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IN RE: the MARRIAGE OF Gilbert A. and Gladys J. WALRATH. Gilbert A. WALRATH, Appellant, v. Gladys J. WALRATH, Respondent.
In the absence of a written waiver, a spouse who contributes separate property to a community property acquisition is entitled to reimbursement upon dissolution of the marriage. (Fam.Code, § 2640, subd. (b).) 1 The question here is whether a spouse's right to reimbursement for separate property contributions to a community property home carries through to other community property subsequently acquired with the proceeds of a loan secured by the original home. We hold it does not. The right to reimbursement attaches to the specific property to which the separate property contributions were made, and to no other. The judgment of the trial court is affirmed.
The relevant facts are not disputed. Gilbert A. and Gladys J. Walrath were married on January 11, 1992, and separated nearly three years later.2 This dissolution action followed.
Before the marriage, Husband owned a house in Lucerne, California. In June of 1992, the community acquired the Lucerne house when Husband deeded the property to himself and Wife as joint tenants. The property then had a value of $228,000, an $82,000 mortgage, and equity of $146,000. Wife later paid $20,000 from her separate property to reduce the mortgage principal.
In 1993, the Lucerne property had a value of $240,000. The couple refinanced the home, borrowing $180,000 against their equity interest. At trial, the parties stipulated that they used approximately $60,000 of the loan proceeds to pay off the first mortgage, another $62,000 to pay off the mortgage on a property in Nevada, and an additional $40,500 to acquire and improve an investment property in Utah. They placed $16,000 in a joint savings account.3
The only issue on appeal is the amount and source of reimbursement due the parties for their separate property contributions to the community estate. The trial court ruled Husband and Wife were each entitled to reimbursement on a proportionate basis, assessed at 88 percent and 12 percent, respectively, for their contributions to the Lucerne property. The court limited reimbursement, however, to the amount of equity in the Lucerne property at the time of division. Based on a reduced market value of $175,000 and an indebtedness of $174,000, the equity was only $1,000. The court consequently ordered reimbursement of $880 to Husband and $120 to Wife.
Husband asserted he was also entitled to reimbursement from the Nevada and Utah properties and the joint savings account because $118,500 from the Lucerne refinance was used to acquire or improve these assets. The trial court disagreed: “The amount of the reimbursement made pursuant to Family Code § 2640 may not exceed the net value of the property at the time of division. The net value being $1,000, neither party's full contribution may be reimbursed and the reimbursement of each will be that amount of the net value which represents the proportional contribution of each.” The court ruled Husband had no claim to reimbursement from the assets acquired with the loan proceeds. Husband timely appealed from this portion of the judgment.
Section 2581 establishes a presumption as to the character of all property 4 acquired in joint form by the parties during marriage: “For the purpose of division of property on dissolution of marriage or legal separation of the parties, property acquired by the parties during marriage in joint form, including property held in tenancy in common, joint tenancy, or tenancy by the entirety, or as community property, is presumed to be community property. This presumption is a presumption affecting the burden of proof and may be rebutted by either of the following: [¶] (a) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property. [¶] (b) Proof that the parties have made a written agreement that the property is separate property.”
Section 2640 sets out the right to reimbursement as follows: “(a) ‘Contributions to the acquisition of the property,’ as used in this section, include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.[ 5 ] [¶] (b) In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party's contributions to the acquisition of the property to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and shall not exceed the net value of the property at the time of the division.” (Italics added.)
Thus, under the Family Code, spouses who make separate property contributions to a community asset are entitled to reimbursement upon dissolution of the marriage.6 Here we encounter an issue of first impression. When the original community asset is leveraged and loan proceeds are used to acquire new community properties, may a spouse seeking reimbursement for his original separate property contributions look to these new community properties acquired with loan proceeds? Resolution of this question turns upon the meaning of “the property” as that phrase is used in section 2640.
Civil Code former sections 4800.1 and 4800.2 (now Fam.Code, §§ 2581, 2640) were enacted in 1983 as part of a major reform of California law governing the division of community property upon dissolution. (Cal. Law Revision Com. com., West's Ann. Fam.Code, §§ 2581, 2640, pp. 92, 136.) The situation giving rise to the 1983 legislation was summarized by the California Law Revision Commission, whose report was expressly incorporated into the Senate Journal as evidence of the Legislature's intent, as follows:
“A continuing problem in California law is that married persons frequently take title to property in joint tenancy form even though the property is acquired with community funds and even though the married persons are unaware of the different legal consequences of joint tenancy and community property tenure. At dissolution of marriage, for example, the court has no jurisdiction to divide joint tenancy property and therefore may be unable to make the most sensible disposition of all the assets of the parties․ Moreover, because the joint tenancy property cannot be divided at dissolution, it will have to be subsequently partitioned in a separate civil action.
