Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Santa Clara County Super. Ct. No. 106FL131595
ELIA, Acting P. J.Both parties in this marital dissolution action appeal from the judgment entered after a trial on issues related to division of property. Andre Willis contends that the family court erred in assigning the community an interest in the parties' residence notwithstanding the quitclaim deed signed by Liliya Willis when escrow closed on the purchase. Liliya argues that the court abdicated its responsibility to value and divide 98 paintings she had created during the marriage. She further complains that she should have been awarded the entire amount of attorney fees she had requested. We find no error and will therefore affirm the judgment.
Following In re Marriage of Smith (1990) 225 Cal.App.3d 469, 475-476, footnote 1, we will refer to the parties by their first names for the convenience of the reader in understanding the text. (See also In re Marriage of Schaffer 69 Cal.App.4th 801, 803, fn. 2.)
Background
The parties were married in December 2001 and separated just over four years later, in January 2006. The following month Andre initiated this action with his petition for dissolution. In his accompanying declaration he listed the community assets, including paintings worth $217,735.00. Among the assets he claimed as separate property was a house on Arbutus Avenue in Palo Alto. Andre had entered into a purchase agreement for the house just before the parties were married, but the transaction closed after the marriage. At that time Liliya executed an Interspousal Transfer Grant Deed (quitclaim deed) recognizing title in Andre as his sole and separate property.
When Andre bought the house he used approximately $186,000 of his separate funds as a down payment on the $1,047,000 price. Andre refinanced the home three times during the marriage. By the time of the parties' separation, the loan balance had decreased to $803,703.87 from the original amount of $835,250, and the fair market value of the house had increased to $1,460,000. The parties agree that Andre's separate property contribution to principal amounted to $211,750.
The primary issues between the parties concerned division of the property, in particular the house and a number of paintings Liliya had created during the marriage in her professional capacity as an artist. As to the house, Andre argued that Liliya had waived any interest in it when she signed the Interspousal Transfer Grant Deed. Alternatively, he suggested, the community interest was limited to $31,546, representing the reduction of the loan principal during the marriage.
The trial court found that the quitclaim deed was valid, but only to transfer whatever interest Andre had at the time Liliya signed it. The court noted that the loans obtained for the refinancing were "based on community property salary and [Andre's] credit status which was community property after the marriage." The refinancing had the effect of fully paying off the initial loans of $835,250 with a new loan for which the community was liable. Further, the mortgage was paid during the marriage with community property. Thus, the court found, "[t]he total of the original financing was either [sic] paid off with community mortgage payments thereby reducing the mortgage balance, followed by the reduction of the mortgage balance to zero by virtue of the payoff with community loan refinance." The community was therefore entitled to a credit in the amount of the original loans, or $835,250.
Based on these findings, the court determined that the community had an interest in the $413,000 appreciation in the property's value. The original loan amount ($835,250) divided by the purchase price ($1,047,000) was 79.9 percent. The court used that percentage figure to calculate the amount of the community property interest to be $329,472.00. Half of that amount, or $164,736, was determined to be Liliya's share. The home itself was recognized as Andre's separate property and awarded to him.
The parties do not dispute this arithmetic calculation or the amount resulting from its application to the appreciation.
The court also divided 98 paintings Liliya had created during the marriage by allowing the parties to choose alternately, with Andre making the first selection. Finally, the court ordered Andre to pay $7,500 in attorney fees to Liliya's attorney. Both parties appeal.
Discussion
1. Characterization of the Residence
The focus of Andre's appeal is the trial court's determination that the community had an interest in the Arbutus Avenue property. The court followed what is commonly called the "Moore/Marsden rule," in accordance with the remedy outlined in In re Marriage of Moore (1980) 28 Cal.3d 366 and In re Marriage of Marsden (1982) 130 Cal.App.3d 426. Under Moore, the marital community acquires a pro tanto interest in property purchased by one of the spouses when community property has been used to reduce the principal balance of a mortgage on that property. More specifically, that interest is calculated by dividing the amount by which community property payments reduced the principal by the purchase price and applying that percentage to the appreciation. (In re Marriage of Moore, supra, 28 Cal.3d at pp. 373-374.) The separate property percentage applied to the appreciation is determined by adding the down payment and the full amount of the loan, subtracting the amount by which the community property payments have reduced the principal balance of the loan, and dividing that result by the purchase price. (Id. at p. 373; see also In re Marriage of Marsden, supra, 130 Cal.App.3d at pp. 438-439 [separate property estate credited with premarital appreciation].)
