New Court Decision on Separate Property Issues
The Court of Appeal made several rulings in a recent case that clarified the law on the tracing of separate property to a community asset and on reimbursement and credits for a spouse’s exclusive use of the marital residence while the divorce case was pending. In Marriage of Cooper (2016) No. C073014, the parties married in 1988 and separated in 2004, and opened investment accounts and purchased a home during the marriage. The husband filed for divorce in Hawaii in 2005, and the wife filed for divorce in California in 2006. Between 2005 and 2011, the parties contested the Hawaii court’s jurisdiction, which was eventually decided by the appellate court and supreme court in that state. In the final ruling in the Hawaii case, the Hawaii Supreme Court ruled that there was no jurisdiction in that state because the parties had not lived there during the marriage.
The divorce case was finally tried in California in 2012. The trial court awarded the investment accounts to the wife. The trial court rejected the husband’s claim for reimbursement of the fair rental value of the home, of which the wife had exclusive possession while the divorce case was pending, reasoning that the husband should not profit from having delayed the case with the Hawaii court proceedings. The trial court approved the wife’s claim of credits for her post-separation repair and maintenance expenditures on the home totaling approximately $36,000.
On appeal, the Court of Appeal reversed the trial court’s rulings that the investment accounts were the wife’s separate property, that the wife was entitled to reimbursement for the $40,000 down payment on the marital residence, and that the wife was entitled to credits for the repair and maintenance expenditures for the full eight years the divorce case was pending in the Hawaii and California courts. The Court of Appeal acknowledged that the wife had traced, through documentary evidence and expert witness testimony, the investment accounts opened in 1989 and 1991 to her separate property owned before marriage.
However, the Court of Appeal ruled that, absent a showing of undue influence, the wife could override the joint title presumption set forth in Family Code section 2581 only through “clear and convincing evidence in the form of a written document” that the investment accounts opened during marriage were her separate property. Thus, although the wife had traced the funds in the investment accounts to her separate property sources, she did not overcome the joint title presumption because she had no “documentary evidence of intent to preserve the separate property nature of the investment accounts.”
With respect to the $40,000 down payment, the Court of Appeal pointed out that there are two independent methods of tracing: (1) the “direct tracing” method; and (2) the “family living expense” method. The Court of Appeal ruled that, regardless of which method was used, the wife had failed to establish that the $40,000 down payment came from her separate property. Although the wife had traced the investment accounts opened during marriage to separate property sources, she had not presented the necessary tracing evidence for the $40,000 down payment. Instead, the wife relied on her oral testimony that the community had not saved $40,000 between 1988 and 1991, such that the down payment necessarily came from her separate property before marriage.
The Court of Appeal held that “oral testimony . . . does not suffice to overcome the presumption that property acquired during marriage belongs to the community. Instead, direct tracing to a separate source requires reference to specific written records showing the source of the funds.”
The Court of Appeal also reversed the trial court’s rulings on the reimbursement and credit issues, holding that although no reimbursement was owed for the wife’s exclusive use of the marital residence while the Hawaii case was pending, the wife did owe reimbursement for her exclusive use of the property while the California court was deciding the divorce case.
The Court of Appeal agreed that the trial court had discretion to hold the husband responsible for the delay resulting from his unfounded insistence on having the Hawaii court decide the case, but disagreed that the husband should also be denied reimbursement for the time period when the California court was actively handling the case. For the same reasons, the wife’s credits for repair and maintenance expenditures were also limited to the time period when the divorce case was pending in Hawaii.