Opinion
NOT TO BE PUBLISHED
Santa Clara County Super. Ct. No. 1-02-FL112693
OPINION
Mihara, J.
Appellant Leonard S. Ling appeals from the trial court’s December 20, 2005 partial judgment on bifurcated issues and March 10, 2006 final judgment, concluding the marital dissolution case. Appellant contends the court erred in determining that three parcels of rental property, acquired during the marriage and held in joint title and with joint loans, are the separate property of Respondent Wendy Zee. We find no error and affirm the judgment.
I. Background
Ling and Zee married in August 1978 and separated in April 2000. They have two grown children. In March 2005, the trial court conducted a bifurcated trial to determine the characterization of the parties’ real properties. At issue here is the status of three rental properties acquired in 1979 and 1989.
In May 1979, the parties acquired 7230-32 Castilian Court, Citrus Heights (“Castilian”), taking title as “Leonard Ling and Wendy Zee-Ling, his wife, as Joint Tenants.” The down payment came from Zee’s separate property and the balance was paid through a purchase money loan taken in joint names. At the same time, the parties also purchased 7240-42 Castilian Court, Citrus Heights (“Castilian II”). As with Castilian, the down payment came from Zee’s separate property and the parties took joint title.
At various times prior to and during the marriage, Zee received disbursements from her late father’s estate. This inheritance is the source of Zee’s separate property.
On July 3, 1985, Ling and Zee executed a living trust prepared by estate planning attorney Jay R. Oliff. Paragraph V of the 1985 revocable trust states, in relevant part: “It is the Trustors’ intention, and the Trustors expressly agree as follows: [¶] A. That, unless changed by separate written agreement in which case any such agreement will control the status of the property, all community property transferred to this trust and the proceeds thereof (called the community property estate) shall continue to retain its character as community property of the husband and wife during their joint lifetime, subject, however, to all the terms and conditions of this Trust instrument.” The 1985 Trust incorporates a schedule of the property transferred into the trust, divided into two subparts, “Community Property” and “Separate Property of Wendy Z. Ling.” Castilian and Castilian II are listed under Zee’s separate property. The family residence (12760 Bach Court, Saratoga), in contrast, is listed under community property. The parties’ financial accounts are likewise divided.
This provision is consistent with Family Code section 761, subdivision (a): “Unless the trust instrument or the instrument of transfer expressly provides otherwise, community property that is transferred in trust remains community property during the marriage, regardless of the identity of the trustee, if the trust, originally or as amended before or after the transfer, provides that the trust is revocable as to that property during the marriage and the power, if any, to modify the trust as to the rights and interests in that property during the marriage may be exercised only with the joinder or consent of both spouses.”
To prepare the trust, Oliff directed the parties to list the assets to be transferred into the trust, including the title of the assets and whether they were separate or community property. Ling prepared the list and Oliff annotated it based on his discussions with the couple. Oliff’s notes on the list indicate that although Castilian was held in joint title, it was to be characterized as Zee’s separate property. Oliff asked the parties about the discrepancy between title and designation for Castilian and other assets on the list. Ling and Zee told him the resources used to purchase the assets came from Zee’s inheritance and that they were to be considered her separate property. In regard to the real property, in particular, the parties told Oliff they took title in joint form based on the insistence of the title company, the real estate broker, or the lender. Oliff also discussed with the couple the fact that “it’s not generally advantageous for estate tax purposes, income tax purposes to keep property separate.”
According to Oliff, the trust schedule was consistent with paragraph V(A) of the trust in that it merely confirmed Castilian’s status and did not transmute its character. Based upon his discussions with both Ling and Zee, Oliff understood that they intended Castilian to be separate property, that it was Zee’s separate property prior to transfer into the trust, and that by signing the trust, Ling “agreed it was [her] separate property.” Oliff did not prepare any deeds transferring title between the spouses because he believed that despite the joint title, the characterization of the property as separate within the trust agreement would be controlling.
Zee testified that the parties discussed the ownership of the Castilian properties and decided to list both as Zee’s separate property in the schedule because they were purchased with her inheritance funds and considered her property. Ling testified that when he signed the documents he was focused on inheritance objectives, not marital dissolution, and understood that the surviving spouse would receive all assets, whether community or separate. In response to a question by the court, Ling acknowledged that he was not saying the list of separate property was wrong, but he explained that there was not a lot of discussion of the issue. On July 26, 1985, the parties transferred Castilian and Castilian II into the 1985 living trust.