As the transaction closed after the parties were married, the court observed the presumption that the house was community property (Fam. Code, § 760); it then addressed the presumption of undue influence implied by Family Code section 721 and discussed in In re Marriage of Mathews (2005) 133 Cal.App.4th 624, 628-629. The court rejected Liliya's suggestion that the quitclaim deed be disregarded because she had not understood what she was signing. The presumption of undue influence had been rebutted, as Liliya had acquiesced to Andre's title "freely and voluntarily . . . with full knowledge of the facts and a complete understanding of the effect." Liliya eventually acknowledged that the house was Andre's separate property and has not retracted that concession.
In In re Marriage of Branco (1996) 47 Cal.App.4th 1621, the First District, Division Two, extended the application of the Moore formula to a situation in which the proceeds from a community property loan were used to pay off a premarital mortgage obtained by the wife on her separate property. The appellant husband was deemed entitled to half of the community property interest in the home. That interest consisted of any payments made with community funds on the original loan to the extent that they reduced principal, plus the principal balance of the loan paid off with proceeds of the new loan, divided by the purchase price. This percentage was then multiplied by the appreciation of the home during the years of the marriage to derive the community interest, of which half was the husband's share. (Id. at pp. 1629.) In reaching this conclusion, the court recognized that the rule under Moore accords the community an interest in the property to the extent that it contributed toward the property's acquisition. The court rejected the view that the new loans did not facilitate acquisition or ownership of the property; rather, the court saw "no meaningful difference, for purposes of determining whether the community acquires an interest in real property, between the use of community funds to make payments on one spouse's preexisting loan and the use of proceeds from a community property loan to pay off the preexisting separate loan." (Id. at p. 1627.)
Here, as in Branco, the proceeds of a community loan were used to refinance one spouse's separate property, thereby facilitating the ownership of the property, just as with community mortgage payments toward the principal. Thus, although title remained in Andre's name, the community acquired a pro tanto interest in the property consistent with the Moore/Marsden formula.
Loan proceeds obtained during marriage are presumptively community property. (Marriage of Grinius (1985) 166 Cal.App.3d 1179, 1187.) Absent a showing that the lender intended to -- and did -- rely exclusively on a spouse's separate property, the presumption prevails. (Ibid.)
Andre maintains, however, that the quitclaim deed overrode any community interest resulting from the second loan. He complains that the trial court failed to follow In re Marriage of Stoner (1983) 147 Cal.App.3d 858, a case preceding Branco by 13 years. In Stoner the Second District held that the existence of a quitclaim deed executed by the husband during the marriage rebutted the Moore/Marsden "presumption" that a pro tanto community interest existed through the use of community funds to repay the loan. (Id. at p. 864.) The quitclaim deed, in the appellate court's view, served to transmute the husband's community interest in the house at issue, "and the permissive use of community funds to reduce the notes were gifts of husband to wife's separate property." (Id. at pp. 864-865.) Likewise, Andre argues, the quitclaim deed Liliya signed transmuted any community interest that might have been created by the refinancing, and thus requires 100 percent of the postnuptial appreciation to be credited to him as his separate property.
The Branco court, however, considered Stoner and both distinguished it and rejected its reasoning. "We are aware that [Stoner] held that the community did not acquire an interest in a residence purchased by the wife, with a down payment made from separate property funds and a loan taken as a separate obligation but found by the trial court to be a community one, although community funds were used to make loan payments. Stoner determined that because the husband had executed a quitclaim deed to the wife at the time the home loan was obtained, he transmuted his community interest in the property and the use of community funds to repay the loan was a gift to the community. ([Stoner], at pp. 863-864.) Stoner distinguished Moore by stating that Moore 'concerned the proper method of calculating the interest obtained by the community as a result of payments made during marriage on an indebtedness secured by a deed of trust on a residence purchased by one of the parties before marriage.' (Id., at p. 863, italics in original.) Since Stoner, like Moore, was concerned with calculating the separate and community interests in one spouse's separate property residence, for which loan payments were made with community funds, we fail to perceive the significance of the property having been purchased during rather than before the marriage." (Branco, supra, 47 Cal.App.4th at pp. 1627-1628.)
