Marital Property - Property

Rules

1. Marital property. Two forms: (1) community property (CP) and (2) common law separate property (SP).

   1. Community property. Practiced in Cal., Idaho, Ariz., La., Nev., N.M., Texas, Wash., Wis., and Alaska. Property acquired during marriage (except for gifts or inheritance) belongs to husband and wife equally.

      1. Earnings. Earnings during marriage are divided evenly between H & W, including whatever was bought with the earnings.

      2. Presumption. There is a strong presumption that all property acquired during marriage is common property, even if H says “this is separate.” Together, H & W may “transmute” property from separate to common or back to separate.

      3. Divorce. Either equal or equitable division of community property; no TBTE, dower, curtesy, etc.

      4. Concurrent interests. H & W may create TIC or JT as separate property; these cannot simultaneously be held as common property.

   2. Common law property. Before 1839, property belonged to husband and wife ceased to be a legal person under doctrine of “coverture.” After Married Women’s Property Acts, coverture was abolished and wife gained control over property and immunity from husband’s debts. Property acquired separately remains separate.

      1. Married Women’s Property Act (Mass. Gen. Laws ch. 209, §§1–9) (Supp. III, 15–16). §1: H/W have separate property but are equally entitled to income from TBTE. §2: W may contract. §3: H/W may transfer property between them. §4: W’s labor presumed to be performed on her account if outside family. §5–6: W may be executrix, etc., and sue and be sued. §7: W not liable for H’s debts, and her property is immune, with minor exceptions. § 8: H not liable for W’s debts from before marriage. §9: W’s contracts do not bind H; same as if she were sole.

   3. Comparisons.

      1. Husband and wife. CP is only between H & W, whereas TIC or JT can exist between any two people.

      2. Conveyance. Unlike TIC/JT, neither spouse in CP may unilaterally convey his undivided share except to other spouse.

2. Tenancies by the entirety. One original purpose of TBTE was to protect wife’s interest from husband’s creditors, as TBTE is indivisible. States have adopted four different rules regarding creditor protections.

   1. Mass. plus two (in 1977—not anymore). H may convey, but W may not; the conveyed property remains subject to W’s survivorship rights. The estate is subject to levy by H’s creditors.

   2. N.J. plus four. Interest of debtor-spouse may be levied, subject to spouse’s right of survivorship.

   3. Hawaii plus eleven (majority). Both spouses must agree to convey, and estate is not subject to separate debts of one spouse only. Sawada.

   4. Ky. & Tenn. Right of survivorship is alienable and attachable.

3. TBTE in bankruptcy and tax. For federal tax purposes, husband’s interest in TBTE is attachable. United States v. Craft (U.S. 2002). Federal bankruptcy law is similar, although if spouse follows state law exemptions his/her TBTE interest may be protected. In re Garner (8th Cir. 1991).

4. Forfeiture. Violators of federal drug laws may forfeit a property interest.

   1. Property used for drug crime. If H used TBTE property for drug sales, must forfeit his survivorship interest. United States v. 1500 Lincoln Ave. His interest in JT property is typically forfeited as if it were severed. United States v. Pacheco (2d Cir. 2004).

   2. Property not used. If H does not use property as basis for illegal activity, spouse gets more protection. United States v. Lee (7th Cir. 2000).

Analysis

1. Community property v. common law property. Original distinction was between civil law and common law traditions; Wisconsin and Alaska were late adopters.

2. Hawaii rule re: TBTE. The Sawada court chose this rule to protect family over creditors, who either know or should know that the debtor has a TBTE. The Married Women’s Property Act did not abolish the TBTE, which is still predicated on the legal unity of spouses. If the husband cannot convey an estate unilaterally, then the wife should remain immune from his debts; should not be able to divide TBTE either. Moreover, if H could alienate the right of survivorship, it would severely cloud title.

Major Cases

1. Sawada v. Endo (Hawaii 1977) (361)

   1. (Menor, J.) H hit Π with car. H had no insurance, so H & W sold house (under TBTE) to relatives. This would be fraudulent if home could be used to satisfy creditors. But Hawaii adopted rule that TBTE estate is not subject to separate debts of one spouse, so conveyance was okay.

   2. (Kidwell, J., dissenting) The N.J. rule is better. Until MWPA, husband could alienate right of survivorship; now that wife has that benefit, she should have some disability. Husband’s right should still be alienable and attachable.

