Sunday, August 14, 2011

July 2011 California Bar Exam Question 6: who gets the stuff

This is the seventh post in my series on the July 2011 California Bar Exam.  If you think that my answers are terrible, let me hear it in the comments.

Question six is a very typical community property question.  Sometimes there are red herrings or complicated math that can make these questions difficult.  Here, the only trap was thinking that premarital titling of property had some effect on its disposition other than by contract law.  It doesn't.

Also, the 2006 marriage is meant to avoid the difference in fiduciary duties between spouses before that point, though I doubt you would lose much credit if you used the old rule.

From the California State Bar (pdf):

In 2003, Wendy and Hank were engaged to be married. They discovered that the $10,000 monthly income Wendy derived from a trust fund would terminate upon her marriage or upon her reaching the age of 25, whichever came first. Therefore, they decided to postpone their wedding until Wendy’s 25th birthday, in 2006, and instead began to live together. 
Also in 2003, Wendy and Hank agreed that Wendy would pursue a master’s degree in education and that Hank would quit his job and stay home, taking care of the household chores. Wendy opened a checking account in both of their names, into which she deposited her $10,000 monthly trust income. Wendy used funds in the checking account to pay living expenses for Hank and herself. Wendy also used funds in the checking account to buy a new car. She put title to the car in both of their names. 
In 2006, Wendy and Hank married. Wendy’s $10,000 monthly trust income terminated. Afterwards, Wendy began teaching at a local college.

In 2008, Wendy learned that her compensation was less than that of her male counterparts and made a claim against the college.

In 2009, Wendy separated from Hank and filed an action for dissolution of marriage. Shortly afterwards, she settled her claim against the college in return for additional salary in the amount of $10,000 per year for the next three years. 
Unbeknownst to Wendy, Hank had run up a gambling debt to a casino during their marriage. At the time of their separation, Hank owed the casino $50,000. 
Upon dissolution of marriage, what are Wendy’s and Hank’s rights and liabilities with respect to: 
1. The car? Discuss.
2. The $30,000 in additional salary under the settlement? Discuss.
3. The $50,000 owed to the casino? Discuss.
I will discuss below the jump.

Answer according to California law.

California is a community property state. Property that is acquired before marriage, after separation, and during marriage by bequest or gift is separate property. All other property is community property. Separate property is the separate property of one party unless a contractual relationship to the contrary exists.

1. The Car

The issue is who has rights in the car. Property acquired by two people prior to marriage is governed by contract law. A valid contract requires an offer, acceptance and consideration. Here, “Wendy and Hank agreed that Wendy would pursue a master’s degree in education and Hank would [provide] homemaking services.” Under Marvin, since there is more involved than merely sex, the contract is valid. That contract extends to the car. The parties jointly titled the car, even though Wendy used her own funds to purchase it, and presumably the car furthered performance of the aforementioned contract (education for homemaking services). Since the car is part of a contract and jointly titled each party has an undivided one-half share in the car.

Therefore, both parties have an interest in the car.

2. The Settlement

The issue is whether the settlement is community property or separate property. Tort settlements depend on their nature to determine whether they are a community or separate property asset. Here, the settlement is for, essentially, back pay that Wendy should have earned had she been correctly compensated. This money should have been in the community but was not, due to the Community College’s tort. Therefore the settlement is community property that can either be apportioned to each spouse with the net present value of the payment stream or as the payments become due.

Therefore the settlement is community property.

3. The Gambling Debts

The issue is who must pay the gambling debts. At the onset, the Casino is free to pursue either the community or Hank for the debt, but it cannot pursue Wendy unless she has some sort of contractual relationship with the casino. Spouses owe one another a fiduciary duty in dealing with finances. After 2006, spouses must disclose all financial transactions to the other spouse “without demand” if it would be unfair to the other spouse not to disclose it. Hank had an obligation to disclose the gambling debt which was “unbeknownst to Wendy….” His failure to do so is a breach of fiduciary duty and will result in the gambling debt being used as a set-off against his interest in the community estate.

