Schwarz v. Schwarz

• Decision Date: 12 January 2016
• Docket Number: No. 32274–2–III.,32274–2–III.
• Citation: 368 P.3d 173,192 Wash.App. 180
• Court: Washington Court of Appeals
• Parties: In the Matter of the Marriage of Damian A. SCHWARZ, Respondent, v. Susan M. SCHWARZ, Appellant.

192 Wash.App. 180

368 P.3d 173

In the Matter of the Marriage of Damian A. SCHWARZ, Respondent,

v.Susan M. SCHWARZ, Appellant.

No. 32274–2–III.

Court of Appeals of Washington, Division 3.

Jan. 12, 2016.

Jason Russell Nelson, Attorney at Law, Spokane, WA, for Appellant.

Martin Louis Salina, Randall Danskin, Spokane, WA, for Respondent.

SIDDOWAY, C.J.

¶ 1 Susan Champagne appeals the property distribution ordered upon the dissolution of her marriage to Damian Schwarz. She challenges the trial court's characterization and distribution of several of her and Mr. Schwarz's retirement and other investment accounts. The character of the accounts is complicated by the fact that both parties entered their 13–year marriage with substantial separate assets, whose character was arguably transformed by contributions, transfers, and reinvestment during the course of the marriage.

¶ 2 The appeal requires us to address several tracing issues and, most significantly, to decide what constitutes clear and convincing evidence that investments that were demonstrably separate property at their inception remained so, where the party arguing their separate character offers less than exhaustive documentation of their status during the course of the marriage. We hold that here, as in other cases, evidence can be clear and convincing without being irrefutable.

¶ 3 We affirm one of the trial court's challenged characterizations but, with the advantage of a transcribed report of proceedings and issues that have been narrowed, we conclude that the court abused its discretion in finding that Ms. Champagne failed to overcome the community property presumption with respect to three others. We reverse the characterization of the three assets and remand for the trial court to revisit its division of assets with the corrected characterizations in mind.

FACTS AND PROCEDURAL BACKGROUND

¶ 4 Damian Schwarz and Susan Champagne were married for 13 years before separating and filing this dissolution action in 2012. Both had been married before, and they entered the marriage with separate assets. Mr. Schwarz entered the marriage with a house, an individual retirement account (IRA), and as the owner and operator of a small business. Ms. Champagne entered the marriage with substantial investments acquired through her own earnings and an inheritance from her mother.

¶ 5 Both parties intended in this second marriage to keep their assets and finances separate. In response to questioning from Ms. Champagne's attorney, Mr. Schwarz explained:

Q. Sir, are you aware of any community funds ever being deposited into [Ms. Champagne's] Bank of America account?

A. I have no idea what she did with her accounts.

Q. What she did with what?

A. Whatever account she had, I don't know what she had. I don't know what she did with that. That was our agreement that that—whatever is—that was her deal.

Report of Proceedings (RP) at 137 (emphasis added). When cross-examined, Ms. Champagne agreed that the parties did not discuss their separate property:

Q. And you also testified that he never talked with you about his separate investments or assets; is that correct?

A. That's correct.

RP at 344.

¶ 6 The way that the couple sought to accomplish a separation of their finances was primarily by dividing household bills. While faithfully dividing household bills for 13 years, they evidently did not appreciate the value of retaining complete records or the importance of scrupulously segregating their community earnings from their separate assets.

¶ 7 Shortly after marriage, Ms. Champagne closed the existing savings account she maintained as "Susan Champagne," in which she held approximately $47,900, and opened a new account. The parties now dispute whether this account and successor accounts were opened in both parties' names and were community accounts, or whether the key accounts remained separate and were merely payable on death to Mr. Schwarz. Ms. Champagne liquidated and transferred other premarital assets, including inherited assets, into this and other accounts. While she presented documentary evidence that could support the initially separate character of assets she consolidated in the early 2000's, Mr. Schwarz challenges the sufficiency of her initial documentation in a couple of instances and her documentation of all of her assets thereafter. During the marriage, both parties made contributions to preexisting IRAs; they now dispute in some instances whether those contributions were made with community funds and, in other instances, whether the trial court was presented with sufficient evidence from which to apportion the accounts as part separate and part community.