“The Legislature addressed these problems directly in 1965 by adding to Civil Code Section 5110 a provision that a single-family residence acquired by the spouses during marriage is presumed to be community property for purposes of division at dissolution. The Section 5110 presumption has generally worked well and minimized the problems created by community property in joint tenancy form. However, as construed by the courts, the community property presumption may be rebutted by evidence of oral agreements between the parties and by implications from statements or conduct of the parties, notwithstanding the statute of frauds. Moreover, under the interpretation of In re Marriage of Lucas  27 Cal.3d 808, 166 Cal.Rptr. 853, 614 P.2d 285 ․, the presumption precludes a spouse who bought the property with separate funds from tracing and recovering the funds at dissolution-a gift is presumed. The Lucas holding has been extended by the courts to other types of community property in addition to property taken in joint tenancy form.
“Assembly Bill 26 builds on the community property presumption of Section 5110. Under Assembly Bill 26 all property acquired by the spouses during marriage in joint tenancy form is presumed to be community for purposes of dissolution-not just the single-family residence. This is significant because, although the single-family residence is the major asset in many marriages, spouses frequently hold substantial amounts of their wealth in joint tenancy form, including bank accounts, stocks, and other real property. Assembly Bill 26 makes clear that the community property presumption may not be rebutted by an alleged oral agreement or an implication from a statement or conduct, but only by a written agreement. Finally, Assembly Bill 26 overrules the Lucas interpretation of the Section 5110 presumption and other community property presumptions by permitting a party to recover separate property contributions to the acquisition of the property; this is done through a reimbursement right at dissolution of marriage.” (3 Sen. J. (1983-1984 Reg. Sess.) pp. 4865-4866.)
Here, it is undisputed that the Lucerne property was transmuted to community property, and thus acquired by the community, when Husband converted title to joint tenancy. Thereafter, the proceeds of the refinance loan secured by the Lucerne property were community property. (In re Marriage of Grinius (1985) 166 Cal.App.3d 1179, 1187, 212 Cal.Rptr. 803 [loan proceeds obtained during marriage are presumptively community property].) If, instead of refinancing, the parties had divorced, each would have been entitled to reimbursement for their separate property contributions to the Lucerne property. The parties did not divorce. Instead they made a joint decision to borrow against their community asset, thus reducing its value. They took the money gained and acquired new community assets. The community would profit or suffer loss as those new assets rose or fell in value. Each party retained the right to reimbursement from “the property” to which they had made their separate property contributions. That property was the Lucerne home, the value of which the parties had consciously diminished.
When the Lucerne property was refinanced, Husband, with Wife's consent, could have taken steps to regain the separate property character of his contribution, but he did not.7 Instead, he and Wife took community money (the loan proceeds) and acquired new community assets (the Utah and Nevada properties and joint savings account).8
Section 2640, subdivision (b) provides that the contributing spouse shall be reimbursed for contributions to the acquisition of the property “to the extent the party traces the contributions to a separate property source.” Husband contends he is entitled to reimbursement from the new community assets because he can trace the moneys used to acquire those assets to the value of the Lucerne residence in 1993, which in turn can be traced to his 1992 contribution to the Lucerne property of $146,000.
Tracing methods are necessary when separate and community funds have been commingled. (See generally, Hogoboom & King, Cal. Practice Guide: Family Law 2 (The Rutter Group 1996) ¶ 8:526-8:531, pp. 8-130 to 8-132.) These tracing methods are of no benefit to Husband, because the new community assets were not purchased with funds from a commingled source. The proceeds of the Lucerne loan did not have a separate property and a community property component. Instead, the loan proceeds were 100 percent community property.
Moreover, allowing Husband to obtain reimbursement for community funds used to purchase community assets is not consistent with the legislative intent of ensuring that “․ a party making a separate property contribution to the acquisition of the property is not presumed to have made a gift, unless it is shown that the parties agreed in writing that it was a gift, but is entitled to reimbursement for the separate property contribution at dissolution of marriage.” (Cal. Law Revision Com. com., West's Ann. Fam.Code, § 2640, pp. 136-137, italics added; see also Davis v. Cordova Recreation & Park Dist. (1972) 24 Cal.App.3d 789, 796, 101 Cal.Rptr. 358 [interpretive comments of Law Revision Commission are well-accepted sources of legislative intent.].) In short, Husband made no separate property contributions to the acquisition of the new community assets. Additionally, his right of reimbursement for his separate property contributions to the Lucerne property is limited to the net value of the asset at the time of division, here $1,000.
This analysis is premised upon defining the term “the property,” as used in section 2640, as the specific community property to which the contribution is made and no other. To conclude otherwise would nullify the Legislature's use of the term “the property.” Essentially, Husband asks us to rewrite the statute to read: “․ the party shall be reimbursed for any separate property contributions that party makes to the community.” The Legislature has the power to pass such a law; to date it has not done so. We will not act in its stead. Nor will we ignore the rule of statutory construction that directs: “In analyzing statutory language, we seek to give meaning to every word and phrase in the statute to accomplish a result consistent with the legislative purpose․” (Harris v. Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 1159, 278 Cal.Rptr. 614, 805 P.2d 873; Heller v. Norcal Mutual Ins. Co. (1994) 8 Cal.4th 30, 39, 32 Cal.Rptr.2d 200, 876 P.2d 999.)