Ling and Zee sold Castilian II in January 1986 for a gain. A few years later, in March 1989, the parties acquired 756 Calla Drive, Sunnyvale (“Calla”), taking title as joint tenants. The couple made a down payment using the proceeds from the sale of Castilian II, and took out a joint loan for the balance of the purchase price. On June 7, 1991, the parties transferred Calla into the 1985 living trust.
The couple purchased 4964 Esther Drive, San Jose (“Esther”) on April 13, 1989, taking title as “Leonard Ling and Wendy Zee Ling, husband and wife, as Community Property.” The down payment came from Zee’s separate property. A purchase money loan for the balance was in the parties’ joint names and the parties refinanced Esther on at least two occasions, also with joint loans. On June 25, 1993, the couple signed a grant deed transferring Esther into the 1985 living trust.
In August 1994, Ling and Zee signed a new living trust, which was largely a retyped copy of the earlier trust drafted by Oliff. Paragraph V(A) of the 1994 trust is identical to paragraph V(A) in the 1985 trust. Additionally, the 1994 trust incorporates a schedule A modeled after schedule A of the 1985 trust. Zee testified that the parties discussed the character of the rental properties before they executed the 1994 trust and that Ling made notes, indicating the necessary additions and revisions to the 1985 trust schedule. Zee typed up the revised schedule, which lists Castilian, Calla and Esther under Zee’s separate property. Ling denied seeing the typed schedule prior to the parties’ separation, but acknowledged that his handwritten post-it notes represented his understanding of the character of the properties in 1994. He had intended to revise the schedule accordingly, but had questions. Ling’s notes, which were attached to a copy of the original schedule A, indicate that Calla and Esther should be added to the list of Zee’s separate property. According to Zee, she did not prompt Ling, he “voluntarily” listed the rental properties as her separate property.
Paragraph I of the 1994 trust states, in relevant part: “The Trustors do hereby deliver to the Trustee the property described in Schedule A, attached hereto and made a part hereof . . . .”
On August 8, 1994, the parties executed grant deeds transferring Castilian, Calla and Esther out of the 1985 trust and placing each property in their joint names. On the same date, they transferred all three properties into the 1994 living trust.
The parties agreed that the loans for the rental properties were based, at least in part, on Ling’s employment status and income. Zee insisted, however, that throughout the marriage she discussed with Ling that the properties were to remain separate. Zee was in charge of the day-to-day management of the rental properties and maintained a separate bank account to handle the expenses, including loan payments. The money in the rental account came from Zee’s separate property and Zee paid any shortfall from her inheritance money. However, Ling testified the parties transferred $59,500 from a joint e-trade account into the rental account in 2000 (the year the couple separated). Ling also claimed he participated in the upkeep of Calla and Esther.
Ling and Zee stipulated to an oral statement of decision regarding the characterization of the real properties. The trial court found that despite the joint titles, the rental properties were separate at the time they were purchased and separate when they were transferred into the trusts. The trust agreement therefore is consistent with paragraph V(A) and section 761 of the Family Code. In so concluding, the court placed weight on Oliff’s testimony (which the court found “credible” and “consistent”) that he sat down with the parties to label the couple’s assets “separate” or “community” in accordance with their understanding. The court additionally observed that (1) Ling himself allocated the rental properties to Zee’s separate property list in preparing the 1994 trust and accompanying schedule, and (2) the properties were purchased through a separate account and maintained by a separate account containing funds from Zee’s father’s estate, corroborating their separate nature. The trial court found the Family Code section 2581 presumption rebutted and characterized Castilian, Calla, and Esther as Zee’s separate property.
Ling filed objections to the oral statement of decision, which the court denied. On December 20, 2005, the court filed a partial judgment on bifurcated issues that included the court’s ruling on the rental properties. Ling filed a timely appeal. Ling amended his notice of appeal in April 2006 to include the court’s final judgment in the dissolution proceeding.
II. Discussion
A. General Principles
At dissolution, property is characterized as community or separate. (In re Marriage of Haines (1995) 33 Cal.App.4th 277, 291 (Haines).) Separate property includes all property owned by either spouse before marriage or acquired during marriage “by gift, bequest, devise or descent,” and the “rents, issues and profits” thereof. (Fam. Code, § 770, subd. (a).) Generally, however, all real or personal property acquired by a spouse during marriage, while domiciled in California, is community property. (§ 760.) “This is a rebuttable presumption affecting the burden of proof; hence it can be overcome by the party contesting community property status.” (In re Marriage of Weaver (2005) 127 Cal.App.4th 858, 864.) Several factors may enter into a determination of the characterization of property, including when the property was acquired, whether it was the subject of an interspousal transfer or agreement, and whether any statutory presumptions apply. (Haines, supra,33 Cal.App.4th at p. 291.) Spouses may, for instance, transmute community property to one spouse’s separate property or transmute one spouse’s separate property to community property by interspousal agreement or transfer. (§ 850; Haines, supra, 33 Cal.App.4th at p. 293.)
