No written agreement to overcome presumption that investment accounts were community property . . .
In reversal, Third District finds that trial court erred by designating investment accounts held in joint tenancy as wife’s separate property, ordering reimbursement for her alleged separate property downpayment on family home, and giving her Epstein credits for maintenance of that home, while denying Watts charges for her living there
In re Marriage of Cooper
(May 6, 2016; ordered published May 27, 2016)
California Court of Appeal 3 Civil C073014 __Cal.App.4 th __, __Cal.Rptr.3d__, 2016 FA 1742, per Hoch, J (Hull, Acting PJ and Murray, J, concurring). Sacramento County: Lueras, J, reversed and remanded with directions. For appellant: Stephanie Finelli, (916) 443-2144. For respondent: Harrison Goodwin, CFLS, (530) 888-3848. CFLP §§J.11.3, J.11.5.25, J.11.5.50, J.86.5.
Billie and Dane Cooper were married on Valentine’s Day in 1988. They later bought a house in Elk Grove and opened several joint investment accounts. In 1995, Dane, an Air Force officer, was transferred to an air base in Ohio. Billie, who was an Army reserve officer, stayed behind to continue working as a college professor at a local community college. The geographical separation apparently took its toll on their marital ties, and by June 1, 2004, the couple considered their marriage over. A trial court would later peg that date as the date of separation.
In 2005, Dane, then stationed in Hawaii, filed for divorce in that state. Billie, who had been living in the family home since Dane left for Ohio, filed for divorce in Sacramento County in 2006. The trial court stayed that action, however, pending resolution of the Hawaii disso proceeding. A Hawaii trial court subsequently dismissed that action for lack of jurisdiction. Dane appealed, but a Hawaii appellate court affirmed. He sought review by the Hawaii Supreme Court, but that court denied review in 2011. The California disso then proceeded.
In August 2012, the parties stipulated that, among other things, the family home would be awarded to Billie, she would pay Dane half of its appraised value, and the trial court would reserve jurisdiction to determine whether she owed Watts charges for living in the house since the date of separation and was entitled to Epstein credits for repairs and maintenance expenses she paid during that time. The two also stipulated that a qualified neutral party would evaluate their investment accounts and the trial court would divide them. On October 4, 2012, the trial court entered the parties’ status-only disso judgment and reserved jurisdiction over all other matters.
Prior to the disso trial, Billie filed a statement of issues and contentions regarding several property issues. She states that she had hired retired IRS agent, Larry Boehm, who had worked in the criminal investigating unit, to trace the parties’ investment accounts to their original sources of funding, hoping to effect a settlement of the characterization of those accounts. She also claimed that she was entitled to reimbursement for making the downpayment on the family home with her separate property funds. Billie sought Epstein credits ( In re Marriage of Epstein (1979) 24 Cal.3d 76, 154 Cal.Rptr. 413, 1979 CFLR 1086) for the more than $38,000 she had spent for repairs and maintenance on the family home after the date of separation. However, she denied that she owed Watts charges ( In re Marriage of Watts (1985) 171 Cal.App.3d 366, 217 Cal.Rptr. 301, 1985 CFLR 2910, 1985 FA 183) for the fair rental value of the family home, on the basis that Dane’s filing and pursuing the Hawaii disso caused a 6-year delay in the case and he should not be allowed “to ‘profit’ ” from that delay by obtaining Watts charges. Billie also maintained that she was unaware of the possibility of Watts charges until she consulted counsel in 2011, when this disso resumed. If the trial court decided to assess those charges, Billie argued, they should be imposed only from the date that the case resumed in California.
Dane responded with a trial brief in which he claimed that the investment accounts were community property because they were opened after the marriage and were held in joint tenancy. He also asserted that the family home should be divided in accordance with the parties’ prior stipulation and that the trial court should impose Watts charges for Billie’s living in the family home. As he saw it, Billie helped cause the delay in the proceeding by foot-dragging with regard to their status-only disso judgment. He did not dispute that Billie was entitled to Epstein credits , but challenged the amount that she sought.
At trial, Larry Boehm testified about four of the investment accounts into which Billie had deposited her separate property and about the likely source of the separate property funds in one of the accounts. The trial court admitted into evidence a binder prepared by Boehm, containing account statements and summaries of transaction histories. Billie testified that she deposited the proceeds from the sale of her separate property house into three of the investment accounts. She also testified that she made the downpayment on the family home from her separate property savings and investments. Billie submitted invoices and statements to support her request for Epstein credits for repairs and maintenance on the family home, but again opposed Watts charges on the basis of Dane’s delay. Dane testified as to his opinion of the value of the improvements and repairs and the rental value of the family home, which he claimed was community property. Dane insisted that the downpayment was made with community property savings.
On November 15, 2012, the trial court issued a statement of decision in which it found that the four investment accounts about which Boehm had testified, were Billie’s separate property, that she was entitled to reimbursement for the $40,000 downpayment on the family home that she made from her separate property, and that she was entitled to $36,040 in Epstein credits for repairs and maintenance on the family home. The trial court denied Dane’s request for Watts charges on equitable grounds. The court issued its judgment on reserved issues on January 9, 2013.
Dane appealed, and the Third District reversed and remanded with directions.
No trace of her contributions . . .