Rule

1. Dower and curtesy. Dower and curtesy were abolished in U.K. in 1833; entitled surviving W or H to life estate in property.

   1. Dower. Surviving wife is entitled to life estate in ¹/₃ of each parcel of the husband’s inheritable freehold estates (and may receive ¹/₃ personal prop). This still exists in Ark., Ky., Ohio, and Mich. As a consequence, both H & W must sign deeds of land to release dower, even if title is in only one of them.

   2. Curtesy. Surviving husband has right to life estate in all wife’s land (established by the “Curtesy of England”) provided that wife had given birth to live child at some time during marriage.

1. Elective share, defined. In all common-law jurisdictions but Ga., surviving spouse gets ownership share in decedent spouse’s property ( if no children, ¹/₃ with children). Surviving spouse may renounce will and take statutory share or, under Uniform Probate Code, willed property is credited against elective share amount.

   1. Exceptions. Elective shares apply only to property owned at death, not JT or life insurance. May be defeated by lifetime gifts of property unless the gifts were intended to defeat elective share or remained in control of donor (e.g. in a revocable trust).

2. Elective share protections. Issues arise over what property should be included in the estate of the dead spouse.

   1. Fraudulent conveyances in consideration of marriage. If A conveys property away in consideration of marriage, B may sue to include as part of her share if she can meet two-part multi-factor test. Strong.

      1. Part one (fraudulent intent). B must first show A had fraudulent intent, met by (1) a transfer was made during the contract to marry or immediately before marriage (made in contemplation of marriage); (2) there was a lack of adequate consideration for transfer; and (3) prospective spouse did not know of transfer.

      2. Part two (reliance). If (1)–(3) met, court will presume fraudulent intent, but B must still show she relied upon A’s interest in property as inducement to marriage. Strong.

   2. Inter vivos trusts. As inter vivos trusts became common forms of avoiding giving spouses shares, courts extended limited protections. Sullivan.

      1. Old rule. Wife’s share of H’s intestate property does not extend to personal property conveyed during his lifetime.

      2. New rule. If H alone had general powers of appointment over a trust created during the marriage, the assets are considered part of his estate. This does not apply to multiple trustees, third-party source of principal, etc. Sullivan.

3. Differences between common law and community property.

   1. At death. No CP survivorship feature—spouse may convey share of property via will, or if intestate often goes entirely to spouse.

   2. Sale after death. CP property’s tax “basis” is “stepped up” to value when spouse dies. So if H & W buy $100 house that is worth $300 when H dies and is sold by W for $325, the taxable “income” is only $25 instead of (JT) $125 (where only H’s half is “stepped up,” so $300/2 + the $50 she paid for house = $200 basis at death).

Analysis

1. Dower and curtesy. The doctrines were intended to protect spouse but keep land in the “correct” bloodline.

   1. Mary Ann Glendon, The Transformation of Family Law (1989) (Supp. III, 85)

      1. Major trend in last two centuries, “the gradual attenuation of legal bonds among family members outside the conjugal unit of husband, wife, and children.”

      2. Old “separate property systems”: survivor could take a share of the personal property, “but the marital estates of dower and curtesy kept what was once the most important form of property, land, in the family of origin by giving the surviving spouse only a life interest in the real property of the decedent.”

      3. Now, since dower was considered a “clog on the marketability of land,” protection has been replaced by “the forced share,” which “operates in favor of the spouse rather than descendants.” In the U.S., “the surviving spouse has clearly become the favorite in inheritance.”

2. Elective share protections. In part because of the rise of will substitutes (and changing divorce law), courts no longer consider spouses to have “sovereign,” unilateral authority to dispose of property during marriage. Moreover, since divorce law was allowing spouses to include, e.g., inter vivos trusts among husband’s assets, did not make sense to grant divorced spouses more rights over property than separated but still married wife. Sullivan. Nevertheless, only a few states have moved in this direction, and fewer still have done so by court decision. Courts might be reluctant to break new ground in this department, and if they do decide to do so, like Sullivan the rule will likely be prospective.

Major Cases

1. Strong v. Wood (Iowa 1981) (Supp. III, 35)

   1. (Larson, J.) M proposed to F who did not immediately...