How Important is the Date of Separation In a Divorce?

In the recent case of Lee v. Lin, the California Court of Appeal clarified the rules regarding determining the paramount issue of date of separation of the spouses.

In the marital dissolution action, appellant challenged the trial court’s determination that the parties legally separated in May 2012 when respondent moved out of the family residence. Finding no error, the Court of Appeal affirmed.

After 26 years of marriage, Husband moved out of the family residence in May 2012. He rented an apartment in a neighboring city, and occasionally interacted with Wife with whom he maintained an amicable relationship. Husband filed a dissolution petition in August 2014.

Husband maintained the date of separation was in May 2012 when he left the family home. Wife contended the legal separation occurred when Husband filed for dissolution 27 months later. After a two-day hearing in 2017, the court found that legal separation occurred when Husband moved from the family home in May 2012.

Ruling from the bench and tracking the language of Family Code section 70 defining “date of separation,” the court found “Husband’s intention to end the marriage occurred on May 21, 2012 and his actions since then have been consistent with that.”

The court found Husband’s intent to end the marriage was clearly expressed by leasing an apartment, his intent was reinforced by relinquishing the key to the family home and refusing to give Wife a key to the apartment, and his post-move conduct was consistent with that intent. The court found the parties’ limited interactions after Husband’s move did not show an intent to reconcile and did not “overcome any clear act of ending the marriage by moving out.”

Family Code section 771 classifies property acquired after the date of separation as the acquiring spouse’s separate property.  This includes earnings, and the date of separation can be an important issue in determining which property is separate, or is community and has to be shared between the spouses.

In 2016, the Legislature in Family Code § 70(a) defined “date of separation” as the date that a complete and final break in the marital relationship has occurred, as evidenced by both of the following:

(1) The spouse has expressed to the other spouse his or her intent to end the marriage, and

(2) The conduct of the spouse is consistent with his or her intent to end the marriage.

A separation under section 771 requires not only a parting of the ways with no present intention of resuming marital relations, but also, more importantly, conduct evidencing a complete and final break in the marital relationship.

Marital separation for purposes of section 771 requires both the subjective intent to end the marriage, and objective conduct demonstrating such intent. The parties’ individual intents are objectively determined from all relevant evidence before the court.

The ultimate question to be decided in determining the date of separation is whether either or both of the parties perceived the rift in their relationship as final. The best evidence of this is their words and actions.  In determining the date of separation, the court shall take into consideration all relevant evidence.

The date of separation is a factual issue established by a preponderance of the evidence.

Wife contends that the trial court misapplied the law by presuming that Husband’s move to an apartment was sufficient to establish the date of separation, and by requiring Wife to rebut that presumption. But no such presumption appeared in the trial record. In fact, Husband argued in his trial brief that no presumption applied to either party’s proposed separation date. 

Husband presented evidence that in May 2012, he expressed his intent to end the marriage and that his conduct while the parties were living apart was consistent with that intent.

Wife presented evidence not to rebut any presumption, but for the court to weigh against Husband’s evidence in determining whether the May 2012 separation date had been shown by a preponderance of the evidence.

The trial court’s date of separation finding was based on the evidence presented, not on the application of a presumption.  

Citing the requirement in section 70 that the intent to end the marriage be communicated to the other party, Wife complains that the trial court did not find Husband had verbally informed her of his intent to end the marriage.

The statute requires evidence that “[t]he spouse has expressed to the other spouse his or her intent to end the marriage” and also directs the court to “take into consideration all relevant evidence.” (§ 70, subds. (a)(1), (b).) The statute does not require express findings as to a declaration of intent or conforming conduct.

In any event, Husband testified that he told Wife the marriage was over when he announced he was moving out, and the trial court found him credible. Husband’s testimony, even without an express finding, is evidence that supports the trial court’s decision and satisfies the statute.

LESSONS:

1.         In establishing the date of separation, one spouse should move out of the shared residence, and express to the other spouse that the marriage was over and an intent to end the marriage.

2.         Communications establishing the intent to end the marriage should be in writing, and confirm that both spouses received the communications.

3.         The conduct of the spouse seeking to end the marriage should be consistent with the intent to end the marriage, and filing a petition for dissolution can be an important factor.

Estate Plan Requires Consideration of Separate and Community Property Assets

The recent case of Wilkin v. Nelson reviewed an estate plan with respect to California's Family Code concerning separate and community property.

William and Hanako Nelson were married in 1981. In 2000, Hanako executed a trust leaving a separate property rental home to Gary and Jay Wilkin, her adult sons from a prior marriage.

At that time, Hanako also executed a pour-over will granting the residue of her estate to the trustee for administration after her death. Hanako did not advise William of her estate plan, but he later discovered she had placed her rental home into a trust for the benefit of her sons.

Hanako died in 2016. Gary, who became the successor trustee, filed a probate petition requesting that Hanako’s separate and community property assets be transferred to her trust. He claimed the pour-over will required that all of her real and personal property be declared trust assets.

William filed a petition seeking reformation of the pour- over will to confirm Hanako’s intent to transfer only the residue of her separate property estate into the trust. He cited the decision Estate of Duke which held that an unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.

Following a three-day evidentiary hearing, the probate court found that clear and convincing evidence supported equitable reformation of the will to provide for testamentary control and disposition of Hanako’s separate property only.

The paramount consideration in construing a will is to determine the subjective intent of the testator.  The modern trend is toward favoring the decedent’s intent over formalities.

A specific devise is a transfer of specifically identifiable property (Probate Code
§ 21117(a)), while a general devise is a transfer from the general assets of the transferor that does not give specific property. (Probate Code § 21117(b))

There was substantial evidence of Hanako’s actual and specific intent at the time the trust and will were drafted.

It was undisputed she wanted a trust to gift her separate property rental home, i.e., the Goleta property, to her two sons, and that she also expressed some general desire to have a will to control the disposition of her separate property. The will as drafted contained a mistake in the expression of that intent.

The drafting attorney’s testimony, although not conclusive, is entitled to much weight.  McKee testified it is fair to state that Hanako’s trust is a separate property trust. The instrument provides that the property transferred is the settlor’s separate property and shall be known as the ‘separate trust estate.

During his deposition, McKee confirmed the trust did not include any community assets. He also acknowledged that he and Hanako did not discuss the pour-over will or her community property assets during their phone call.

Once the testamentary scheme or general intention of a trust or will is discovered, the meaning of particular words and phrases is to be subordinated to this scheme, plan or dominant purpose.

In the absence of any evidence showing Hanako’s intent to include community property assets in her estate plan, it was reasonable for the probate court to interpret the evidence of her intent as it did.

Where, as here, there is a mistake in expression of the testator’s actual and specific intent at the time the will was drafted, the will should be reformed to express that actual intent.