All further statutory references are to the Family Code unless otherwise noted.
Relevant to this case, section 2581 of the Family Code (formerly section 4800.1 of the Civil Code) sets forth a specific statutory presumption based on title: “For the purpose of division of property on dissolution of marriage . . ., 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 may be rebutted only by (a) deed or other evidence of acquiring title that the property is separate, or (b) “[p]roof that the parties have made a written agreement that the property is separate property.” (§ 2581, italics added.) In other words, “[n]either tracing nor oral or implied agreements suffice[] to rebut the presumption[.]” (Haines, supra, 33 Cal.App.4that p. 291.) The presumption applies even if one spouse executes a joint title deed for the sole purpose of obtaining a home loan at the behest of the lender. (See In re Marriage of Neal (1984) 153 Cal.App.3d 117, 124-125, disapproved on other grounds in In re Marriage of Buol (1985) 39 Cal.3d 751 and In re Marriage of Fabian (1986) 41 Cal.3d 440.) Section 2581 and its predecessor statute changed the prior rule set forth in In re Marriage of Lucas (1980) 27 Cal.3d 808, 815 (Lucas), which held that the presumption of community property arising from title in joint form could be overcome by proof of an oral or written agreement to the contrary.
A trial court’s determination whether a specific asset is community or separate property is generally a question of fact to which we apply the substantial evidence standard of review. (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1421.) The selection of the rule of law to determine the characterization of property is a question of law that we review independently. (Ibid.)
B. Rebuttal of Section 2581 Presumption
In this case, Zee does not argue that the trusts effected a transmutation of the character of the rental properties. Zee argues, instead, that the parties reached an oral understanding during marriage that the parcels are her separate property. The trusts memorialized this agreement and constitute a “written agreement” under section 2581, subdivision (b) that rebuts the presumption that the parcels are community property.
Zee argues generally that the “trust agreements,” plural, constitute the written agreement under section 2581. We note, however, that the 1994 trust superseded the 1985 trust and, thus, is the prevailing agreement of the parties. We therefore refer primarily to the 1994 trust in our analysis, but recognize the relevance of the 1985 trust in determining the nature of the properties at the time the 1994 trust was executed.
Ling contends that the trial court’s acceptance of Zee’s separate property theory is wrong as a matter of law and that Zee did not adequately rebut the section 2581 presumption. Ling does not argue generally that the 1994 trust does not satisfy the requirements of a written agreement under section 2581; rather, that the trial court erred in determining that the rental properties were separate property at the time the parties executed the trust and accompanying schedule. If the properties were not separate at the time the trust was executed, then any agreement within the trust as to the properties’ separate property status is invalid pursuant to the terms of the trust and section 761: “Since the jointly-titled parcels went into the trust as community property by virtue of Family Code section 2581, the parcels retained their community property character under Paragraph V(A).”
Ling first contends that the rental properties could not have been separate property at the time they were transferred into the trust because no prior written document existed to change the status of the jointly-titled properties to separate property. As support, Ling points only to section 2581’s requirement of a written agreement. Ling’s reliance on section 2581 to determine the status of the properties at the time the parties executed the trust is misplaced. His argument conflates the rebuttable evidentiary presumption in section 2581, applicable only “[f]or the purpose of division of property on dissolution of marriage[,]” with an automatic and binding characterization of the property upon taking title in joint form. The limited nature of the presumption does not support an assertion that the properties were community property (absent a prior written agreement in compliance with section 2581) at the time the parties executed the trusts. In In re Marriage of Hilke (1992) 4 Cal.4th 215, 220-221, our Supreme Court acknowledged the limited nature of the section 2581 presumption: “Mr. Hilke urges that [Civil Code] section 4800.1 [now section 2581] creates an evidentiary presumption that applies only at the division of property stage of a dissolution proceeding. It does not, in his view, ‘automatically convert’ joint tenancy property to community property the moment a dissolution proceeding is filed. For this proposition, with which we do not quarrel, he cites Estate of Blair (1988) 199 Cal.App.3d 161[.]” (Italics added.) If section 2581 does not automatically confer community property status on jointly-titled property at the time a dissolution proceeding is filed, we see no reason it would do so at the time property is acquired.
