Opinion
E069846
11-08-2019
In re the Marriage of MARIAM and DONALD WANTZ. MARIAM WANTZ, Respondent, v. DONALD WANTZ, Appellant.
Zeiler Law Group, Kerry P. Zeiler for Appellant. Mariam Wantz, in pro. per., for Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. SWD022822) OPINION APPEAL from the Superior Court of Riverside County. James T. Warren, Judge. (Retired judge of the Riverside Super. Ct., assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed as modified. Zeiler Law Group, Kerry P. Zeiler for Appellant. Mariam Wantz, in pro. per., for Respondent.
This appeal arises from a trial on reserved issues regarding division of real property following the 2011 dissolution of the marriage of appellant Donald Wantz and respondent Mariam Wantz. Donald contends that the trial court erred in its calculation of the parties' respective community property interests in a house located in Murrieta, California. The trial court concluded Donald must pay Mariam $8,205.29 out of proceeds from selling the house, otherwise to be divided equally (unless the parties reach an agreement for one of them to buy out the other's interest). Donald contends that the trial court's calculations (1) failed to give him credit for his post-separation efforts to modify the mortgage on the property, which resulted in a "significant reduction in principal," (2) failed to take into account the effect of Mariam's post-separation chapter 7 bankruptcy, and (3) improperly calculated the amount Mariam should be compensated for Donald's exclusive use of the property after separation. We conclude that, for the most part, the trial court properly and equitably achieved the statutorily mandated goal of "divid[ing] the community estate of the parties equally." (Fam. Code, § 2550.) We agree with Donald's third point, however, in that the trial court's calculations require adjustment to account properly for the parties' actual date of separation. We therefore modify the judgment to correct that error, and otherwise affirm the judgment.
Because the parties share a last name, we will refer to them by their first names to assist the reader in following the opinion. No disrespect is intended. (See In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475, fn. 1 [discussing use of first names instead of other possible designations in marital dissolution actions].)
I. FACTS
Donald and Mariam were married on July 20, 2000. On August 1, 2010, they separated. They entered into a stipulated judgment of divorce, granted by the trial court on June 9, 2011, that reserved issues regarding two parcels of real property, one located in the Philippines, the other located in Murrieta, California. Only the Murrieta property is at issue in this appeal.
The trial court reserved jurisdiction over the property in the Philippines pending the resolution of litigation between the parties in the Philippines. Neither party has challenged this ruling here.
In May 2010, before Donald and Mariam separated, they filed a chapter 13 bankruptcy petition. A payment plan for their creditors was confirmed, requiring payment of $1,400 per month. In 2011, Mariam was dismissed from the joint bankruptcy on her own motion. However, she continued paying her half of the $1,400 payment through a reduction in the spousal support she received from Donald, as contemplated by their stipulated judgment of divorce.
In 2013, Mariam filed a personal chapter 7 bankruptcy petition. Mariam ultimately obtained a discharge of her debts, including her personal obligation on the Murrieta property's mortgage.
In 2013, Donald obtained a loan modification that reduced the principal on the Murrieta property's mortgage by $196,922.85. Donald contended at trial that Mariam did not cooperate in obtaining the loan modification, and indeed was "against it." Mariam contended that she did not know that Donald was getting a loan modification, and that he never contacted her about it.
The trial on reserved issues was conducted in May 2017. The trial court's written decision, initially issued in August 2017, was entered as a judgment in November 2017. The trial court ruled that the property was a community asset and that "the equity needs to be divided accordingly." It found that Mariam's "bankruptcy discharge under Chapter 7 of the United States Bankruptcy laws had no effect upon her community property interest" in the Murrieta property, and that Mariam was entitled to benefit from the reduction in principal owed on the property achieved by the loan modification, rejecting Donald's arguments to the contrary. It found Donald should be awarded Epstein "credits" for payments he made on the property's mortgage in the amount of $188,730.71. That amount was balanced by Watts "credits" awarded to Mariam to account for Donald's exclusive use of the Murrieta property in the amount of $196,936, leaving a balance of $8,205.29 owed to Mariam. The judgment orders that either (1) the property be sold and the proceeds split equally, except that Donald would be required to pay $8,205.29 to Mariam out of his share; or (2) one of the parties buy out the other's half-interest in the property at a price based on an appraisal by a stipulated appraiser, and adjusted to account for the $8,205.29 Donald owes to Mariam.