Dane first contended that the trial court erred by concluding that the four investment accounts were Billie’s separate property. The justices agreed. They explained that under Fam C §760, property acquired during the marriage is the community property of the spouses. However, this presumption can be overcome by tracing the property to a separate property source, among other ways. However, when married parties acquire property during marriage in joint tenancy form, a different presumption arises under Fam C §2581 for purposes of division of property in a disso or legal separation. The property is presumed to be community property, but the presumption can be rebutted only by a clear statement in the deed or other evidence of title that the property is separate and not community or alternatively, by a written agreement that the property is separate property; tracing to a separate property source cannot be used. Here, the panel found, Billie failed to introduce any written agreement that the accounts were her separate property and tracing the fund in the accounts to her separate property could not rebut the presumption that they were community property. Moreover, her reason for putting the accounts into joint tenancy (protecting her son), without more, was not an effective rebuttal, no matter how sensible the advice was at the time. Summing up, the justices held that the four investment accounts were community property, not Billie’s separate property.
Better than nothing . . .
Even though Billie could not claim the accounts as her separate property, the panel noted, she could still use tracing to assert a right of reimbursement for her separate property contributions under Fam C §2640, which provides such a right, unless the party has made a written waiver of the reimbursement right. Here, Billie’s testimony, along with Boehm’s testimony and the documents introduced, supported the trial court’s finding that the four investment accounts were funded with Billie’s separate property. Moreover, the panel continued, there had been no evidence introduced to show that Billie had waived her right of reimbursement in those funds. Accordingly, the justices found, she was entitled to Fam C §2640 reimbursement for the separate property funds she had contributed to those accounts.
Her word is not enough . . .
The justices then looked to see whether Billie was also entitled to Fam C §2640 reimbursement for the $40,000 downpayment she made on the family home, as the trial court had ordered. It was true, the panel reasoned, that Billie had testified that the funds came from her savings, that Dane had no savings or investments at the time, and that none of the account statements in the binder that Boehm had compiled showed any deposits from Dane’s separate checking or savings accounts during the pertinent period. However, the justices noted that neither the account statements nor any other documents showed the source of the downpayment or any comparable withdrawal. Absent any written evidence to support Billie’s testimony, the justices concluded that the trial court had erred by ordering reimbursement to her for the downpayment on the family home.
Adjusting the balance sheets . . .
Dane also contended that the lower court should not have granted Billie’s request for Epstein credits and denied his request for Watts charges. The justices reasoned that where one spouse uses separate property funds to pay community obligations after separation, he or she is entitled to reimbursement ( Epstein credits), but when a spouse has exclusive use of community property after separation, he or she may be ordered to reimburse the community for its use ( Watts charges). The panel also noted that the trial court has discretion not to order credits or charges where it would be inequitable in the circumstances. Here, the justices continued, the trial court had declined to order Watts charges where Dane’s disso filing in Hawaii, followed by his appeals, had caused the California disso to be delayed and required Billie to spend more than $60,000 in attorney’s fees. Denying Watts charges on those facts, the panel said, was not an abuse of discretion. However, Dane was still entitled to Watts charges for the time period from the date of separation to the date he filed the Hawaii disso (2004-2005) and the period from the end of the Hawaii action to the time of trial (July 2011-October 2012). Thus, the trial court had erred by not ordering them at all. As for the Epstein credits the trial court had awarded to Billie, the panel concluded that they too must be adjusted. The trial court must award Epstein credits only for the time periods for which Billie owes Watts charges. Summing up, the justices reversed the judgment and remanded with directions to the trial court to characterize the four investment accounts as the parties’ community property, to order §2640 reimbursement to Billie for those accounts, deny her reimbursement for the downpayment on the family home, and order Watts charges and Epstein credits in accordance with this opinion.
This case is a must read for new family law attorneys and maybe for some more experienced ones too. Judges who are new to the family law bench could benefit from a read, as well. The panel gives us a nice clear analysis of the interplay between the general community property presumption in Fam C §760, the more specific presumption in Fam C §2581, and the Fam C §2640 reimbursement provision. The justices explain the difference between the amount and type of evidence that is adequate to rebut the §760 presumption (“ ‘virtually any credible evidence . . . including tracing . . . to a separate property source, showing an agreement or clear understanding between parties regarding ownership status and presenting evidence the item was acquired as a gift.’ ”(quoting In re Marriage of Haines (1995) 33 Cal.App.4 th 277, 39 Cal.Rptr.2d 673, 1995 CFLR 6686, 1995 FA 693) and the more stringent requirements for rebutting the §2581 presumption, which is a title presumption. They remind us that tracing is not available to rebut a §2581 presumption, as it is to rebut a §760 presumption.
The panel also gives a clear explanation of when Fam C §2640 reimbursement is available and what documentary evidence is necessary to support such a claim. As we know, it is not enough for the spouse claiming reimbursement to simply testify that he or she used separate property to acquire a community property asset; that claim must be supported by documentary evidence.
The issue of Watts charges and Epstein credits hasn’t been included in many recent published cases. For that reason, we might wish that the justices had gone into a little more detail regarding those requests; instead, we get a general outline of when and how those charges and credits are available. Quoting In re Marriage of Feldner (1995) 40 Cal.App.4 th 617, 47 Cal.Rptr.2d 312, 1996 CFLR 7007, 1995 FA 728, the panel tells us that “ ‘reimbursement is not automatic, but involves the consideration of . . . a variety of factors’ such as whether the parties had an agreement, the rental value of the asset being used exclusively by one spouse, whether the conduct of one spouse led to losses to the community, whether exclusive use of the asset represented a duty of support, and additional considerations.” Here, it’s Dane’s conduct that dooms his claim for Watts charges, at least during the time period that he was pursuing a Hawaii disso. The panel notes that his “insistence on litigating the issue of residence in Hawaii” was the reason for Billie’s living in the family home for as long as she did, and that the “redundant and unsuccessful” litigation also cost her a bundle in attorney’s fees. That’s worth remembering for when you have a client who insists on pursuing a losing proposition; perhaps knowing that his or her intransigence will cost him or her money may be the thing that puts a stop to it.