Wrongful Death Proceeds and Community Property in California
Someone recently asked, “Are wrongful death recovery proceeds community property in California?” The field of bankruptcy crosses over with so many other areas of law. The question stands at the intersection of bankruptcy law, California community property law, and tort law. But the answer to this wrongful death question is critical for bankruptcy lawyers and someone filing bankruptcy in California.
Why it matters if wrongful death claims are community property
This might seem like a tiny point, but it’s really important whether a wrongful death claim or funds are community property or not. There are lots of twists and turns as to whether it affects the other spouse when only one spouse files bankruptcy.
If the money or right to bring a cause of action belongs to only one spouse and not to both, then the other spouse has no ownership interest in the claim, or the cash. Or put more simply: if the money or right to get the money belongs to one spouse as separate property, it doesn’t belong to the other.
With that, if the other spouse files bankruptcy and the claim doesn’t belong to them, then the trustee can’t get to it. If it does belong to them as marital community property, the trustee in a Chapter 7 bankruptcy can take it and repay debts with it. Therefore, it’s crucial to know if it belongs to one spouse, or both.
Yikes. I don’t want the trustee to take my (spouse’s) claim or money.
Exactly. Chapter 7 bankruptcy is called liquidation bankruptcy. This means someone can take your stuff. Many people think, “I don’t have anything.” But there are assets we may have that are more intangible, but are still valuable.
One example of an asset that is intangible would be where someone owes you money. Another would be intellectual property. Yet another would be the right to sue someone. And even more removed, the right of a spouse to sue someone, even if the lawsuit hasn’t been filed yet. Yes, that’s an asset, and could be subject to liquidation in a Chapter 7 bankruptcy.
This is why is why we need to filter a wrongful death claim through the grid of the California community property presumption, and California courts case law that interpret it and how it applies to different kinds of intangible assets over the years.
A look at the law: the statutes and case law
Where does the right to bring a wrongful death claim in Calif come from?
First, a wrongful death — that is, the right to sue for the loss of a loved one — is defined by statute in California law. Civil Procedure Code 377.60 defines the cause of action for wrongful death. It then goes on to say who can bring the cause of action or lawsuit. It includes some obvious relationships like children and surviving spouse. But the statute was recently broadened to include domestic partners.
The California Community Property Presumption
The California community property general presumption from the California Family Code 760 is:
All property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.
That’s pretty broad. All property. Personal or real. Anywhere. During the marriage. It covers a lot of ground, and doesn’t except a whole lot.
So, if a married person acquires money from wrongful death of a relative, that money sounds like property. When you consider a claim for wrongful death, that sure sounds like a property right, too. Maybe the courts have held otherwise because the loss of a loved one is so personal to the one spouse and possibly not as personal to the other. Let’s take a look.
Wrongful Death California Community Property Court Cases
Starting with Fuentes v Tucker, 31 Cal.2d 1 (Cal Sup Ct, 1947), the California Supreme Court has long held wrongful death recovery proceeds are community property. Later, the California Supreme Court affirmed the rule in Flores v Brown, 39 Cal.2d 622 (Cal Sup Ct, 1952).
The Ninth Circuit Court of Appeals explained it even more clearly. The Court stated, “There is a statutory presumption that property acquired by the spouses during marriage is community property. The presumption is a strong one, which the California Supreme Court has characterized as fundamental to the community property system.”
It continued: “It extends to every conceivable type of property, including insurance policies and their proceeds, a cause of action for the wrongful death of or injury to a minor child; a cause of action for injury to either spouse; a law practice; the interest of a spouse in a partnership; good will of a business; borrowed money; and leasehold interests. Why not to a retained equitable interest in a trust?” (emphasis added, cites omitted). Katz v US, 382 F.2d 723, 728 (9th Cir, 1967).
Given the community property presumption, California Supreme Court case law, and Ninth Circuit Appellate Court rulings, if one spouse files bankruptcy in a community property state, the wrongful death claim of the other spouse would not be separate property. As such, it would have to be disclosed in the bankruptcy, and the money it brings possibly subject to being taken for liquidation by the trustee.
As always, discuss your potential bankruptcy case with a skilled and experienced bankruptcy attorney before filing. While your brother’s wife’s hair stylist’s gardener didn’t lose anything when they filed bankruptcy, you might lose stuff in your case. Each situation is different, and with full disclosure and planning, we can find a solution that fits you.