E:\NEWERE~1\Chang_Community Property

I. The Status of the parties

Our facts state that Harry and Wendy believed they were "married under the common law of Texas." Common law marriages are those in which the parties do not attempt to comply with the formal requirements for a valid marriage but nevertheless hold themselves out to others as a married couple. Common law marriages are generally proven by cohabitation and reputation. The majority of jurisdictions have abolished common law or 'informal' marriages but a minority of states including Texas, still allow common law marriages.

Although California abolished common law marriages in 1895, California will recognize Harry and Wendy's Texas common law marriage pursuant to the full faith and credit clause of the United States Constitution. Therefore, if Harry and Wendy have satisfied the statutory requirements for a valid common law marriage under the laws of Texas, the California court will recognize them as a lawfully married couple within the California community property system.

If they have not satisfied the statutory requirements for a common law marriage under Texas law, California will not recognize Harry and Wendy as a lawfully married couple. They may qualify as putative spouses if: (1) at least one of them objectively believes in good faith that they are legally married and (2) they have attempted to comply with the requirements for a formal lawful marriage. If they are putative spouses, the property acquired during their 'marriage' is classified as quasi-marital property and divided equally between the spouses at dissolution. Since Harry and Wendy did not attempt to comply with the requirements for a formal marriage, they will not qualify as putative spouses. They will be treated as meretricious partners with no rights under the California community property system. Meretricious partners, as in the Marvin case have only those contractual and equitable rights and remedies inter se as other competent adults but they are not protected under community property laws.

If Harry and Wendy are lawfully married, the property at issue will be divided in the following way:

II. The 10 Acres of Texas Land in Harry's Name Only

The Texas land may be classified as quasi-community property and therefore equally divided between Harry and Wendy at dissolution Quasi-community property

Wendy may attempt to argue that the Victorian home is not subject to the special community property presumption. To rebut the special presumption, Wendy will need clear and convincing evidence that both she and Harry intended to hold the Victorian house as separate property and not community property. Since Harry and Wendy took title as joint tenants in 1985 when they re-financed the Victorian, Harry will argue that the requirement of a writing to rebut the special presumption should apply. The requirement of a writing to rebut the special community property presumption was enacted in 1984 as part of the anti-Lucas legislation. Although the statue is not constitutionally retroactive, Harry should argue that the 1984 requirement of a writing applies to the re-fi in 1985. Since there is no writing to rebut the special community property presumption, the Victorian will be classified as community property.

Harry's payment of the mortgage with his income as a paralegal does not change the classification of the property or Harry's interest. Compensation for labor and services provided during marriage is presumptively community property.

Wendy will claim that the $100,000 down payment should be classified as her separate property since it can be traced to her trust fund. Under the principle of tracing, a change in form does not change the classification of property. Since Wendy's trust fund monies are `gifts' or `bequests', they fall outside the general community property presumption and within the definition and presumption of separate property. The separate property presumption applies to all property acquired by gift, bequest, devise or descent and to property acquired before marriage or after separation.

Although Wendy's $100,000 down payment was her separate property, pre-1984 `contributions' are presumed to be gifts per In Re Marriage of Lucas. The anti-Lucas legislation in 1984 created a right of reimbursement without interest for such separate property contributions but that statutory right is not constitutionally retroactive.

Wendy will also rely upon Harry's written note, which states, " I, Harry, waive any interest in Wendy's trust fund." Unfortunately, this note does not specifically refer to the San Francisco Victorian or to the $100,000 down payment. The note will not likely be persuasive since the modem legal trend appears to require specificity and detail in writings. Wendy may testify that her intent was to keep the $100,000 as her separate property and that she did not intend a gift. Since Wendy accepted Harry's ambiguous note in response to her request, she may not be able to satisfy her burden of proof

Wendy has a better argument with respect to the $50,000 used in 1985 to remodel the Victorian. Under the principle of tracing, Wendy will claim that the $50,000 is her separate property and that she should be reimbursed for her separate property 'contribution' under Family Code section 2640.

Wendy acquired the $50,000 used for the remodel from the sale of IBM stock held in her name only. Although title to the stock is no necessarily dispositive of its classification, Wendy should be able to trace the acquisition of the stock to the sale proceeds of her sculpture that she created in 1965. Since the sculpture was created before marriage, it is properly classified as her separate property. If Wendy is able to adequately trace the proceeds and the assets, the $50,000 should be classified as her separate property. Under Section 2640, separate property `contributions' include improvements to community property and are reimbursed without interest. If the remodel is not an `improvement' but only a repair, she will not be entitled to reimbursement under Section 2640.

