Aggregate tracing method is insufficient to trace separate property that has been commingled with community property after separation of spouses. . .
In a partially published opinion, the Third District held that husband, who claimed that he commingled separate and community property after separation from his wife and was thus entitled to credits for his separate property, failed to meet his burden for detailed tracing of such separate property by using an aggregate tracing method.
In re Marriage of Simonis
(September 26, 2023)
California Court of Appeal 3 Civ C095193, ___ Cal.Rptr.3d ___, 2023 WL 6222679, 2023 FA 2102, per Hull (Earl, P.J., and Renner, J., concurring). Alpine County: Maguire, J., affirmed. For Alan Simonis (Appellant): Thomas W. Barth. For Jennifer Simonis (Respondent): Brendan J. Begley. CFLP §§J.76.0.5 et seq.
Jennifer and Alan Simonis were married for 27 years and separated in September 2015. During their marriage, Jennifer and Alan operated a farm where they grew crops and raised cattle. After the separation, Alan managed the parties' non-real estate community property, which consisted of cash on hand, a herd of cattle known as the TCB Herd, and income from 2015 crops. While in control of such property, Alan commingled his separate property with these community assets. Specifically, Alan physically commingled the TCB Herd with the farm's other herd of cattle. Alan also made payments on community debts using commingled funds. The community property also included two parcels of real property.
During the dissolution action, the parties agreed that any debts Alan incurred after January 1, 2016, would be his sole responsibility and any crops planted after that same date would be his separate property. On April 17, 2018, the trial court entered an order regarding distribution of funds from the sale proceeds of one of the real properties. The order included credits to Alan in the amount of &642,281, because he had used his separate income to make payments on community debts. However, this order was subject to reallocation after an evidentiary hearing was held regarding the remaining credits, charges, offsets, and claims.
On November 16, 2020, the trial court issued a tentative decision and proposed statement of decision. Both parties objected. Alan argued that the TCB Herd was distinct from the farm's other herd of cattle and that he had paid community debt using his separate funds. In so arguing, Alan attempted to use an aggregate tracing method in which he sought credit for all post separation payments because "'in toto, the community debts he paid exceeded the community assets he held.'" In other words, Alan argued that the trial court should have totaled up all cash derived from the non-real estate community assets and compared that to the total amount he paid on community debts, with the results representing his separate property payments. Meanwhile, in December 2020, the parties agreed that certain proceeds from the sale of one of the real properties would be held in Jennifer's counsel's trust account until further order of the court.
Trial court rejects an aggregate tracing method. . .
On August 2, 2021, the trial court entered a judgment regarding spousal support, division of property, and attorney fees and costs. Regarding the commingled assets, the trial court found that Alan failed to trace his separate interest in the community property or to trace his use of separate property to pay down community debts. As such, the trial court (Alpine County's Maguire) ruled that the commingled assets were deemed community property. In so ruling, the trial court rejected Alan's use of an aggregate tracing analysis, noting that the type of tracing method Alan proposed had been rejected in See v. See (1966) 64 Cal.2d 778, 51 Cal.Rptr. 888.
In September 2021, Alan filed a motion for a new trial, motion to vacate judgment, and motion to set aside the judgment and statement of decision. The trial court heard and denied all three motions on October 18, 2021. In its ruling, the trial court reiterated its rejection of Alan's proposed aggregate tracing analysis. Alan filed a notice of appeal on November 2, 2021. On November 4, 2021, Jennifer filed a motion to release the funds held in her counsel's trust account from the proceeds from the sale of real estate, which trial court granted on February 2, 2022. The trial court ordered Jennifer's counsel to release these funds to Jennifer on March 18, 2022. Alan filed a notice of appeal of the February 7, 2022, order and filed a petition for writ of supersedeas seeking stay of the trial court's order to release the funds. The Third District denied Alan's petition and affirmed the judgment and postjudgment orders.
Established tracing methods. . .
The justices began their analysis by discussing the general principles regarding the tracing of commingled assets. They noted that although "mere commingling of separate and community property does not alter the nature of the property, if the respective contributions cannot be traced and identified, the whole of the commingled mass will be deemed community property." Moreover, the spouse who commingled funds has the burden to establish his separate property from the commingled assets. Generally, courts use two different methods of tracing when separate and community funds have been commingled: (1) the direct tracing method; and (2) the family living expense (or recapitulation) method. Under the direct tracing method, the disputed asset is traced to the withdrawal of separate property funds from the commingled account, with the method requiring specific records reconstructing each separate and community property deposit. Under the recapitulation method, it is assumed that family living expenses are paid out of community funds and 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 funds.
On appeal, Alan argued that the trial court erred by requiring that the tracing be done by a "'transaction-by-transaction'" or "'time specific'" analysis. More precisely, Alan argued that although the established tracing methods apply to tracing community property and separate property during marriage, different legal principles apply when "'tracing the exhaustion of community funds during separation to pay community debts.'" Instead, Alan argued that since the commingling occurred post separation, he should have been permitted to trace his separate funds by aggregating the total community assets and total community expenses post separation and comparing the two. The justices disagreed.