Preference is to be given to an interpretation of an instrument that will prevent intestacy (Probate Code § 21120), but no policy underlying the statute of wills supports a rule that would ignore the testator’s intent and unjustly enrich those who would inherit as a result of a mistake.

Given the probate court’s finding that Hanako intended at the time the trust and pour-over will were drafted to provide for testamentary control and disposition of only her separate property, the decision to reform the pour-over will to conform to that actual and specific intent was well within the court’s discretion.

LESSONS:

1.         Married couples should always consider the status of assets as community or separate property at the creation of the estate plan.

2.         An unambiguous will may be reformed to conform to the testator’s intent if clear and convincing evidence establishes that the will contains a mistake in the testator’s expression of intent at the time the will was drafted, and also establishes the testator’s actual specific intent at the time the will was drafted.

What Conflicting Presumptions in California's Family Code and Evidence Code Prevail Between Spouses?

In the recent decision in Wall v. Wall, the California appellate court considered the conflicting presumptions regarding property ownership by spouses as set forth in the Family Code and Evidence Code.

After her husband Benny Wall (decedent) died, petitioner Cindy Wall (wife) petitioned the probate court to determine that a home, titled in decedent’s name, was community property.

Decedent’s children, Timothy Wall and Tamara Nimmo (the children) objected unsuccessfully.

On appeal, the children contended the trial court erred in

(1) determining that the Family Code section 760 community property presumption prevailed over the Evidence Code section 662 form of title presumption;

(2) failing to consider tracing evidence rebutting the community property presumption;

(3) determining the Family Code section 721 undue influence presumption prevailed over the Evidence Code section 662 form of title presumption; and

(4) applying the undue influence presumption where there was no showing of unfair advantage.

Although the appellate court determined the first two contentions had merit, it still affirmed the judgment by finding the trial court was correct in rejecting the children's contentions 3 and 4.

After decedent died intestate (i.e., without a will) in 2016, wife petitioned the probate court to determine a home, titled in decedent’s name, was community property. The children objected, and a trial was held. At the trial, testimony was provided by the children, decedent’s sister, wife, a mortgage broker, and a real estate agent.

Decedent met wife in 2007, and they married in 2008. Decedent believed his prior wife took advantage of him, but he said he had learned from the experience and would not be taken advantage of again.

In 2010, decedent and wife decided to buy a home. Decedent took title to the home, as “Benny M. Wall, a married man as his sole and separate property,” and he used $99,205.83 from his separate property account for the down payment and financed the balance of the $134,000 purchase price.

During the marriage, decedent’s income came only from separate property sources: pension benefits earned pre-marriage and social security benefits. He deposited that income into his bank account and made mortgage payments from that account.

In 2013, decedent refinanced the home. He did not include wife on the loan, and the 2013 deed of trust listed the borrower as “Benny M. Wall, a married man as his sole and separate property.”

Wife testified that in 2008, she wrote decedent a check for $3,500 to use toward the future purchase of a home. In 2010, she and decedent decided to buy the home as joint owners. They applied for a loan as joint borrowers but were denied because she still had a home mortgage from her previous marriage.

The mortgage broker testified that when decedent and wife were denied a loan, she suggested decedent apply for the loan himself and add wife’s name to the title later. She recalled that decedent and wife agreed to do this.

Decedent then applied as the sole borrower and was approved. Afterward, the mortgage broker sent a congratulations card to decedent and wife congratulating them on their purchase. The mortgage broker testified she understood they both were owners.

The real estate agent also testified that he understood that decedent and wife were buying the house together, though he did not know how they took title.

Wife testified that a few days after they signed documents at the title company, the escrow officer called and said wife needed to sign another document. Wife was told it was a normal procedure though she did not know what “quitclaim” meant, and no one had explained it to her.

Decedent encouraged her to sign the quitclaim and said he would add her to the title later. Wife and decedent then went to the title office and wife signed the quitclaim deed, whereby she remised, released, and forever quitclaimed the home to decedent.

Wife testified that after signing, decedent told her the quitclaim meant nothing, and she was the owner of the property. Throughout the marriage, decedent reiterated that she was an owner and it was “their home.”

In 2013, she sold her home from her prior marriage, and wrote a check to decedent for half the sale proceeds, $2,500, plus $100 to help pay for dump fees. She said it should be used towards the purchase of their future home. The check memo line said “loan/help.”

After the home was purchased, wife paid for improvements, she painted, worked to improve the landscaping, and installed fixtures. Decedent contributed to the home from his separate property funds, paying for a new roof, a cement patio, and new carpet. They split household expenses, with decedent paying the power and trash bill, and both of them purchased groceries.

Wife testified that she helped because she believed she was an owner of the home. Also, her son and nephew rented rooms in the house, and she and decedent agreed she was entitled to half the rent. But for convenience, checks were written to decedent, who deposited them into his separate property bank account. Wife testified that decedent’s actions led her to believe she was financially contributing to paying down the mortgage on their home and was an owner of the property.

Wife also testified her marriage to decedent was close and intimate.

In her trial brief, wife argued that two Family Code presumptions should apply, sections 760 and 721. Family Code section 760 provides that property acquired during a marriage is community property.

Wife argues that Family Code section 721(b) provides that there is a rebuttable presumption of undue influence when one spouse obtains an advantage over another in a community property transaction.

The children maintained that the presumption in Evidence Code section 662 applies: absent clear and convincing proof to the contrary, ownership is as set forth in the legal title.

The appellate court concluded the Family Code section 721 presumption of undue influence when one spouse obtains an advantage over another was properly applied, and substantial evidence supported the conclusion that it had not been rebutted. On that basis, it affirmed the judgment.

Family Code section 760 and Evidence Code section 662 gave rise to conflicting presumptions in the case.

Family Code section 760 provides that: “Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.”

Evidence Code section 662 states: “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.”

The appellate court concluded the probate court erred in determining Family Code section 760 prevailed over Evidence Code section 662 in the probate action. And because it so held, it did not need to address the children’s argument that, even if Family Code section 760 prevailed and the community property presumption did apply, the probate court erred in its determination of whether the presumption was rebutted.

The children next contended the probate court erred in determining Family Code section 721 applies over Evidence Code section 662 in the probate context, where the alleged influencer is not alive to testify.

Family Code section 721(b) provides in pertinent part: “in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.”

California courts have made clear that when the two presumptions in Evidence Code section 662 and Family Code section 721 conflict, the undue influence presumption prevails.

In cases involving interspousal property transactions, the "irreconcilable conflict" between the two presumptions established by section 721 and Evidence Code section 662 has been resolved in favor of section 721, based on the intent of the California Legislature in enacting fiduciary protections for interspousal transactions and general rules of statutory construction.

The form of title presumption simply does not apply in cases in which it conflicts with the presumption that one spouse has exerted undue influence over the other.