The court will likely award Wendy $50,000 as reimbursement for her separate property contribution and divide the remaining equity in the house equally between Harry and Wendy as their community property

Despite the title in Wendy's name only, the general community property presumption applies to the People's Choice TV stock because the stock was acquired during marriage. Wendy has the burden of proof to rebut the presumption by clear and convincing evidence.

Wendy will attempt to trace the acquisition of the stock to her separate property. The stock was purchased with insurance proceeds received after the destruction of a sailboat in Wendy's name only. Under a replacement analysis, Wendy will claim that the classification of the insurance proceeds should be separate property because the funds replace a sailboat which was her separate property. Classification of the sailboat as Wendy's separate property will be discussed later. Not all California courts follow the replacement analysis for insurance proceeds. Some appellate districts follow a tracing analysis and would classify the insurance proceeds as community property since the insurance premiums were paid with community property funds.

Harry should counter Wendy's claim by arguing that the insurance proceeds should be classified as community property since the insurance premiums were paid by his law firm. Compensation paid to Harry including benefits such as the payment of insurance, resulting from labor and services during marriage are classified as community property. If the court follows a tracing analysis, Harry will trace the insurance proceeds to the purchase of the People's Choice TV stock which is presumptively community property. Absent any rebuttal evidence, the court will equally divide the stock as community property.

If the court follows a replacement analysis for the insurance proceeds, Wendy will trace the acquisition of the sailboat to the sale of IBM stock. Wendy bought the IBM stock with monies from the sale of her sculpture. Since Wendy created the sculpture before marriage, the sale proceeds from the sculpture are her separate property. If Wendy is able to sufficiently trace the stock to a separate property source, she should be able to satisfy her burden of proof and the stock will be classified as her separate property.

Harry started his law firm during marriage with $10,000 from a joint account. There are no facts regarding the source of that $10,000 so the general community property presumption would apply to those monies, Although Harry's license to practice law is not a community property asset, his law firm, like any business started during marriage is presumptively community property. The value of Harry's law firm would be calculated by an expert who would account for fixtures, accounts receivable and goodwill. The value of the business is measured as close to the date of trial as possible.

Harry's law firm may have appreciated in value after 1992 when he moved into an apartment. Harry will claim that the appreciated value of his law firm should be classified as his separate property because it was acquired after he and Wendy were "living separate and apart" with no intent to resume marital relations. Since the law firm is a community property asset which appreciated during separation, the court will attempt to allocate its value by using either a reverse.

Van Came or Pereira formula. Although the court may use neither formula in its discretion, the Van Camo formula is generally used when the appreciated value of a business is caused by outside economic or market factors. The Pereira formula is generally used when the appreciated value of the business is the result of the spouse's time, labor and personal skills.

Van Camp formula, the reasonable value of Harry's services during separation would be classified as separate property and the remaining balance of the business classified as community property. If Harry has already received the reasonable value of his services during separation in the form of a draw or salary, then the entire business is community property and must be equaily divided between Harry and Wendy.

Pereira formula, the community property interest equals the initial investment plus a fair rate of return on that investment multiplied by the number of years of separation. Using ten percent as a fair rate of r eturn and simple interest: $10,000 + ($10,000 x 10 percent x 2 years) = $12,000, which would be classified as community property. The remaining value of the law firm would be classified as separate property.

Pereira formula because the majority of the business would be classified as separate property. Wendy will want the court to apply the reverse Van Camp formula because the majority of the business would be classified as community property. Wendy should argue that any new accounts recievable to the law firm were the result of its goodwill developed while Harry and Wendy were married. Wendy will likely prevail.

In sum, the court should classify and divide the property as follows: 1. The Texas land should be classified as quasi-community property and equally divided between Harry and Wendy', 2. The San Francisco Victorian house should be classified as community property and equally divided between Harry and Wendy after reimbursement to Wendy for her $ 50,000 separate property contributions; 3. The People's Choice TV stock will be classified as community property if the court follows a tracing analysis for the insurance proceeds. If the court follows a replacement analysis, the stock will be classified as Wendy's separate property; 4. Harry's law firm should be classified as community property. Any appreciated value during separation should be allocated between community property and Harm's separate property using either a reverse.