Marriage of Klingler CA4/3
G051548
Cal. Ct. App.Sep 30, 2016Background
- Lawrence (Larry) purchased Pavona in 1998 (pre-marriage); parties married in 2002. Pavona is undisputed separate property, but mortgage payments during marriage were paid with community funds.
- Observatory was purchased in December 2004 during the marriage. Down payment mainly came from a HELOC secured by Pavona (approximately $500,000 of a $600,000 HELOC) and $67,000 from Larry’s separate investment account; purchase loan was in Larry’s name alone and deed conveyed Observatory to Larry as his separate property.
- Sylvia signed an Interspousal Transfer Grant Deed after purchase, reciting she conveyed any community interest in Observatory to Larry for no consideration.
- Mortgage payments and a 2008 refinance on Observatory were paid from community funds. Parties separated in 2011; trial court characterized Observatory as Larry’s separate property and allocated Moore/Marsden credits for Pavona mortgage paydown.
- On appeal, Sylvia argued (1) Observatory is presumptively community property and Larry failed to prove HELOC/loan proceeds were separate; (2) the title presumption and her interspousal deed were improperly relied on; (3) wrongful tracing and failure to credit community for refinancings under Moore/Marsden. Court reversed characterization of Observatory and remanded on limited grounds; other challenges were waived or affirmed.
Issues
| Issue | Plaintiff's Argument (Sylvia) | Defendant's Argument (Larry) | Held |
|---|---|---|---|
| Characterization of Observatory | Observatory acquired during marriage is presumptively community; HELOC proceeds are community unless lender intended to rely on separate assets; deed and interspousal transfer ineffective | HELOC was secured by his separate Pavona and other separate assets so loan proceeds were separate; deed and transfer show separate title | Reversed: trial court erred. HELOC proceeds presumed community because Larry failed to prove lender primarily relied on separate assets; title presumption cannot overcome transmutation statute; remand to assess undue influence on interspousal deed |
| Use of Evidence Code §662 (title presumption) | Title alone cannot convert community funds into separate property absent valid transmutation | Title presumption supports characterization of Observatory as separate | Held for Sylvia: §662 cannot be applied to effect a transmutation that does not satisfy Family Code transmutation requirements; trial court erred in relying on it |
| Interspousal Transfer Deed (undue influence) | Deed executed for no consideration triggers presumption of undue influence; Larry failed to rebut it | Transaction was fair and community had no equity to be transmuted; no undue influence | Remanded: trial court must determine whether Larry overcame presumption of undue influence; if not, Observatory must be characterized community property |
| Moore/Marsden tracing for Pavona mortgage paydown | Forensic accountant’s tracing flawed when commingled account lacked separate funds on payment dates; community not credited for refinances | Accountant traced payments to separate rental income; Sylvia stipulated to community credit amount; refinancings lacked record support | Affirmed/waived: tracing challenge waived because Sylvia stipulated to community credit; refinancing-credit claims waived for lack of record/evidentiary showing |
Key Cases Cited
- Valli, In re Marriage of, 58 Cal.4th 1396 (2014) (transmutation requires written express declaration signed by adversely affected spouse; title presumption cannot be used to effectively transmute community funds)
- Gudelj v. Gudelj, 41 Cal.2d 202 (1953) (rebuttable presumption that property acquired on credit during marriage is community property; lender intent controls)
- Bank of California v. Connolly, 36 Cal.App.3d 350 (1973) (proceeds of loans made primarily on personal credit are community property even if secured by separate property)
- In re Marriage of Grinius, 166 Cal.App.3d 1179 (1985) (standard for overcoming presumption: whether lender intended to rely on spouse's separate property)
- Bono v. Clark, 103 Cal.App.4th 1409 (2002) (Moore/Marsden rule: community acquires pro tanto interest when community funds reduce principal on separate-property mortgage)
- Mooney v. Pickett, 26 Cal.App.3d 431 (1972) (stipulations are conclusive on matters covered unless withdrawn)
- In re Marriage of Bergman, 168 Cal.App.3d 742 (1985) (upon retrial court has discretion to value assets at original trial date or retrial date)
- Huong Que, Inc. v. Luu, 150 Cal.App.4th 400 (2007) (appellant must present an adequate statement of evidence when challenging sufficiency on appeal)