IN RE: the ESTATE of Meyer A. ARSTEIN (1961)

This proceeding originated with a petition by Gertrude H. Arstein, pursuant to Probate Code section 1080, for a determination of her rights under the law in the estate of her deceased husband. Petitioner appeals from that portion of the judgment holding that decedent's entire estate consists solely of his separate property.

Appellant and decedent, M. A. Arstein, were married in Illinois in June of 1951, and in July of the same year they moved to Los Angeles, California, where they resided continuously until the death of M. A. Arstein on July 10, 1958.

At his death, decedent left a will in which he made a bequest to appellant. So that she might make an intelligent election of whether to take under the will or under the rights given her by law, appellant filed the petition herein for a determination of the nature and extent of the property in the estate. In a document dated November 16, 1951, and entitled ‘Property Settlement Agreement’, appellant and decedent agreed that all property then standing in the name of either party or thereafter acquired in the name of either party was to be the separate property of the party in whose name it was acquired. This agreement was adjudged void by the trial court and this determination is not challenged on appeal.

The trial court found further that decedent's net worth at the date of marriage was at least $438,918.93; that the aggregate income of decedent during the marriage was $256,277.23 divided as follows: The separate income of decedent during that period was at least $184,345.98 and the community income of decedent and appellant was therefore a maximum of $71,931.25; and that the living expenses of the two were $108,868.40. Since community expenses were found to have exceeded community income, the last finding of the trial court was that the entire remaining estate consisted of the separate property of decedent. Judgment was rendered accordingly, and it is from this latter portion of the judgment that appellant appeals.

In Mason v. Mason, 186 Cal.App.2d 209, 8 Cal.Rptr. 784, we recently set forth the principles applicable to this appeal. We there stated (186 Cal.App.2d at page 211, 8 Cal.Rptr. at pages 786–787): ‘§ 164 of the Civil Code provides in the portions here relevant, that all property, except separate property as defined in Civil Code §§ 162 and 163, acquired by either spouse during the marriage is community property. The presumption thus created is disputable * * *. [Citation.] * * * [I]t is also the rule that where the property is shown to have been acquired with commingled funds, the presumption controls only in the absence of other evidence successfully tracing the sources of the commingled property. Therefore, the presumption that property acquired during marriage is community property is controlling only when it is impossible to trace the source of the specific property. Thomasset v. Thomasset, 122 Cal.App.2d 116, 124, 264 P.2d 626; Gudelj v. Gudelj, 41 Cal.2d 202, 210, 259 P.2d 656; Berry v. Berry, 117 Cal.App.2d 624, 631, 256 P.2d 646; Fountain v. Maxim, 210 Cal. 48, 51 290 P. 576. The reason for this latter rule is stated in Faust v. Faust, 91 Cal.App.2d 304, at page 309, 204 P.2d 906, at page 909: ‘There is both a community and a separate interest in property purchased with separate and community funds where each contribution is clearly ascertainable.’ (Emphasis added.)

‘The presumption arises upon proof by one party that property was acquired during marriage. The fact, if such be the case, that the property was acquired with commingled funds does not weaken or negative the presumption, nor does such fact require the one claiming the commingled property as community to establish an inextricable commingling. Rather, proof of the acquisition of property during the marriage, whether commingled or not, establishes the presumption which can only be rebutted by evidence tracing the source of the funds used in its acquisition * * *. As stated in Estate of McGee, 168 Cal.App.2d 670, 677, 336 P.2d 622, 626: ‘When separate property is intermingled with community funds, the respective properties or funds remain unchanged in character so long as they can be clearly ascertained. (Faust v. Faust, 91 Cal.App.2d 304, 309, 204 P.2d 906); but the presumption in favor of community property (Civil Code, section 164) applies to commingled property (Estate of Smith, 86 Cal.App.2d 456, 473, 195 P.2d 842) so that the burden of proof rests with the party claiming the property to be separate (Fountain v. Maxim, 210 Cal. 48, 50–51, 290 P. 576).’

‘Thus, where it is shown, not only that certain property was acquired during coverture, but that the funds used in its acquisition were commingled separate and community funds, the entire property must be treated as a community asset unless it be clearly shown that it is possible to trace the separate funds. (Gudelj v. Gudelj, supra, 41 Cal.2d 202, 210, 259 P.2d 656; Falk v. Falk, 48 Cal.App.2d 762, 768, 120 P.2d 714; Fountain v. Maxim, supra, 210 Cal. 48, 51, 290 P. 576.)’

It is not disputed that because of the turnover in assets during the marriage appellant is entitled to the presumption provided for by Civil Code section 164. The sole question is whether that presumption has been rebutted by respondents.