Husband's reliance on In re Marriage of Neal (1984) 153 Cal.App.3d 117, 200 Cal.Rptr. 341 (disapproved on other grounds in In re Marriage of Buol, supra, 39 Cal.3d at p. 763, fn. 10, 218 Cal.Rptr. 31, 705 P.2d 354) is unavailing. In Neal, a lender required the putative wife to convert her separately owned home to a joint tenancy as a prerequisite to refinancing. The couple used part of the refinancing proceeds for a down payment on a new house purchased in joint tenancy. (153 Cal.App.3d at p. 121, 200 Cal.Rptr. 341.) The appellate court held that, under Civil Code former section 4800.1, the original home was converted to community property (with an attendant right to reimbursement) when it was placed in joint tenancy. (Neal, supra, at pp. 124-125, 200 Cal.Rptr. 341.) There was substantial evidence, however, that at the time of the loan the lender had relied on the putative wife's separate equity as security. (Ibid.) Thus, the court concluded the loan proceeds were her separate property. (Id. at p. 125, 200 Cal.Rptr. 341; see also In re Marriage of Grinius, supra, 166 Cal.App.3d at p. 1187, 212 Cal.Rptr. 803 [presumption that loan proceeds acquired during marriage are community property may be overcome by “showing the lender intended to rely solely upon a spouse's separate property and did in fact do so.”].) Because the funds used to purchase the new community property home were characterized as her separate property, wife was entitled to reimbursement from the new community property home upon dissolution.
The situation here is different. The assets from which Husband seeks reimbursement were not acquired with his separate property, but with community property loan proceeds obtained by refinancing a community property home. The $118,500 in loan proceeds Husband seeks to recover from the Nevada and Utah properties and the joint savings account are community assets. (In re Marriage of Grinius, supra, 166 Cal.App.3d at p. 1187, 212 Cal.Rptr. 803 [loan proceeds obtained during marriage are presumptively community property].) Unlike the wife in Neal, Husband presented no evidence that the lender relied upon his separate property in approving the Lucerne refinance. Indeed, at the time of the refinance, the Lucerne property had already been transmuted to a community asset; the community property served as collateral for the loan. Thus, the community property presumption governing the loan proceeds was not rebutted. In re Marriage of Neal, supra, 153 Cal.App.3d 117, 200 Cal.Rptr. 341 is therefore inapposite.
Husband was entitled to reimbursement for his separate property contributions to the acquisition of a community asset, limited by the net value of the asset at the time of division. Thereafter, when the community asset is used to acquire new community properties, Husband may not seek reimbursement for his original separate property contributions from these newly acquired community assets, because he made no separate property contribution to the acquisition of those assets.
The judgment, including the award of attorney fees, is affirmed.9
1. Unless otherwise indicated, all further statutory references are to the Family Code.
2. For clarity and the reader's convenience, we shall refer to Mr. and Mrs. Walrath as Husband and Wife.
3. The record is silent on the disposition of the remaining $1,500 of loan proceeds.
4. This presumption governs “both real and personal property, whether situated in California or another jurisdiction․” (Cal. Law Revision Com. com., West's Ann. Fam.Code, § 2581, p. 92.)
5. Section 2640 also applies where, as here, one spouse deeds separate property to both spouses in joint tenancy during the marriage. (In re Marriage of Benart (1984) 160 Cal.App.3d 183, 189, 206 Cal.Rptr. 495 [addressing predecessor statute, Civ.Code, former § 4800.2], disapproved on another point in In re Marriage of Buol (1985) 39 Cal.3d 751, 763, fn. 10, 218 Cal.Rptr. 31, 705 P.2d 354 and In re Marriage of Fabian (1986) 41 Cal.3d 440, 451, fn. 13, 224 Cal.Rptr. 333, 715 P.2d 253.) In such cases, the property is presumed to be community property (§ 2581), and the measure of the separate property contribution is its equity value at the time of conversion to joint tenancy. (In re Marriage of Benart, supra, at pp. 189-190, 206 Cal.Rptr. 495.)
6. If the property value has remained the same, the reimbursement is dollar for dollar. If the property has appreciated, reimbursement is dollar for dollar and the increase in value is divided equally as a community asset. If the property decreases in value, complete compensation may not be possible. In such a case, each spouse's reimbursement is calculated by their proportionate contributions to the property. (3 Sen. J. (1983-1984 Reg. Sess.) pp. 4866-4867.)
7. For instance, Husband could have taken $146,000 of the loan proceeds and placed the money in a separate property account.
8. We refer to these assets as community assets because property acquired in joint form by the parties during marriage is presumed to be community property. (§ 2581.) Husband failed to introduce any evidence to rebut this presumption.
9. Husband has urged that if we reverse the trial court judgment on the section 2640 reimbursement, we must also reverse the award of attorney fees. Because the judgment of the trial court is affirmed, we reject Husband's challenge to the attorney fee award.
CORRIGAN, Acting Presiding Justice.
PARRILLI and WALKER, JJ., concur.
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Docket No: No. A072604.
Decided: January 09, 1997
Court: Court of Appeal, First District, Division 3, California.
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