There is substantial evidence supporting the separate nature of the properties at the time the parties executed each trust. Zee and Oliff testified as to the couple’s agreement and understanding that the properties were to remain Zee’s separate property, the down payments and continued funding for the properties were traced to Zee’s separate property, and Ling testified as to his “understanding” at the time he drafted the 1994 schedule and signed the 1994 trust that the three rental properties were Zee’s separate property. Although an oral agreement is insufficient to rebut the section 2581 title presumption upon dissolution, Ling has not shown that section 2581 prevents use of such an agreement to determine the character of the properties during the marriage vis-à-vis an estate planning document. The common law title presumption (codified at Evidence Code section 662)—that the ownership interest in property is as stated in the title—can, for example, be overcome by evidence of an oral agreement or understanding of the parties to the contrary. (See generally Lucas, supra, 27 Cal.3d 808, 815; In re Marriage of Broderick (1989) 209 Cal.App.3d 489, 496.) As noted in the comments to section 2581, under its express terms, “[s]ection 2581 does not affect the validity of an oral agreement for any purpose other than division of property at dissolution of marriage.” (Cal. Law Revision Com. com., 29D West’s Ann. Cal. Fam. Code (2004 ed.) foll. § 2581, p. 523.) The court relied on the parties’ oral agreement in determining whether the properties were separate prior to execution of the trust and, thus, whether the agreement was consistent with paragraph V(A) and section 761. Likewise, evidence relating to the funding source for the properties was cited only as corroboration for the finding that the trust agreement memorialized the parties’ preexisting understanding. We find no basis for concluding that the court’s limited reliance on these factors was contrary to section 2581, or that the court erred as a matter of law.
Ling’s legal authorities, which state only that section 2581 applies to jointly titled property and that a written agreement is required to rebut the presumption, do not further his argument. (See, e.g., Estate of Mitchell (1999) 76 Cal.App.4th 1378, 1385-1386 [noting only that a section 2581 presumption may be rebutted “only by a writing meeting certain statutory requirements”]; In re Marriage of Rico (1992) 10 Cal.App.4th 706, 710, superseded in part by statute [holding that the section 2581 presumption applied to a residence converted to joint tenancy during the marriage].) None of the cases cited involve the characterization of property during the marriage for purposes of determining the validity of an alleged written agreement. (See, e.g., Hilke, supra, 4 Cal.4th at pp. 220, 224 [application of presumption in case in which wife died after initiation of dissolution proceedings but prior to division of property; “record contains no proof that the parties made a written agreement that the residence was separate property”]; In re Marriage of Anderson (1984) 154 Cal.App.3d 572, 579-580, disapproved on another ground in In re Marriage of Buol, supra, 39 Cal.3d 751 [husband signed deed for joint title of house that was his separate property; court rejected argument that section 2581 did not apply because the house was not “acquired” during marriage and court found no evidence of written agreement that husband would retain separate property interest].)
Ling also stresses that the “unsigned list of assets that the parties prepared for [] Oliff” cannot establish that the property was separate when the trust was executed because it does not comply with section 852, subdivision (a). Section 852 provides that a transmutation of real property is not valid “unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” (§ 852, subd. (a).) This argument therefore also assumes that the section 2581 presumption of community property is binding upon acquisition and that transmutation of the properties was required to establish separate property status. We again find no support for this argument.
Ling’s caselaw authority is inapt. In each of the cases, the initial characterization of the property was not at issue and the courts were concerned only with whether the property had been effectively transmuted after acquisition. (See In re Marriage of Benson (2005) 36 Cal.4th 1096, 1107 [finding “that no valid transmutation of Husband’s retirement accounts could occur absent [Wife’s] express written consent transforming them into Husband’s separate property”]; Estate of MacDonald (1990) 51 Cal.3d 262, 265 [regarding transmutation of “undisputed” community property pursuant to former section 5110.730 (now section 852)]; In re Marriage of Leni (2006) 144 Cal.App.4th 1087, 1096 [court rejected husband’s argument that escrow instructions met requirements of section 852 and transmuted community proceeds from sale of community property into separate property]; In re Marriage of Starkman (2005) 129 Cal.App.4th 659, 662-666 [transfer of separate property into revocable trust did not transmute character because general assignment, which stated that all property transferred into trust is community unless identified as separate, did not satisfy requirements of section 852].) Here, Zee does not claim transmutation, but that the property was acquired as her separate property despite its joint title.