The Branco court, after examining the analysis of Stoner, concluded that the case could not be reconciled with Moore. Noting a paragraph in Stoner suggesting a presumption of a community property interest, the Branco court opined, "If the reference to 'this presumption' in the last sentence quoted refers to the presumption that the loan was community property in character (the only presumption specifically mentioned in the paragraph), Stoner apparently concluded that the community acquired no interest in the property because, since the presumption that the loan was community property in character had been rebutted, the purchase price had been entirely paid with separate funds. While this conclusion would be unobjectionable, the opinion in Stoner does not explain how the further conclusion that payments on the loan with community funds were gifts to the community can be squared with Moore's holding that such payments give the community a pro tanto interest. [¶] If the reference to 'this presumption' refers to the sentence immediately preceding it, Stoner appears to be saying that the community's acquisition of a pro tanto interest in the property had been 'rebutted' by the husband's quitclaim deed. The Moore rule, however, is not a presumption that can be rebutted but a rule to be applied when community funds are used to acquire a residence by reducing the principal owed on the loan by which the property was purchased. Thus, under either interpretation of this paragraph of the Stoner decision, we fail to see how its conclusion that the husband made a gift of community funds can stand in the face of Moore." (Branco, supra, 47 Cal.App.4th at pp. 1628-1629; see also In re Marriage of Gowdy (1986) 178 Cal.App.3d 1228, 1234 [following Moore and rejecting "anomalous" proposition giving fewer rights to spouse permitting community funds to reduce encumbrance on other spouse's separate property than spouse who allows separate property to be used for same purpose in community property].)
In its opinion the Stoner court had repeatedly referred to a rebuttable presumption -- first that property acquired during the marriage is community property, then that the proceeds of a loan obtained during the marriage are community property. The Stoner conclusion to which the Branco court specifically took exception was the following: "In the instant case, the trial court found the note secured by the first deed of trust to be the separate obligation of wife. The court also concluded that wife's separate property credit status became a community property credit status after the marriage and that the community property salary of $1,750 per month was used to secure the loan. The logical presumption arising, therefore, is that the loan, as originally secured, was community property in its character. Therefore, the community has a pro tanto interest in such property established by finding the ratio of payments on the purchase price made with community funds versus the payments made with separate funds. (In re Marriage of Moore, supra, 28 Cal.3d at p. 372.) This presumption was, of course, rebutted by the quitclaim deed executed by husband and the community obtained no interest." (Stoner, supra, 147 Cal.App.3d at p. 864, italics added.)
We agree with the Branco reasoning and conclude that in this case the court applied the Moore/Marsden rule correctly. That application presupposes title in Andre as his separate property. Nevertheless, the rule calls for recognition that the use of the community proceeds from a postnuptial mortgage to pay off the prenuptial mortgage facilitated acquisition of the property and thus enlarged the community's share in the property's appreciation. (Branco, supra, 47 Cal.App.4th at p. 1627.) Like the court in Branco, we therefore view the use of community funds from a spouse's earnings to pay down (or pay off) the prenuptial mortgage balance and the use of proceeds from a community loan for the same purpose.
The execution of the quitclaim deed did not supersede the interests derived from the community contribution made thereafter. A quitclaim deed "passes all the right, title and interest the grantor has in the property at the time of its execution, but it does not pass title or interest acquired by the grantor subsequent thereto." (In re Marriage of Broderick (1989) 209 Cal.App.3d 489, 503.) The trial court recognized this settled principle in observing that the deed transferred only the interest that Liliya had at that time, and that no other quitclaim deed was signed when the property was later refinanced. We decline Andre's request to depart from Branco and revert to the Stoner method of apportionment. Andre's alternative calculations of the parties' respective percentages of interest are rejected as inconsistent with the Moore/Marsden formula and the Branco analysis.
