Question 2: When Hal met Wendy (Community Property) California Bar Exam

This is a fastball question, which was kind of funny.  How many unpaid lawyers out there would love to be able to get mortgages on client property in exchange for legal services?  Actually California permits this in divorce proceedings (CFC 1102e).  Who knew?

Wendy and Hal are married and live in California. A year ago, Wendy told Hal that she would not tolerate his drinking any longer. She insisted that he move out of the family home and not return until he completed an alcohol treatment program. He moved out but did not obtain treatment.  

Last month, Hal went on a drinking spree, started driving, and struck a pedestrian. When Wendy learned of the accident, she told Hal that she wanted a divorce.  

Hal has consulted Lawyer about defending him in a civil action filed by the pedestrian. He is currently unemployed. His only asset is his interest in the family home, which he and Wendy purchased during their marriage. Lawyer offered to represent Hal if Hal were to give him a promissory note, secured by a lien on the family home, for his fees. Hal immediately accepted. 

1. Is Wendy’s interest in the family home subject to damages recovered for injuries to the pedestrian? Discuss. Answer according to California law.  

2. Is Wendy’s interest in the family home subject to payment of Hal’s legal fees? Discuss. Answer according to California Law.  

3. What, if any, ethical violations has Lawyer committed? Discuss. Answer according to California and ABA authorities.

I.  Community Property

California is a community property state.  All property and debts obtained in marriage is community property, except (i) property acquired prior to marriage; (ii) property acquired during marriage by gift or inheritance; and (iii) property designated as nonmarital through an agreement between spouses.. All property obtained by either spouse either before the marriage or after separation is separate property.  At divorce, each spouse is entitled to half of the community property and all of their separate property unless an exception applies.

Here, "Wendy and Hal are married...." Therefore community property laws apply.  They never divorced and never separatated.  However, Hal did "move[] out."  This is considered "living separately" under the California Family Code (CFC).

II. Wendy's interest in the home.

The issue is whether Pedestrian (P) can attach a money judgment to Wendy's interest in the family home.  Generally, the debts (such as tort judgments) of one spouse can be attached to any community property.  However, when "living apart" leads to "divorce" or separation, it is considered the constructive end of the marriage for the purpose of creditor.  Generally, Wendy's interest could not be touched.  However, if Hal and Wendy reconciles then they are no longer living apart and Wendy interest can be attached.  The disposition of this issue depends on future events that have yet to unfold.

III.  Wendy v. Lawyer

The issue is whether a spouse can mortgage the entire community property without another spouse being aware of this.  California does not allow only one spouse to encumber property for more than one year without the consent of the other spouse (CFC 1102).  Therefore the conveyance is invalid and Lawyer has no rights to Wendy's interest in the house.

IV. Lawyer issues

The issue is whether Lawyer violated the ABA Model Rules (MR) or California rules (CR).  Both MR and CR prevent a lawyer from using his position of influence to have an inverse adverse to a client.  Here, MR forbids a lawyer from having a simultaneous interest in property with a client without signed informed consent stating that the client had an opportunity to speak with another attorney. CR forbids a lawyer from taking an interest in a community asset except as payment for a dissolution action.  Lawyer has violated CR and MR by, at the very least, failing to obtain informed consent before entering into this self-interested transaction because Hal "accepted immediately".