Therefore, while the Casino can pursue Hank or the Community for the debt, ultimately, Hank will end up paying it.


  1. I have a hard time agreeing that the husband's failure to let his wife know about the gambling debt rises to the level of breach of fiduciary duty to a spouse. Would it not be more so the case that something as serious as, for example, the husband selling stocks in a retirement account (without revealing it) to go gambling or something of that nature be required for this to be an issue that the grader would be looking for? I see it simply as a debt during marriage; i.e. Community is on the hook for the debt, and then husbands s.p. Any thoughts?

  2. Thanks for the comment. Is there a case that you are thinking about for this point? I think that Family Code 1100 et seq. is pretty clear.

    Gambling without one spouse's knowledge is a breach of fiduciary duty which can either result in winnings being reallocated or losses being assigned. See Liu v. Tsai (Cal. Ct. App. 2010)

    This is a community doubt at the onset, as you note, and the Casino can pursue either party, but the Superior Court can require Hank to reimburse the community for the value of the debt under section 1101.

    I'll fix my answer to reflect that.

  3. Thanks for the response. S--t!!! I was not aware of this Family Code. Oh well!!!

    Also, I forgot to ask you in my original post: Do you think it was counter-productive (as far as points go) to discuss "reimbursing community for education and training?" I discussed it (even though they were not married at the time husband agreed to stay home while wife got ed. and training - which i analyzed)because i felt there were trigger words in the fact pattern that was asking us to discuss this issue. I have yet to see a sample answer that included this issue (or non issue). the only place that I have seen this issue mentioned is some of the posts on ALL4JDS site where some of the applicants mentioned that they also discussed it. In a nutshell, my questions is "will I get point DEDUCTIONS for discussing it?"

  4. I'm glad that response was helpful.

    California, perhaps uniquely, does reduce scores for material that is not responsive to the call of the question. Here, there are three community assets in the call, if you discussed education you deviated from the call.

    That said, I remember reading over an old BA/PR essay where the examinee didn't discuss PR... at all... and still got a 77.5 (which is a great score). So, you can miss a part of a question or put in something deviating from the call and still get a good score.

  5. Well I already know its unlikely I will get a 65 since I didn't discuss fiduciary duties for the 3rd call. I just hope that my score does not drop to a 55 and I at least get a 60. I'll be ok w that because of how I feel about my answers for the remaining essays (Other than real property...messed that one A.P. discussion!!!). Anyways, thanks again.

  6. There's a lot of confusion regarding community property and community debt. In principle, the debts and assets from the time of the marriage are shared by the marriage "community." One spouse is able to act alone in squandering the community assets, with some specific exceptions. Unfortunately for Wendy, none of them seem to apply to these facts.

    There is no remedy in Family Code 1100 et seq. that says the "innocent spouse" is immune from the debts of the other, even when breaching the fiduciary duty. The remdies of the breach of the fiduciary duty include:
    1) an accounting of the property and obligations of the parties (Hank disclosed the $50K debt, so Wendy got her accounting)
    2) changing title to reflect the community interest of property held in the name of one spouse alone, unless that interest is a business that is managed by the other spouse or affects the interests of a third party (Not really applicable to these facts, but this can work in the opposite as to a community debt I suppose)
    3) The "innocent" spouse can reclaim community property that is sold/encumbered, etc. by the other if it is the community dwelling, its furnishings, or personal clothing of the innocent spouse and/or the children. (None of this is applicable to these facts)

    I agree with you that the fiduciary duty needs to be discussed for sure. I don't, however, agree with your conclusion. The fact is that CA community property will favor slimy creditors for the secret debts that are run up by a gambling/shop-a-holic scum like Hank. It is one of the shortcomings of the community property system (and it would seem public policy would abhor this type of behavior, given how destructive it is to marriages and families), and why so many believe that marriage is a joke.
    Thanks for posting