Liliya also requests a de novo review of the trial court's computation of the community's interest. She suggests that the court should also have reimbursed the community for $31,546 (the limit of the credit proposed by Andre), which was the amount of mortgage payments made with community funds. Liliya did not urge this addition below and did not object to the breakdown of the amounts awarded to the parties in the court's statement of decision. Indeed, Liliya's assertion is not raised in her own appeal, but is made only in response to Andre's opening brief, predicated on the assumption that "this is a de novo review." Her challenge to the court's allocation has been forfeited by her failure to raise it earlier. (Cf. In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1138 ["It is clearly unproductive to deprive a trial court of the opportunity to correct such a purported defect by allowing a litigant to raise the claimed error for the first time on appeal"].)
2. Distribution of Paintings
In Liliya's appeal, she first challenges the court's method of dividing the 98 paintings that were at issue between her and Andre. Acknowledging that in-kind distribution of tangible property is proper, she contends that the court was required to fix the value of these assets to accomplish an equal division, consistent with Family Code section 2550. According to Liliya, the court improperly delegated its judicial function by ordering the parties to alternately select the paintings, without the parties' agreement to do so. Andre responds that the court properly exercised its discretion.
Family Code section 2550 generally requires the family court, absent contrary agreement of the parties, to divide community property equally.
Both parties approach this issue by citing In re Marriage of Cream (1993) 13 Cal.App.4th 81. There the trial court ordered the parties to conduct an auction between them to dispose of a business, a privately owned geyser. If neither party was able to complete a purchase of the other's interest, the geyser would be publicly sold. The reviewing court reversed. The procedure ordered by the trial court, because of the terms of the auction and the threat of a public sale, did not establish fair market value, particularly in view of the wife's objection to the procedure. The appellate court acknowledged that trial courts possess broad discretion to determine the value of community assets and the manner in which they are divided so as to achieve an equal division. (Id. at p. 88.) Thus, an auction is not necessarily unjustified; if the parties cannot agree, it is one of a number of methods courts can use in dissolution actions to resolve disputes over valuation and disposition of property. As useful as these creative solutions may be when used fairly, however, in the absence of a stipulation the trial court "cannot abdicate its statutory responsibility to value and divide the community estate." (Id. at p. 89.) In this case, Liliya contends that the court improperly delegated its authority to divide the paintings to the parties in the absence of a stipulation.
In her trial brief, Liliya had suggested to the court that she be allowed to divide the paintings at her discretion, using one-half the asking price as a measure of each one's value. In his offer of proof at the hearing, Andre's counsel told the court that the value of the 98 paintings was "subject to market factors and is impossible to determine." Andre therefore requested half of the paintings. When Liliya's attorney inquired at the hearing about the manner of division, the attorneys agreed that the paintings would be divided by means of "personal property arbitration" or mediation. In her proposed statement of decision, however, Liliya modified her estimate of value to 40 percent of the list prices, and she suggested an order allowing her to "select which painting she wishes to give to Husband, if any."
On appeal, Liliya takes two incongruous positions. On the one hand, she argues that the court abused its discretion because it delegated its duty to divide the property equally by allowing the parties to take the paintings by alternate selection. At the same time, she asserts that she should have been given discretion to divide her paintings based on the values listed on Andre's inventory. She complains that because Andre is the first to choose, her own "perpetual second choices" would "frequently" be of lower value.
The court did not abuse its discretion. It recognized the speculative nature of assigning a value to unsold art. Both parties implicitly agreed to the use of the list price as an accurate benchmark from which to measure market value, neither of them offered evidence on that question, and neither objected to the court's method of dividing this property. Liliya's further complaint that Andre might receive more than half the value of the paintings is speculative. Andre's point that Liliya was awarded the unfinished paintings at the "box price" is well taken at least insofar as it underscores the inherently uncertain nature of the market for contemporary visual arts. The court's solution to the problem of how to distribute the paintings was not inconsistent with the principles and methods discussed in Cream; it was essentially an in-kind distribution with the additional recognition that paintings might have personal sentimental or aesthetic value to the parties beyond the price they could command on the market. This method of dividing the paintings was within the scope of the court's wide discretion.
