Case of the Month Archive

As a matter of first impression, the Margulis burden shifting analysis applies where managing spouse exercises control over other spouse's separate property. . .

In reversal, the First District held that the Margulis burden-shifting analysis applies where managing spouse has postseparation control of nonmanaging spouse's separate property; trial court erred by failing to shift burden of proof to wife, as managing spouse, to account for community property and separate property funds or be charged with their value.

Ramin Dadashian and Laleh Mohammadijoo are Iranian immigrants who married in Iran in June 2001 and subsequently moved to California. They separated in October 2013. During the marriage and after separation, Laleh transferred money to her brother in Iran for him to manage her financial affairs. When the couple married, Laleh's brother opened up a joint bank account for Laleh and Ramin in Iran to manage investments in the country. During the dissolution trial, Laleh testified that she and her brother spoke almost daily, that her brother was her power of attorney to do "'anything'" on her behalf, and that she trusted him "'110 percent.'"

The parties invest community and separate funds in Iran. . .
In June 2007, Ramin signed a general power of attorney for Laleh's brother, at Laleh's request, to manage their Iranian joint bank account. Ramin testified that when he received $170,000 from the sale of real estate he inherited from his father, he gave Laleh a check for the proceeds to deposit into their Iranian bank account. According to Ramin, Laleh told him they used the funds to purchase a high-end apartment complex in Tehran. Ramin also testified that Laleh told him that this investment had been successful enough to buy a second rental property. In 2008, the couple withdrew approximately $150,000 from a home equity line of credit (HELOC) and sent the funds to Laleh's brother in Iran for the purpose of investing.

A few months after their separation, Ramin discovered that the file folder containing the records of their Iranian investments was missing. When Ramin asked Laleh what happened to the Iranian assets, Laleh responded, "'Do not ask about the money. There's no more money in Iran.'" Ramin hired a lawyer, reached out to an uncle living in Iran, and hired a company that helps Iranian expatriates, all in an attempt to discover what happened to the missing assets. Later, Laleh, without notice to Ramin, sued Ramin in Iran and obtained a $1.5 million judgment against him, which prevented him from traveling to Iran or else be arrested.

During the discovery phase of the dissolution action, Laleh provided two schedules of assets that each identified two houses in Iran purchased during the marriage. However, Laleh later testified at trial that the schedules in question were not signed by her and were erroneous. On March 1, 2019, Laleh submitted a third schedule of assets. This schedule did not include the two houses in Iran previously listed.

At the conclusion of a 17-day trial, the trial court (Contra Costa County's Haynes) declined to shift the burden of proof to Laleh to prove what happened to the HELOC funds or funds derived from Ramin's inheritance. As a result, the trial court declined to order Laleh to reimburse Ramin for the missing assets. In so ruling, the trial court found that the burden shifting procedure imposed by In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.App.4th 1252, 130 Cal.Rptr.3d 327, 2011 FA 1501, did not apply because (1) Ramin invested money from his inheritance in Iran during the marriage, not postseparation; (2) Margulis does not apply to Ramin's separate property inheritance since it is not community property; (3) Laleh herself played a minor role in the management of money in Iran; and (4) the HELOC loan has been forgiven by the lender and written off as stated under oath in the couple's tax returns. Ramin appealed, and the First District reversed.

The panel first held that Ramin proved that Laleh had management and control of the marital assets in question. In so holding, the justices observed that although Margulis did not involve a third-party money manager, its rationale nevertheless applied to the present facts. Specifically, Margulis addressed the circumstances where one spouse has "'vastly unequal'" access to the relevant records and information "relative to the other spouse." The justices further noted, "[t]he involvement of a third-party investment manager in no way diminishes fiduciary duties between spouses." Here, the justices observed that Ramin had no meaningful access to Laleh's brother or communication with him about the assets. Instead, he relied on second-hand information from Laleh about how the assets were being invested. Laleh, meanwhile, had "unfettered access to the relevant proof." As Laleh testified, she and her brother spoke almost daily, she trusted her brother "'110 percent,'" and she knew he would do anything she asked of him. The justices further noted that Ramin was unable to ascertain information about the missing assets even after the extreme lengths to which he went to obtain information about them.

The justices next held that Ramin proved the existence and value of the assets in question at the time of separation. After observing that "'the threshold for a prima facie showing [on this point] is low,'" the justices noted Ramin met this standard when taking several pieces of evidence as a whole. First, Ramin testified at trial that Laleh told him that her brother had purchased real estate in Iran using funds from their joint bank account, which included the HELOC funds. Second, Laleh's first two schedule of assets and discovery responses admitted the couple had real estate holdings in Iran. And third, the existence of these real estate holdings were further corroborated by testimony of one of Laleh's friends.

The Margulis analysis applies in cases of separate property. . .
Next, the justices held that, as a matter of first impression, the Margulis burden shifting analysis applies to separate property one spouse manages and controls postseparation (in this case, the funds from Ramin's inheritance proceeds). In so concluding, the justices observed that although generally "'a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting,'" policy considerations and fairness may sometimes require shifting this burden. In order to determine whether the normal allocation of the burden of proof should be altered, courts consider the following factors: (1) the knowledge of the parties concerning the particular fact; (2) the availability of the evidence to the parties; (3) the most desirable result in terms of public policy in the absence of proof of the particular fact; and (4) the probability of the existence or nonexistence of the fact.

Applying these factors, the justices concluded there is "'no reason to distinguish between a spouse's duty to deal fairly and in good faith with separate property and her duty to deal fairly and in good faith with community property.'" The justices noted that the first two factors (knowledge and access to evidence) weighed in favor of shifting the burden to Laleh. Here, Laleh has superior knowledge and unfettered access to evidence through her brother about the Iranian real estate. Meanwhile, Ramin had almost no ability to access the information about the investments, as evidenced by his extreme yet unsuccessful attempts to obtain such information. Moreover, Ramin testified that the folder containing information about the Iranian investments went missing once Laleh left the marital home. Laleh also obtained a judgment against Ramin in Iran that has prevented him from returning to the country to investigate the missing assets.

In concluding that the third factor (policy considerations) also weighed in favor of shifting the burden to Laleh, the justices noted that one of the bedrock principles on which the Margulis analysis is based is that "'spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other.'" The justices reasoned that not only do these fiduciary duties apply in cases where one spouse manages the separate property of the other spouse, but they apply for even greater reason since the managing spouse in these situations lacks the financial self-interest that exists in community property cases.

After noting the fourth factor (the probability of the existence or nonexistence of the fact) cuts neither way, the justices concluded the trial court erred by not shifting the burden of proof to Laleh to prove the disposition and valuation of Ramin's inheritance, even though such funds were Ramin's separate property. For these reasons, the First District reversed the trial court's judgment and remanded the matter for a retrial of the community property issues.