action
-provides no possessory action

2 Approaches to this:
1. Debt
-treats the amount as ordinary debt subject to interest
-interest paid
2. Equity
-assumes management implies right of each spouse to improve the property with property of another character
-by doing so spouse invests in property and is entitled to a share of appreciation depreciation upon sale
-means no interest paid but share gain and loss

In re marriage of Mudgett
-on divorce home awarded to wife subject to equitable lien in favor of husband
-husband sought declaratoy judgment requiring wife to sell home or pay him off for lien
-held as decree was not ambiguous, wife could sell when she wished not before

Sourcing/Tracing
-Property takes character of whatever was used to acquire it
-meaning if SP money is used to buy, it is SP
-if it was CP money to use it, it is CP
-WA: Character derives from earliest significant event
-when there is a long relationship it tends to all fall to CP

Joint Tenancy v. CP
-CP: title reads Joe and Mary Smith as husband and wife
-JT: title read Joe Smith and Mary Smith as joint tenants with right of survivorship

Community Property
-each spouse owns one half interest in property
-subject to probate

Joint Tenancy WRS
-parties each own undivided one half interest in the property
-upon death of one, the ownership of property is instantaneously vested in the survivor not subject to probate

Community Property Joint Tenancy
Interest         1/2 devisable undivided one half not
Death of one subject to probate not subject to probate
Dissolution subject to award court does not have jurisdiction, no award
Income tax capital gain likely none capital gain, avoid only on descendant share

Income Tax Implications
-Capital Gain Tax
-Stepped up basis on death
-person who inherits takes the property at its present value rather than historical value thus eliminating any capital gain

-Joint tenancy
-surviving spouse takes decedents undivided one half interest at stepped up basis
-share held by surviving spouse is not taken at stepped up basis thus it is subject to capital gains tax

Creating Joint Tenancy with right of survivorship
-joint not enough
-joint tenancy may work
-need to be clear and use all the words

Process of Characterization
-look at acquisition
-date, transmuted, gifted?
-look at title
-if none apply: takes character of asset used to acquired

Co-Mingling
-separate assets so intertwined with community assets that it is impossible to trace them
-likely to be CP

Special Considerations
-interest in partnerships
- PTP 2 parts
1. rights of management, inspection cannot be derogated to another
2. rights to receive pro rata share of profits and loss can be derogated to another

Goodwill CP

In re Marriage Fleege-Goodwill
-goodwill of spouse's professional practice must be taken into account in dividing assets or spouses on dissolution
-intangible asset
-transferability of spouse's services is not part of the valuation determination in dissolution

Factors
-age, health, past earning power, reputation, skill, knowledge, comparative, education

Assignment
project 2