First, established precedent supports the conclusion that similar tracing methods apply both before and after separation. For example, although the court in In re Marriage of Ciprari (2019) 32 Cal.App.5th 83, 242 Cal.Rptr.3d 900, 2011 FA 1501, recognized that strict adherence to direct tracing or recapitulation might not be the only permissible means for tracing, the court there nevertheless "relied on detailed analysis that carefully examined the funds available to acquire an asset in the account used for that acquisition at the time the acquisition was made." Also, in In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.App.4th 1252, 130 Cal.Rptr.3d 327, the court held "'a spouse who has commingled community and separate funds can defeat the presumption with evidence, employing traditional family law tracing methods, such as direct tracing or the family expense method of tracing…. Thus, to obtain reimbursement for any postseparation payments made from his commingled accounts, [husband] should employ one of these tracing methods.'"
Second, the justices did not find persuasive Alan's efforts to distinguish his situation from that in See, in which the Supreme Court rejected an aggregate tracing method in favor of the recapitulation method. On this point, Alan argued that since the presumption is that property acquired during marriage is community property, the need for detailed accounting is greater during the marriage than during post-separation. The justices rejected this argument, noting that a spouse's interest in community property "does not vanish at the date of separation" and, thus, an interest in accurate accounting "remains equally strong while the other spouse retains control of community property in the period after they separate and before the courts enter a judgment dividing the estate."
Third, Alan argued that by failing to provide him reimbursement, the trial court failed to carry out its duty to order an equal reimbursement of the community estate. In support of his argument, Alan relied on In re Marriage of Ramsey & Holmes (2021) 67 Cal.App.5th 1043, 282 Cal.Rptr.3d 622, 2021 FA 1998, in which the Second District held that when there is an undisputed community property interest in real property, both spouses have an obligation to provide the necessary information from which the trial court can determine that interest and, if the spouses fail to do so, the trial court must direct the spouses to provide such information. The justices rejected this argument, observing that Ramsey & Holmes is distinguishable from Alan's situation, noting that the holding in Ramsey & Holmes "rested heavily on the fact that both parties had failed in their shared burden to provide evidence regarding the value of a particular asset." But here, Alan, as the party who commingled property, alone had the burden of tracing his separate property interest.
The justices also rejected Alan's final argument on this issue that, per Fam C §2626 [trial court has jurisdiction to order reimbursement in cases it deems appropriate for debts paid after separation but before trial], the trial court should have used its "'broad discretion'" to order such reimbursement of Alan's separate funds. Instead, the justices observed that Alan mischaracterizes the statute when he claims it provides the court with "broad" discretion, as the statute merely provides the court with jurisdiction to order such reimbursement. For these reasons, the Third District concluded that aggregate tracing methods, like the one Alan attempted to use, do not satisfy a spouse's burden for detailed tracing when claiming a separate property interest, whether the commingling occurred during the marriage or post separation.
The unpublished portion of the opinion. . .
In the unpublished portion of its opinion, the panel turned to Alan's argument that the trial court should have determined the value of the non-real estate community assets at the date of separation as well as his argument that the trial court erred by releasing the sale proceeds from Jennifer's counsel's trust fund while this appeal was pending. Regarding the former argument, the justices noted that Alan's contention is contrary to Fam C §225(b), which provides that the "court shall value the assets and liabilities as near as practicable to the time of trial." Regarding the latter argument, the justices noted that although CCP §916(a) provides that proceedings in the trial court are stayed pending appeal, some exceptions apply. One such exception is found under CCP §917.1(a)(1), which provides that "'[u]nless an undertaking is given, the perfecting of an appeal shall not stay enforcement of the judgment or order in the trial court if the judgment or order is for…[m]oney or the payment of money….'" For these reasons, the justices found that the trial court did not err on either of these points.
Accordingly, the Third District affirmed the trial court's judgment and postjudgment orders.
One of the questions that arise in cases like Simonis is just how detailed the records reflecting the separate source contributions must be. The answer may depend on the nature of property in question. In In re Marriage of Stoll (1998) 63 Cal.App.4th 837, 74 Cal.Rptr.2d 506, the Fourth District held that the tracing of separate source contributions to community property for purposes of Fam C §2640 "entails no rigid requirement that a spouse submit authenticated written documentation establishing exact value for real separate property later transmuted into community property." The justices reasoned that where the asset in question is real property that was transmuted from separate to community property, there is no need for strict recordkeeping, since there "is no danger, unlike the case of a commingled bank account as feared by the See court, that without exact written records the community property presumption will be subverted because of the possibility that the asset was acquired with some community funds."
11 Witkin, Summary of Cal. Law (11th ed. 2023) Com Prop, §§17, 116, 117
Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group) ¶¶8:526 et seq.