We note that at oral argument Ling argued that the “written agreement” required to rebut the section 2581 presumption must comply with section 852 and that the trust agreement does not satisfy section 852. Section 2581 refers only to a “written agreement” and does not specify compliance with section 852. The comments to section 2581 likewise make no mention of section 852: “Section 2581 requires a writing to rebut the community property presumption. Permitting oral statements to defeat the community property presumption for purposes of dissolution of marriage would frustrate the strong public policy favoring community ownership of property acquired during marriage. The requirement of a writing is important to help ensure that a party waives community property rights only on mature consideration.” (Cal. Law Revision Com. com., 29D West’s Ann. Cal. Fam. Code, supra, foll. § 2581 at p. 522, italics added.) The evidence in this case supports the court’s implied finding that the trust agreement represented Ling’s mature consideration of his potential community property rights in the rental properties. Among other things, the parties discussed the property designation with an attorney, including the discrepancy between joint title and separate property status and the potentially adverse tax consequences related to separate property. Ling listed the rental properties as Zee’s separate property in preparing the updated schedule for the 1994 trust and acknowledged that the schedule represented his understanding as to the character of the properties. Finally, Ling, without objection, signed and notarized the trust agreement, which clearly designates the rental properties as Zee’s separate property, while listing other assets as community property.
We find no error in the court’s finding that the trust agreement rebutted the section 2581 presumption.
C. Substantial Evidence
Ling alternatively argues that the court’s ruling lacks substantial evidence as the record does not show that Zee funded the separate property entirely using separate property funds. This claim is without merit. A finding that “[Zee] acquired and carried the real estate entirely with separate property” is not required to support the court’s determination that the properties are separate property. Under section 2581, a written agreement regarding property status was required to rebut the community property presumption. If, as Ling contends, some community property was used to reduce the principal balance of the mortgages, or otherwise pay for separate property expenses, the community could acquire a pro tanto interest in the property or be eligible for reimbursement. (See, e.g., In re Marriage of Moore (1980) 28 Cal.3d 366, 371-372; In re Marriage of Marsden (1982) 130 Cal.App.3d 426, 436-440; In re Marriage of Frick (1986) 181 Cal.App.3d 997.) These issues are not before us.
D. Undue Influence
Finally, Ling contends that because he did not contemplate dissolution at the time he executed the trusts, his agreement with the separate property designation “should not cause [him] to forfeit substantial community property rights after a marriage of over 21 years.” He argues that the court therefore abused its discretion and that the terms of the trust agreement raise the presumption of undue influence.
We find no support for the contention that the court abused its discretion in determining that the properties are Zee’s separate property; as discussed above, the court’s findings are well-supported. We also find no evidence that the 1994 trust was the product of undue influence. Section 721, subsection (b), provides: “[I]n transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.” Thus, “when any interspousal transaction advantages one spouse to the disadvantage of the other, [a] presumption arises that such transaction was the result of undue influence.” (In re Marriage of Delaney (2003) 111 Cal.App.4th 991, 996 (Delaney).) The advantaged spouse then has the burden to establish that the transaction “was freely and voluntarily made, with a full knowledge of all the facts, and with a complete understanding of the effect of a transfer[.]” (Id. at pp. 999-1000.)
Even if we assume the presumption arises in this case, the record supports the court’s finding regarding the validity of the 1994 trust agreement. Both parties met with Oliff prior to executing the nearly identical 1985 trust and discussed the characterization of their property, Ling “voluntarily” designated the rental properties as separate in connection with the 1994 trust, and Ling signed and notarized the trusts, without objection. There is no evidence of misrepresentation, coercion, duress, or any other indicia of undue influence. Those cases in which the presumption of undue influence was not rebutted are clearly distinguishable. (See, e.g., Delaney, supra, 111 Cal.App.4th at p. 1000 [husband had cognitive impairments and entrusted all legal and financial matters to wife]; In re Marriage of Lange (2002) 102 Cal.App.4th 360, 363-365 [wife sought to collect on promissory note husband signed, secured by deed of trust on the family’s community property residence; amount due on note, including interest, greatly exceeded wife’s statutory rights to reimbursement for separate property contributions to residence].)
We find no error in the court’s determination that Castilian, Calla, and Esther are Zee’s separate property.
III. Disposition
The judgment is affirmed.
WE CONCUR: Bamattre-Manoukian, Acting P.J., McAdams, J.