Marriage of Cooper (2016)

This divorce litigation highlights some unintended consequences of taking title to accounts, and to a home, as joint tenants during marriage when these assets were funded in significant part by monies acquired by one of the parties before the marriage.  The case reflects the difference in the evidentiary standard and type of proof required to rebut the joint title presumption as opposed to the general community property presumption.  It also appears to mark an error by the Third District Court of Appeal’s opinion or else a split of authority of the Districts within the California Court of Appeal on whether Probate Code section 5305 supersedes Family Code section 2581 as to the evidentiary standard and type of proof needed for reimbursement of separate property funds in deposit accounts jointly-held by spouses.  

In Marriage of Cooper (2016), an opinion filed on May 6, 2016, but not certified for publication, then published by request on May 27, 2016, and depublished by subsequent request on August, 10, 2016, a married couple jointly held four investment accounts (all of which having been opened by Wife in Wife’s name only and, according to Wife, changed to a joint tenancy during marriage because she was serving in the military). The parties also purchased as joint tenants during marriage a home in Sacramento County, the down payment for which was sourced in funds Wife acquired before the marriage.

After the parties separated in June 2004, Husband filed for divorce in Hawaii in 2005, where he was stationed at the time.  He was an Air Force Officer.  In 2006, Wife, who was at a local community college and Army Reserve Officer filed for divorce in the Sacramento Superior Court, and Wife’s divorce proceeding was stayed (put on hold) pending the outcome of the Hawaii divorce   It was later dismissed for lack of jurisdiction.  Husband appealed that decision and lost at the intermediate appellate level, and then sought review at the Hawaii Supreme Court, which denied review.).  Six years after filing her divorce action and $60,000.00 in attorney fees incurred by Wife litigating the Hawaii divorce proceeding (according to Wife), the Sacramento Superior Court family court judge tried their case.

Relevant family law

Article 1, section 21, of the California Constitution defines separate property as property owned by a party before marriage or acquired during marriage by gift, will, or inheritance.  Family Code section 770(a)(3) states that separate property includes the rents, issues, and profits of that property.  

Family Code section 760 states that all property, real or personal and wherever situated, acquired by a married person during the marriage while domiciled in California is community property. Hence, the characterization of property as either separate or community property usually depends on when it was acquired.  (Marriage of Rossin (2009).)   In a dispute as to when it when the property was acquired, the general view of the Superior Court is that property in possession of a married party during marriage is presumed to be community property and the burden of proving that it was not acquired during the marriage falls on the separate property proponent. (See, e.g., Lyman v. Vorwerk (1910).)   Likewise, when it is established that the property was acquired during the marriage, the burden falls on the separate property proponent to prove that although acquired during the marriage it is still separate property.   (In re Duncan’s Estate (1937).)   This latter presumption is known as the general “community property presumption.”

Because the general community property presumption is not a title presumption, the separate property proponent may use virtually any credible evidence (testimonial or documentary) to rebut the presumption (Marriage of Haines (1995)) by a preponderance of the evidence (Marriage of Peters (1997)).

Unlike Family Code section 760 and its predecessor statutes, Family Code section 2581 expressly provides for its own community property presumption (the “joint title presumption”) which applies specifically to jointly-held property acquired during marriage.  It differs from the general community property presumption in that it expressly heightens the standard of proof and limits the type of proof required to successfully rebut the presumption.  The joint title presumption can only be rebutted by the most difficult standard in civil court: on clear and convincing evidence and not by a preponderance of the evidence as required in rebutting the general community property presumption.  

Further, the joint title presumption can be overcome with only two types of evidence:  1) by a clear statement in the deed or other document proving that the property is separate property rather than community property; or, 2) proof of a written agreement between the parties that the property is separate.  Hence, the presumption of title acquired in joint form during marriage cannot be overcome by tracing funds used to purchase it.   (Contra Marriage of  Brandes (4th Dist., Div. One, 8/14/2015) at Slip Opn. pp. 28-29 [“section 2581 is inapplicable because there is a more specific statute pertaining to joint accounts. (Hogoboom & King, supra, . . . 8:384, p. 8-139; Blumberg v. Minthorne (2015) 233 Cal.App.4th 1384, 1392 [“under general rules of statutory construction, more specific statutes prevail over more general ones”].) Probate Code section 5305 provides: ‘(a) . . . [I]f parties to an account are married to each other, . . . their net contribution to the account is presumed to be and remain their community property. . . . (b) Notwithstanding Sections 2581 and 2640 of the Family Code, the presumption established by this section is a presumption affecting the burden of proof and may be rebutted by proof of either of the following: . . . (1) The sums on deposit that are claimed to be separate property can be traced from separate property unless it is proved that the married persons made a written agreement that expressed their clear intent that the sums be their community property. . . . (2) The married persons made a written agreement, separate from the deposit agreement, that expressly provided that the sums on deposit, claimed not to be community property, were not to be community property.’ (Italics added.)”].)

Unless Probate Code 5305 applies (i.e., regarding deposit accounts held jointly by spouses), then apart from Family Code section 2581, the joint title presumption can be rebutted only by proof of undue influence by a preponderance of the evidence  (Marriage of Haines (1995)).

Similarly, unless Probate Code 5305 applies (i.e., regarding deposit accounts held jointly by spouses), reimbursement is available under Family Code section 2640 for separate property funds used to acquire property in joint title during marriage.  Further, Family Code section 2640 reimbursement through “direct tracing to a separate [property] source requires reference to specific written records showing the source of the funds.” (Marriage of Braud (1996).)