3. Attorney Fees
Family Code Section 2030 requires the court to "ensure that each party has access to legal representation to preserve each party's rights by ordering, if necessary based on the income and needs assessments, one party . . . to pay to the other party, or to the other party's attorney, whatever amount is reasonably necessary for attorney's fees and for the cost of maintaining or defending the proceeding during the pendency of the proceeding." (§ 2030, subd. (a)(1).) In determining what, if any, amount to award, the family court must consider "(A) the respective incomes and needs of the parties, and (B) any factors affecting the parties' respective abilities to pay." (§ 2030, subd. (a)(2).) "The court has a duty to make a just and reasonable award of attorneys' fees and costs [considering] the circumstances of the case before it." (In re Marriage of Cheriton (2001) 92 Cal.App.4th 269, 318, citing In re Marriage of Green (1992) 6 Cal.App.4th 584, 593.)
All further statutory references are to the Family Code.
Section 2032 enlarges this mandate by empowering the court to award attorney fees under section 2030 if "just and reasonable under the relative circumstances of the respective parties." (§ 2032, subd. (a).) "In determining what is just and reasonable under the relative circumstances, the court shall take into consideration the need for the award to enable each party, to the extent practical, to have sufficient financial resources to present the party's case adequately, taking into consideration, to the extent relevant, the circumstances of the respective parties described in Section 4320 [regarding spousal support]. . . . Financial resources are only one factor for the court to consider in determining how to apportion the overall cost of the litigation equitably between the parties under their relative circumstances." (§ 2032, subd. (b).)
"In addition to its consideration of what is 'just and reasonable' under the 'relative circumstances' of the parties (§ 2032), and what is 'reasonably necessary' to maintain or defend the action, the trial court is required to consider certain factors developed in the case law for fixing the amount of a reasonable need-based fee award, including: the nature of the litigation; its difficulty; the amount in controversy; the skill required and employed in handling the litigation; the attention given; the success of the attorney's efforts; the attorney's learning and experience in the particular type of work demanded; the intricacies and importance of the litigation; the labor and the necessity for skilled legal training and ability in trying the cause; and the time consumed." (In re Marriage of Braud (1996) 45 Cal.App.4th 797, 828, fn. 30.)
Liliya's proposed statement of decision included a $24,000 award for her attorney fees. Andre, on the other hand, argued that Liliya had engaged in unreasonable litigation conduct; he proposed a total award of $5,000, which he had already advanced to Liliya. In its oral statement of decision, the trial court noted that Andre had already provided $1,000 for Liliya's attorney fees and had loaned her $4,000. The court decided that the $4,000 need not be repaid, and it ordered Andre to pay Liliya's attorney an additional $7,500.
Andre himself asserted pre-trial attorney fees of $31,000.
Liliya contends that the trial court failed to exercise its discretion and thereby abused its discretion because it "failed to make any record demonstrating that it considered" the statutory factors described in section 2030, and particularly the evidence of the wide disparity in the parties' incomes. The court did not fail to exercise its discretion, however. It expressly stated that it had taken into account "the needs of the parties and their respective abilit[ies] to pay and the extent of reasonably incurred fees." That finding reflects a consideration of the statutory mandate.
Liliya further argues that it was an abuse of discretion not to award her the full $24,000 she had requested. We disagree. The court had before it abundant evidence of the parties' present incomes, Liliya's ability to be self-supporting, the amount of the ongoing support Andre had been providing, and the reasonableness of the fees Liliya was claiming in light of the attorney effort required in the case. The court's order reflects an implied finding that $12,500 was sufficient in light of all of the circumstances presented. We can discern no "arbitrary determination, capricious disposition, or whimsical thinking" in this conclusion; on the contrary, the court appears to have considered "all the material facts and legal principles essential to an informed, intelligent, and just decision in the particular case before it." (In re Marriage of Rosevear (1998) 65 Cal.App.4th 673, 683.) No abuse of the court's broad discretion is shown.
Disposition
The judgment is affirmed. The parties shall bear their own costs on appeal.
WE CONCUR: MIHARA, J. McADAMS, J.