Tracing Separate Property can be a Difficult Task

California Upholds Strict Tracing Requirements for Reimbursement Claims

In every California dissolution (divorce) proceeding, the court is required to divide the  parties’ community property estate.  The community estate includes the property acquired by either party during the marriage with several exceptions.  Inheritances, for example, are not part of the community estate.  In the division of the community estate, unless a party signs a written waiver, either party is to be reimbursed for his or her contributions to the acquisition of property to the extent the party traces the contributions to a separate property source.

In a recent case, a California court determined Husband’s testimony alone was insufficient to trace his separate property interest to subsequently purchased community assets.  Prior to the marriage, Husband purchased a property in London for which he claims he made several improvements during the marriage.  After the marriage, Husband conveyed this property to himself and Wife as joint tenants.  The couple refinanced the property and deposited $225,000.00 of the proceeds into their joint account. After refinancing the property, Husband and Wife used these funds as a down payment to purchase another property.  Husband produced no records to indicate the source of the money used as a down payment on the second property.  The second property was subsequently sold and the couple used the profits as a down payment to purchase a third property.  Approximately seven years after its purchase, the couple sold the first property and used to proceeds as a down payment to purchase a fourth property.

At the couple’s dissolution trial, Husband testified that his separate property could be adequately traced from the first property to the fourth.  However, he was unable to provide any documentary evidence because he claimed the evidence had been destroyed.  The trial court was forced to rule on his testimony alone and concluded that Husband was credible enough finding Husband’s separate property had been adequately traced to the first property.  Wife appealed the trial court’s finding and the trial court was reversed.

Commingling of funds does not alter the status of separate property if the funds can be traced to a separate property source.  The spouse claiming a separate property interest in a community asset carries the burden of tracing the funds to a separate property source.  Here, Husband had the burden to overcome the presumption that property purchased during the marriage is a community property asset.  Generally, the testimony of a single witness is sufficient to support a finding of a certain fact.  However, there is a heightened evidentiary standard to prove a separate property interest in property that is presumably acquired during a marriage.

Dividing assets can be a complicated issue.  For more information contact our Certified Family Law Specialists.  We offer a private consultation and our lawyers are skilled in a variety of family law issues including divorce matters.  Feel free to send us an email or call our office at (619) 284-4113, where our attorneys will be able to speak with you directly.  You can also email our firm.

Insurance Policy Acquired During Marriage is NOT Community Property?

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Community Property Presumptions and Importance of Title

In the May 2011 case of Irmo Valli, the Court of Appeals reversed a family trial court’s judgment that an insurance policy that was taken out during marriage and paid for with community property was community property.  The Court of Appeals said that the insurance policy was the separate property of the wife, who was the named beneficiary on the account.

In California, property acquired during marriage is presumed to be community property.  Family Code 2550 requires the family courts to value and divide equally the parties’ community property estate.  However, before the court can value and divide property, it must characterize that property as community, quasi-community, or separate.  The date in which property is acquired and the title in which the property is taken are key aspects to the characterization of property.  Separate property includes are property acquired before marriage, after the date of separation, or by gift, inheritance, and so forth.  Since property acquired during marriage is presumptively community property, the party claiming a separate property interest in something acquired during marriage must overcome the presumption by a preponderance of the evidence.  However, the specific act of specifying a form of ownership in the conveyance of title may remove the property from being presumably community.  If the title of property is taken in only one party’s name, it is the party asserting the community has an interest in the property to prove by clear and convincing evidence that the property is jointly owned.

In Valli, although the insurance policy was acquired during marriage, it was acquired in the wife’s name only.  The Court of Appeals said that the presumption of title ownership trumped the presumption of community property under California Family Code 760. 

Our attorneys are experts in characterizing property.  We are available to answer your questions today regarding how property is characterized and treated in divorce and dissolution of domestic partnership proceedings.  Call us at (619) 284-4113 or send us an email.