Family Code section 2550 requires that the community property be divided equally unless the parties agree to divide it unequally.  Generally, “a spouse who, after separation of the parties, uses earnings or other separate funds to pay preexisting community obligations should be reimbursed therefor out of the community property upon dissolution” of marriage.  (Marriage of Epstein (1979).)   There are a number of situations in which reimbursement is inappropriate, so reimbursement should not be ordered automatically:

  • Payment was made under circumstances in which it would have been unreasonable to expect reimbursement, for example, where there was an agreement between the parties the payment would not be reimbursed or where the paying spouse truly intended the payment to constitute a gift;
  • Generally, where the payment was made on account of a debt for the acquisition or preservation of an asset the paying spouse was using and the amount paid was not substantially in excess of the value of the use.
  • Payment on account of a preexisting community obligation constituted in reality a discharge of the paying spouse’s duty to support the other spouse or a dependent child of the parties. 

(Marriage of Epstein (1979).)

A spouse who has exclusive use of community property such as a house after the parties have separated must reimburse the community for the use of the property.  (Marriage of Watts (1985).)  The family court judge has broad discretion over such reimbursements “to fashion an apportionment of interests that is equitable under the circumstances of the case.”   (Marriage of Steinberger (2001).)

Accounts held jointly 

The family court judge in Marriage of Cooper found that Wife’s tracing of the funds in the jointly-held investment accounts to the proceeds of sale of her separate property residence was enough to overcome the joint title presumption.  The 3rd District Court of Appeal reversed this determination because Wife did not produce sufficient documentary evidence of a clear statement that the investment accounts were separate property, nor was there evidence of a written agreement between the parties that the accounts were separate property, as required by Family Code section 2581.  However, Wife was not at a total loss because the appellate court also stated she was entitled to a Family Code section 2640 reimbursement for her separate property contributions to these jointly-held accounts for which she provided specific written records showing the source of the funds. (There now appears to be a split of authority as to whether tracing of separate property funds in spouses’ joint accounts is proper.  See Marriage of Brandes, above.)   

Residence held jointly                

The family court judge also held that Wife was entitled to a 2640 reimbursement for the down payment of her separate property funds toward the purchase of the parties’ jointly-titled residence.  Wife had made her proof to the family court judge by oral testimony rather than by direct tracing through documentary evidence.  The appellate court reversed this order, stating that oral testimony was insufficient for direct tracing, citing Marriage of Braud

Watts charges and Epstein credits            

Wife had exclusive use of the community property marital home in Sacramento County for two years.  In other words, the community estate was denied potential income from its use by Wife during that period.  The family court judge denied Husband’s request that Wife be charged the fair rental value of the community property home during her exclusive occupancy.  This was based on the expense and delay Wife had to endure litigating a “redundant” Hawaii divorce proceeding after she had filed this case in California where it should have been brought in the first place.

The appellate court reversed this determination in part.  After recognizing the family court judge has broad discretion over Watts charges for use of community property after separation and although Husband had initiated needless parallel litigation in Hawaii at Wife’s great expense after Wife had filed this case in California, she should have been charge for use of the Elk Grove home between the time of separation and the time Husband filed the Hawaii case, i.e., between June, 2004 and sometime in the filing of the Hawaii divorce in 2005.  

Wife requested and the family law judge awarded her Epstein credits for her separate property funds used to maintain the residence (mortgage installments, property taxes, homeowner’s insurance, etc.) during her exclusive use of the home after the parties separated.  The appellate court reversed this determination in part because Wife should have only been given credit during the period the community benefited from her exclusive use of the home after separation, pursuant to Marriage of Epstein.  That period was the same period during which she was charged for her exclusive of the home (i.e., prior to the Hawaii case being filed). “If the community is to reap the fair rental value of the marital residence it must also bear the burdens of asset preservation shouldered by [W]ife.”  Thus, she was awarded Epstein credits only for the period during which she owed Watts charges.

 

  

                                                                                              

3 Comments

    • Stephani: Thanks for bringing up that there may be a distinction between deposit accounts and investment accounts, which may be why Probate Code sec. 5305 did not influence the Cooper opinion. I hadn’t thought of it. Still, I don’t see why it would make a difference given the definitions in the Probate Code.

      The definition of “account” in Probate Code section 5122(a) is:

      “‘Account’ means a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, savings account, certificate of deposit, share account, and other like arrangement.”

      Probate Code sec. 21 states, “’Account,’ when used to mean a contract of deposit of funds between a depositor and a financial institution, includes a checking account, savings account, certificate of deposit, share account, mutual capital certificate, and other like arrangements.”

      Probate Code sec. 40 states, “‘Financial institution’ means a state or national bank, state or federal savings and loan association or credit union, or like organization.”

      Subsection 5122(b) gives the exceptions:

      “’Account’ does not include:

      (1) An account established for deposit of funds of a partnership, joint venture, or other association for business purposes.
      (2) An account controlled by one or more persons as the duly authorized agent or trustee for a corporation, unincorporated association, or charitable or civic organization.
      (3) A regular fiduciary or trust account where the relationship is established other than by deposit agreement.
      (4) An account established for the deposit of funds of the estate of a ward, conservatee, or decedent.”

      The Cooper opinion states, “Four specific investment accounts are the subject of husband‟s first contention on appeal: three Franklin Templeton accounts with account numbers ending in 9961, 3412, and 0768; and one Pioneer account with an account number ending in 2830. Each of these accounts was opened during the marriage and held jointly by the parties.”

      Of Probate Code sec. 40(b)(1)-(4), which, if any, do the four investment accounts fall under? Or is there something else that I’ve missed?

      Best regards.

Please feel free to comment.