WAS TRACING VALID TO ESTABLISH HUSBAND’S $3,791,653 IN DIVORCE?
WAS TRACING VALID TO ESTABLISH HUSBAND’S $3,791,653 IN DIVORCE?
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WAS TRACING VALID TO ESTABLISH HUSBAND’S $3,791,653 IN DIVORCE?

| Feb 7, 2019 | Firm News

“DeeDee” and “Joe” married on September 16, 1995.  The trial court fixed the date of separation as August 13, 2010, the date DeeDee commenced this marital dissolution proceeding. The marriage terminated pursuant to a judgment entered March 18, 2016, which attached the court’s final statement of decision.

On appeal from that judgment, DeeDee principally challenged the trial court’s characterization of a majority of the cash and securities held in commingled accounts as Joe’s separate property. As discussed more fully below, she attacked a detailed tracing analysis performed by Joe’s expert witness, upon which the trial court relied. The California Appeal Court concluded the tracing was valid and constituted substantial evidence in support of the judgment in the amount of $3,791,653 awarded to Joe.

DeeDee also challenges the trial court’s findings that Joe did not breach fiduciary duties when he used community property funds to establish an irrevocable life insurance trust for the benefit of Marie and Molly, and to fund tax-advantaged Internal Revenue Code section 529 college savings accounts (529 accounts) for the two girls. The California Appeal Court also concluded these findings also are supported by substantial evidence.

How much, if any, of that sum was Joe’s separate property, and how much was community property, is known as a “characterization” issue, and is the central issue in this case. “Characterization . . . refers to the process of classifying property as separate, community, or quasi-community.” (In re Marriage of  Haines (1995) 33 Cal.App.4th 277, 291, disapproved on another point in In re Marriage of Valli (2014) 58 Cal.4th 1396.)  It “is an integral part of the division of property on marital dissolution.” (Ibid.)

Family Code section 7605 states the basic presumption that, except as otherwise provided by statute, all property acquired by a married person during marriage, while domiciled in California, is community property. Each spouse has a “present, existing and equal” interest in the community property. (§ 751.) On the other hand, property acquired before marriage, or after separation, or at any time by gift, bequest, devise, or descent, is separate property. (§§ 770, subd. (a), 771). And the “rents, issues, and profits” of separate property also are separate property, whether earned before, during, or after marriage. (§ 770, subd. (a)(3).)

“Except as otherwise provided by statute, neither spouse has any interest in the separate property of the other.” (§ 752.) “Thus, there is a general presumption that property acquired during marriage by either spouse other than by gift or inheritance is community property unless traceable to a separate property source. [Citation.] This is a rebuttable presumption affecting the burden of proof; hence it can be overcome by the party contesting community property status. [Citation.]

Since this general community property presumption is not a title presumption, virtually any credible evidence may be used to  overcome it, including tracing the asset to a separate property source, showing an agreement or clear understanding between the parties regarding ownership status and presenting evidence the item was acquired as a gift.” (Haines, supra, 33 Cal.App.4th at pp. 289−290, fn. omitted); In re Marriage of Bonvino (2015) 241 Cal.App.4th 1411, 1423 (Bonvino); see also See v. See, supra, 64 Cal.2d 778, 783; Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2018) ¶¶ 8:361 8:363, pp. 8-137−8-139 (Hogoboom & King).)

“Of course, mere commingling of separate property and community property funds does not alter the status of the respective property interests, provided that the components of the commingled mass can be adequately traced to their separate property and community property sources. But 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 funds will be deemed community property pursuant to the general community property presumption of section 760.” (In re Marriage of Braud (1996) 45 Cal.App.4th 797, 822−823; see also In re Marriage of Cochran (2001) 87 Cal.App.4th 1050, 1057; Bonvino, supra, 241 Cal.App.4th at p. 1423.)

“The presumption that all property acquired by either spouse during the marriage is community property may be overcome. [Citations.] Whether or not the presumption is overcome is a question of fact for the trial court.” (In re Marriage of Mix (1975)14 Cal.3d 604, 611−612.) “ ‘Where funds are paid from a commingled account, the presumption is that the funds are community funds. [Citations.] In order to overcome this presumption, a party must trace the funds expended to a separate property source. [Citation.] This issue presents a question of fact for the trial court and its finding will be upheld if supported by substantial evidence.’ ” (In re Marriage of Higinbotham (1988) 203 Cal App.3d 322, 328; see also, Braud, supra, 45 Cal.App.4th at pp. 822−823; Cochran, supra, 87 Cal.App.4th at pp. 1057−1058.)

On breach of fidcuirary duty, the Court concluded, Section 1100, subd. (b) provides: “A spouse may not make a gift of community personal property, or dispose of community personal property for less than fair and reasonable value, without the written consent of the other spouse. This subdivision does not apply to gifts mutually given by both spouses to third parties and to gifts given by one spouse to the other spouse.” (§1100, subd. (b), italics added.) Violation of this subdivision is a breach of fiduciary duty. (Fields v. Michael (1949) 91 Cal.App.2d 443, 448 [applying  23 predecessor statute].)

In addition, DeeDee sought to overturn the trial court’s temporary and permanent child and spousal support awards.  The California Appeal Court affirmed that part of the judgment awarding permanent child support, and the trial court’s temporary child and spousal support awards for two periods in 2015. But, the Court held the trial court abused its discretion when it retrospectively modified 2014 pendente lite child and spousal support, because it based the modification on the parties’ 2013 tax returns, rather than their 2014 tax returns, which were then available. The California Appeal Court reversed that part of the judgment, and remanded for the limited purpose of recalculating the 2014 awards in light of the 2014 tax returns. The California Appeal Court also reversed the permanent spousal support award and remanded for recalculation of that amount as well.

Finally, in a second, consolidated appeal, DeeDee contends the trial court erred in denying her an award of additional attorneys’ fees. The California Appeal Court reversed that postjudgment order.

Here, the Court stated,  by mandatory consideration of the parties’ relative circumstances, section 2032 authorizes a need-based fee award even if DeeDee could pay her own attorneys’ fees. (See In re Marriage of Drake (1997) 53 Cal.App.4th 1139, 1167; In re Marriage of O’Connor (1997) 59 Cal.App.4th 877, 883−884.)

See In re marriage of Ciprari.

If you are involved in an acrimonious type divorce or family law matter and your money is at stake, you need an experienced and capable attorney on your side.  Contact the Law Office of Robert Rodriguez!

Robert Rodriguez has litigated well over 100 family law cases and civil litigation matters including personal injury motor vehicle cases, dog bite and slip & fall cases, breach of contract, defamation & invasion of privacy, fraud, unfair business practice, malicious prosecution, wrongful termination, workplace and employment matters including sexual harassment, wage & hour violations, discrimination pursuant to the FEHA, Gov’t Code §§ 12940 et seq., violations of the FMLA & Pregnancy Leave, Civil Rights  discrimination pursuant to 42 U.S.C. § 1983 and Title VII of the 1964 Civil Rights Act in the State of California and California federal district courts.

* Disclaimer – Robert Rodriguez is licensed to practice only in the State of California & this analysis is applied only under State of California law.  Robert D. Rodriguez is also admitted to practice in the U.S. District Courts, Central, Northern & Eastern Districts of California.  Robert Rodriguez has practiced in the State of California Court of Appeal.

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