The appellate court concluded the probate court properly concluded the Family Code section 721 undue influence presumption applied.

Finally, the children contended that if Family Code section 721 is applicable in this context, it still should not apply where there is no showing of unfair advantage. However, the breach of a confidential relationship can constitute undue influence as constructive fraud.

And in the instant case, the lender’s suggestion to have the wife quitclaim her interest and be added to the title later, combined with the husband’s failure to fulfill his promise to do so, constituted constructive fraud amounting to undue influence.

Wife presented evidence that she and decedent decided to buy the home together. It was only after they were denied a loan that decedent, at the broker’s suggestion, applied for the loan by himself.

Wife later signed the quitclaim at decedent’s assurance that it meant nothing and that she would be added to the title later. While the children presented some contrary evidence, the wife’s evidence constituted substantial evidence of constructive fraud to support the probate court’s finding of undue influence under Family Code section 721.

LESSONS:

1.         Family Code section 760 provides that property acquired during a marriage is presumed to be community property.

2.         Family Code section 721(b) provides that there is a rebuttable presumption of undue influence when one spouse obtains an advantage over another in a community property transaction.

3.         Evidence Code section 662 provides that absent clear and convincing proof to the contrary, ownership is as set forth in the legal title.

4.         The breach of the confidential relationship between spouses can constitute undue influence as constructive fraud.

Should Purchasers of Real Property Consider Community Property Rules?

In the recent case of In re Marriage of Nevai and Klemunes, a marital dissolution proceeding, Martha J. Nevai (wife) contended the trial court erred in various orders of reimbursement to the community for spending related to wife’s separate real property. She also argued the trial court erred in setting spousal support and in refusing to award her attorney fees.

The Appellate Court agreed that the trial court erred in fixing the permanent spousal support award and in reimbursing John Klemunes (husband) for mortgage interest and property taxes on wife’s vacation home, and ordering that each side pay their own attorney fees.

Husband and wife were married in February 2003, and separated in August 2015.

Before the marriage, wife owned a cabin at Lake Tahoe (“Tahoe property”). She purchased the property as an empty lot in 1998 and built a house on it, spending approximately $289,000. The parties stipulated that at the time of the marriage, the Tahoe property was worth $525,000.

There was a mortgage on the property at the time of the marriage, and wife testified that the $1,800 mortgage payment, which included an escrowed amount for property taxes, was automatically paid each month from a joint bank account (i.e., community funds).

Between 2008 and 2015, husband and wife rented out the Tahoe property for the ski season (December through April) and occasionally during the summer. The rental income for the property would be deposited into the same joint bank account used to pay the mortgage and property taxes.

During the trial, wife testified that she, husband, and child would use the Tahoe property for recreation, typically about two times per month during the summer. She and child would often stay for a week, and husband would stay on the weekends. The family often spent the Fourth of July holiday there. Husband testified that between approximately 2007 and 2014, he spent only four holiday weekends at the Tahoe property each year, but wife and child would stay there more often during the summers.

Wife further testified that the value of the Tahoe property at the time of trial was $475,000 to $495,000, based on the opinion of a local real estate agent.

Husband testified that approximately $7,000 in improvements were made to the Tahoe property during the marriage, including adding a hot tub and an electrical connection, and installing new flooring. Husband explained that “We” made the improvements. Husband testified that the hot tub “[d]efinitely” made the property more marketable as a vacation rental property because “people kind of expect a vacation rental to have a hot tub.”

With respect to the Tahoe property, the court accepted the appraised value of $735,000. It also adopted Silva’s propertizer, with “various offsets and modifications.” Specifically, the court offset $105,000 of the community reimbursement for interest and property taxes, so as to reduce the equalization payment to zero.

Wife argued the trial court erred when it ordered reimbursement for the community’s payment of mortgage interest and property taxes on the Tahoe property. Wife argued a community that has received a pro tanto interest in separate property (which includes reimbursement for payment of the mortgage principal) is not also entitled to reimbursement for payment of property taxes on separate property.

In reply, husband argued that a community is entitled to reimbursement for payments used to discharge a spouse’s separate debts, including taxes and mortgages related to separate property.

The Appellate Court agreed with wife.

Where community funds are used to make payments on a property purchased by one of the spouses before marriage, ‘the rule developed through decisions in California gives to the community a pro tanto community property interest in such property in the ratio that the payments on the purchase price with community funds bear to the payments made with separate funds.This rule has been commonly understood as excluding payments for interest and taxes.” (In re Marriage of Moore (1980).)

This pro tanto interest is awarded to the community along with reimbursement for community funds used to reduce the mortgage principal or improve the property during the marriage. (In re Marriage of Marsden (1982).)

In other words, the community payments are similar to an investment and create a present property interest. Specifically, in calculating the community’s pro tanto interest, the following principles apply.

First, the separate property estate is credited with both premarital and postseparation appreciation in the value of the property.

Next, the community’s contributions to equity are considered.

Finally, the community’s interest in the property, expressed as a percentage, is multiplied by the appreciation in the property’s value during the marriage.

Given the nature of the community’s payments, courts have made clear that expenditures for interest and taxes must not be included when calculating the community’s interest in the separate property.

Such payments neither contribute to the capital investment nor increase the equity value of the property. Instead, expenditures for interest and taxes are more properly considered as expenses incurred to maintain the investment. Because they are not assets or debts of the community, they may not be considered by the court at dissolution. Moreover, if these items were considered to be part of the community’s interest, fairness would also require that the community be charged for its use of the property.

Interest and taxes paid on separate property should not be included in community interest calculation because “such expenditures do not increase the equity value of the property and therefore should not be considered in its division upon dissolution of marriage.

The Appellate Court concluded the trial court erred in determining the community was entitled to reimbursement in the amount of $176,951 for property taxes and mortgage interest related to the Tahoe property.

The judgment was reversed with respect to the award of reimbursement for mortgage interest and property taxes for the Tahoe property and corresponding calculation of the equalization payment.

LESSONS:

1.         The status of real property as separate property (i.e., property owned before marriage) should always be considered when getting married, and it is beneficial to enter into a prenuptial agreement to confirm the effect of using community property funds (i.e., earnings after marriage) to support the separate property.

2.         Unfortunately, divorce is a possibility in every marriage, and the spouses separate property interests should be confirmed by either a pre-nuptial agreement, or a post-nuptial agreement.

Do Illegal Disclosures in a Family Law Case Warrant Sanctions Against Attorneys?

In the recent case of Shenefield v. Shenefield, Mark Shenefield filed a request for order (RFO) with the court, seeking joint legal and physical custody of the child he shares with Jennifer Shenefield.

In his declaration, Mark quoted from and referenced the contents of a confidential, court-ordered psychological evaluation undertaken during Jennifer’s previous marital dissolution. Mark’s attorney Karolyn Kovtun filed the paperwork.