In re Marriage of Epstein (1979) 24 Cal.3d 76 (Epstein).
In re Marriage of Watts (1985) 171 Cal.App.3d 366 (Watts).
II. DISCUSSION
A. Applicable Law
"'Where one spouse has the exclusive use of a community asset during the period between separation and trial [on distribution of marital property], that spouse may be required to compensate the community for the reasonable value of that use.'" (In re Marriage of Falcone & Fyke (2012) 203 Cal.App.4th 964, 978.) "The right to such compensation is commonly known as a 'Watts charge.'" (Ibid.; see Watts, supra, 171 Cal.App.3d at pp. 373-374.) Conversely, when a spouse uses separate property funds after separation to pay a preexisting community obligation, the paying spouse may seek an "'Epstein credit'" for those payments upon division of the community estate. (In re Marriage of Jeffries (1991) 228 Cal.App.3d 548, 553 (Jeffries); see Epstein, supra, 24 Cal.3d at pp. 84-85.) "Watts charges" are in essence "'usage charges,'" and Epstein credits are "'payment credits.'" (Jeffries, supra, at p. 552.)
Technically, "both 'Epstein credits' and 'Watts charges' are, respectively, to be paid from or paid to the community," and shared equally by both spouses. (Jeffries, supra, 228 Cal.App.3d at p. 553.) The same net fiscal impact, however, can be accomplished by allocating Epstein credits and Watts charges to one spouse or the other, as the trial court did here. (See Jeffries, supra, at pp. 553-555.)
Here, the trial court allocated Watts "credits" to Mariam, which amounts to the same thing as allocating Watts charges to Donald.
The trial court has discretion, based on equitable considerations, whether to allow Epstein credits or Watts charges. (Epstein, supra, 24 Cal.3d at pp. 83-85; Watts, supra, 171 Cal.App.3d at p. 374; see In re Marriage of Hebbring (1989) 207 Cal.App.3d 1260, 1272.) We generally review orders dividing marital property for abuse of discretion. (In re Marriage of Dellaria & Blickman-Dellaria (2009) 172 Cal.App.4th 196, 201.) Family Code section 2555 permits us to revise the disposition of the community estate "in all particulars, including those which are stated to be in the discretion of the court."
B. Analysis
Underlying many of Donald's arguments in this appeal is the notion that Mariam disclaimed her community property interest in the Murrieta property by discharging her debts, including her personal obligation on the Murrieta property's mortgage, in chapter 7 bankruptcy. He contends, for example, that Mariam should be judicially estopped from disclaiming an interest in the property in bankruptcy court, but then asserting the interest in family court. Donald's premise, however, is false, and demonstrates a fundamental misunderstanding of what it means to discharge debt, and specifically secured debt, through chapter 7 bankruptcy.
When a "'debtor'" (11 U.S.C. § 101 (13)) petitions for bankruptcy, she is required to file "a list of creditors" (11 U.S.C. § 521(a)(1)(A)) and "a schedule of assets and liabilities" (11 U.S.C. § 521(a)(1)(B)(i)). All community property is deemed to be property of the bankruptcy "estate," even if only one spouse files for bankruptcy. (See 11 U.S.C. § 541(a)(2).) In a chapter 7 bankruptcy, a trustee is tasked with collecting "property of the estate" and converting it to money to pay claims on the estate. (11 U.S.C. § 704(a)(1).)
