Daily Development for
Tuesday, October 24, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

If you're wondering about the fixation with California cases - this results from my current project in developing the California Reporter summaries for our Quarterly Report. The rest of the reporters, from other parts of the country, aren't due to send me their work for another week, so I'm temporizing a bit. I've tried to stick to cases that have universal appeal. These two cases, on community property, obviously don't fit that category completely, although we all must be aware of the fact that our married clients' property may be recharacterized as community property if they should establish residence in California, even for a brief time.

I'm curious as to how the marital property concepts in other states deal with claims against one spouse. My understanding is that debts arising from loans to an individual spouse prime "marital property" interests, (although they may not be valid against tenancies by the entireties) if the proceeds of the loan creating the indebtedness are expended on "community purposes," and that personal expenditures by one spouse, no matter how luxurious, fit the category of "community purposes."

Is this the law in your jurisdiction?

MARITAL PROPERTY; COMMUNITY PROPERTY; CREDITOR'S CLAIMS; JUDGMENTS: Where creditor's deed of trust against community property is invalid because both parties to community did not join in, creditor nevertheless can obtain judgment lien on the debt against the community property and that lien will continue over when property is transferred after divorce to non-debtor spouse. Lezine v. Sec. Pac. Financial Servs. Inc., 44 Cal. Rptr. 2d 116 (Cal. App. 1995) This bizarre result is made possible because of several circumstances: (1) California statutory law specifically provides that the community is liable for the individual debts of one spouse during marriage (perhaps a necessary rule because virtually all wealth accumulated during marriage becomes part of the community); (2) in the divorce, the trial court awarded the encumbered property to the non-debtor spouse and did not make provision for payment of the debt out of the assets awarded to the debtor spouse (something that might be a financial invetability in many cases, whether or not it was here).

The equities are compelling for the non-debtor spouse here - the wife. Husband forged her name on a quitclaim deed to him of the family residence. Then he forged her name on a series of mortgages. He paid off existing liens on the property with some of the proceeds, but spent a considerable amount of the proceeds for non-community purposes. The wife discovered and challenged the mortgages. The court ruled that the mortgagees had some reason to be on inquiry of the forgery, and wholly disallowed the mortgages, recognizing only an equitable lien for the amount of the mortgage proceeds that had been used to retire existing debt on the home. Thereafter, the lenders obtained judgments against the community. The divorce court ruled that the wife took the liens free and clear of the mortgages and the equitable lien. But the appeals court here rules that the statute fixing the judgment lien rights of a creditor against the community cannot be avoided by the divorce court.

A California case had held that the community cannot be bound by a mortgage or other conveyance executed by only one spouse. Droeger v. Friedman, Sloan & Ross, 289 Cal. Rptr. 584 (Cal. 1991). The wife here argued that this case turns Droeger on its head by permitting a spouse, by sole action, to encumber the property by a judgment lien. The appeals court really has no response to that argument except to say that the result is compelled by statute.

Here's another, unrelated community property case that gives an insight into the special nature of the community property concept as opposed to the equitable "marital property" concept in other jurisdictions:

MARITAL PROPERTY; COMMUNITY PROPERTY; VESTED RIGHTS: Retroactive application of statute granting spouse a credit for spouse's separate property investment to community would unconstitutionally deprive other spouse of vested rights in community property estate. Marriage of Heikes, 44 Cal. Rptr. 2d 155 (Cal. App. 1995) Husband had owned the marital residence as separate property prior to the marriage, but after the marriage deeded it to himself and his wife as joint tenants. In California, this resulted in the property becoming community property. Under the law in effect at that time, property contributed to the community by one spouse was deemed a gift of an interest to the other spouse, and thus each party was credited with an equal interest in the property upon dissolution or divorce.

After the relevant events occurred, California law was amended to provide that a spouse who donates separate property to the community will be entitled to a credit for the value of such contribution upon dissolution or divorce unless the contributing party has waived such right. In a case decided soon after that, the California Supreme Court established the basic principle that the statute, applied retroactively, would be an unconstitutional deprivation of the rights of the "donee" spouse. Marriage of Fabian, 224 Cal. Rptr. 333 (Cal. 1986)

Here, the court simply responds the husband's argument that the wife waived her rights by failing to request that the husband waive his right of reimbursement during the decade following enactment of the statute. Predictably, the court did not see much in that argument.

Comment: The case is useful as a comparison of the community property concept to other marital property rights. Many marital property regimes create the concept of "marital property," which is identified and divided at divorce. But typically a spouse does not acquire a vested property right in such property prior to the court's identification of the right at time of divorce. The constitutionality issue likely would not arise.

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