Jennifer opposed Mark’s request and sought sanctions for violations of Family Code sections 3111, subdivision (d) and 3025.5, for unwarranted disclosure of the confidential custody evaluation.

The court ordered the issue of sanctions to be heard at trial. Jennifer’s trial brief detailed her arguments for why the court should impose sanctions on both Mark and Kovtun. Mark did not file a trial brief.

Following trial, the court issued sanctions against Mark in the amount of $10,000 and Kovtun in the amount of $15,000.

Kovtun challenged the sanctions, and a different court heard Kovtun’s request to vacate the sanctions imposed against her and denied the request.

On appeal, Kovtun argued the court improperly sanctioned her because (1) attorneys cannot be sanctioned under section 3111; (2) the notice she received did not comply with due process standards; (3) the court lacked personal jurisdiction over her; (4) the court failed to enforce the safe harbor provision of Code of Civil Procedure section 128.7; and (5) the court improperly admitted and relied on a transcript of a meeting between Kovtun, Mark, and Jennifer.

The appellate court found Kovtun’s arguments meritless, and affirmed the trial court's ruling.

Jennifer and Mark were married and they shared one child.

In 2017, the court issued a domestic violence restraining order against Mark at the request of Jennifer.

In September 2017, Mark pled guilty to misdemeanor battery on a spouse.

The court issued a criminal protective order against Mark. Jennifer was given sole physical custody of their child. Kovtun was Mark’s attorney of record.

Jennifer filed for marital dissolution from Mark in September 2018.

Mark filed an RFO seeking joint legal and physical custody of the couple’s child. In Mark’s attached declaration, after detailing allegedly false allegations Jennifer made against her previous husband, Mark wrote: “Jennifer was ordered to undergo a Evidence] Code §730 evaluation by Dr. Stephen Sparta who suggested that she would do it again if she felt the ends justified the means.”

Then Mark explained the court presiding over Jennifer’s previous marital dissolution matter ordered a psychological evaluation, which was performed by Dr. Steven Sparta.

Mark quoted directly from that report for nearly a page of his declaration, single-spaced. Mark again discussed content from Dr. Sparta’s evaluation in paragraph 10 of his declaration and referenced some of the details again in paragraph 15. Kovtun was his attorney of record.

Jennifer filed her responsive declaration to Mark’s RFO, and argued that Mark’s RFO included an illegal disclosure of a confidential medical evaluation under Evidence Code 730, Family Code 3111 and Family Code 3025.5. Her response also noted that Mark had published the contents of the confidential evaluation on Facebook.

The parties appeared in court and the trial court set the matter for a bifurcated trial, and the parties were told the court would determine custody, visitation, and sanctions at trial.

At the trial readiness conference, the court identified issues for trial: custody, visitation, child support, spousal support, and sanctions. No one objected to the litigation of sanctions.

Jennifer filed her trial brief and argued that sanctions were warranted against both Mark and Kovtun pursuant to section 3111, subdivision (d).  She maintained that Kovtun disclosed the contents of the previous court-ordered custody evaluation maliciously, recklessly, and without substantial justification.

Mark did not file a trial brief.

In its Final Ruling, the court found that Mark provided excerpts of the child custody evaluation from a previous dissolution matter. It noted that Jennifer asked the court to impose sanctions. It confirmed that it had identified the request for sanctions as an issue for trial.

The court stated that Kovtun was personally served Jennifer’s trial brief, which identified the sanctions as an issue to litigate. The court wrote that counsel was aware Petitioner would be requesting sanctions related to the unwarranted disclosure of the 730 Custody Evaluation in violation of Family Code §3111(d), and this request was reiterated in Petitioner’s Trial Brief.

It found that Mark and Kovtun had actual notice of the request for sanctions, as well as an opportunity to respond to and oppose the request.

The court then found that Kovtun was a seasoned attorney, and as such, she should have been aware of sections 3025.5 and 3111, subdivision (d).

It also found Kovtun was reckless in filing documentation that disclosed a confidential custody evaluation.

It concluded Kovtun intended for the court to rely on the former custody evaluation from the unrelated case. It also found Kovtun was not a party to the unrelated case under section 3025.5, and thus sanctions were appropriate.

The court imposed $15,000 in sanctions against Kovtun, payable at $300 per month, starting April 1, 2020, with interest accruing at an annual rate of 10 percent.

The court separately concluded Mark’s disclosure of the content from the custody evaluation was unwarranted and without substantial justification, and it imposed monetary sanctions against Mark in the amount of $10,000.

Section 3111, subdivision (a) allows a trial court to order a confidential custody evaluation when the court determines that doing so is in the best interest of the child. The corresponding report may not be disclosed to any person outside of the parties to the action, law enforcement, counsel for the child, or if a court orders the disclosure for good cause.

Section 3111, subdivision (d) states, “If the court determines that an unwarranted disclosure of a written confidential report has been made, the court may impose a monetary sanction against the disclosing party.”

The monetary sanction should be an amount that deters repetition of the conduct; it may include reasonable attorney’s fees, costs incurred, or both, but the sanction shall not impose an unreasonable financial burden on the party against whom the sanction is imposed.

Kovtun’s main argument is that the statute does not apply to her because she is an attorney, not a party to the litigation, and the statute authorizes sanctions only for parties. She argued the plain language excludes attorneys, and the inclusion of attorneys in the statute is not supported by the definitions applicable in family court, which she contends define “party” to exclude an attorney of record.

The statute states the party against whom the court may appropriately impose sanction is the “disclosing party.” The modifying word “disclosing” describes which parties are included in the statute: any person who discloses the confidential information when doing so is unwarranted.

The plain language of the statute does not limit its application to named litigants; attorneys can make unwarranted disclosures of the confidential information.

The duty imposed by Family Code section 271 requires a party to a dissolution action to be cooperative and work toward settlement of the litigation on pain of being required to share the party’s adversary’s litigation costs.

And the Legislature wanted to deter the disclosure of information contained in child custody evaluations: “Because parties are ordered to undergo an evaluation, it is imperative that the confidential nature of a report be protected to ensure the full cooperation of those involved and to encourage full disclosure to the professionals."

Thus, the intent of section 3111, subdivision (d) was to establish clear penalties for distributing the information and ensuring that all interested parties are aware of the penalties. The bill sought to ensure that sensitive information obtained for the court remains confidential.

The legislative purpose of section 3111, subdivision (d) was discussed in In re Marriage of Anka & Yeager. There, the appellate court affirmed the imposition of sanctions against an attorney who violated section 3111 for asking questions in a deposition that elicited information from a child custody evaluation report ordered during a previous marriage dissolution.

The court explained that the attorney’s willful disclosure of confidential information protected by statute harmed the opposing litigant and also harmed the entire process of child custody evaluation, implicitly recognizing the need for truthful communications in evaluating a child’s best interests.