"An eligible debtor who petitions for relief under chapter 7 of the Bankruptcy Code and complies with his or her obligations is generally entitled to 'a discharge.'" (In re Marriage of Walker (2015) 240 Cal.App.4th 986, 992 (Walker) [citing 11 U.S.C. § 727(a)].) "Among other things, a discharge 'operates as an injunction against the commencement or continuation of an action . . . or an act . . . to collect, recover or offset any such debt as a personal liability of the debtor . . . ." (Walker, supra, at p. 992 [citing 11 U.S.C. § 524(a)(2)].) Nevertheless, "'it is well settled that valid, perfected liens and other secured interests pass through bankruptcy unaffected.'" (Walker, supra, at p. 994.) The bankruptcy discharge "'extinguishes only one mode of enforcing a claim—namely, an action against the debtor in personam—while leaving intact another—namely, an action against the debtor in rem.'" (Ibid. [quoting Johnson v. Home State Bank (1991) 501 U.S. 78, 84].)
Thus, Mariam retained her community property interest in the Murrieta property (including both any equity and the mortgage debt) and the bank retained its security interest in the property, regardless of her bankruptcy discharge. Indeed, even if both Mariam and Donald had discharged their debts in chapter 7 bankruptcy, they still would be required to pay off the mortgage before closing a sale on the Murrieta property, and "[c]ommunity property principles would generally require them to absorb this burden equally," before dividing any remaining proceeds between them. (Walker, supra, 240 Cal.App.4th at p. 995.) Donald is simply incorrect that Mariam's chapter 7 bankruptcy should be viewed as disclaiming in any way her community property interest in the Murrieta property.
The trustee of Mariam's bankruptcy estate could have forced the sale of the Murrieta property as part of liquidating Mariam's assets for the benefit of creditors; it just chose not to, possibly because of the amount of debt secured by the property in comparison to its value at the time. (See Walker, supra, 240 Cal.App.4th at p. 993 ["'[P]roperty that is subject to a valid security interest or lien and in which the debtor has no equity is technically property of the estate; however, the trustee will rarely take possession or control of such property because its sale will not yield a dividend to general unsecured creditors.'"]; see 11 U.S.C. § 554(a) ["trustee may abandon any property of the estate . . . that is of inconsequential value and benefit to the estate"].) --------
We also reject Donald's contention that he alone should benefit from the reduction in principal that resulted from the loan modification. He argues that he should have been given Epstein credits in the amount of the principal reduction, since the loan modification was achieved exclusively through his own efforts. But an Epstein credit is fundamentally a "'reimbursement'" for a payment that one spouse has made from separate funds on a community obligation. (Epstein, supra, 24 Cal.3d at p. 84.) The reduction in principal achieved by the loan modification does not reflect an investment of Donald's separate funds, but only the results of a negotiation between Donald and the lender regarding a community debt. Allocating the benefits of the reduction in principal solely to Donald would not be a reimbursement, but rather a windfall.
Donald is correct, however, that the trial court erred in calculating the Watts charges relating to his exclusive use of the Murrieta property in one respect. The trial court's calculation includes usage charges for the entirety of 2010. The parties' date of separation, however, was August 1, 2010. Mariam has offered no argument as to why it might be appropriate for Donald to be charged for exclusive use of the property prior to the parties' separation, and we discern none. The trial court's calculations, therefore, must be adjusted by the sum of the extraneous seven months of charges, $15,050 ($2,150 x 7). Thus, instead of Donald owing Mariam $8,205.29, as stated in the judgment, the trial court should have found Mariam owed Donald $6,844.71.
III. DISPOSITION
The judgment is ordered modified to subtract out the $15,050 in Watts charges erroneously credited in favor of Mariam, with the result that Mariam owes Donald $6,844.71, instead of Donald owing Mariam $8,205.29 as stated in the original judgment. As modified, the judgment is affirmed. The parties shall bear their own costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
RAPHAEL
J.
We concur:
RAMIREZ
P. J.
SLOUGH
J.