By Ron J.  Anfuso, CPA,  ABV, CFF, CDFA, FABFA

Approximately three years after their marriage, Dawnel and Frank Bonvino purchased a family home in Westlake Village with a down payment from husband’s resources and the proceeds from a loan in his name. The property was purchased in 1996. Title to the home was taken in Frank’s name as sole and separate property. Approximately 15 months later, Frank completed the sale of a property in Long Beach that he purchased prior to their marriage and used the funds from the sale to pay off the loan on the Westlake Village home. Several years later, Dawnel moved out. She filed for divorce in 2005.

The trial court found the Westlake Village home to be community property. In addition, the court awarded Frank reimbursement of his separate property contributions under Family Code §2640. The court also charged husband for the fair rental value of the home from the time Dawnel moved out to the date of judgment.

Frank appealed the decision, contending there was no evidence that he transmuted his separate property to community property. Rather, he asserted the trial court should have found that both separate and community property interests were established in the Westlake Village home proportionate to the equity in the property.

To best comprehend the results of the Superior Court regarding the determination and calculation of separate and community property value of their family home, I refer to the findings of In re the Marriage of Marcia and Lawrence Aufmuth.

Background: Computation of Separate and Community Interest in a Home:  In re the Marriage of Marcia and Lawrence Aufmuth

Lawrence and Marcia Aufmuth were married in August 1967. In July 1971, the parties purchased a family home for $66,500 with a down payment of $16,500 made by Marcia from separate funds acquired before their marriage. The remaining $50,000 was paid via a real estate loan. Title to the property was taken in both names as community property. All subsequent payments and costs connected with the property were paid from community earnings.

Lawrence and Marcia separated in September 1975. They agreed at the trial that the fair market value of their home was $125,000, and that the separate and community interests would be computed on a pro rata basis in direct proportion to the amounts of separate and community funds invested in the property. (See In re Marriage of Jafeman (1972) 29Cal.App.3d 244, 256-257.)

In accordance with the agreed on method of computation, the court found that the present value of the initial down payment was $31,014 and the joint investment was $46,986. The court apparently determined the $31,014 value by adding the amount of capital appreciation attributable to separate funds (28.81 percent of $58,500) to the amount of the equity paid by separate funds ($16,500). The $46,986 amount was determined by adding the amount of capital appreciation attributable to community funds (75.19 percent of $58,500) to the amount of equity paid by community funds ($50,000 minus $47,000).

The Bonvino Property

Dawnel and Frank Bonvino purchased the Westlake Village property for $410,000. Frank made a down payment of $90,212.50. Dawnel was aware that Frank made this down payment from funds he acquired prior to their marriage.

Frank applied for a home loan of $328,000. This included $8,212.50 for closing costs. The loan application stated the title would be held in the name of Frank Bonvino, married as sole and separate property.

Frank and a notary told Dawnel that due to bad credit (the result of credit card debt) she had to sign a quitclaim deed for the parties to be able to purchase the Westlake Village home. On November 15, 1996, Dawnel signed a quitclaim. The deed was recorded on December 11, 1996 from the sellers granting Frank Bonvino, a married man, sole and separate property.

Dawnel was assured by Frank he would put her name on the title as soon as they closed escrow. She trusted Frank and always assumed the house was community property. Although the intent to change title was discussed several times during the marriage, her name was never added to the title.

The monthly mortgage payments of approximately $2,600 were paid from community funds. Following the sale of Frank’s Long Beach property 15 months after the purchase of the Westlake home, the escrow company sent the proceeds from the sale directly to his bank to pay off the mortgage on the Westlake Village property.

 The Court of Appeal’s Decision

On re-examination, the Court of Appeal reversed the trial court’s decision and concluded that the husband had not transmuted his separate property to community. Frank’s entire separate property funds could be sufficiently traced to overcome the burden of proof required by the presumption that all property acquired during the marriage belongs to the community. Furthermore, the document of title did not trump the conduct of the parties in determining the character of the property.

Other than the fact that the Westlake Village property was purchased during the parties’ marriage, the only evidence that the property was community was Dawnel’s testimony concerning a verbal agreement by the parties to add her to the title. For there to have been a transmutation, there must have been certain formalities to increase the certainty that a transmutation had occurred. For example, there must have been “an expressed declaration made, joined in, consented to, or accepted by the spouse whose interest in the property had been adversely affected.” (Section 852, subd. (a).) Therefore, a document must have been signed by the adversely affected spouse, which stated in clear and unambiguous terms that the character or ownership of the property at issue was being changed from separate to community. There were no documents presented to satisfy the requirement of section 852 to effect a valid transmutation of the husband’s separate property interest in the Westlake Village home. In fact, every document signed by Frank expressed that the Westlake Village property was to be his separate property. It was clear that Frank’s traceable separate property investment retained its distinct property character, and both separate property and community property interests were evidenced in accordance with the formula established in Aufuth and Moore.

The Court of Appeal agreed that the Westlake Village home had both separate and community property interests. This Court also ruled that Frank was not entitled to Family Code §2640 since the house was not fully community property and separate funds were used in the purchase and payoff of the home. Thus, not only had no transmutation taken place, the payoff provided Frank a substantial additional proportionate separate property interest in the home. This resulted in the Court of Appeal remanding that the trial court calculate the separate and community interests using the Moore/Marsden Formula. (See the above left column).

As stated in our previous newsletter, the amount of the loan taken out to purchase the Westlake Village property was $328,000, including closing costs. The separate and community interests were to bear pro tanto responsibility for the closing costs and prepaid items. These included the cost of the loan to complete the purchase in proportion to their ownership interests in the portion of the property purchased with the loan proceeds.

Although the Court of Appeal’s decision overturned Frank’s award through Family Code §2640, the home value approximately doubled from the time of purchase to the time of the dissolution of marriage. Thus, via the Moore/Marsden calculation, Frank’s share based on his down payment and payoff of the home resulted in an apportioned interest of the property.

As a result of this case, the precedence in real property apportionment calculations have significantly changed. If you have any questions concerning the findings of this case or the Moore/Marsden calculations, you are welcome to contact me.