Kovtun argued that if section 271 does not authorize sanctions to be paid by attorneys, neither does section 3111. Attorneys are subject to sanctions for engaging in the behavior prohibited by Family Code section 271, like failing to work toward settlement, via Code of Civil Procedure section 128.5.

Kovtun also argued the definitions applicable in family court preclude attorneys from sanctions under section 3111 because, she contends, Rules of Court, Title Five, the Family and Juvenile rules, define “party” to exclude attorneys of record.

California Rules of Court, rule 5.2(b)(6) defines “party” to include “a person appearing in an action,” and it explains that “[a]ny designation of a party encompasses the party’s attorney of record, including ‘party.’ ”

Indeed, the definition of “party” in Title Five is consistent with the definition provided in Title One, which contains the rules applicable to all courts. California Rules of Court, rule 1.6(15), defines a “[p]arty” as “a person appearing in an action,” and it also notes that “party” “includes the party’s attorney of record.”

Thus, Kovtun’s position on this point was incorrect; the Rules of Court define “party” to encompass a party’s attorney of record.

Kovtun contended Jennifer was required to file an RFO because she sought sanctions. However, when a party to a marital dissolution moves to modify an existing court order, the responding party may file a responsive declaration in which the party may request sanctions in addition to opposing the requested order.

Because a sanction is necessarily responsive to the moving party’s conduct in litigating a motion, allowing a court to consider the moving party’s conduct at the same time as his motion without the need for a separately filed motion for fees also avoids possible duplicative, repetitious pleadings.

 In other words, there is no requirement that a party seeking a sanction does so in a separate RFO when the issue can be efficiently and properly handled in conjunction with the original request for order.

Due process requires “notice, an opportunity to respond, and a hearing.” The purpose of due process is to provide affected persons with the right to be heard “ ‘at a meaningful time and in a meaningful manner.’ ”

When sanctions are at issue, due process can be satisfied if the court gives a clear warning identifying the anticipated grounds for the sanctions or if those grounds are identified by the opposing party, and the court provides counsel with an opportunity to respond at least orally.

Kovtun contended sanctions were improper because the court did not have personal jurisdiction over her. She argued that personal jurisdiction only attaches when a person is personally served with notice of possible sanctions.

Kovtun misunderstood the source of the court’s authority here. An attorney is an officer of the court, generally subject to the court’s control as a person connected with a judicial proceeding before the court.

As the California Supreme Court explained in Bauguess v. Paine, under certain circumstances both trial and appellate courts are authorized to order counsel to pay the opposing party’s attorney’s fees as a sanction for counsel’s improper conduct.

In doing so, courts draw on equitable power derived from the historic power of equity courts, and supervisory or administrative powers which all courts possess to enable them to carry out their duties.

Clear from the court’s discussion was that courts have inherent power to punish via the contempt process, which incorporates procedural safeguards, and that the Legislature can provide by statute the authority to impose sanctions.

Such is the case here, and Section 3111 granted the court the authority to impose sanctions on counsel.

LESSONS:

1.         A trial court to order a confidential custody evaluation when the court determines that doing so is in the best interest of the child.

2.         The corresponding report may not be disclosed to any person outside of the parties to the action, law enforcement, counsel for the child, or if a court orders the disclosure for good cause.

3.         If the court determines that an unwarranted disclosure of a written confidential report has been made, the court may impose a monetary sanction against the disclosing party.

4.         Family Code section 271 requires a party to a dissolution action to be cooperative and work toward settlement of the litigation on pain of being required to share the party’s adversary’s litigation costs.

5.         An attorney is an officer of the court, generally subject to the court’s control as a person connected with a judicial proceeding before the court.

What is California's Moore/Marsden Formula?

In the recent case of In Re Marriage of Ramsey, the Second District Court of Appeal, Steven Holmes challenged the family court’s determination of the community property interest in the family home.

Although he conceded that community funds were used during the marriage to make the mortgage payments on the house, which he bought using his separate property before marriage, he asserted the court erred by using an incorrect number in its calculation of the community property share in the house.

The reason for the court’s error? Holmes’s now-former wife, Nakiya Ramsey failed to submit sufficient evidence to allow the court to determine the correct number, and Holmes, while recognizing at trial the absence of that critical evidence, declined to submit it, believing it was Ramsey’s burden to do so.

The appellate court held that where it is undisputed that there is a community property interest in real property, it is the obligation of both spouses to ensure that the family court has the information necessary to determine that interest, no matter which spouse brought the dissolution action.

If the spouses fail to do so, the family court must direct them to furnish the missing information, reopening the case if necessary.

Ramsey and Holmes were married in 2007 and separated in 2015.  A one-day trial was held on Ramsey’s petition in 2019. The only issues at trial related to custody of the children, child support, and the community property interest in the family home.

In In re Marriage of Moore, the California Supreme Court addressed the proper method of calculating the interest obtained by the community as a result of payments made during marriage on the indebtedness secured by a deed of trust on a residence which had been purchased by one of the parties before marriage. The court set out a formula that subsequently was refined and supplemented in In re Marriage of Marsden.

Under the Moore/Marsden formula, a family court must go through the following steps to determine the community property interest:

1. Determine the amount by which the community property payments (typically, payments made from the date of marriage until the date of separation) reduced the principal on the mortgage.

2. Calculate the community property percentage share by dividing the amount determined in step one by the purchase price.

3. Determine the appreciation in the value of the house during the marriage (i.e., from the date of marriage until the date of dissolution).

4. Multiply the appreciation during the marriage (the amount determined in step three) by the community property percentage share (the percentage determined in step two) to determine the community property share in the appreciation of the property.

5. Add the community property share in the appreciation of the property (the amount determined in step four) to the amount of community funds used to pay down the principal on the mortgage (the amount determined in step one) to determine the total community interest in the property at the time of dissolution.

In order to make these calculations the court must have the following information:

a. the purchase price of the house;

b. the amount of community funds used to reduce the mortgage principal (which in many cases, such as the present case, can be determined by calculating the difference between the balance on the mortgage at the start of the marriage and the balance at separation);

c. the market value of the house at the start of the marriage; and

d. the market value of the house at dissolution.

Holmes contended on appeal that the family court erred in applying the Moore/Marsden formula by using the total amount of the mortgage payments from community funds when calculating the community property percentage share (step two, as described above). He requested that the court either correct that calculation or reverse the judgment and remand with directions to the family court to determine the amount by which community funds reduced the principal on the mortgage and use that amount to apply the Moore/Marsden formula.

Ramsey contended Holmes forfeited his challenge to the family court’s determination by failing to present evidence to establish the amounts of the mortgage payments that went to pay interest, taxes, and insurance. She also argued that even if the issue was not forfeited, the judgment should be affirmed because substantial evidence supported the court’s finding that the average mortgage payment during the marriage was $3,200.