¶ 8 By the time of trial, the parties had resolved the relatively insignificant property division issues arising out of their marriage; at issue were the major assets. The parties' lawyers both exhibited a command of the 13 years' worth of financial evidence and presented it efficiently—perhaps too efficiently, given the number of assets involved, for any judge to track contemporaneously. At the conclusion of the trial, the court asked the lawyers to submit their closing arguments in writing and to focus on tracking separate assets, explaining to their clients that while he had done "hundreds of these cases," their dissolution was "one of the most complex tracing cases I think I've ever had." RP at 378.

¶ 9 Mr. Schwarz claimed to have demonstrated the separate character of $404,693 in separate assets, principal among them being his separate business, most of the value of his retirement accounts, and his home, in which the parties lived until separating in June 2012. The court found the entire $404,693 in value of assets to be Mr. Schwarz's separate assets.

¶ 10 Ms. Champagne claims to have demonstrated the separate character of $184,198 in separate assets, principal among them being bank and investment accounts held in her individual name. The court found only $48,928 in value of these assets to be Ms. Champagne's separate assets.

¶ 11 The court characterized $292,403 of the parties' assets as community property and distributed $184,450.51 of those assets to Ms. Champagne and $107,952.50 to Mr. Schwarz. In order to give effect to the equal division of community assets, the court ordered Ms. Champagne to make an equalization payment of $38,249 to Mr. Schwarz.

¶ 12 Findings and conclusions were presented and entered based on the memorandum decision. A motion for reconsideration filed by Ms. Champagne was denied. Ms. Champagne appeals.

ANALYSIS

¶ 13 Ms. Champagne has assigned error to the trial court's findings and conclusions dealing with only four assets:

• The characterization of an IRA held in Mr. Schwarz's name at Charles Schwab, whose value at the time of dissolution was found to be $185.271; the court treated $159,189 in value of the property as Mr. Schwarz's separate property and the $26,082 balance as community property;

• The characterization of an IRA held in Ms. Champagne's former married name at Western National Life, whose value at the time of dissolution was found to be $15,869; the court held that Ms. Champagne had failed to overcome the presumption that it was community property;

• The characterization of an IRA held in Ms. Champagne's former married name at Bank of America, whose value at the time of dissolution was found to be $4,401; the court again held that Ms. Champagne had failed to overcome the presumption that it was community property; and

• The characterization of an investment account in Ms. Champagne's former married name at D.A. Davidson, whose value at the time of dissolution was found to be $115,000; the court treated the assets in the account as hopelessly commingled and thereby community property.

¶ 14 Ms. Champagne also assigns error to the court's order that she make a $38,249 equalization payment, contending both that it was based on an erroneous characterization of the foregoing assets and that it was not just and equitable. She also contends that the trial court abused its discretion in denying her motion for reconsideration.

¶ 15 After outlining the applicable law, we first address the challenged characterization of Mr. Schwarz's IRA. We then summarize Ms. Champagne's evidence offered to trace nine originally separate assets to assets held at the end of the marriage, before turning to the three remaining assets whose characterization she challenges, the equalization payment, and the motion for reconsideration.

I. APPLICABLE LAW

¶ 16 In a dissolution action, all property, both community and separate, is before the court for distribution. Friedlander v. Friedlander, 80 Wash.2d 293, 305, 494 P.2d 208 (1972). An asset is separate property if "acquired before marriage; acquired during marriage by gift or inheritance; acquired during marriage with the traceable proceeds of separate property; or, in the ease of earnings or accumulations, acquired during permanent separation." In re Marriage of White, 105 Wash.App. 545, 550, 20 P.3d 481 (2001)(footnotes omitted); RCW 26.16.010.

¶ 17 The character of property, whether separate or community, is determined at the time of acquisition. In re Marriage of Pearson–Maines, 70 Wash.App. 860, 865, 855 P.2d 1210 (1993). Property acquired during marriage is presumptively community property. A party may rebut this presumption by offering clear and convincing evidence that the property was acquired with separate funds. In re Marriage of Skarbek, 100 Wash.App. 444, 449, 997 P.2d 447 (2000). "The requirement of clear and satisfactory evidence¹ is not met by the mere self-serving declaration of the spouse claiming the property in question that he acquired it from separate funds and a showing that separate funds were available for that purpose." Berol v. Berol, 37 Wash.2d 380, 382, 223 P.2d 1055 (1950). "Separate funds used for such a purpose should be traced with some degree of particularity." Id.

¶ 18 A presumption that an asset possessed by a married person is community property may...