Although the evidence discloses that decedent was not in good health during his marriage to appellant, he engaged in many business and security transactions. One of decedent's first major enterprises was the purchase and subdivision of a tract of land on which he constructed approximately twenty homes. In 1951 decedent, with two others, formed the Apex Mortgage Company and Best Escrow Company. He was president and secretary-treasurer of both, and was active in their management, as well as being a stockholder and director of each. He built a building at Sweetzer and Sunset in Los Angeles and used it as his office in transacting his mortgage business. He entered into many security transactions, including the purchase of notes secured by trust deeds and the purchase and sale of stocks at a volume in six figures. He also made many unsecured loans. In addition, decedent entered into another subdivision enterprise in La Crescenta and made other miscellaneous real estate purchases for rental and resale purposes.

Decedent maintained three bank accounts in his own name at a branch of California Bank. It was from these three accounts that the bulk of the expenditures and deposits were made during the period of coverture. These accounts were used indiscriminately for both disbursements and deposits resulting from the multitude of business and security transactions of decedent during those seven years. The evidence discloses that checks were drawn on one account and deposited in another, resulting in a further intermingling.

Thus, it is clear that decedent's skill and effort amounted to a significant community contribution during the seven years of marriage. Witaschek v. Witaschek, 56 Cal.App.2d 277, 281, 132 P.2d 600. The fruits of this contribution were commingled with the returns on the initial separate property investment as well as with the corpus in many transactions until it became almost, if not completely, impossible to trace with particularity the original fund of separate property to any specific assets. But regardless of whether it were possible to do so, no tracing was attempted by respondents in order to meet their burden of demonstrating what portion of the present estate is separate property. On what theory, then, could the trial court have determined that the entire remaining estate was separate property? According to respondent Union Bank, ‘Its decision as to the nature of property was based on the fact that community expenditures were in excess of community income’, and therefore any property left in the estate must have been derived from decedent's separate property. This approach was approved in Estate of Ades, 81 Cal.App.2d 334, 339, 184 P.2d 1. However, the validity of this basis of decision in the instant case depends upon whether the finding of a maximum of $71,931.25 of community income was supported by the evidence. Neither of respondents' briefs had cited us to, nor have we found any evidence whatsoever to support the finding. Without tracing, there are apparently only two methods by which a determination of community income might have been attempted. The first is to assess a value to decedent's personal efforts during coverture and use the figure thus derived. It does not appear that this was done. Regardless, this method would be inadequate because it fails to account for the fact that the profits from decedent's activities, in part community in character, were reinvested, and the reinvestment produced additional income and appreciation which were also community in character. Boyd v. Oser, 23 Cal.2d 613, 621, 145 P.2d 312. Clearly the amounts thus produced cannot be ascertained without tracing. The alternative method would be to establish a reasonable return on the property that decedent brought into the marriage and to subtract this sum from the total marital income, arriving at community income. See Logan v. Forster, 114 Cal.App.2d 587, at pages 599–600, 250 P.2d 730, at pages 737–738, for an analysis of cases applying the above approaches.) The implication of the findings (which state that there was a minimum of $184,345.98 separate income and a maximum of $71,931.25 community income) is that this was the method employed. In a case such as this, where substantial sums remained in unproductive checking accounts, and where there were a multitude of transactions, many of which may have lost as well as made money, any finding as to a minimum of separate property income can be based only on conjecture in the absence of tracing. See Estate of Adams, 132 Cal.App.2d 190, 206, 282 P.2d 190, 201. It would be a subversion of the policy underlying the presumption if speculation, rather than evidence were sufficient to rebut it. ‘If this were the law the courts in innumerable tracing cases indulged in unnecessary work to trace the property into specific assets.’ Estate of Adams, supra.

In Pope v. Pope, 102 Cal.App.2d 353, 366, 227 P.2d 867, 876, there appears language that is apposite here: ‘Under the evidence in this case, although the separate property was considerable, still the community funds were not inconsiderable in amount. It is true that the community expenses were high but it is impossible to tell from the evidence in the case that * * * they month by month exhausted the community contribution * * *.’ The trial judge was correct when he stated that an account consisting of separate property does not lose its character merely because community property is commingled with it. But the burden was on respondents to show how much, if any, of decedent's estate was his separate property. They have failed to meet this burden, and appellant is entitled to the benefit of the presumption granted her by section 164.

That portion of the judgment appealed from is reversed.

FOX, Presiding Justice.

ASHBURN, J., and McMURRAY, J pro tem., concur.