Holmes responded that he did not forfeit his challenge because it was Ramsey’s burden, as the petitioner, to present the evidence necessary for the court to make the determination.

Although there is a dearth of authority that might have guided the family court in the evidentiary dilemma it faced, the family court erred by using the total amount of the mortgage payments when calculating the community property interest in the house, in light of the evidence that a significant portion of those payments went to interest, taxes, and insurance rather than to principal.

The California Supreme Court made clear in Moore that the amounts paid for interest, taxes, and insurance cannot be used when determining the community property percentage share.

Both spouses had an equal interest in ensuring that the court had sufficient information with which to fulfill its judicial responsibility. As the mortgagor, Holmes was in the best position to provide the evidence needed to establish the reduction in principal on the mortgage.

Finally, in light of the court’s obligation to determine the value of the community property interest in the house, and its recognition that there was an absence of evidence, the court should have required the parties to furnish the additional evidence it needed to make the determination.

Such a requirement, especially when the information is readily available to one of the parties, is consistent with the Legislature’s stated public policy to favor the reduction of the adversarial nature of marital dissolution and the attendant costs.

The judgment was reversed to the extent it determined the community property interest in the family home, and the matter was remanded with directions to the family court to hold a limited retrial solely to determine the amount by which community property funds reduced the mortgage principal.

At that limited retrial, the family court must require the parties to produce the necessary evidence and then recalculate the community property interest in the house by applying the Moore/Marsden formula.

LESSONS:

1.         The Moore/Marsden formula is the proper method of calculating the interest obtained by the community as a result of payments made during marriage on the indebtedness secured by a deed of trust on a residence which had been purchased by one of the parties before marriage.

2.         The amounts paid for interest, taxes, and insurance cannot be used when determining the community property percentage share.

3.         Both spouses have an equal interest in ensuring that the court has sufficient information with which to fulfill its judicial responsibility.

4.         The California Legislature’s stated public policy is to favor the reduction of the adversarial nature of marital dissolution and the attendant costs.

What Are the Requirements for a California Premarital Agreement?

In the recent case of Knapp v. Ginsberg, the Second District Court of Appeal clarified the requirements for an enforceable premarital agreement.

Before they married in 2004, appellant Brooke Knapp and her late husband, Grant Tinker, signed a premarital agreement (PMA) that in relevant part governed the ownership and testamentary disposition of their marital home, the Perugia property.

Respondents Larry Ginsberg and his law firm, Harris-Ginsberg LLP (collectively Ginsberg), represented Knapp in connection with the PMA and approved the PMA as to form on her behalf.

Non-attorney Sidney Tessler, Tinker’s longtime accountant and business manager, negotiated terms and approved the PMA as to form on Tinker’s behalf.

Although the PMA stated that Tinker had been represented by and consulted with independent legal counsel, no attorney signed on Tinker’s behalf.

Tinker did not sign a separate writing expressly waiving representation by independent legal counsel, as is required by Family Code section 1615 (“section 1615”) for unrepresented PMA signatories.

During the marriage, Tinker made several amendments to his trust and estate plan, some of which concerned the Perugia property.

After Tinker’s death in 2016, three of his adult children filed probate petitions to set aside two of the amendments, which they alleged were the product of Knapp’s undue influence. Meanwhile, Knapp sold the Perugia property and sought reimbursement from Tinker’s estate for the approximately $4 million she spent to pay off the mortgage, as provided in the PMA.

Knapp, the estate, and the children litigated Knapp’s and the children’s claims, all of which they ultimately resolved in a global settlement. The settlement’s provisions regarding the Perugia property were less favorable to Knapp than the PMA had been.

Knapp subsequently sued Ginsberg for legal malpractice in connection with the preparation and execution of the PMA. She alleged the PMA was unenforceable due to Ginsberg’s failure to ensure that Tinker signed a waiver of legal representation.

Ginsberg moved for summary judgment. He argued that Knapp’s claim was barred by the statute of limitations and that she was unable to prove the causation and damages elements of her claim because section 1615 was inapplicable, there was no evidence that Tinker lacked legal counsel, Tinker ratified the terms of the PMA via the trust amendments, and Knapp’s legal fees stemmed from the probate claims against her. The trial court granted the motion on the ground that Tinker ratified the PMA.

Knapp appealed, and the appellate court reversed. As the trial court recognized, there was a triable issue of material fact as to the threshold issue of whether Tinker satisfied the requirements of section 1615 when he executed the PMA.

If the factfinder determines that Tinker did not comply with section 1615, and the PMA was therefore not enforceable, the question becomes whether Tinker’s subsequent amendments to his estate plan could ratify the PMA and thereby rectify the statutory violation.

The trial court concluded they could and did, because contracts that are voidable for lack of due consent may be ratified by subsequent consent (Civil Code § 1588), and Tinker’s amended estate plans evinced that consent as a matter of law.

Knapp contended that this conclusion was in error. A premarital agreement that is not enforceable under section 1615 is void, not voidable, and accordingly cannot be ratified.

The version of section 1615 in effect at the time Knapp and Tinker executed the PMA provided in relevant part that a premarital agreement “is not enforceable if the party against whom enforcement is sought proves . . . That party did not execute the agreement voluntarily."

For the purposes of subdivision (a), it shall be deemed that a premarital agreement was not executed voluntarily unless the court finds in writing or on the record all of the following:

(1)       The party against whom enforcement is sought was represented by independent legal counsel at the time of the signing the agreement or, after being advised to seek independent legal counsel, expressly waived, in a separate writing, representation by independent legal counsel.

(2) The party against whom enforcement is sought had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.

(3) The party against whom enforcement is sought, if unrepresented by legal counsel, was fully informed of the terms and basic effect of the agreement as well as the rights and obligations he or she was giving up by signing the agreement, and was proficient in the language in which the explanation of the party’s rights was conducted and in which the agreement was written. The explanation of the rights and obligations relinquished shall be memorialized in writing and delivered to the party prior to signing the agreement. The unrepresented party shall, on or before the signing of the premarital agreement, execute a document declaring that he or she received the information required by this paragraph and indicating who provided that information.

(4) The agreement and the writings executed pursuant to paragraphs (1) and (3) were not executed under duress, fraud, or undue influence, and the parties did not lack capacity to enter into the agreement.

(5) Any other factors the court deems relevant.

Section 1615 states that a premarital agreement “is not enforceable if the party against whom enforcement is sought proves . . . That party did not execute the agreement voluntarily.” (§ 1615, subd. (a)(1).)

 Family Code section 1615, subdivision (c)(2), provides that a premarital agreement is involuntary, and thus invalid, when an unrepresented party has had fewer than seven days to review the agreement.”

Family Code section 1615 renders ‘a premarital agreement’ unenforceable against a party who did not execute the agreement voluntarily, and further provides that an agreement is not voluntarily executed unless certain predicates have been established.