Voluntary Execution of Quitclaim Deed During Marriage May be Set Aside

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Even if spouse freely and voluntarily signs a Quitclaim Deed during marriage, if there is a promise to restore title to joint ownership, the Deed may be set aside

In Fossum (2011) (CA 2/1 – Opinion filed January 28, 2011), a Husband and Wife married in 1994 and purchased a home jointly thereafter.  To secure a better interest rate, Wife quitclaimed her interest in the home to Husband.  Husband promised to convey the property to the community after the loan closed, and did so about 10 months later.  In 1998, the parties refinanced to secure a lower interest rate.  Wife again quitclaimed to Husband and relied on his promise to reconvey back to the community.  Wife admitted that she freely and voluntarily signed the quitclaim deed knowing that the title would be held by Husband solely.  However, Husband never reconveyed title to the community. 

The Court of Appeal decided that the property was community property because it was acquired during marriage.  Property transactions between spouses are affected by the confidential and fiduciary relationship between spouses, including a duty of good faith and fair dealing.  If one spouse secures an advantage in the transaction, there is a presumption that undue influence occurred.  If undue influence is presumed, the advantaged spouse has to prove that the other spouse acted freely, voluntarily and with full knowledge of all the facts and understood the effect of the transaction.

Husband argued that “form of title” should prevail.  The Court disagreed, ruling, “The form of title presumption simply does not apply in cases in which it conflicts with the presumption that one spouse has exerted undue influence over the other.”  The Court acknowledged Wife’s admission that she freely and voluntarily signed the document; however, she did so only because Husband promised to re-title the property in joint names at a later date. 

It is common for spouses to enter into agreements with each other during marriage regarding holding title of property.  Many times it is necessary to achieve better interest rates or loan terms.  However, entering such agreements may have significant legal effects.  Our attorneys are experienced in litigating the characterization of marital property, asset and debt division, and setting aside legal documents.  Contact our attorneys today if you have questions in your divorce case concerning the characterization of assets or if you have questions whether a document is legal binding.

Deferred Sale of Family Residence is Possible in Divorce

Owning a Home and Getting Divorced: Is Delaying Sale Possible?

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If you and your spouse have recently decided to separate or get divorced there are many questions you may have. You may be wondering, where am I going to live? How are my finances going to change? Who is going to get custody of the kids? It may feel like there are a whirlwind of issues that need to be decided.

One important issue that often arises is what to do with the family home. If you and your spouse own a home, either together or maybe titled under one spouse’s name only, you are now faced with the decision of what to do with a home that is community property, quasi-community property, or separate property with a community property interest. Do you sell it now or keep it? Can spouses getting a divorce continue to maintain joint ownership of a home after entry of a divorce judgment? The good news is that the family residence may not need to be sold right away. In fact, you do not need to sell a community home before a final judgment is entered, or in some cases, even after a divorce judgment is entered.  However, it is vital that you contact a qualified family law expert to get advice concerning how your family residence may be characterized, what effects the sale of a community family residence may have in your overall case, the advantages and disadvantages of maintaining joint ownership of property post-judgment, and other important issues such as how a Marital Settlement Agreement may be drafted to protect your interests.   

In California, spouses owe each other a “fiduciary duty” to act in the best interest of the community. This essentially means that each spouse must act fairly and honestly when dealing with each other and cannot take advantage of the other. However, refusing to sell your community home when your spouse wants to and you do not is probably not a breach or violation of a spouse’s fiduciary duty. Often one spouse may insist on selling the home immediately in order to make a quick and clean break. This however may not be the best decision financially or for the family. The housing market might be experiencing a downturn, or you and your children may still wish to live in the home for example. Thus, delaying or deferring the sale of the home until a later specified date might be the best option. If parties to a divorce action cannot agree when a residence will be sold, the Court has broad discretion to fashion orders pertaining to a deferred sale.  However, the court will normally order a property to be sold absent a good cause showing by the party objecting to the sale that a sale would negatively impact the community financial estate, negatively impact minor children, and so forth.  Accordingly, it may be okay to decide to wait to make a decision about what to do with a family residence until a divorce is final.

For more information contact our Certified Family Law Specialists.  We offer a private consultation and our lawyers are skilled in properly preparing divorce pleadings and litigating community property issues.  Feel free to send us an email or call our office at (619) 284-4113 where our partners are available to speak with you directly.