LESSONS:

1.         It is best practice in making agreements in family law matters that both parties are represented by attorneys.

2.         A premarital agreement that is not enforceable under Family Code section 1615 is void, not voidable, and accordingly cannot be ratified.

3.         A premarital agreement is involuntary, and thus invalid, when an unrepresented party has had fewer than seven days to review the agreement.

How Can California Real Property be Transmuted Between Spouses?

This question was answered in the recent case of Marriage of Wozniak that was an appeal from a judgment in a marital dissolution action between Anna and Grzegorz Wozniak.

Anna challenged the trial court’s characterization of their residence in La Mesa as the parties’ community property which meant that both spouses retained their 50% interest.

The record demonstrated that the property was originally owned by Anna as her separate property, but that at some point prior to 2006, Anna transmuted this property into community property.

In 2006, Grzegorz prepared and executed an interspousal transfer deed, which, if effective, would have passed his community property interest in the residence to Anna.

At trial, the parties disputed Anna’s response to Grzegorz’s attempted delivery of the interspousal transfer deed; Grzegorz testified that Anna rejected the deed, and Anna testified that she was surprised when Grzegorz presented the executed deed to her but that she ultimately took possession of it.

Over the next six years, the deed was not recorded and both parties appeared to agree that it remained in the martial residence.

In 2012, after an incident in which a protective order was granted in favor of Grzegorz and against Anna, Anna took possession of the deed and recorded it.

At the conclusion of the trial, the trial court stated in its findings that it found Grzegorz’s testimony about the deed to be credible and concluded that Anna had rejected the deed in 2006, and that as a result, no transmutation had been consummated between the parties at that time.

The court further found that when Anna recorded the deed in 2012, Grzegorz no longer had the intent to transmute his community property interest to Anna. The trial court ultimately concluded that the property at issue was community property.

On appeal, the Court of Appeal concluded that the trial court did not err in its analysis of the law regarding the transmutation of property between spouses and that the court’s findings were supported by substantial evidence.

The characterization of property involves the process of classifying property as separate, community, or quasi-community.

As a general rule, property that is acquired prior to marriage is the separate property of the acquiring spouse. (Family Code § 770(a)(1).)  Conversely, all property acquired during marriage is presumptively community property. (Family Code § 760.)

However, spouses may agree to change the status of any or all of their property through a property transmutation. A transmutation is an interspousal transaction or agreement that works a change in the character of the property.

Family Code § 850 describes the various transmutations and spouses may:

(a) Transmute community property to separate property of either spouse.

(b) Transmute separate property of either spouse to community property.

(c) Transmute separate property of one spouse to separate property of the other spouse.

A transmutation of real or personal property is not valid unless made in writing by an express declaration that it is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.

The express declaration language requires a writing that on its face coveys a clear and unambiguous expression of intent to transfer an interest in the property, independent of extrinsic evidence.

The writing must contain language which expressly states that the characterization or ownership of the property is being changed.

In view of the fiduciary relationship between spouses, when an interspousal transaction advantages one spouse, the law, from considerations of public policy, presumes such transactions to have been induced by undue influence.

Thus, the broad question whether a valid transmutation of property has taken place depends not only on compliance with the provisions of Section 852 but also upon compliance with rules governing fiduciary relationships.

LESSONS:

1.         For an enforceable transmutation of property between spouses, an “agreement” to effectuate a transmutation of one spouse’s separate property into community property should be used that on its face coveys a clear and unambiguous expression of intent to transfer an interest in the property, independent of extrinsic evidence.

2.         The writing must contain language which expressly states that the characterization or ownership of the property is being changed.

3.         Because of the fiduciary relationship between spouses, when an interspousal transaction advantages one spouse, the law, from considerations of public policy, presumes such transactions to have been induced by undue influence.

4.         A post-marital agreement between spouses is an effective written agreement that is combined with the appropriate grant deed.

Purchasers of Real Property Should Consider Community Property Rules

In the recent case of In re Marriage of Nevai and Klemunes, a marital dissolution proceeding, Martha J. Nevai (wife) contended the trial court erred in various orders of reimbursement to the community for spending related to wife’s separate real property. She also argued the trial court erred in setting spousal support and in refusing to award her attorney fees.

The Appellate Court agreed that the trial court erred in fixing the permanent spousal support award and in reimbursing John Klemunes (husband) for mortgage interest and property taxes on wife’s vacation home, and ordering that each side pay their own attorney fees.

Husband and wife were married in February 2003, and separated in August 2015.

Before the marriage, wife owned a cabin at Lake Tahoe (“Tahoe property”). She purchased the property as an empty lot in 1998 and built a house on it, spending approximately $289,000. The parties stipulated that at the time of the marriage, the Tahoe property was worth $525,000.

There was a mortgage on the property at the time of the marriage, and wife testified that the $1,800 mortgage payment, which included an escrowed amount for property taxes, was automatically paid each month from a joint bank account (i.e., community funds).

Between 2008 and 2015, husband and wife rented out the Tahoe property for the ski season (December through April) and occasionally during the summer. The rental income for the property would be deposited into the same joint bank account used to pay the mortgage and property taxes.

During the trial, wife testified that she, husband, and child would use the Tahoe property for recreation, typically about two times per month during the summer. She and child would often stay for a week, and husband would stay on the weekends. The family often spent the Fourth of July holiday there. Husband testified that between approximately 2007 and 2014, he spent only four holiday weekends at the Tahoe property each year, but wife and child would stay there more often during the summers.

Wife further testified that the value of the Tahoe property at the time of trial was $475,000 to $495,000, based on the opinion of a local real estate agent.

Husband testified that approximately $7,000 in improvements were made to the Tahoe property during the marriage, including adding a hot tub and an electrical connection, and installing new flooring. Husband explained that “We” made the improvements. Husband testified that the hot tub “[d]efinitely” made the property more marketable as a vacation rental property because “people kind of expect a vacation rental to have a hot tub.”

With respect to the Tahoe property, the court accepted the appraised value of $735,000. It also adopted Silva’s propertizer, with “various offsets and modifications.” Specifically, the court offset $105,000 of the community reimbursement for interest and property taxes, so as to reduce the equalization payment to zero.

Wife argued the trial court erred when it ordered reimbursement for the community’s payment of mortgage interest and property taxes on the Tahoe property. Wife argued a community that has received a pro tanto interest in separate property (which includes reimbursement for payment of the mortgage principal) is not also entitled to reimbursement for payment of property taxes on separate property.

In reply, husband argued that a community is entitled to reimbursement for payments used to discharge a spouse’s separate debts, including taxes and mortgages related to separate property.

The Appellate Court agreed with wife.

Where community funds are used to make payments on a property purchased by one of the spouses before marriage, ‘the rule developed through decisions in California gives to the community a pro tanto community property interest in such property in the ratio that the payments on the purchase price with community funds bear to the payments made with separate funds.This rule has been commonly understood as excluding payments for interest and taxes.” (In re Marriage of Moore (1980).)

This pro tanto interest is awarded to the community along with reimbursement for community funds used to reduce the mortgage principal or improve the property during the marriage. (In re Marriage of Marsden (1982).)

In other words, the community payments are similar to an investment and create a present property interest. Specifically, in calculating the community’s pro tanto interest, the following principles apply.

First, the separate property estate is credited with both premarital and postseparation appreciation in the value of the property.

Next, the community’s contributions to equity are considered.

Finally, the community’s interest in the property, expressed as a percentage, is multiplied by the appreciation in the property’s value during the marriage.

Given the nature of the community’s payments, courts have made clear that expenditures for interest and taxes must not be included when calculating the community’s interest in the separate property.

Such payments neither contribute to the capital investment nor increase the equity value of the property. Instead, expenditures for interest and taxes are more properly considered as expenses incurred to maintain the investment. Because they are not assets or debts of the community, they may not be considered by the court at dissolution. Moreover, if these items were considered to be part of the community’s interest, fairness would also require that the community be charged for its use of the property.

Interest and taxes paid on separate property should not be included in community interest calculation because “such expenditures do not increase the equity value of the property and therefore should not be considered in its division upon dissolution of marriage.

The Appellate Court concluded the trial court erred in determining the community was entitled to reimbursement in the amount of $176,951 for property taxes and mortgage interest related to the Tahoe property.

The judgment was reversed with respect to the award of reimbursement for mortgage interest and property taxes for the Tahoe property and corresponding calculation of the equalization payment.

LESSONS:

1.         The status of real property as separate property (i.e., property owned before marriage) should always be considered when getting married, and it is beneficial to enter into a prenuptial agreement to confirm the effect of using community property funds (i.e., earnings after marriage) to support the separate property.

2.         Unfortunately, divorce is a possibility in every marriage, and the spouses separate property interests should be confirmed by either a pre-nuptial agreement, or a post-nuptial agreement.

What are the Tracing Methods in a California Marriage Dissolution?

The tracing methods in a california marriage dissolution action was addressed in the recent decision in the Marriage of Simonis, wherein Jennifer and Alan Simonis were married for 27 years and separated in September 2015.

While married the parties ran a farm where they grew crops, and they raised cattle.

Evidence presented at trial suggested Jennifer bore some recordkeeping responsibility for the farm operations during the parties’ initial period of separation, and Alan maintained Jennifer was in control of accounting for marital assets for at least a month after the parties separated.

But other than this early period of control over accounting records, between the date of separation and the date of trial on reserved issues to divide the community estate approximately five years later, Alan retained control of the three main non-real estate assets that belonged to the community: cash on hand, crop income from 2015 crops, and a herd of cattle refered to as the TCB Herd.

In the time during which Alan controlled the assets, he commingled the cattle, cash, and income with his separate property. Alan also made payments on various community debts using commingled funds.

At trial in 2020, the trial court looked to long-established precedent regarding the tracing of commingled assets during marriage, found that Alan had failed to meet his burden to trace his separate property interest in the cattle or his use of separate property to pay down community debts, and divided the bulk of the community estate accordingly.

The court made no specific order regarding the value of the cash on hand or the 2015 crop income, but it noted the court’s continuing jurisdiction over unadjudicated assets and liabilities under Family Code section 2556 when ruling on posttrial motions.

On appeal, Alan argued the trial court incorrectly interpreted and applied case law regarding how to characterize the separate and community interests in commingled assets and payments on community debts.

He argued that an aggregate tracing analysis—where the court would total up all cash derived from the three non-real estate assets and compare that to the total he paid on community debts to identify his separate property payments on debts without regard to when debts were paid—is an appropriate tracing analysis here.

Additionally, Alan argued that the trial court ought to have determined the value of the non-real estate community assets at the date of separation.

He argued that the court contributed to its own inability to calculate a value for those assets at the date of separation in how it managed the admission of evidence about the value of community assets during the trial, be that in its questioning of Alan or in its treatment of possible documentary evidence in possession of both parties.

The trial court stated that when community and separate property are commingled, each type of property will retain its character so long as the components of the commingled assets can be adequately traced to their community and separate sources.

Payments may be traced to a separate property source by showing community income at the time of the payments or purchase was exhausted by family expense, so that the payments or purchase necessarily must have been made with separate property funds.

Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in California is community property.

Statutory exceptions include property acquired by gift, bequest or devise, or descent; and rent, issues, or profits from separate property earned during the marriage.

When a married person commingles their separate property with community property, the mere commingling of separate property and community property does not change the status of the property interests.

However, if the separate property and community property interests have been commingled in such a manner that the respective contributions cannot be traced and identified, the entire commingled fund will be deemed community property pursuant to the general community property presumption.

California case law has long held that the community property presumption applies to property acquired during the marriage from an account or fund in which the spouse has commingled their separate funds with community funds, but if the funds used to purchase the property at issue can be traced to separate property the purchased property will be deemed separate property.

The burden of proving separate funds were used to acquire the property—in order to overcome the community property presumption—is on the spouse asserting the acquired property’s separate status.

As recognized by the trial court, California courts generally recognize two methods for tracing separate and community property interests in comingled funds: “direct tracing” or “family living expense tracing,” which is also called the “recapitulation” method.

“Direct tracing” requires specific records reconstructing each separate and community property deposit, and each separate and community property payment as it occurs.

The “recapitulation” method requires showing that community income was exhausted by family expenses at the time the purchase or payment at issue was made. 

The recapitulation must be sufficiently exhaustive to establish not only that separate property funds were available to make the payments, but that they were actually used.

As with direct tracing, the record must demonstrate that community income was depleted at the time the particular asset was acquired.

In In re Marriage of Epstein, the California Supreme Court recognized that, as a general rule, a spouse who, after separation of the parties, uses earnings or other separate funds to pay preexisting community obligations should be reimbursed therefor out of the community property upon dissolution. (i.e., "Epstein Credits")

The trial court did not err in finding an aggregate analysis could not meet Alan’s tracing burden.

LESSONS:

1.         Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in California is community property.

2.         Statutory exceptions include property acquired by gift, bequest or devise, or descent; and rent, issues, or profits from separate property earned during the marriage.

3          When a married person commingles their separate property with community property, the mere commingling of separate property and community property does not change the status of the property interests.

4.         When community and separate property are commingled, each type of property will retain its character so long as the components of the commingled assets can be adequately traced to their community and separate sources.

5.         California courts generally recognize two methods for tracing separate and community property interests in comingled funds: “direct tracing” or “family living expense tracing,” which is also called the “recapitulation” method.